Tai Hui

Macroscope | As China’s tech sector gets back on its feet, look beyond internet companies

Beijing’s tone on the tech sector has shifted, focusing on healthy development, and greater regulatory clarity is allowing companies to adjust their business models

However, beyond the usual internet-based companies, those in the semiconductor and electric vehicle sectors are attracting investor interest

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Meituan delivery drivers take a break near a giant screen showing a news conference by Premier Li Keqiang, following the closing session of the National People’s Congress in Beijing on March 11. Photo: Reuters

Tai Hui

Published: 11:30am, 12 Aug 2022

Last year was a year of regulatory overhaul for the Chinese internet sector, which triggered a prolonged period of tech stock corrections in Hong Kong and New York. If 2021 was a year of establishing the new regulatory framework, 2022 is a year of implementation.

Tech giants are still being penalised for past breaches, but at least the regulatory uncertainties have been reduced and this could help improve investor confidence in the medium term.

The 2021 regulatory reform came under several broad themes. These included tackling monopolistic behaviour and squeezing out competition; adequate pay and social security coverage for delivery riders; limiting minors’ time spent on video games; and, customer data protection.

Some of these themes can be linked back to the drive for common prosperity. For example, anti-monopoly rules seek to protect small and medium-sized companies, and prevent large businesses from abusing their market position.

These policies are not unique to China. Many economies are looking to, or have already applied, similar policies to reduce income inequality. However, the rapid pace of the roll-out of the regulations in China was often unexpected. In other countries, investors could track the legislative process or legal proceedings to see if new rules would be introduced, and the details of the rules.

Such a process can take months, sometimes years. The rapid implementation in China surprised both domestic and international investors and raised questions about the future prospects of these companies in generating profit. There are also concerns that tighter regulation could discourage innovation and creativity.