December 6, 2022

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China tries to deal with big tech companies as economic challenges escalate

China tries to deal with big tech companies as economic challenges escalate

In a rare public display to support the private sector, Vice Premier Liu He He said on Tuesday that the government would “properly manage” the relationship between the government and the market, and that technology companies would return to listing in domestic and foreign markets. Leo senior economic advisor President Xi Jinping.
He was speaking at a seminar with other Chinese officials and CTOs, including Robin Li, CEO of the internet search giant Baidu (Baidu)William Deng, CEO of Games and Content Company Netease (NTES)and Zhou Hongyi, CEO of internet security company Qihoo 360 Technologies.

Chinese stocks jumped on Wall Street after Liu’s remarks, But she mostly refused Wednesday in Hong Kong. This indicates that the market remains very concerned about the growth prospects of major Chinese Internet companies, and is looking forward to more specific commitments from the government.

Those fears were reinforced on Wednesday when Tencent (TCEHY) It posted zero revenue growth in the first quarter, which is a worse-than-expected result.
Beijing’s year-long regulatory campaign has left deep scars in the huge technology sector. Combined with the weakening of the economy, the crackdown has wiped out more than $1 trillion from the market value of Chinese companies. Many tech companies report bad profits or cuts Tens of thousands of jobs to reduce operating costs.

China’s economy is likely to contract in the second quarter, as the Covid lockdowns wreak havoc on activity. Consumer spending and factory production both contracted sharply last month, while the unemployment rate jumped to the highest level since the initial coronavirus outbreak in early 2020.

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Looking at the fine print

Technology executives at the symposium welcomed Liu’s comments.

Zhou from Qihoo 360 days said Weibo He felt “confidence and support” from the meeting. “At this moment, trust and support are more valuable than gold,” he said.
The Nasdaq Golden Dragon China Index, a major index that tracks Chinese companies listed on Wall Street, rose more than 5% overnight after Liu’s comments. Ali Baba (Baba) It rose more than 6% on the New York Stock Exchange. Baidu shares jumped 4.8 percent.

The broader US market as well It closed higher on Tuesday. The Dow Jones Industrial Average closed up 1.3%. The S&P 500 is up 2%, and the Nasdaq Composite is up 2.8%.

“While the [symposium] It didn’t include much new context In our opinion, we believe the meeting signals another positive regulatory signal towards the platform’s economy and supportive stance for Internet companies seeking to list in overseas markets,” Citi analysts said on Wednesday.

But the lack of details from Liu weighed on Asian markets on Wednesday.

Hang Seng Tech, a leading indicator of Chinese technology companies listed in Hong Kong, fell as much as 2.3%n Wednesday. The last drop was 0.3%. The benchmark Hang Seng Index closed 0.2% higher after choppy trading.

Ali Baba (Baba) He lost 0.6%. Tencent (TCEHY) It decreased by 0.8%. And Kaishu, TikTok’s competitor in China, fell 2.5 percent.

“The Chinese government appears to be running out of policy tools to support growth,” said Ken Cheung, chief Asian currency strategist at Mizuho Bank.

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Cheung said the escalating downside risks to growth may have prompted the leadership to quickly end the technology campaign. But he added that it may take more time to repair investor confidence.

The latest earnings show just how much China’s tech industry continues to struggle.

Online retail giant JD.com (Dinar) On Monday, it posted its slowest quarterly revenue growth since its IPO in 2014.
Earlier this year, Alibaba and e-commerce company Pinduoduo reported them slowest sales growth As public companies for the December quarter.