China’s technology companies are in the heat after the massive stock market plunge

Chinese tech companies such as Alibaba, Tencent, Meituan, and Baidu have dominated China’s startup sector until 2020. Often startups have either brought a major company to the ownership side, or been outclassed by the same companies. The founders were hailed as role models.

Alibaba founder Jack Ma blasted China’s financial sector days before he was due to launch the initial public offering of financial technology company Ant Group in what could have been the largest IPO ever.

– China has no financial risks as there is in fact no financial system. Ma said that state-controlled banks have a mortgage mentality and do not support companies that need financing.

The communist leadership had had enough. Listing on the stock exchange was halted and an extensive investigation into the major companies began.

The Prime Minister promises support

Investigations and campaigns against big corporations will now end. Ant, which originally spun off from Alibaba, has accepted a fine of roughly NOK 10 billion. This comes on top of a historically large fine of around NOK 30 billion that Alibaba received for breaching competition laws.

Premier Li Qiang and Vice Premier Ding Shuxiang met with top executives from companies including Alibaba, TikTok owner BitDance, Meituan and others on Wednesday, according to state-run China Central Television (CCTV). Prime Minister Li spoke highly of the role companies play in the Chinese economy.

– The platform economy has stood with innovation and given way to increased demand. Li said it was a new driver of innovation in the Chinese economy.

These are new notes from the Chinese leadership. Business models with the “platform economy”, where companies have developed digital platforms that have made it easier for tens of thousands of other companies to offer products and services on these services without having to develop their own solutions.

– Li said: – We hope that the majority of platform companies can look forward, promote innovation and support the economy, and promise full support from all parts of the public sector.

Stock market values ​​over 20,000 billion have disappeared

The broad CSI 300 index, which includes large companies from the Shanghai and Shenzhen stock exchanges, has fallen since the new year. In the past five years, it’s only increased by 10 percent. In the same period, the S&P 500 rose 60 percent.

New wind direction from China is long overdue. Nearly 50 million privately owned companies are registered in China and account for 50 percent of value creation, according to the South China Morning Post.

– This is a positive sign. Zhou Hao, a professional economist at Guotai Junan International, tells Reuters that the healthy development of platform companies is also very important for investors.

During the campaign against Alibaba, Tencent and other digital platform companies, stock market values ​​of more than US$2,000 billion (more than NOK 20,000 billion) disappeared from the Hang Seng Tech index. Alibaba’s price is 70 percent lower than it was in the fall of 2020 and the stock market is worth more than $600 billion less.

Alibaba’s founder, Jack Ma, who has been the richest in Asia for several years, has seen his fortune more than halve in three years. This week, Chinese tech and startups experienced a resurgence.

A short-term increase is reasonable, but most importantly, it must be sustainable. It’s hard to predict how long this will continue, senior analyst Wheeler Chen at Forsyth Par Asia in Hong Kong tells Bloomberg.

– the situation is dangerous

Unemployment for the under-25 age group hit a record high of 20.8 percent in May. Unemployment is expected to increase in June as many recent graduates try to find a job this summer.

– the situation is dangerous. Poor development requires measures to promote growth. The private sector has been hit hard by the campaigns against tech companies. This has ripple effects on economic growth and employment as well, says the chairman of the Guangdong Reform Corporation in the South China Morning Post.

International financial institutions have lowered growth forecasts for China in recent weeks.

– Weak international demand, continued decline in the real estate sector and insufficient support from the domestic economy mean we believe more policy support is needed, said macroeconomist Erin Shen of HSBC’s flagship bank on Tuesday.