A Wild Week in China Roils Tech Stocks, Debt Markets, Hong Kong

16 Nov 2020, 12:05 AM IST

(Bloomberg) -- Chinese authorities moved on a number of fronts to rein in potential risks to the Communist Party’s rule, touching everything from tech firms to bond markets to political dissent in Hong Kong.

The actions rattled markets as investors sought to grasp the rationale for the changes emanating from Beijing’s opaque corridors of power. They came shortly after the shock suspension of Ant Group Co.’s record-breaking $35 billion initial public offering.

Here’s a quick roundup of the latest developments:

Tech Crackdown

China’s State Administration for Market Regulation is a sleepy government bureaucracy essentially unknown outside the country. But on Tuesday morning, SAMR dropped 22 pages of dense regulatory proposals that wiped out $290 billion in market value and signaled the most sweeping overhaul of the country’s technology industry since the founding of the People’s Republic six decades ago.

The regulators took aim at the duopoly of Alibaba Group Holding Ltd. and Tencent Holdings Ltd., which are among the most valuable companies in the world. The new rules may block them from acquiring promising startups and force them to sell stakes in other companies.

Meanwhile, China’s top banking watchdog doubled down on its push to rein in financial technology companies such as Ant, saying they should be subject to the same supervision and risk management as banks. Analysts estimate that new rules could reduce the fintech giant’s value by as much as $140 billion. State-backed lenders such as China Merchants Bank Co. -- known domestically as the retail bank king -- are emerging as the biggest winners.

Miner Default

The onshore default of a state-owned coal miner from central Henan province took markets by surprise earlier this week, sparking fresh concerns over the level of implicit support state-linked firms can expect as Beijing moves toward introducing a market-led approach to risk.

Uncertainty over rising credit stress rippled through the market, prompting a selloff in the bonds of other state-owned enterprises and local government financing vehicles that spilled over into financial stocks. At least six Chinese banks cut their holdings of corporate bonds, and coal companies also rushed to cancel debt sales or delay pricing their notes as investors soured on the sector.

All that’s been exacerbated by fears of a potential credit crunch at a high-profile firm with ambiguous ties to the state. The commercial arm of a top Chinese university saw some of its dollar bonds sink to record lows of about 26 cents on the dollar as investors feared Tsinghua Unigroup Co. would struggle to pay off its imminently maturing debt.

Stress in China’s Credit Market Spills Over to Financial Stocks
China State Firms’ Dollar Debt Routed as Credit Stress Mounts
China State Banks Said to Cut Corporate Bond Exposure Amid Rout
Unigroup Seeks to Delay Full Repayment of $196 Million Bond
China’s Giant Coal Sector Roiled by Debt Woes, Trade Pressures

Hong Kong

China this week passed a resolution allowing any Hong Kong lawmakers deemed insufficiently loyal to be disqualified from the city’s legislature, prompting opposition politicians to resign en masse. The move effectively neutered the opposition in the most democratic body under Beijing’s rule, one of China’s strongest actions yet to undermine the territory’s autonomy.

U.S. President Donald Trump’s administration condemned the move and vowed to continue sanctioning Chinese and Hong Kong officials who oversee the territory. It has until mid-December to decide whether to impose sanctions on any banks that conduct major transactions with those individuals.

Trump also signed an order barring American investments in Chinese firms owned or controlled by the military, prompting shares of top companies -- including China Mobile Ltd. and China Telecom Corp Ltd. -- to tumble. The Chinese Foreign Ministry on Friday accused the U.S. of “viciously slandering” its military-civilian integration policies, while also finally extending congratulations to Joe Biden on his election victory.