Tech selloff in China wipes out $200 billion on antitrust rules

Chinese technology shares tumbled for another day after Beijing clamped down on the web industry, wiping out a lot more than $200 billion of value.

The Hang Seng Tech Index slumped 5.3 per cent on Wednesday in Hong Kong, taking its two-day loss to almost 10 %. Shares of Alibaba, Tencent, JD.com, Meituan and Xiaomi sank at least 8 % over two days after Beijing unveiled regulations to root out monopolistic practices in the internet industry.

Tech may be the latest sector to be targeted by Beijing after new curbs on financial organizations that triggered the shock suspension of Ant’s $35bn stock sale the other day. Xi Jinping’s government is increasingly curtailing the influence of private corporations that dominate its burgeoning internet, e-commerce and digital finance industries, pivoting from its previously hands off approach.

“I literally gasped when I first read these guidelines,” said John Dong, securities attorney at Joint-Win Partners in Shanghai. “The timing - on the eve of Singles’ Day - the forcefulness and the resolve to remake the tech giants is startling.”

China’s antitrust watchdog is seeking feedback on rules that set up a framework for curbing anti-competitive behaviour such as for example colluding on sharing sensitive consumer data, alliances that squeeze out smaller rivals and subsidising services at below cost to get rid of competitors.

They may additionally require companies that operate a so-called Variable Interest Entity - a vehicle through which nearly every major Chinese internet company attracts foreign investment and lists overseas - to use for specific operating approval.

“Internet giants have expanded their reach into various sectors like finance and healthcare that are essential to the economy and that really concerns regulators,” said Shen Meng, director of Beijing-based boutique investment bank Chanson & Co. “The move could discourage organizations in the tech sector to list in the near term as those impacted will require time to adapt their businesses accordingly.”

On November 3, policy makers shocked the investment world by suspending a short public offering by Ant, a fintech company owned by billionaire Jack Ma. The decision came just two days before shares were set to trade in an inventory that attracted at least $3 trillion of orders from individual investors.

Liang Tao, vice chairman of China Banking and Insurance Regulatory Commission, said on Wednesday that the country will also strengthen its anti-monopoly examinations of the fintech sector.

The new regulations online industry signal a “further tightening” of the web economy, although the real impact will rely upon the way the rules are enforced, JPMorgan analysts led by Alex Yao wrote in an email.

The proposed regulations come at a bad time for tech shares, which already are under pressure from a worldwide rotation which has sent the Nasdaq Composite Index almost 3 % this week.

“Beijing’s tightening regulations, like the antitrust laws, is much blow to the technology giants,” said Daniel So, Hong Kong-based strategist at CMB International Securities. “It’s yet another blow to the shares, when investors are rotating out of your sector into old-economy shares as a result of the vaccine boost,” he said, adding that firms such as Tencent and Alibaba will continue to face downside pressure.