EXPLAINER: Risks underlie tumbling Chinese company shares
BEIJING (AP) — Foreign shareholders in China’s tech companies are learning what its entrepreneurs have long known: The ruling Communist Party’s decisions about what is good for the economy can hurt your business.
The stock prices of internet giants Tencent and Alibaba and ride-hailing service Didi tumbled after President Xi Jinping’s government launched anti-monopoly and data security enforcement actions against them.
Also this week, share prices of Chinese education companies fell after news reports that for-profit activity might be banned in core school subjects.
The crackdown on some of China’s biggest private sector success stories prompted warnings about a “war on capitalism.” But regulators say the opposite is true. They say they are protecting the public, smaller companies, the financial system and competition.
“The crackdowns are positive because they are good for Chinese SMEs,” or the small and medium-size private enterprises that are the bulk of the private sector, Michael Every of Rabobank said in a report.
WHY IS THE COMMUNIST PARTY DOING THIS?
The ruling party declared anti-monopoly enforcement a priority this year, especially for tech companies that dominate e-commerce, social media and entertainment and are expanding into finance, medical services and other areas.
Party leaders worry Tencent Holding Ltd., Alibaba Group and other industry leaders can abuse their dominance to keep out competitors, raise prices or force suppliers to grant them favorable terms, hurting rivals.
The ruling party worries about the mountains of information about customers gathered by e-commerce, ride-hailing, social media and other companies.
Party leaders also have social goals including shielding children from harmful material online and promoting access to education.