Shuli Ren

If You Think China Cares About Investors, Think Again

All of a sudden, the hawks in the Chinese government are loosening the grip on their prey.

The big tech companies that suffered the most from a yearlong crackdown might soon see light at the end of the tunnel. In recent days, China accelerated the approval of new video game titles, ending an eight-month freeze in the world’s largest mobile-entertainment market. Meanwhile, regulators are preparing to lift a ban on new users at ride-hailing giant Didi Global Inc., according to the Wall Street Journal.

These developments have prompted investors to ask whether China’s stock market has bottomed. In the last year, tech companies lost as much as $2 trillion in market value, the equivalent of 11% of China’s gross domestic product, estimates Goldman Sachs Group. Will China boost investor confidence before the much-anticipated 20th Communist Party congress later this year?

US-listed Chinese tech stocks saw a rebound in June, as investors bet Beijing is easing its regulatory crackdowns.

That is wishful thinking. Ask yourself, since when has China cared about investors’ feelings? Last year’s policy offensives were sudden and brutal. In July, regulators banned Didi from app stores only a few days after the company’s blockbuster $4.4 billion initial public offering. A few weeks later, China halted for-profit after-school tutoring, wiping billions of market value off investor darlings such as New Oriental Education & Technology Group Inc. and TAL Education Group.

Rather, the recent regulatory easing is most likely intended only to create jobs — a key component of the “stability” that President Xi Jinping seems to be promoting amid frustration over Covid lockdowns. In recent months, the keyword “layoff” has trended on Baidu Inc.’s search engine. In April, the latest data available, unemployment in major cities ticked to 6.7%, the highest on record, while consumers’ job expectations tanked.

Tech firms are reluctant to admit to job cuts, but there are many media accounts that they have been laying off workers. For instance, Caixin reported that video-streaming platform Bilibili Inc. recently dismissed as much as 20% of staff in some business units. This should come as no surprise: In the first quarter, Bilibili’s operating loss almost doubled from a year earlier.

When the government breaks your business model and locks down whole neighborhoods just because of a few Covid cases, wouldn’t job cuts be a natural defense mechanism? Tech firms are just trying to survive.

But their jobs are especially important now, because China will unleash a record 10.8 million college graduates this summer. As of April, fewer than half got job offers, according to online recruitment platform Zhaopin Ltd. As for those who found jobs, some express worries on social media that their future employers might rescind the offers by the time they graduate.

In the past, tech and media companies recruited a big chunk of fresh college graduates. Before the tutoring crackdown, the education sector had accounted for an estimated 17% of jobs among recent college graduates. Most are gone now: New Oriental dismissed 60,000 workers last year as revenue fell 80%.

It’s not just unemployed college graduates. China has more than 170 million migrant workers to worry about too. About one-quarter were employed in the services sector, such as retail, transportation, hotel and catering. Many small business owners called it quits because of the lockdowns.

Gig economy jobs, such as food delivery and ride-hailing services, which Alibaba Group Holding Ltd., Meituan and Didi can provide, help create buffers for migrant workers. It’s been hard and unpredictable work — in one instance drivers were stranded for days as a result of Shanghai’s Covid controls — but the pay is good. Delivery workers could earn as much as 10,000 yuan a month, more than a fresh college graduate’s starting salary. Is this perhaps why China is preparing to end the Didi ban?

Seen from this perspective, would you even ask if the regulatory easing means a bottoming of tech stocks? The government is relenting — a bit — only to ensure a smooth economic ride toward the all-important party gathering, when Xi is expected to be anointed to a third-term. The government’s many objections toward tech companies, from antitrust to data security, have not changed. Their business models are still on shaky ground.