China tech/Ant: Beijing tries to fix sector it should not have broken

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Chinese tech stocks beat the broader benchmark on Monday. That might seem an odd reaction to the $984mn fine China imposed on digital payments group Ant.

However, investors hope the penalty — and official talks with tech groups — signal that a three-year regulatory crackdown is drawing to an end. The rapprochement comes much too late to put the companies such as Ant and Alibaba back on a path to strong growth.

The Ant fine is one of the largest on record for a tech group in China. The central bank found Ant violated laws in areas including corporate governance and consumer protection. It said that most outstanding problems had been rectified and it would now focus on “normalised supervision” of Ant.

Tellingly, China’s state planner, overseen by the cabinet of Premier Li Qiang, held a meeting with businesses including tech group Baidu on Monday. The aim: to reassure the private sector it will support entrepreneurs to “grow and thrive”.

For ecommerce giant Alibaba, which holds a stake of a third in Ant, that means it can revisit a plan to list the payments subsidiary.

This would be a positive step, but no cure-all for Alibaba’s woes. At its original $315bn valuation in 2020, a listing for Ant would have offset slowing growth in the parent’s core ecommerce business. The impact is more muted at the current valuation. Ant has proposed a buyback of 7.6 per cent of its equity, valuing the whole business at $78bn.

The timing of the buyback implies that a listing would come, if at all, much further down the line.

If officialdom had moved to reassure the market a year ago, the boost to sentiment would have been much more positive. But investors still have high hopes for Chinese equities, which staged a strong rebound in the last quarter of 2022. The mere sighting of Alibaba founder Jack Ma in Europe — implying state disapproval had dissipated — was enough to give Alibaba stock a boost. 

It has fallen more than a quarter from its January peak. At 11 times forward earnings, it trades at a small fraction of global peers. Global capital now sees Chinese regulatory risk as unpredictable and severe. Weak Chinese growth means there is less these days to attract them back.