Shares Of Alibaba And Tencent, Along With Those Of Other Chinese Technology Companies, Fell 11% As Xi Tightened His Grip On Power

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Last Updated on October 24, 2022 by Bitfinsider

On Monday, Chinese technology stocks plummeted after a political reshuffle in the world’s second-largest economy tightened President Xi Jinping’s grip on power. Investors feared that this could be detrimental to the country’s private businesses, which caused the market to react negatively.

In Asia, the market value of technology giants Alibaba and Tencent fell by more than 11%; the value of search company Baidu fell by 12%; and the value of food delivery firm Meituan plummeted by more than 14%.

These moves come after Xi Jinping established the groundwork for an unprecedented third term as leader of China and stacked the core circle of power in the ruling Communist Party of China, known as the Politburo standing committee, with loyalists.

According to Xin Sun, a senior lecturer in Chinese and East Asian business at King’s College London, this makes it unlikely that anyone would challenge any “policy mistakes” that Xi makes that could hinder the growth of the tech sector.

“Now that the new Politburo standing committee is packed with Xi’s own picks and those in rival factions… were all out, it becomes clear that no other political elite dares to challenge his policy mistakes or even deviate however slightly from his preferred policy agenda,” Sun told CNBC via email. “Of course, over the past few years, his preferred policy agenda has been focused on favoring the state sector at the expense of the private one.”

“As a direct consequence of this, it is extremely unlikely that these policies will be revoked or altered, resulting in an extremely bleak outlook for the economy.”

China has implemented a slew of new policies under the leadership of President Xi that have the effect of tightening the country’s already stringent regulations on the country’s booming technology industry. These regulations cover everything from data protection to the rules that govern how algorithms can be applied.

In the meantime, Xi has remained committed to the stringent “zero-Covid” policy that has resulted in the closure of cities throughout this year, including the mega-financial hub of Shanghai, despite the fact that the majority of countries around the world have opened their economies.

The value of Chinese tech giants, such as Tencent and Alibaba, has been reduced by billions of dollars as a direct result of these two policies, which have also contributed to these companies reporting their slowest growth in history this year.

According to Justin Tang, the head of Asian research at United First Partners, who was interviewed by CNBC, “Tech stocks have never been the best friend of Xi and it’s clear that the market thinks that purge will continue.”

It is anticipated that Li Qiang, the party secretary of Shanghai, will be promoted to the position of premier in China in the coming year as part of the ongoing leadership reshuffle. This year in Shanghai, Li oversaw the implementation of lockdowns as well as the “zero-Covid” approach. This represents a departure from a long-standing practice of the Communist Party, as he has never held the position of vice-premier. Li will take over as Premier from his predecessor, Li Keqiang, who was regarded as a pro-business official.

Another reason investors are nervous about the future is because, according to Sun, the new leadership is comprised primarily of party officials “who had limited to no prior experience or credible record in economic management.”

“A rigid political regime with limited capacity to correct many of its policy mistakes, the lack of capable and experienced economic policymakers, and growing geopolitical risks,” Sun said, explaining the negative market sentiment toward China tech stocks. “All of this is under the leadership of a single person whose track record has proven to be unfriendly towards the private sector.”

However, not all analysts are worried about further tightening of regulatory requirements. In the most recent few months, Beijing has taken regulatory action against tech giants that is less dramatic than in previous months. As a result, some commentators have suggested that the government is softening its stance toward internet companies.

Duncan Wrigley, chief China economist at Pantheon Macroeconomics, stated on CNBC’s “Street Signs Europe” that some of the policy that was in place regarding technology stocks has been relaxed.

“I believe that over the course of the past year, the leadership and the governments have taken a position that is, on the whole at least, more positive,”

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