Alibaba and Tencent tumble as Xi Jinping tightens his grip on power

Chinese President Xi Jinping speaking at the opening session of the 20th Congress of the Communist Party of China at the Great Hall of the People in Beijing on October 16, 2022.

Christmas Celis | AFP | Getty Images

Chinese tech stocks fell on Monday after a policy reshuffle in the world’s second-largest economy by Xi Jinping stranglehold on power, with investors fearing it could hurt private companies.

Tech Giants Ali Baba and Tencent closed more than 11% in Asia; research company Baidu was 12% lower while the food delivery company Meituan tanked more than 14%.

Movements come later Xi paved the way for an unprecedented third term as leader and filled the standing committee of the Politburo, the central power circle of the ruling Chinese Communist Party, with loyalists.

This makes it unlikely that anyone will challenge Xi’s “policy mistakes” that could hamper the growth of the tech sector, said Xin Sun, senior lecturer in China and East Asian affairs at King’s College London.

“Now that the new Politburo Standing Committee is brimming with picks from Xi and those of rival factions…were all out, it becomes clear that no other political elite dares to challenge his policy mistakes or even deviate so slightly from his favorite political agenda, which of course over the past few years has focused on promoting the public sector over the private sector,” Sun told CNBC via email.

“As a result, these policies are unlikely to be reversed or corrected, leading to an extremely bleak economic outlook.”

Under Xi’s leadership, China has implemented a series of policies that have strengthened regulation of the tech sector in areas ranging from data protection to governing how the algorithms may be used.

Meanwhile, Xi has stuck to a strict ‘zero-Covid’ policy that has seen cities including the financial mega-hub Shanghai go into lockdown this year, even as most countries around the world have opened up their economies. .

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These two policies have contributed to billions of dollars being erased from the value of tech giants and Chinese companies, including Tencent and Alibaba. their slowest growth in history this year.

“Tech stocks have never been Xi’s best friend and it’s clear the market thinks this purge is going to continue,” Justin Tang, head of Asia research at United First Partners, told CNBC.

As part of the leadership reshuffle in China, Li Qiang, Shanghai’s party secretary, is expected to be named prime minister next year. Li oversaw the lockdowns and zero-Covid approach in Shanghai this year. He did not occupy the post of Deputy Prime Minister, marking a break with a long tradition of the Communist Party. Li will replace outgoing Prime Minister Li Keqiang, an official seen as pro-business.

Sun said the new leadership was largely party officials “who had limited prior experience or no credible experience in economic management,” another reason investors are concerned. for the future.

“A rigid political regime with limited ability to correct many of its policy mistakes, the lack of skilled and experienced economic policymakers, and growing geopolitical risks, all under the leadership of a single person whose track record has proven hostile to the private sector,” Sun said, explaining the negative market sentiment toward Chinese tech stocks.

However, not all analysts are worried about further regulatory tightening. In recent months, Beijing has taken less dramatic regulatory action against tech giants, prompting some commentators to suggest a softening of the government’s stance on internet companies.

“Some of the policy around tech stocks has been eased,” Duncan Wrigley, chief China economist at Pantheon Macroeconomics, told CNBC’s “Street Signs Europe.”

“Overall, I think the stance of leaders and governments has become more positive overall over the past year.”

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