A curious aspect of the U.S.-China tech dispute is that, even with two governments at their throats, tech investors have been content with a warm and mutually beneficial embrace.
At least until now. The sharp fall of Chinese rideshare giant Didi just days after its $ 4.4 billion New York IPO is likely to put a lasting damper on new Chinese listings in the United States, realizing the kind of financial decoupling, at least in stocks, which the Trump administration has been unable to reach. Amid an intensifying regulatory storm across the country, Didi shares are now trading at around 70% of their opening price on the June 30 IPO day.
On Thursday, the Wall Street Journal reported that China’s Cyberspace Administration, which reports to a central management group chaired by Chinese President Xi Jinping, will be responsible for overseeing overseas registrations.
What is currently happening in Chinese internet technology has several aspects: politics, legitimate regulatory concerns about market power and data privacy, and an increasingly tough Chinese industrial policy that views data as a sovereign resource and is also increasingly skeptical of the usefulness of mainstream Internet businesses. compared to hardware applications like microchips.
From an investor perspective, the crucial point to remember is that these three elements are now opposed to mainstream Internet businesses. Anyone who engages in a Chinese internet technology IPO or hopes this crackdown turns out to be transient is taking a huge risk.
Moreover, Beijing is now taking an explicitly hostile – or at least very skeptical – stance towards overseas tech listings themselves, after a long period where US markets were seen as a major source of capital than Chinese markets did. were not fully ready to replace. After stepping up regulatory scrutiny over Didi and two other newly-listed tech companies in the United States, Beijing said this week it would tighten the rules for overseas listings more generally. Despite years of threats from the United States to deregister Chinese companies over accounting issues, it may ultimately be China that really pulls the plug.
Chinese companies have raised $ 26 billion through new listings in the United States in 2020 and 2021 according to Dealogic, a record since Alibaba’s record IPO in 2014.
The Didi case itself is a good illustration of Beijing’s growing unease over such inscriptions. Echoing Ant Group’s troubled IPO that helped catalyze authorities ‘skepticism about the reliability of internet companies, Didi rejected regulators’ suggestion to delay its initial public offering and proceed with a first. a review of the security of its network.
It is now clear that the government sees securing and limiting the market and political power of Internet companies as far more important priorities than helping them access capital, even though they have been great job creators. This is especially true given Beijing’s new obsession with semiconductor independence and keeping the economy focused on manufacturing rather than services: it wants the money to be invested in microchips and robotics, not in online grocery delivery. Chinese internet companies will not escape scrutiny when registering overseas. Even capital activities carried out abroad may be subject to more stringent restrictions. Many Chinese companies listed in the United States have already chosen Hong Kong for secondary listings in recent years. Others will follow.
Data sovereignty has also become a growing concern for Beijing as tech companies collect treasure troves of information that could potentially be accessed by foreign tech opponents or rivals. The Trump administration’s efforts to push TikTok out of the United States were based on similar concerns. Data security and sovereignty will increasingly become a point of contention between the two superpowers. Tesla announced in May that it would open a new center in China to store all of its car data there to address concerns about how the data might be used.
Beijing is also clearly concerned that in addition to widespread anti-competitive practices such as “er xuan yi” – forcing traders to choose to sell exclusively on a single platform – and the financial stability issues raised by the assembly business of Ant loans, Chinese Big Tech just got too powerful Episodes of companies like Alibaba apparently trying to control the media narrative on their own – scandal involving an Alibaba executive on the popular microblogging platform Weibo, of which Alibaba owns a large part, was censored by Weibo itself last year and is not well received in Beijing, which has a habit of doing the censorship itself.
The crackdown on internet tech companies, starting with Ant Group’s IPO in November, shows no signs of abating. After years of relatively free operation, more intense regulatory control will become the norm. The interests of foreign investors seem unlikely to be a major consideration.
Chinese tech stocks have suffered over the past year as the regulatory storm has intensified. Anyone sticking around hoping for the skies to clear up might have to wait a very long time and very humid.
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