The Chinese and Hong Kong indices the CSI 300 and the Hang Seng have fallen 18% and 19% respectively since February 2021. The most recent is this week’s 7% and 9% slides respectively. This recent slide has largely been attributed due to the crackdown by the Chinese government on these companies.
On 22nd July, New Oriental Education and Technology Group, an education provider fell 40% on the day and is now trading 68% below the price on July 21st. This came on the back of China banning education companies from making profits. The reason for this measure, as explained by the government was for social welfare.
Similar waves were made with other announcements. One of them said that the food delivery platforms must respect workers’ rights and that the workers should be guaranteed minimum local wage. Food delivery platform Meituan and ride-hailing platform DiDi recorded losses of 30% since July 21st.
The government is also embarking on various anti-trust investigations on Tencent, Baidu and Bytedance, citing anti-competitiveness. Last November, the government effectively ended Ant group’s plans for their $34 billion IPO because of its perceived potential disruption of the banking industry.
The Xi Jinping government is concerned with ‘the four pillars of stability’ – banking, anti-trust regulation, data security, and social equality. Their recent actions reflect these concerns. It is natural for investors to get spooked. This may provide an opportunity for wealth creation. But given the uncertainty, this is a wait and watch scenario.
