The stocks of such companies as Xiaomi, Tencent, and Meituan Dianping recorded a fall of 5.73%, 5.38%, and 7.47% respectively.
A recent report has revealed a drastic fall of market caps of five Tech giants in China over regulatory issues. The likes of Alibaba Group Holding Ltd (NYSE: BABA), Tencent Holdings (OTC: TCEHY), Xiaomi Corporation (OTC: XIACF), JD.com Inc (NASDAQ: JD), and Meituan Dianping (MPNGF: OTC) had their fair share of the fall. The regulatory move by the Chinese regulators has forced several experts including Andrew Collier, the managing director at Orient Capital Research to condemn the decision of enforcing such laws at this particular time.
According to him, though regulations mostly turn out to be positive, this particular one was nothing but a disaster. It is a manifestation of the politics within the country, bubbled to the surface, and unable to be resolved.
Regulations against Chinese Tech Giants
There has been an increasing concern over the power garnered by the tech giants with some of them accused of abusing their market power. The likes of the US and EU have already shown concern over this with China seeking to curb their power.
The proposed draft of the State Administration of Market Regulation seeks (SAMR) to present the tech industry with defined anti-competitive behavior. It will discourage tech giants from employing their usual tactics of selling at loss to push rivals out of the market, and also joining hands with other superpowers to push out smaller competitors out of the market.
The draft also intends to prevent tech giants from sharing sensitive data of consumers. The regulation will also strictly check companies that use customers’ data and spending habits to treat them differently. Tech giants that force businesses into exclusive arrangements would be cracked down as stated in the draft. Interestingly, companies like Alibaba have earlier been accused of this by competitors.
How This Affected Companies
The proposed regulation has considerably affected the shares of the Chinese tech giants with the above listed five companies shedding off $250 billion from their value. The shares of JD.com dropped by 8.11% and that of Alibaba dropped by 8.86%. The likes of Xiaomi, Tencent, and Meituan Dianping recorded a fall of 5.73%, 5.38%, and 7.47% respectively.
Some reports have deduced that investors are switching from the tech to industries and the energy sector. Travel has also been the new area of attraction as hope has been rekindled with the positive development of the COVID-19 vaccine.
Ant Group was on the verge of raising about $34.5 Billion to become the world’s largest IPO. However, the regulation may temper with that development as Alibaba has around 33% shares in the company. Collier stated that impacting the development of Ant Group negatively in just two days before its international launch makes the regulatory system arbitrary and confused. A lot of this regulatory framework is expected across the globe with the US currently seeking to take action against the dominance of Google as an internet search engine.
Excellent John K. Kumi is a cryptocurrency and fintech enthusiast, operations manager of a fintech platform, writer, researcher, and a huge fan of creative writing. With an Economics background, he finds much interest in the invisible factors that causes price change in anything measured with valuation. He has been in the crypto/blockchain space in the last five (5) years. He mostly watches football highlights and movies in his free time.