What Happened to Chinese Stocks in 2021?
Come take a look at our article to learn more about how various factors such as the Chinese tech crackdown and US-Sino tensions impacted Chinese stocks in 2021.
It has been one of the fiercest sell-offs the Chinese equity market has experienced in a long time. Some Chinese stocks lost more than 90% in value in 2021, while the MSCI China lost 22%.
So, what exactly happened? Well, several factors were at play.
The Chinese Tech Crackdown
The Chinese government has tightened its grip on the technology industry. Chinese lawmakers have become increasingly concerned that some of the country's largest technology corporations, such as Alibaba and Tencent, have gotten too powerful. Monopolies are not good for economic development and certainly not for the power grip of the Communist party.
One sector the government has almost completely shut down is the online tutoring industry. Chinese officials believe expensive online tutoring has placed too much financial burden on families. It also drives inequalities, as only better-off families can afford tutoring, enabling their children to study in better universities and get ahead in life.
Part of that narrative can also be that Chinese officials do not appreciate Chinese children being tutored online by foreigners outside of the official school curriculum.
US-Sino Tensions
A second factor is the conflict with the US. American regulators have threatened to delist Chinese companies from US stock exchanges. Chinese issuers usually list what is known as American Depository Receipts (ADRs), which entail a right to Chinese equity. As US regulators said it would monitor more strictly whether Chinese companies meet all regulatory requirements to be listed on US exchanges, many investors became concerned and sold their ADRs.
Likewise, the Chinese government said it would look into the VIE structure, enabling Chinese companies to list their stocks overseas. That, too, has raised concerns among investors that Chinese regulators might make it more difficult for Chinese companies to list abroad.
Are Chinese stocks now cheap? That is hard to say. They have come down in price, but nobody knows what more changes the Chinese government has planned. So when buying Chinese stocks today, the regulatory risks are something to keep in mind.
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