China’s Audacious Guts to Squash its Tech Industry!

You have to give it to him, Xi Jingpin has cracked the whip and stamped out China’s huge consumer tech sector.

An e-commerce giant, Alibaba is one of the top ten valuable companies in the world. Its IPO in 2014 on the New York Stock Exchange for USD 25 billion valuing the company at USD 235 billion, was one of the largest IPOs in world history. Post its listing, its stock actively trades on the bourses.

Alibaba is one of the world’s largest retailers, a very large artificial intelligence company. It also has a huge venture capital firm and is one of the biggest investment corporations in the world. The payment APP & chatting service of Alibaba is also quite popular.

Ant Financial is owned by Alibaba has a large almost 1/3^rd stake in it. Ant had an IPO planned in November 2020 which was canceled by the Chinese bigwigs and dismantled.

Alibaba’s promoter Jack Ma is a high-profile celebrity with worldwide recognition. He was summoned by the Government, disappeared for weeks, and later a huge antitrust fine was imposed on Alibaba. The value of the firm & Jack Ma’s personal fortune has collapsed.

Tencent the largest Social Media Company in China was fined heavily. DIDI, the Chinese Uber, on the eve of its IPO in the US got invalidated. Various penalties were levied on it and its APP was disabled from being downloaded.

The Government probably felt that these companies collected too much personal information, which was being misused. Baidu another large internet-related and Artificial Intelligence company was fined with antitrust penalties.

Just a few days back, China virtually obliterated its 100 billion USD education industry. The after school tutoring is banned from making profits, raising capital, going public, employing foreign teachers amongst a lot of other rules.

The reason was overloading kids with too much work, promoting unhealthy competition and stress among children and their parents, burdening them with heavy fees. It was the fastest-growing sector in China and companies like Gaotu Techedu, Tal Education, New Oriental Education with substantial foreign holdings saw their share prices tank. The unlisted companies are also doomed, as they are worthless as doors to an IPO are closed tight.

Last week, the leaders called video /online gaming spiritual opium. That has petrified Tencent. Bytedance (owners of TikTok) got a stern earful at a meeting with the regulators.

Squashed!

So What is China Upto?

It is hard to fathom as China is as opaque as opaque can get. The leaders are stoic but apparently in earlier speeches have made references to the growing power of these consumer internet companies.

It is hard to imagine why would China break up profit-making, well-managed, extremely successful companies listed overseas. They don’t seem to care about their image or the wrath of the employees and the other stakeholders of these companies.

It just seems suicidal. Or are they just too smart and powerful?

The Government decided that these companies could pose a political challenge and squashed them to show them and the world the boss.

China may also have decided that the consumer internet companies and video games were good but were distracting the bright minds and turning them into zombies. They want the smart minds to be engaged in the research and development of strategic industries like manufacturing and defense and made a course correction, or as they say a rectification of these companies.

As a fallout, our equity market may gain a little as foreign investors may be more benevolent towards a democratic emerging economy like India and allocate more funds.

The audacious moves by China though should be watched carefully. While the world is playing or shopping, China may be steering towards world domination.

India has an opportunity here, China is clearly an unreliable and unpredictable country, and the world is looking at alternatives to manufacturing options that India can capitalise on.

That is if it is prioritised by the powers to be in Delhi.