The consequences of China’s tech crackdown have left an indelible mark on its economy, wiping off billions of dollars as the tech industry comes under a new regulatory framework.
Beijing, keen on bringing the burgeoning internet industry under control, outlined new regulatory policies which have impacted all sectors of the internet market, from fintech to edtech.
As expected, the impact of the crackdown did not stop at depleting the value of Chinese tech companies, it also extended to individual wealth of the country’s tech top guns. Apart from ByteDance founder Zhang Yiming, who has managed to avoid all forms of indictment by the authorities, others have paid dearly with their personal fortune.
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Bloomberg reports below that many of China’s billionaires have lost their places in the Billionaires Index.
The country’s 10 richest tech tycoons lost $80 billion in combined net worth in 2021, according to the Bloomberg Billionaires Index. The drop represents almost a quarter of their total wealth and is the largest one-year decline since 2012, when the index started tracking the world’s richest people.
Pinduoduo Inc. founder Colin Huang lost the most this year — $42.9 billion, or two-thirds of his fortune — as shares of the e-commerce platform plunged nearly 70%. Alibaba Group Holding Ltd’s Jack Ma, who has been keeping a low-profile since authorities clamped down on his sprawling business empire, has seen his wealth cut by about $13 billion.
In the weeks before Didi’s U.S. listing in June, investors snapped up stakes in secondary-market trades, pushing the ride-hailing giant’s valuation to $95 billion and sending the value of founder Cheng’s stake to $6.7 billion.
The euphoria was short-lived. The Beijing-based company’s shares have plummeted more than 60% since Chinese officials announced an investigation and asked it to delist from the New York Stock Exchange, leaving Cheng’s fortune at $1.7 billion.
Increased antitrust scrutiny from Chinese regulators has become increasingly common since the surprising halt of Ant Group Co.’s initial public offering last year. Tech companies including Alibaba, Tencent Holdings Ltd., Meituan and Pinduoduo have seen their once lofty valuations trimmed after being fined for reasons ranging from monopolistic practices to disrupting market orders to under-reporting deals.
‘Best Days’
China is also paying more attention to the so-called VIE structure — a loophole long used by the country’s technology industry to get past some government restrictions and raise capital from foreign investors. Uncertainty prevails even after China unveiled sweeping regulations governing overseas share sales by the country’s firms, threatening to amp up scrutiny over IPOs abroad that had proceeded virtually unchecked for two decades.
At the same time, the Securities and Exchange Commission this month announced its final plan for a new law that mandates Chinese companies open their books to U.S. scrutiny or risk being kicked off the New York Stock Exchange and Nasdaq within three years. That could mean hundreds of Chinese companies delisting from the U.S. markets and relisting in Hong Kong or mainland China.
“The best days for China’s tech sector are behind us for now,” said Chen Zhiwu, director of the Asia Global Institute at the University of Hong Kong. “Without access to American capital markets, the history of China’s tech sector would have been very different.”
Zhang Yiming is a rare Chinese internet tycoon to see his fortune grow this year, gaining $19.5 billion based on a valuation in a SoftBank Group Corp. filing this year. That’s partly due to his keeping the parent of TikTok, a closely held company, insulated from the swings of market turbulence. But Zhang has also strived to keep a low-profile during the regulatory crackdowns. In May, he announced he was stepping down as chief executive officer and then quit the board last month.
Many tech executives have made similar moves. Su Hua, co-founder of livestreaming app Kuaishou Technology, ceded the CEO role in November only nine months after the company’s IPO in Hong Kong. In September, JD.com Inc. named a new president, saying that Chairman Richard Liu will focus on long-term strategies.
Strategizing to fit into the new regulatory framework has become a survival technique that most of the companies are adopting. Beijing is adamantly pushing its regulatory goals in addition to President Xi’s newly introduced “common prosperity”, not minding the economic consequences.
Investors are becoming increasingly wary of the turbulence the regulatory crackdown is unleashing on the market, greatly limiting their willingness to put money in Chinese companies. As the situation spills over into the near future, Chinese tech companies and their billionaire founders are bracing up for further losses.