China's internet billionaires suffered the biggest losses on the list of the world's richest people on Monday, as spooked investors continued to dump stocks targeted in Beijing's widening regulatory crackdown.
Meituan founder Wang Xing, NetEase Chief Executive Williang Ding, Pinduoduo founder Colin Zheng Huang and Tencent Chairman Pony Ma racked up a combined $13.6 billion plunge in their wealth in just one day, according to the World's Real-Time Billionaires List. The hits to their fortunes come as a sell-off in Chinese education and technology stocks continued to spread to other sectors, with investors pondering which companies could fall under Beijing's scrutiny next.
"[The crackdown] is a continuation of previous policies of anti-monopoly and stop the disorderly expansion of capital," says Shen Meng, director of Beijing-based boutique investment bank Chanson and Co. "China also wants to reduce discontent among different factions of the society, and alleviate overall pressure."
For example, following reports of long working hours and dangerous conditions, regulators are now seeking to adopt safeguards to protect food delivery riders by requiring their employers to pay more in insurance and making sure the couriers earn above minimum wage. The announcement of the new guidelines sent shares of Tencent-backed food delivery giant Meituan, which is already subject to an ongoing anti-trust probe, tumbling by as much as 10% in Hong Kong on Tuesday, after plunging 14% a day earlier.
Tencent, which also backs online marketplace Pinduoduo, lost 5% in Hong Kong today, after regulators ordered the company to give up exclusive music copyrights. The company has already pledged to comply with the directive.
In the meantime, Beijing is also seeking to alleviate some of the financial burden of parents in support of its efforts to boost declining birthrates by targeting after-school tutoring. The sector once grew rapidly as students went online to study during the pandemic, but has recently been plagued by complaints of misleading pricing and false advertising.
NetEase's New York-listed online learning unit Youdao lost more than 60% of its market value over the last three trading days. The U.S.-listed shares of Chinese education firms Gaotu Techedu, TAL Education and New Oriental Education & Technology all plunged a similar amount, after regulators unveiled a sweeping set of rules over the weekend. It requires tutoring firms seeking to teach school syllabus to register as non-profits, as well as stop offering courses over weekends and during school vacations. The companies are also banned from going public or raising capital.
"To remain listed, they may need to spin off the businesses that are in violation of government rules, " says Tommy Wang, a Hong Kong-based analyst at China Merchants Securities. He adds that as much as 90% of the companies' revenues could be hit as after-school tutoring for elementary and middle school students account for the bulk of their sales.
In this uncertain environment, foreign investors would be wise to take into account policy risks and re-assess the outlook for investing in Chinese companies, according to Chanson and Co.'s Shen. The crackdown on education companies, for example, has left global investors ranging from SoftBank to Temasek struggling to find a way out of their positions. They're among investors who had placed multi-billion dollar bets on Chinese education startups like Yuanfudao, Zuoyebang and Yi Qi Zuo Ye, which are now also being subjected to heightened regulatory scrutiny.
Claudia Wang, a Shanghai-based partner at consultancy Oliver Wyman, says one option for investors is to simply wait, and exit when the startups find a market that is on par with the online education industry that was valued at 257.3 billion yuan in 2020, and transition their business. The wait-and-see attitude is already taking hold among some investors in public markets, according to Nomura securities.
"Bruised and shaken investors are now likely to ponder which other areas could potentially become the next target of expanded state control," analysts including Chetan Seth and Yunosuke Ikeda wrote in a recent research note. "Until news flow on regulation starts abating (no signs of it yet), we think most foreign investors will likely remain on the sidelines despite some areas of the market looking attractive over medium term on valuation grounds."
I am a Beijing-based writer covering China's technology sector. I contribute to Forbes, and previously I freelanced for SCMP and Nikkei. Prior to Beijing, I spent six months as an intern at TIME magazine's Hong Kong office. I am a graduate of the Medill School of Journalism, Northwestern University. Email: ywywyuewang@gmail.com Twitter: @yueyueyuewang
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