China’s Securities Regulators Say Sky Is Not Falling, Honest

AUTHORITIES MAY HAVE had specific reasons for their unexpected assault on the e-tutoring industry a week ago. Still, they were not necessarily distinct enough to the eyes of investors to prevent a broad sell-off in Chinese tech stocks and, on international exchanges, Chinese companies listed in general.

It looked like another front in the expanding crackdown on the technology sector to ensure its entrepreneurs were aligned with the Party’s development agenda. In addition, the reasoning went, if authorities could ban private companies from making profits and going public in one industry, they could potentially do the same in any industry.

Regulators and other financial officials have now undertaken a damage limitation exercise, suggesting that the estimated $800 billion of market value wiped out in recent days was an unintended consequence or at least a more severe and broad reaction than had been expected.

China Securities Regulatory Commission (CSRC) Vice Chairman Fang Xinghai has held a hastily convened call with leading investment banks, including foreign ones, to ease market fears. The message was that last week’s actions were particular to e-tutoring companies and narrow, to protect online data security and social welfare, not to close them down unilaterally.

Meanwhile, state media is suggesting the stock market sell-off has been overdone. In addition, they are highlighting comments by CSRC Chairman Yi Huiman, albeit made at the Lujiazui Forum seven weeks ago, that the regulator is generally supportive of companies that seek foreign listings. State media is also trying to allay fears that variable interest entity structures will be banned and that Chinese companies will not be allowed to list in the United States.

How reassuring to investors this charm offensive — and some suspected buying up of shares by state-linked investment funds to prop up prices — will prove is an open question.

The Fifth Plenum, the Central Economic Work Conference and the Ninth Meeting of the Central Finance and Economics Committee emphasised the necessity of strengthening anti-monopoly measures and preventing the disorderly expansion of capital. That policy direction is set from on high, as is the intent to reform the governance of the platform tech companies to make them internationally competitive as part of Beijing’s development priorities.

That implies that, regardless of whether you call it a crackdown or the strengthening of regulation and supervision to ensure the development of the platform economy is on a sound and orderly track, the technology sector will continue to be in authorities’ crosshairs.

Investors should be under no illusions about the Party’s commitment to its overall political, social and economic agenda and to redirecting the tech sector to serve China’s national interest as it sees it.

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