Stock Market Plunges for Second Day Amid Growing Fear of Chinese Regulations... Hong Kong Hang Seng Index Down 4.22%

Fear Selling in Tech Stocks, Real Estate, and Bio Sectors

[Image source=Yonhap News]

[Asia Economy Reporter Ki Ha-young] A 'panic sell-off' trend is emerging in technology, education, and biotech stocks in the US and Chinese stock markets. This is due to fears spreading that the Chinese government can swiftly eliminate not only companies but entire industries, following its strong regulatory measures on private education.

According to the financial investment industry on the 27th, the Hang Seng Index, which represents the Hong Kong Stock Exchange where major Chinese tech stocks such as Tencent and Alibaba are listed, plunged 4.22% to close at 25,086.43 after a 4% drop the previous day. During the session, the Hang Seng Index fell more than 5%. This was the largest drop in over a year since May last year.

The Shanghai Composite Index and the Shenzhen Component Index on the Chinese mainland stock market also plunged 2.49% and 3.67%, respectively, continuing the sharp decline for two consecutive days. Overnight in the US stock market, many Chinese companies’ stocks, including Alibaba (-7.15%) and Pinduoduo (-8.84%), plummeted.

The stock crash of Chinese companies began with the Chinese government’s ultra-strong private education regulatory measures announced on the 24th. These measures fundamentally banned profit-seeking by private education companies and completely blocked their ability to raise funds through listings, leading to expectations that China’s massive private education market, estimated at $120 billion (about 138 trillion won), would be virtually devastated. Consequently, investors in the US and Chinese stock markets panicked and sold off shares of Chinese private education companies such as New Oriental Education. New Oriental Education’s stock fell over 40% for two consecutive days on the Hong Kong stock market last Friday and Monday, and dropped nearly 10% more on the 27th.

This education stock crash has instilled fear in the financial investment industry that Chinese authorities’ regulations could completely wipe out targeted companies and industries. Accordingly, this fear is rapidly spreading across all sectors considered at high regulatory risk by Chinese authorities, including technology, biotech, and real estate.

On the same day, the Hang Seng Tech Index, which reflects the stock trends of major Chinese tech companies listed on the Hong Kong stock market, plunged 7.97%, a much larger drop than the Hang Seng Index, which broadly reflects sector trends.

Since Alibaba founder Jack Ma’s public criticism of the government in October last year, the Chinese government has strengthened regulations targeting private companies in various fields, including large internet companies and real estate. Many inside and outside China believe that the Chinese Communist Party’s tough stance on private companies, including big tech, is likely to continue for a long time. This is because the CCP views the rapidly growing private economy sector, centered on internet companies, as a major threat to the socialist system following Ma’s public challenge, and has launched a strong response.

Dai Ming, a fund manager at Huachuan Asset Management, told Bloomberg, "In the past, the market expected normal regulations targeting specific industries, but now it seems the government can even kill an entire industry or some leading companies within it if necessary."