🔒 Hong Kong tech stocks drop sharply on Beijing action – With insights from The Wall Street Journal

But some observers say President Xi Jinping’s eagerness to exert tighter control over the country and the economy also is key.

“National security considerations trump everything else,” including growth, in Mr. Xi’s administration, said Diana Choyleva, chief economist at Enodo Economics in London.

With the recent slew of actions, business is being brought to heel by the Chinese government and the Communist Party, said George Magnus, an economist who is a research associate at Oxford University’s China Centre.

“It’s about systemically trying to establish the authority of the state, or of the party, over the private sector—which effectively has been at the cutting edge of China’s economic eruption for the last 20 or 30 years,” he said. “To the extent it stifles the private sector, and private-sector innovation, I think it will cost China in years to come.”

The new tutoring rules, published by state media, would force tutoring services teaching school subjects to students through compulsory years of education to be run as not-for-profit operations. They also would introduce fee standards, ban the companies from capital raising and foreign ownership and forbid teaching during weekends and public or school holidays.

While regulators aren’t concerned about inflicting losses on investors in educational stocks, the rules aim primarily to restore order to the sector, given high fees and other issues, said Hong Hao, chief strategist at Chinese state-owned bank BoCom International.

“The purpose is to ensure that kids get proper education,” he said. “It’s not to wipe out the entire market and destroy everyone’s portfolios.”

He said authorities could later turn their focus to other areas that they consider out of control, such as healthcare and property. “These sectors are areas where the most painful reforms have to be done,” he said.

A previous clampdown on peer-to-peer lending effectively shut down the fintech experiment, though some companies survived by diversifying into other business lines. Late last year a top banking regulator said China’s peer-to-peer industry had been “zeroed out.”

Monday’s selloff left the Hang Seng Tech Index at 6790.96—not far from its first-day close of July 27, 2020, when it ended at 6774.78. The gauge, run by Hang Seng Indexes Co., was meant to complement efforts by the operator of Hong Kong’s stock exchange to attract more tech listings and investment. But it has sold off since peaking in mid-February, trailing tech-heavy U.S. benchmarks.

Some analysts and investors said they were hopeful that China’s rolling crackdowns would improve the industries they target and weren’t meant to hobble national champions or to prevent companies from being inventive.

“The tightening of regulation should benefit the leading players,” said Jessica Tea, a senior investment specialist for Asia equities at BNP Paribas Asset Management. She drew parallels between the current situation in education and an earlier shake-up of online gaming.

Write to Quentin Webb at [email protected], Joanne Chiu at [email protected] and Chong Koh Ping at [email protected]