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A fresh crackdown by Beijing has obliterated some US$96 billion of market cap in just two days.
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The latest selloff is a wake-up call for the legions of investors who were hoping (some betting), that the worst for China’s tech darlings was finally over.
Just when investors thought it was safe to pick up stock of some of China’s biggest tech companies, a fresh crackdown by Beijing has obliterated some US$96 billion of market cap in just two days.
The latest selloff is a wake-up call for the legions of investors who were hoping (some betting), that the worst for China’s tech darlings was finally over.
On Friday, Beijing declared that online food-delivery platforms should reduce the fees that they charge to businesses, sending shares of the food-delivery giant Meituan (-5.82%) tumbling, while China’s National Audit Office is demanding that state-owned enterprises declare their financial exposure to Alibaba Group Holdings (-4.00%), Ant Group and Tencent Holdings (-1.93%), in a sign of more regulatory pain to come.
A slowing Chinese economy, coupled with Chinese President Xi Jinping’s relentless “common prosperity” drive has forced Beijing to take action wherever considered necessary and in this regard there are no sacred cows.
Behind Beijing’s latest move against delivery services is a tacit recognition that China’s small businesses are suffering a long and rough winter as the government’s zero-tolerance coronavirus strategy bites.
Similar to the rest of the world, China’s small businesses, which tend to be in retail, food and beverage and tourism, have suffered disproportionately compared with the rest of the economy, amid repeated pandemic lockdowns.
The latest quarterly survey of 15,569 small businesses by Peking University and Ant Group Research Institute paints a grim picture – sales are weak and profits more imagined than real, with most mom-and-pop outfits lacking the cash reserves to survive extended lockdowns.
With no fresh sources of revenue, most small businesses will only survive another three months.
Which is why Beijing is doing whatever it can to make life easier for these small businesses, by forcing platform providers to cut fees, from delivery apps to e-commerce platforms.
And the redistribution of wealth through mandated means could ultimately prove durable, with investors looking to buy the dip on China, perhaps drinking from their own Kool-Aid.
To be sure, China hasn’t turned against its capitalists, but given the slowing economy, it’s having to rifle through the couch cushions to find spare change to support economic growth and right now, tech giants remain firmly in the crosshairs because they still have a license to print money.
Until such time that the pandemic is dismissed to the dustheap of history, China’s biggest and (for now) most profitable tech companies will not be off the hook.
