China tries to come to terms with Big Tech as economic challenges mount

In a rare public show of support for the private sector, Vice Premier Liu He said on Tuesday that the government will “properly handle” the relationship between the government and the market and encourage technology companies to list in domestic markets and strangers. Liu is one of President Xi Jinping’s top economic advisors.
He was speaking at a symposium with other Chinese tech officials and executives, including Robin Li, the internet search giant’s CEO Baidu (BIDU)William Ding, CEO of a games and content company NetEase (NTES)and Zhou Hongyi, CEO of internet security firm Qihoo 360 Technologies.

Chinese stocks on Wall Street surged after Liu’s comments, but mostly declined Wednesday in Hong Kong. This suggests that the market is still deeply concerned about the growth prospects of major Chinese internet companies and awaits more specific commitments from the government.

Those concerns were reinforced on Wednesday when Tencent (TCEHY) reported zero revenue growth in the first quarter, a worse-than-expected result.
Beijing’s year-long regulatory crackdown has left deep scars on the massive tech sector. Coupled with a weakening economy, the campaign wiped out more than $1 trillion in market value from Chinese companies. Many tech companies have reported dismal revenues or cut tens of thousands of jobs to cut operating costs.

China’s economy is expected to contract in the second quarter as Covid lockdowns wreak havoc on activity. Consumer spending and factory output both fell sharply last month, while unemployment hit its highest level since the first coronavirus outbreak in early 2020.

Looking at the fine print

Liu’s comments were well received by technology executives at the symposium.

Qihoo 360’s Zhou said on Weibo that he felt “trust and support” from the meeting. “Right now, trust and support are more valuable than gold,” he said.
The Nasdaq Golden Dragon China Index, a key index that tracks Chinese companies listed on Wall Street, jumped more than 5% overnight following Liu’s comments. Ali Baba (BABA) climbed more than 6% on the New York Stock Exchange. Baidu jumped 4.8%.

The broader US market has also closed higher on Tuesday. The Dow Jones Industrial Average closed up 1.3%. The S&P 500 rose 2% and the Nasdaq Composite gained 2.8%.

“While the [symposium] did not include much new context in our view, we believe the meeting suggests another positive regulatory signal towards the platform economy and a supportive stance for internet companies seeking to list on foreign markets,” said Wednesday. Citi analysts.

But Liu’s lack of details weighed on Asian markets on Wednesday.

The Hang Seng Tech Index, a key index for Chinese tech companies listed in Hong Kong, fell 2.3% onot Wednesday. It was last down 0.3%. The benchmark Hang Seng closed 0.2% higher after choppy trading.

Ali Baba (BABA) lost 0.6%. Tencent (TCEHY) fell 0.8%. Kuaishou, a TikTok rival in China, fell 2.5%.

The “Chinese government seems to lack the policy tools to support growth,” said Ken Cheung, chief Asian currency strategist at Mizuho Bank.

Escalating downside risks to growth could have prompted leaders to quickly end the tech crackdown, Cheung said. But it may take longer to restore investor confidence, he added.

Recent earnings show how China’s tech industry continues to struggle.

Online retail giant (J.D.) on Monday posted its slowest quarterly growth since its IPO in 2014.
Earlier this year, Alibaba and e-commerce company Pinduoduo reported their weakest sales growth as public companies for the December quarter.

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