KrASIA Weekly: Plunging China’s stock prices and the effect on China’s tech economy

2018-10-21

Hi there, it’s Robin.

After a week of further hammering on China’s stock market and the persistent Sino-US trade war that shows no signs of respite, the country’s top financial officials finally stepped in. This move proved to be a necessity to ease growing financial pressures on companies to contain the burgeoning ‘bear market effect’ as Chinese equities reversed slightly on Friday.

Apparently, in a Bloomberg report this week, share prices in Shenzhen – China’s hi-tech hub – have fallen by a whopping 33% since the beginning of this year. The same report also cited analysts commenting that the equity market is facing a ‘liquidity crisis’ at the moment.

Privately-owned tech startups have been booming for the longest time against the flooding of fresh funds backed by company founders’ shareholdings. With a falling stock market, brokerages are now actively looking to cut losses, leaving founders in a vulnerable position where they might have to give up certain ownership of their companies. The impact of this forced selling phenomenon will only aggravate the present depressing situation.

Tencent Music is one example of a Chinese tech giant that has put its initial public offering plans on hold following the market turmoil. Tencent Holdings – its major shareholder – itself is also under massive pressure, engaging in share buybacks hoping to instil confidence back in investors in addition to its major restructuring plan.

The other highly anticipated Chinese tech IPOs this year did not perform that well either. Meituan, Xiaomi, and Pinduoduo – all of them – have all seen their stock prices decline after their trading debut.

Uncertainty hovers on over how all of these will eventually pan out. It would also be interesting to see the kind of new opportunities that would be available for the Chinese tech scene in future.

After all, other than the dismal stock markets, there is still strong interest in China’s vast internet community. Google and its Project DragonFly is one example. Following the breaking news of Google’s China plans about two months ago, the tech giant has now decided to shift from its passive stance to a more aggressive approach. Google’s CEO Sundar Pichai brought up that subject at the Wired conference revealing that tailored-for-China search engine could return relevant results in nearly all cases during Google’s own trial.

WeWork is also advancing further into the middle kingdom, looking to offer office spaces for the growing and thriving startup scene in China.

On the flip side, the journey might not be all that easy. Even Starbucks – one of the best so far – is facing stiff competition from local coffee players like Luckin Coffee and Coffee Box. The current gloom over China’s financial market, if left uncontrolled, could easily slow down China’s tech startup scene.

As for Southeast Asia (SEA) tech startups, the playbooks of the successful Chinese tech giant will always be helpful for them to navigate their way around difficult times. Grab, for instance, is beefing up safety initiatives whilst China’s Didi Chuxing is still reeling from the public scrutiny over its safety mechanisms after 2 murders.

In the online lending space, China’s peer-to-peer (P2P) lending crisis could be something for SEA’s lending startups to learn from. Taking Indonesia for example, the nation is also facing similar problems. Despite regulatory efforts, the shady online lenders are still active in Indonesia.

Read on to find out more interesting stories from last week, and feel free to tip us if you have news clue or you just want to talk with us, email us at hello@kr-asia.com and we are looking forward to hearing from you.

Here are some stories you shouldn’t miss.