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In March, I worried in this space that Beijing’s regulatory clampdown on China’s leading tech companies threatened to stymie innovation and hinder long-term economic growth.
That fear continues to gnaw at global investors.
The Hang Seng Tech Index, an index of 30 stocks traded on the Hong Kong exchange that is a popular proxy for the prospects of mainland tech giants, has slipped below where it was when I fretted two months ago that China’s “tech rectification” campaign would go too far. The benchmark remains nearly 20% down from its Feb. 18 peak. China’s three most-valuable tech companies—Alibaba Group, Tencent Holdings, and food delivery giant Meituan (a.k.a. “ATM”)—have shed more than $400 billion in value in the last four months.
Recent moves by two high-profile China tech CEOs have contributed to investor perception that Beijing’s crusade against wealthy founders is spreading beyond its first and most famous victim, Alibaba’s Jack Ma. In late May, Zhang Yiming, the founder of Beijing-based ByteDance, the world’s most valuable startup, announced that he will step down as CEO. Last week, Wang Xing, founder of food delivery giant Meituan, whose company is under investigation for antitrust violations, announced he was donating a $2.3 billion stake in the venture to his philanthropic foundation.
Zhang’s explanation was that he realized he has other interests and isn’t a very good manager. Wang said he wanted to finance investments in education and space. Investors interpreted the moves as evidence both founders are under heavy pressure from the state.
Global media coverage of China’s tech sector has turned increasingly bearish.
On Sunday, Bloomberg cited “China’s clampdown on its biggest tech firms” as a primary reason that new listings in Hong Kong have declined to their slowest pace since the Great Financial Crisis. The Wall Street Journal noted last month that a “chill” has fallen over “next generation” Chinese tech companies like Meituan, Pinduoduo, and Kuaishou.
In this analysis published today CNN warns, much as I did in March, that Beijing’s “heavy-handed approach could backfire…by stifling an entrepreneurial spirit that has proven vital to the country’s rapid economic rise.”
Some investors argue Beijing’s ultimate aim is to rein in tech firms until they are as docile and easily controlled as China’s hulking state-owned enterprises. That would be a costly—and foolish—trade-off. China’s SOEs, by dint of their sheer size, dominate the ranks of Fortune‘s Global 500. But innovation is not their forte; SOE’s have a notoriously poor record of achieving return on their investments.
Fidelity International’s Hyomi Jie, whose China consumer equity funds oversee $7.3 billion in assets, is among a small number of influential asset managers and investment bankers who have begun to argue that market pessimism about China’s tech sector is overdone. China’s crackdown on big tech, she told Bloomberg earlier this week, is nearing “the end of the cycle.”
Later today Jessica Tan, the co-CEO of one of China’s largest fintech and insurance pioneers, Ping An, will be joining me in conversation for the Fortune Global Forum—which is convening virtually this year.
The forum starts today, concludes tomorrow, and features a host of talents from Asia—including Kevin Aluwi, the founder of Indonesia’s most successful start-up, Gojek, and Makoto Uchida, CEO of Nissan Motor. You can see the full agenda here.
More Eastworld news below.
Clay Chandler
– clay.chandler@fortune.com
This edition of Eastworld was curated and produced by Eamon Barrett. Reach him at eamon.barrett@fortune.com
EASTWORLD NEWS
Jabs for kids
China has granted Sinovac, one of the country's domestic COVID-19 vaccines, emergency approval for use in children between the ages of 3 and 17, setting the lowest age approval for COVID-19 vaccines worldwide. China’s vaccine rollout is currently only available to those over 18 years old. After a slow start, China’s vaccine drive gathered pace in recent weeks. The country has now administered over 723 million jabs. Reuters
Jabs for kicks
Thailand began a renewed push to vaccinate its population Monday, as the tourism-dependent economy prepares to reopen. The popular beach resort of Phuket is due to trial admitting vaccinated tourists from July 1 but, elsewhere, the nation’s capital is suffering a new wave of infections tied to Bangkok’s elite nightclubs. Thailand plans to administer 500,000 shots per day in its new push, up from a daily average of 100,000. Bloomberg
Bitcoin blues
China’s Twitter-like Sina Weibo service suspended several accounts that cover movements in the world of cryptocurrencies. Last month, Beijing reiterated a country-wide ban on crypto exchanges, warned financial service providers against working with crypto firms and continued its crackdown on crypto mining. The latest move from Weibo sent Bitcoin’s price tumbling. Fortune
Crypto India
Nandan Nilekani, the chair of Bangalore-based IT and consulting firm Infosys, thinks India should embrace cryptocurrencies as an asset class but doesn’t see a future for the tech to be adopted as a means of payment. India’s crypto market operates in a gray area, although traders fear a complete ban is imminent. Financial Times
Taiwan talks
Three U.S. senators arrived in Taiwan on Sunday to discuss security issues with Taiwanese President Tsai Ing-wen. The U.S. has no official diplomatic relations with Taiwan—a self-governing island that Beijing claims sovereignty over—but has a legislative obligation to protect it. On Sunday the senators, during their three-hour visit, said Washington would donate 750,000 vaccines to Taiwan, which is contending its worst COVID-19 outbreak to date. Hong Kong Free Press
MARKETS AND MOVERS
Evergrande — Real estate developer Evergrande completed a $43 million share buyback as the debt-laden company attempts to calm investor nerves.
Flipkart — Walmart-owned Indian e-commerce giant Flipkart is seeking to raise $3 billion from investors including Softbank. Flipkart is reportedly preparing for an IPO next year.
Samsung — Samsung says it will continue to manufacture LCD displays through to the end of 2022, reversing an original plan to stop production of the outdated screen tech. Samsung, like rival LG, wants to focus development on more advanced OLED screens, but a surge in demand for LCDs has kept production lines humming.
Huawei — Huawei has invested in Beijing RSLaser Opto-Electronics Technology, which produces laser tech used in machines that make semiconductors. U.S. sanctions severed Huawei’s relations with the world’s most advanced chip suppliers last year.
Yili — Youran Dairy, a spinoff of Inner Mongolia milk maker Yili, wants to raise $799 million in a Hong Kong initial public offering.
EHang — “Flying car” start-up Ehang expanded test flights of its autonomous people-carrier drones to Japan, piloting a maiden flight last week. Shares in Guangzhou-based Ehang plummeted in February after short-seller Wolfpack accused the loss-making firm of accounting fraud. Ehang denied the claims.
FINAL FIGURE
32.19 million
In 2019, for the first time in its 100-year history, the China Communist Party (CCP) was majority represented by white collar workers. According to Party data, the “professional” class constituted 32.19 million, or 35%, of the CCP’s ranks in 2019. The “working class” were represented by 32.01 million members. Private-sector employees were only permitted to join the CCP in 2002, following a constitutional change. The CCP will mark its centenary on July 1.
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