Crackdown on Tech Firms

The crackdown that began on the big tech firm’s in China recently is expected to last a few years. Firms like Tencent and Alibaba, to name a few, are the biggest firms in the Asian giant’s stock listings. In the past few months, there has been a continuous grip on them after being a constant witness to one of the most significant upsurges globally. 

The Chinese government’s crackdown on big technology companies will likely last for a few years, which means those stocks aren’t a buy for now. The statement given by a BlackRock Portfolio manager indicates that the scrutiny is being tightened around the firms, and taking a position on any of them would not be that great of an idea. 

Since last September, the Chinese regulators have increased their security measures on almost all the tech giants, including Tencent. The firm has been a constant witness to upsurges and claiming its position as one of the biggest tech firms globally. The same corporations are now facing fines and fresh regulations. The government wants them to leave their monopolistic practices where they have exclusive rights to trade possession and supply. 

The regulatory cycle is expected to last longer than the one that ran back in 2018. 

BlackRock has been neutral in terms of the buying and selling of Chinese stocks overall. They are recommending only specific sectors of the market to the traders to bet their money on. 

Some experts believe that the earnings are affected by the regulations and are also affected by competition. Experts also believe that the new trends that have forced Ecommerce to invest in new infra have lower returns on initial investments. The tech stocks in China have rallied down in the past few months, while some rose in April. This was after a few companies had issued personal pledges claiming that they were ready to comply with the anti-monopoly rules.

BackRock is currently buying med and small-sized firms that are based over the internet. These companies are exposed less to the risks of regulations and can still encounter exponential growth in terms of user footfall. 

BlackRock is looking at companies that are into live streaming and short video making. None of the representatives named a particular name, but one of the companies named Kuaishou rose almost 70% in values since its IPO came around in Feb. The stock also came down to 25% in the past two months of intraday. Understand it this way. Tencent is one of the most extensive stocks listed on the Hong Kong Stock Exchange regarding market cap. The firm rose 3%, and Alibaba, at the same time, fell by 9%.

We think that this crackdown is supposed to regulate the firms that have been irregular for a lot of time. Ours is a vast country, and there have been numerous instances where there were firms who bypassed our laws to make profits. It is now time that the government shuts them down. Alibaba is billed with more than three billion dollars in fines. This move by the Chinese authorities is a clear signal of a paradigm shift in how the industry will move forward. The government is transparent that the times when the government used to be relaxed are over. While these moves will allow the whole industry to flourish as a whole, there are also rumours that the companies that are integrated into our day to day lives will face challenges when they have to comply with the new laws of the various sectors. 

Since there are recent moves against these giants, the government is implying two things. One, the financial service providers are being checked, and B to C type companies are also asked to clean up their act before it gets too late for them and too easy for the authorities to pin them down. 

Authorities in Beijing have made their anti-monopoly task a top priority in its list of economic targets to be reached in 2021. The regulators are constantly intensifying their scrutiny over the past few months. Since March, the executives of the top tech firms have been called out at regulatory meetings and not once; this has happened at least three times since then. In each meeting, they are ordered to listen closely and adhere to the regulations with more head. 

Most of this is happening because many tech firms are moving into the financial bubble and are offering loans on financial products to people. They are doing that but are still not in the regulatory loop of the traditional financial institutions. They can evade tax this way, making more money than they should while they sit in the nest of tech firms, acting like FinTech and making money just like them.

These moves are, for sure, for the good of the people of China, and they will also bring in a lot of tax evaders in light. The Chinese government stands firmly on its statement. Pay the taxes or go to jail. They didn’t leave Jack Ma; they didn’t spare Tencent. They will not leave any tom dick and harry firm as well. The recent crypto shutdown is a clear example of this mindset. There has to be some credibility that these firms have to ask if they are Chinag money out to people.

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