In recent months, China has blown up what would have been the world’s largest initial public offering, launched probes into some of its biggest technology companies, and wiped out more than $1 trillion in market value while investors scramble for cover There are many signs it isn’t over yet.
Investors, analysts and company executives believe the government is just getting started in its push to realign the relationship between private business and the state, with a goal of ensuring companies do more to serve the Communist Party’s economic, social and national security concerns.
The government’s far-reaching ambitions under Xi Jinping promise serious and often unpredictable implications for business, these people say—and keeping foreign investors happy isn’t a priority.That means more risk for people who have plowed billions of dollars into China’s fast-growing companies hoping to capitalize on the only tech industry that can rival Silicon Valley.
“This round of governance storm has not yet reached the stage of calming down,” said Fang Xingdong, a former internet entrepreneur and founder of Beijing-based think tank China Labs. China’s biggest private companies have benefited from years of lax regulatory oversight, he said, and it will take a long time for authorities to address it.
Since November, Chinese regulators have taken more than 50 actual or reported actions spanning antitrust, finance, data security and social equality, a July 29 roundup by Goldman Sachs Group Inc. shows—more than one move a week.
Among the moves were scuttling Ant Group Co.’s blockbuster listing; fining sister company Alibaba Group Holding Ltd. a record $2.8 billion for antitrust failings; and blocking a Tencent Holdings Ltd. -backed merger.
If anything, the pace intensified in July, which saw the opening of a cybersecurity review into Didi Global Inc., days after the ride-hailing firm went public in New York, and an abrupt declaration that after-school tuition should become a not-for-profit industry. Other targeted industries include real estate and food delivery.
In a private meeting with representatives of global banks and investment firms on July 28, the vice chairman of the China Securities Regulatory Commission, Fang Xinghai, told attendees that recent crackdowns were meant to fix industry-specific problems and that China has no intention of decoupling from global markets, according to people familiar with the discussions.
Some financiers who attended said they weren’t persuaded. They noted that Beijing had effectively torpedoed a multibillion-dollar industry—after-school tutoring—with a single administrative order.
The CSRC and the State Administration for Market Regulation, which has a broad remit ranging from antitrust to food delivery, didn’t respond to faxed requests for comment.
Chinese authorities have sent mixed signals about whether they intend to keep going.
On Tuesday, a Chinese newspaper affiliated with state news agency Xinhua criticized online gaming as “opium for the mind.” The article raised concerns that Tencent’s popular games could be swept up into a broader regulatory crackdown. In a sign of how fragile investor sentiment has become, that was enough to trigger a market selloff. The article later disappeared before re-emerging in a toned-down form, without the “opium for the mind” line