The Chinese Regulatory Crackdown: Should you be Worried?
In June China’s ride-hailing app Didi, the country’s equivalent of Uber, floated on the US stock exchange. The company ended its first day with a valuation of $68.5bn (£49.6bn). That is the biggest flotation by a Chinese company in the US since Alibaba, popularly dubbed “the Chinese Amazon” and founded by China’s most high-profile tech entrepreneur, Jack Ma.
As the old warning has it, stocks can fall as well as rise in value, something which Didi swiftly proved. Less than a week after its apparently successful flotation Didi was being sued by US shareholders after a crackdown by regulators in Beijing triggered a sharp fall in the company’s share price.
The company’s share price fell 20% after the regulators told online stores to remove the ride-hailing app, saying that it illegally collected users’ personal data. The lawsuits allege that Didi failed to disclose the ongoing talks it was having with the authorities, concerning its compliance with cybersecurity laws and regulations.
In many ways Didi is irrelevant in this story. What is important is the attitude of the Chinese authorities, and the fact that the action they took directly caused investors in the US to lose money.
A similar story can be told about Bitcoin, the most well-known of all the cryptocurrencies. In April of this year, Bitcoin reached an all-time high of £47,640. Since then it has lost more than 50% of its value and – at the time of writing – now stands at £21,810.
A significant contributory factor in this was, again, the attitude of the Chinese authorities. This time it was the Chinese Central Bank, which ordered banks and payment platforms to stop supporting digital currency transactions and said that it would take a much tougher line in future.
Action has also been taken not just against companies and currencies, but against individuals. We mentioned Jack Ma above: in November last year he suddenly disappeared for three months, having made a controversial speech and fallen foul of the authorities. He duly re-emerged but, again at the time of writing, is currently “lying low” again, having had another spat with the regulators. “He has taken up painting as a hobby,” said his co-founder at Alibaba.
Action from the Chinese regulators seems to be increasing rather than decreasing and as investment by Chinese companies grows around the world clients are entitled to ask a simple question. Could this sort of action affect my savings and investments?
In theory the equally simple answer is yes. Profit and loss forecasts, earnings and dividends are one thing: seemingly arbitrary action by regulators sitting in an office 5,000 miles away is quite another. However, worry not. The key thing, of course, is that the action does not affect anyone’s entire portfolio. A diversified portfolio, one that is not over-reliant on one geographical market, and certainly never on one particular company, can help to avoid the worst of it.
By maintaining consistent contact with our clients, we are always available to answer questions. The world continues to change, 20 years ago owning shares in a Chinese taxi company was the stuff of fantasy, but rest assured that we are always up to date with that change and will always act accordingly, and in your very best interests.