China tries to get along with Big Tech as economic challenges mount

China is once again trying to lift the spirits of its massive tech industry after a scathing regulatory onslaught that weakened some of its biggest businesses at a time of stagnant economic growth.

In a rare public show of support for the private sector, Vice Premier Liu He said on Tuesday that the government would “properly manage” the government-market relationship and support tech companies to be successful. listed in domestic and foreign markets. Liu is one of President Xi Jinping’s top economic advisers.

He was speaking at a symposium with other Chinese technology officials and executives, including Robin Li, CEO of internet search giant Baidu, William Ding, CEO of gaming and content company NetEase, and Zhou Hongyi, CEO of security firm Qihoo. 360 Technologies.

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

Those concerns were reinforced on Wednesday when Tencent posted zero first-quarter revenue growth, a worse-than-expected result.

Beijing’s year-long regulatory crackdown has left deep scars on the huge tech sector. Along with the weakening economy, the campaign wiped out more than $1 trillion from the market value of Chinese companies.

Many tech companies have reported dismal profits or cut tens of thousands of jobs to reduce operating costs.

The Chinese economy will likely contract in the second quarter as Covid lockdowns wreak havoc on activity. Consumer spending and factory output shrank sharply last month, while unemployment rose to the highest level since the initial 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 precious than gold,” he said.

The Nasdaq Golden Dragon China Index, a leading index that tracks Chinese companies listed on Wall Street, rose more than 5% overnight after Liu’s comments. Alibaba (BABA) rose more than 6% on the New York Stock Exchange. Baidu jumped 4.8%.

The broader US market 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%.

“Although the [simpósio] didn’t include much new context in our view, we believe the meeting suggests another positive regulatory signal regarding the platform’s economics and supportive attitude from internet companies seeking listing in foreign markets,” Citi analysts said Wednesday.

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

The Hang Seng Tech Index, a leading index for Chinese tech companies listed in Hong Kong, dropped 2.3% on Wednesday. The last drop was 0.3%. The benchmark Hang Seng index closed up 0.2% after choppy trading.

Alibaba lost 0.6%. Tencent fell 0.8%. Kuaishou, TikTok’s rival in China, fell 2.5%.

The “Chinese government appears to be running out of policy tools to support growth,” said Ken Cheung, chief Asian currency strategist at Mizuho Bank.

Growing downside risks to growth may have prompted the leadership to end the technology crackdown quickly, Cheung said. But it may take longer to restore investor confidence, he added.
Recent gains show just how much China’s tech industry continues to struggle.

Online retail giant JD.com on Monday reported its slowest quarterly revenue growth since going public in 2014.

Earlier this year, Alibaba and e-commerce company Pinduoduo reported their lowest sales growth as public companies in the December quarter.