China stocks have been crashing lately. In this video, I’ll give you guys an update on what happened, what’s the impact of the China government crackdowns, and whether you should invest in China stocks now.
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0:00 – Intro
0:33 – What is happening?
In recent months, the China government has been cracking down on many companies. Their most recent crackdown was on private education firms, egTAL education, New Oriental education etc. Before this, they were cracking down on Didi, saying the company was collecting data illegally. They lectured Alibaba, Tencent, Bytedance and 9 other tech firms over data security concerns. They also blocked Tencent’s USD5.3 billion merger of game streamers Huya and Douyu. Ask Tencent to end exclusive music contracts. Started their crackdown on Meituan. Fined Alibaba, Baidu, Softbank, Bytedance for their anti competitive behavior. Blocked Jack Ma’s Ant ipo.
1:52 – Why is China cracking down?
There are actually a few reasons for all of this crackdown.
1. Prevent monopoly
Many of the tech giants force their retailers to only work with them, eg Alibaba, Tencent, Meituan. Because of this, all the other smaller companies won’t stand a chance against all the tech giants.
2. Security concerns
When Didi decide to IPO, the government found that it had serious violations of laws and regulations in collecting and using personal information. They also found that ByteDance’s news app and nearly 130 apps had illegal user data collection practices. They also found that over 60% of Wechat mini programs did not encrypt user info and over 90% of them did not protect user’s data.
3. Reduce education cost
Over the past few years, the private tutoring business has been booming. So now, China is forcing tutoring companies to be registered as non profit organizations. They want to ease the burden on children as well as their parents’ finances.
5:48 – What’s the impact?
1. Incentivize innovation
By preventing monopolistic behavior, it would mean that smaller companies now have a chance to compete. It would incentivize innovation because competition is always good for the entire industry. As long as the tech giants stick to regulations and keep innovating, they would be fine.
2. Tutoring companies
Tutoring companies will never recover back to their highs for a very long time. They might even go private in the end. Because China doesn’t want them to operate like a normal company where profit is the main goal.
Security will be one of the companies main concerns, user datas will be much safer and won’t be misused easily.
7:29 – My long term views
Other than tutoring companies, all the other stock crashes are just uncertainties. The fundamentals are still very strong. The main purpose of the crackdown is to want the companies to play by the rules, which will benefit everyone.
If you are interested to invest in China companies, you would invest through an ETF. For tech etfs, iShares Hang Seng Tech ETF or Lion OCBC Securities Hang Seng Tech ETF. For non tech, iShares Core Hang Seng Index ETF or Lion OCBC Securities China Leaders ETF.
For KWEB and CQQQ, they hold ADR of the companies. There’s a very small chance that US might decide to delist China companies from the US, which would be bad for KWEB and CQQQ.