Chinese tech stocks Tencent, Alibaba in government sights, Chinese expert says

Chinese tech giants – including Tencent – are under increasing pressure from regulators worried about their growing influence. Chinese President Xi Jinping has ordered regulators to strengthen their oversight of internet companies, crack down on monopolies and promote fair competition. Professor Michele Geraci, specialist in financial markets and the Chinese economy, University of Nottingham. – Jackie Cameron

Professor Michele Geraci on Technology Companies and the Chinese Government:

What is happening is that China is trying to balance the line between the role of government and the role of the market. These lines tend to move one way or the other as certain industries expand and find more space. At some point they cross that line or they come very close. This is the time when government and business must, in a way, re-evaluate their own respective roles – especially in the case of internet companies which have grown very rapidly in China. They not only pushed the line of influence reach, but they also did it very quickly.

It is therefore a very dynamic development which has forced the government to intervene to respect these limits. The way China moves between state and market; It’s like a rubber band. There is a long term direction, but there are short term tactical adjustments.

On whether the Chinese government is doing something different from the United States:

Several things. My advice to investors is [that] we’re lucky now because the Chinese government is doing things in a different way – and that can be a challenge. But what’s good is that they’re telling us what they’re going to do. They have a five-year plan – which just came out a few days ago – that basically highlights the areas in which the government wants the economy to grow.

So that gives us guidelines. It’s a bit like when investors look at annual business management reports. Normally, in the annual report, the company defines the strategy for the future, with budget marketing activities, etc. This is exactly what the Chinese government thinks. It’s almost an annual report, with the results of the previous year and a plan for next year and a medium and long term plan (5, 10, 15 years).

I was in the investment community. I was an investment banker. It is very difficult in China to choose individual companies, but it is much easier to choose sectors. The government leads the development of macro sectors. Then in this sector there will be winners and losers and that will be, in a way, affected by different dynamics. It will be very hard.

That is why I always tend to say that the best way is to follow the government’s plan. Play out the factors that have been identified as the ones the government will invest in and push to grow, rather than picking individual companies.

On what the next five years could hold for Tencent and Alibaba:

The plan is for the government to want sectors – not businesses – but Internet sectors to develop further. Already, the digital economy represents around 35% of global GDP. He’s growing in double digits. There will be new 5G and artificial intelligence, both on software and hardware. There will be a strong push in the semiconductor industry. We are deepening the development of these technological sectors – not just mobile phones. It’s not just Apple, but it also depends on the actual manufacture of these things, the microchips and even further on the elements that make up these chips.

On what these companies the Chinese government dislikes are doing:

They grew up a bit too fast, crossing that line and entering, for example, the banking world by perhaps mobilizing customer deposits. The limit can be blurry when a company sells products on the internet – like Amazon and Alibaba – and the customer uses a prepaid card to put funds that will be available when they need to make the purchase. Gradually, the funds put into these prepaid cards resemble a bank deposit. Companies must therefore decide how to manage these funds. Do they offer a little interest?

And that means they’re really crossing the line, in an industry that, unlike the internet, needs to be heavily regulated because it’s a systemic industry for the economy. Not everyone can open a bank. You need a license because you need to have a certain ratio requirement for financial stability. Not everyone can ask people to put their savings into their account, even if they pay interest in return. This is what raised concerns in Beijing. Seeing these internet companies crossing the border from being strictly in the internet business and moving into banking.

There are two problems. First, you are heading into an industry that is not your own. That is already a red alert. Second, you are heading into a strategically important area. Banks boost renminbi value [and] the value of interest rates. Of course, this cannot be in the hands of individual private companies.

On whether companies like Tencent and Alibaba will be able to grow:

It’s very difficult to answer, to be honest. I want to re-emphasize this point. The micro sector is an easy call.The microphone call on [an] sole proprietorship is a bit more difficult. So if you ask me, will Alibaba continue to grow?I can quite honestly – and I hope everyone will say this – I don’t know. If you ask me if the Internet [and] The online shopping industry will grow, so I’ll be very confident to say I think so.

I think it’s good that you asked me that question, because that’s the message we need to convey to our readers. Going into sole proprietorships adds a different level of risk compared to investing in companies that trade or operate in Europe. Here in China, it’s a largely policy-driven economy. Politics can change, suddenly, which could affect individual businesses. So you have TikTok which can go really high all of a sudden and then it might have some issues. This is why it is very difficult to predict individual microenterprises. I have been in China for 15 years and have always avoided making calls to individual companies, it is better to look at the sectors.

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