Chinese Stocks Slide as Beijing’s Crackdown Shows No Sign of Abating

Chinese stocks were hit by a fresh wave of selling Friday, capping off a tumultuous week that saw regulators in the country step up their scrutiny of internet-technology companies, showing again that Beijing’s wide-ranging corporate crackdown is far from over.

Several state-media commentaries and articles also suggested that Chinese regulators plan to get tough on more industries, sparking selloffs in the shares of online pharmacy operators and companies that make expensive liquor.

The Hong Kong-listed shares of e-commerce behemoth

Alibaba Group Holding Ltd.


BABA -6.85%

fell 2.6% Friday to post a decline of 14% for the week, ending well below the price they debuted at on the city’s exchange back in November 2019. The selloff took the market capitalization of the company founded by billionaire

Jack Ma

to about $440 billion, around half its peak roughly 10 months ago.

Shares of Meituan, a food-delivery giant that is also one of China’s most valuable companies, fell 4.5%, finishing the week down 17%.

Hong Kong’s flagship Hang Seng Index fell 1.8% Friday to end the week down nearly 6%. In mainland China, the CSI 300 Index, which is made up of the largest stocks listed in Shanghai and Shenzhen, did slightly better, losing 3.6% for the week.

Investors have struggled to digest a flurry of draft regulations, comments from Chinese officials and commentaries in state media in recent days. Taken together, they paint a cloudy outlook for the companies that are likely to be impacted by increased regulatory scrutiny and tighter rules.

“Evolving government policy initiatives are weighing on sentiment and causing some uncertainty,” said Catherine Yeung, investment director at Fidelity International in Hong Kong. She added that regulation in China is “a constant,” and investors have to factor that into their assessments of companies’ long-term business prospects.

Chinese President

Xi Jinping

signaled earlier this week that Beijing plans to more assertively promote social equality, which is encompassed by an increasingly popular catchphrase: “common prosperity.” A meeting he chaired said high-income people and enterprises in China would have to give more back to society and create opportunities for others to become rich, according to the state-run Xinhua News Agency.

Investors are grappling with what exactly “common prosperity” means and how far is this going to go, said Tan Eng Teck, a senior portfolio manager at Nikko Asset Management. “No one knows, so it means the market will sell first, and evaluate later,” he added.

Some market participants concluded that China’s internet-technology giants and other fast-growing companies that have created large amounts of wealth for their executives and shareholders could come under pressure to contribute more to social causes, and their growth could slow as a result. Tencent on Wednesday pledged to set aside 50 billion yuan, the equivalent of $7.7 billion, for a “common prosperity program,” with funds that will go toward helping the poor, improving local healthcare infrastructure, and education development.

Also this week, China issued draft guidelines aimed at stopping its Internet companies from engaging in anticompetitive practices.

Its Ministry of Commerce separately released draft rules for live-streaming on e-commerce platforms, targeting a popular marketing strategy used by Alibaba and its online-retailing rivals

Pinduoduo Inc.

and

JD.Com Inc.,

whose shares also tumbled this week. And the Ministry of Transport said it plans to take steps to protect the incomes and other interests of drivers that work for gig-economy companies. That could end up increasing the costs of doing business for Meituan as well as ride-hailing company

Didi Global Inc.

On Friday, a commentary in the People’s Daily newspaper, the Communist Party’s mouthpiece, took aim at the healthcare-technology industry, calling for more to be done to ensure the safety of prescription drugs sold online. “How to effectively safeguard the safety of prescription drugs on the internet has become a topic of social concern,” it said.

That sparked a selloff in the shares of companies that operate online pharmacies, including Hong Kong-listed JD Health International Inc. and

Ping An Healthcare and Technology Co.

, which both tumbled more than 14%.

Chinese tech stocks popular among U.S. investors have tumbled amid the country’s regulatory crackdown on technology firms. WSJ explains some of the new risks investors face when buying shares of companies like Didi or Tencent. Photo Composite: Michelle Inez Simon

State-owned media outlets also reported that China’s top commerce regulator called liquor makers to a meeting to discuss market order and supervision in the industry. After the reports, shares of liquor giant

Kweichow Moutai Co.

fell 4.4%, while its rival

Wuliangye Yibin Co.

shed 7.3%.

Dave Wang, a portfolio manager at Nuvest Capital in Singapore, said there is extreme pessimism in the market, and statements from China that may have been ignored in the past are being interpreted negatively now.

With Alibaba and other shares that have plummeted, “You are either looking at a bargain or you are looking at a stock where the market thinks it’s time for a different valuation going forward,” he added.

Howard Wang, a portfolio manager and head of Greater China equities at J.P. Morgan Asset Management, said his firm has been “selectively adding back some China Internet names” after assessing their valuations and expected returns over the next five years.

“We need to recognize that regulatory changes are by no means unique to China, and are not all market negatives,” Mr. Wang added, pointing to the stocks of companies involved in semiconductor manufacturing and other industries that dovetail with Beijing’s national development goals. Those have outperformed the broader market.

Write to Chong Koh Ping at [email protected]

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