Investors are skeptical of Beijing’s recent promises to back China’s biggest tech companies next year after a tough regulatory campaign that has tamed internet giants such as Alibaba and Tencent.
At its annual policy meeting to set the agenda for 2023, China’s top leaders said last month that digital companies would “fully unleash their capabilities” in driving economic growth, according to readings from a private summit in Chinese state media. “We promised to support.”
But venture capitalists and foreign investors remain wary of the apparent reversal of a brutal two-year regulatory campaign.
Beijing nearly wiped out the edtech sector when it imposed hefty fines on internet players, launched investigations into data misuse, restricted children’s game time and banned commercial tutoring of core curriculum subjects. bottom.
Alibaba’s market capitalization has fallen by about 70% and Tencent’s by about 50% since their shares peaked in October 2020 and February 2021, respectively.
Last week, China’s securities regulator took aim at two Nasdaq-listed online brokerages, Futu Holdings and Up Fintech, as Chinese investors bought overseas shares, operating in a regulatory gray zone. A lingering concern was validated by confirming that
The China Securities Regulatory Commission said it would ban the two companies from registering new Chinese users and send oversight teams to its offices. This caused both groups’ stock prices to plummet by more than 25% in New York.
Funding for high-growth tech startups is also on the brink. These groups raised a total of 143 billion yuan ($20.5 billion) in the three months to September, down nearly 60% from the same period in 2021, according to data provider ITjuzi, but in recent months Despite government efforts to boost investor confidence in
Duncan Clark, founder of Beijing-based BDA Consultancy, said: “Investors are in no hurry to forget this.”
A Hong Kong-based tech investor at a major international bank said foreign capital is reluctant to jump back into the internet space, especially after last year’s near-total demise of the edtech sector proved particularly scarring. .
It has led to the collapse of several small tutoring groups, and the valuations of large groups such as the New Oriental have fallen by more than 90%. “It’s hard to get over the depression,” added the investor.
Five months after the final punitive action was taken against one of China’s major internet companies, Beijing has said problems such as children’s video game addiction have been I conveyed a clear intention to calm down the crackdown. Instead, officials are stressing the importance of stimulating growth to combat rising unemployment.
Zhejiang’s new party secretary, Li Lianhong, visited Alibaba’s headquarters in Hangzhou last month for the first time in two years, calling on it to “unleash innovation.”
“The visit shows officials are recommitting to economic growth,” Clark said. Houses remain nervous, he added: “To what extent is regulation over, or are changes being driven by the need to perform CPR on the economy?”
A Hangzhou regulator involved in the Alibaba investigation said it was difficult to tell if the crackdown was over, noting that local authorities were ultimately acting on Beijing’s instructions. He said Zhejiang officials widely supported the group founded by Jack Ma, which has boosted the province’s profile and brought jobs and investment to the region.
Some industry insiders claim Beijing’s campaign has successfully tamed the internet giant. It has been forced to stop forcefully arming merchants to sell products exclusively on its platform.
Hangzhou regulators said conditions for merchants have improved since taking action against Alibaba. “Alibaba has become a bully instead of a helper. Now the situation has improved,” they said.
Alibaba did not respond to a request for comment.
Experts say ByteDance’s successful foray into e-commerce on TikTok’s Chinese sister app, Douyin, is due to the government’s emphasis on open competition. According to data provider YipitData, Douyin merchant sold about 40% more goods in October than he did in November compared to the same period in 2021.
But the campaign has also caused a sharp slowdown in funding, which has hindered the growth of new startups.
Antitrust expert and professor at the University of Hong Kong, Angela Chan, said, “Investors have pulled money out of the technology sector, which has hindered the growth and development of new competitors and further strengthened the position of incumbents. I made it,” he said.
Shaun Rein, managing director of China Market Research Group, said venture capital and private equity funds are wary of jumping back into internet companies. “They see China as becoming more socialist,” he said. “Entrepreneurs worry that governments won’t let companies make big profits, so the pool of potential deals is getting smaller.”
However, Rein said the investment period was extended after recent news that US audit regulators had gained sufficient access to the financial books of a New York-listed Chinese technology group to avoid delisting. He added that short-term hedge funds are “reviving interest.” threat.
“They are looking for short-term gains,” he said, adding that venture capital and private equity investors with longer investment horizons remain “reluctant to regulatory risk.”
Additional reporting by Ryan McMorrow in Beijing