LDN - Business

China signals easing of tech squeeze in bid to lift economy

[April 30, 2022] By Kevin Yao and Julie Zhu

BEIJING/HONG KONG (Reuters) - China signaled an easing of its crackdown on the once-freewheeling tech sector on Friday as President Xi Jinping seeks to bolster the economy in the face of growth-sapping COVID-19 lockdowns, sending shares in online heavyweights surging.

China's powerful Politburo, in a meeting chaired by Xi, said it will step up policy support for the world's second-largest economy, including its so-called "platform economy", fueling investor hopes that the worst may be over for an unprecedented, multi-pronged crackdown that began in late 2020.

The optimism was also powered by reports that China's top leaders will hold a symposium early next month with a number of internet companies, expected to be chaired by Xi, according to two people familiar with the matter. Food delivery giant Meituan was among those invited, one source said.

The sources declined to be named citing confidentiality constraints.

The South China Morning Post, which first reported on the upcoming meeting, said tech giants Alibaba Group Holding, Tencent Holdings and TikTok owner ByteDance were also invited.

Authorities are seeking to reassure the corporate executives about the current regulatory environment and encourage them to continue to develop their business, one source told Reuters.

The Hang Seng Tech index rose 10% for its best day since Vice Premier Liu He promised policy support six weeks ago. E-commerce giants Alibaba and JD.com rose 16%, as did Meituan, while Tencent rose 11%.

Depository receipts of Alibaba, JD.com, Meituan and Tencent trading in U.S. markets were up 7.8%, 7.5%, 13.4% and 4.8% respectively on Friday afternoon.

"The Chinese government, much like the U.S. and other governments, has been trying to catch up in regulating a technology sector that has grown at an incredible rate over the past decade," said Kevin Carter, CIO of EMQQ Global, which created the Emerging Market Internet & Ecommerce ETF, made up of around 50% China equity tech securities.

"This meeting may signal that the government feels they have caught up," he said.

The market's reaction signaled a belief that Beijing, which had taken steps to reign in what it saw as excessive profits at China's largest internet companies, was backing off on the amount of pressure it was applying, said Jason Pride, chief investment officer of private wealth at Glenmede.

Beijing had sought to rein in a range of industries as part of a push to clamp down on violations of anti-monopoly regulations and data privacy rules, among others, as well as bridge a widening wealth gap that threatened the legitimacy of Communist Party rule under a "common prosperity" drive.

But the crackdowns on e-commerce, private education and the property sector have exacted an economic toll and, since the beginning of the year, China has loosened some of the measures to help an economy wrestling with strict COVID-19 lockdowns.

Separately on Friday, sources said Chinese and U.S. regulators were discussing operational details of an audit deal that Beijing hopes to sign this year, the latest move to try to keep Chinese companies from being kicked off U.S. exchanges.

[to top of second column]

People wearing face masks walk past a street amid snowfall, following the coronavirus disease (COVID-19) outbreak, at a shopping area in Beijing, China March 17, 2022. REUTERS/Tingshu Wang

The U.S. securities regulator's move to identify Chinese firms likely to be delisted from New York for not meeting auditing requirements has pushed more fund managers to exit their holdings and dimmed the prospect for new listings.

TOUGH TARGET

Earlier on Friday, the Politburo, a top decision-making body of China's ruling Communist Party, vowed to "complete the special rectification of the platform economy", without giving a timeline, and roll out measures to support its development.

Beijing has set a growth target of 5.5% this year, which private economists have said will be difficult to reach without significant support, as COVID-19 lockdowns and other heavy curbs to battle the pandemic create havoc for businesses and supply chains.

China lifted a nine-month freeze on gaming licences earlier this month partly to alleviate the economic fallout from the ban.

In January, China said it would cut subsidies on electric cars and plug-in hybrids by 30% in 2022 and scrap them entirely at the end of the year.

But with sales of cars tumbling in April because of lockdowns, China's state planner said this week it was meeting with industry to discuss government support for those vehicles, signaling a more supportive stance.

During Friday's meeting, the Politburo said it will support COVID-hit industries and small firms, accelerate infrastructure construction, and stabilize transport, logistics, and supply chains, according to the state-run Xinhua news agency.

Gary Ng, senior economist at Natixis in Hong Kong, said the Politburo meeting "is a positive sign that the government seeks to prioritize growth versus a lot of other goals such as deleveraging or other regulatory change in the short term."

Ng said that anti-trust measures that have squeezed the platform economy as well as a clampdown on the property sector could ultimately return.

"But in the short run because of the pressure on growth and the zero COVID policy, there will need to be a trade off between deleveraging and crackdowns versus growth, and that’s why the market is a bit more optimistic in the short term," he said.

China's benchmark share index jumped more than 2%.

Markets had been hit hard over the past two weeks by fears that lockdowns would cause severe damage to China's economy and derail a global recovery just as many countries are rebounding from pandemic-led slumps.

(Reporting by Julie Zhu, Kevin Yao, Alun John, Xie Yu, Kevin Krolicki and the Beijing newsroom; Additional reporting by John McCrank in New York; Writing by Tony Munroe and Sumeet Chatterjee; Editing by Carmel Crimmins and Daniel Wallis)

Back to top