The news of the New York and Hong Kong stock exchanges looks very promising for the shareholders of Chinese tech giants – Alibaba and Tencent shares, which have fallen to a record low over the past few years, have begun to grow.
However, if you talk to executive directors and investors related to the Chinese technology industry, a different, less encouraging picture emerges. After interviewing more than a dozen market players, Bloomberg experts came to the conclusion that things are not as rosy as it might seem, even though the Communist Party of China has slightly eased the pressure on technology companies.
According to insiders, paranoia and stupor reign in the market, aggravated by the realization that the rapid growth observed over the past twenty years will most likely not happen again.
According to forecasts, this year the profit growth of Alibaba and Tencent will be expressed in single digits.
According to one of the market players, it is only a matter of time before the Chinese government again increases pressure on technology companies. Another investor living in Beijing recently sold his shares to one of the technological “unicorn companies” because he does not want to start a new venture until the government’s future course becomes clear.
“There has been a breakdown in the Chinese technology industry. There is no turning back anymore. The pressure of the authorities on Chinese technology companies may have temporarily weakened due to the sluggish economy, but it is unimaginable for regulators to weaken their control over companies once again,” said the investor, who wished to remain anonymous.
On the surface, everything looks pretty good. China’s $1 trillion Internet industry has begun to gradually revive. Ant Group, owned by Jack Ma, is ready to revive the long-thwarted initial public offering (IPO). Dozens of new video games have recently been given the green light in app stores. Alibaba shares have risen 60% since a record low in March 2022 on the Hong Kong Stock Exchange, although their value is still half as low as the maximum value in 2020. The Nasdaq Golden Dragon China index of US-listed stocks has risen 52% from a record low this year.
Nevertheless, the heads of startups strongly advise investors not to have too rosy hopes. In their opinion, we should not forget that in 2020 the Chinese government disrupted the IPO planned by Ant Group, which had a tremendous impact on capital markets around the world. Startups began to avoid money from large investors, industry leaders began to get nervous about consolidating power, and billionaires like Jack Ma went into the shadows.
Beijing is known for softening its grip before important events. This year, such an event will be the 20th anniversary Congress of the Communist Party of the People’s Republic of China, at which Secretary General Xi Jinping is expected to be elected for a third term. Some fear that the government has slightly eased the pressure just for a while to save an economy devastated by quarantine restrictions due to coronavirus and high global inflation, and new restrictions are only a matter of time.