Editor’s letter: China markets – expect the unexpected
Two critical developments in China caught the financial markets off guard in 2021.
The first was China’s regulatory crackdown on a host of sectors: technology, financial technology, after-school education and gaming.
This involved implementing a more stringent approval process for Chinese technology firms seeking offshore IPOs, especially in the US, as well as applying pressure to specific companies. For example, ride-hailing company Didi, which initially resisted pressure from the Chinese authorities and pushed ahead with plans to list in the US, then decided to delist within months of its US debut in order to switch its listing to Hong Kong. Some big tech names, including Alibaba Group and Tencent Holdings, were fined for alleged anti-monopoly behaviour.
The regulatory clampdown also involved barring for-profit, after-school tutoring in core school subjects in an effort to boost the country’s birth rate by lowering living costs. As for gaming, restrictions were imposed to limit the amount of time that under-18s can spend gaming online.
US-listed Chinese stocks suffered a brutal sell-off that wiped about $1 trillion off their value in 2021
The result of these upheavals? US-listed Chinese stocks suffered a brutal sell-off that wiped about $1 trillion off their value in 2021, plans for offshore IPOs were scrapped, education-related stocks went on a roller-coaster ride, and investors became more distrustful of China’s interference in the capital markets.