Chinese tech stocks continue slide as investors fear regulatory crackdown

Alibaba shares fall 8% despite the company increasing size of a stock repurchase plan to $10bn from $4bn

A motorist drives past an Alibaba office building in Shanghai. Alibaba has shed more than $230bn in value from its recent peak as authorities have increased scrutiny over China's largest technology fiShow more

Alibaba Group Holding led a second day of frenetic selling among China’s largest tech firms, driven by fears that anti-trust scrutiny will spread beyond Jack Ma’s internet empire and engulf the country’s most powerful corporations.

Alibaba and its three largest rivals – Tencent Holdings, food delivery giant Meituan and JD.com – have shed nearly $200 billion over two sessions since Thursday, when regulators revealed an investigation into alleged monopolistic practices at Mr Ma’s signature company. That marked the formal start of the Communist Party’s crackdown on not just Alibaba but also, potentially, the wider and increasingly influential tech sphere.

On Sunday, the central bank ordered Mr Ma’s other online titan – Ant Group – to return to its roots as a payments service and overhaul adjacent businesses from insurance to money management, spurring talk of an eventual breakup.

“The Chinese government is putting more pressure or wants to have more control on the tech firms,” Jackson Wong, asset management director at Amber Hill Capital, said. “There is still very big selling pressure on firms like Alibaba, Tencent or Meituan. These companies have been growing at a pace deemed by Beijing as too fast and have scales that are too big.”

It’s unclear what concessions regulators may try to wring from Alibaba. Under the existing Antitrust Law – now undergoing revisions to include the internet industry for the first time – Beijing can fine violators up to 10 per cent of their revenue. In Alibaba’s case, that could mean a levy of as much as $7.8bn.

China’s e-commerce leader on Monday raised a proposed stock repurchase program by $4 billion to $10 billion, effective for two years through to the end of 2022, but its shares still closed 8 per cent lower in trading in Hong Kong on Monday. The buyback program was overwhelmed by fears that the steps taken against Ant are just the tip of the iceberg. While the central bank stopped short of calling for a breakup, the financial services giant now needs to present specific measures and a timetable for overhauling its business.

The State Administration for Market Regulation dispatched officials to Alibaba's Hangzhou headquarters last Thursday and the on-site investigation was completed on the day, according to local news reports. The People's Daily newspaper ran a commentary over the weekend warning Alibaba's peers to take the anti-trust investigation into Alibaba as a chance to lift their own awareness of fair competition.

Mr Ma, the flamboyant co-founder of Alibaba and Ant, has all but vanished from public view since Ant’s IPO was derailed last month. As of early December, the man most closely identified with the meteoric rise of China's private sector was advised by the government to stay in the country, a source said.

Mr Ma isn’t on the verge of a personal downfall, sources said. His very public rebuke is instead a warning that Beijing has lost patience with the outsize power of its technology moguls, increasingly perceived as a threat to the political and financial stability President Xi Jinping prizes most.

Investors remain divided over the extent to which Beijing will go after Alibaba and its compatriots as the government prepares to roll out the new anti-monopoly regulations.

Some analysts predict there’s a crackdown coming, but a targeted one. They point to language in the regulations that suggests a heavy focus on online commerce, from forced exclusive arrangements with merchants known as “Pick One of Two” to algorithm-based prices favouring new users. The regulations specifically warn against predatory pricing – selling below cost – to weed out rivals.

“As this latest investigation occurs at a time when China is ready to take action against monopolistic practices, we think SAMR might want to use [Alibaba's] case as a precedent to send a message to the rest of the industry that the authority is determined this time to address” the pricing issue, Nomura analysts wrote in a note on Monday.