Chinese flag and other flags outside Hong Kong Stock Exchange
Photo: Paul Yeung/Bloomberg via Getty Images

Are Chinese tech stocks OK?

Protocol China

Hi! If you are an equity investor in Chinese tech companies, I am sorry to confirm that yes, it is only Wednesday. If you’re not, congratulations, and join me in unpacking the roller coaster ride of the last three days. Also in this week’s newsletter: potential record fines for Tencent, DJI drones used by the Russian army, and how local lockdowns affect Apple and Tesla.

Finally, some Protocol China news: This newsletter will take a brief hiatus as my colleague Shen Lu and I step into different roles. It's been great being your newsletter host. Keep an eye on your inbox for what's next with Protocol China. (And if you’re interested in reporting on China for Protocol, check out our job posting here.)

Zeyi Yang

The carnage

On Monday, most Chinese tech companies listed in either the U.S. or Hong Kong experienced a disastrous wave of panic selling, pushing prices to a record low. Wednesday they began a strong rebound — what a ride!

The drop was scary even in a market that’s always been volatile. “Crash” and “plunge” were not strong enough anymore; “carnage” and “bloodbath” have entered the conversation.

Russia-related risks, domestic COVID-19 spread and strong regulations are apparently the biggest contributors. It can be hard to pinpoint the exact reason for market behaviors, but these are the most common drivers analysts are pointing to.

  • Over the weekend, U.S. officials leaked to the media right before a high-level U.S.-China diplomatic meeting that Russia had asked China for military help. (The Chinese side denies it ever happened.)
  • Also, Beijing just concluded its annual top political meeting, “Two Sessions.” Investors were hoping for a signal — a few words in Xi’s speeches — that says Beijing is happy with the tech regulation progress and will end the current iron-fisted cycle. “In fact, the sentiment is the opposite: that there still is work to be done,” Michael Norris, head of China Consumer & Tech Research at AgencyChina, told Protocol.

The investors finally got their optimistic political signal on Wednesday, when Chinese Vice Premier Liu He held a meeting to stabilize the capital market and basically asked for more coordination and restraint from regulatory crackdowns. Stock prices promptly rebounded.

But the collapse of Chinese tech stocks has been a year in the making. After a strong performance in 2020, most overseas-listed Chinese tech companies have been on a consistently downward journey in the last year.

  • A widely shared photo has summarized the market cap changes from February 2021 to March 2022 for the 11 largest and best-known Chinese tech companies. Alibaba’s market cap was slashed by 66%; Tencent by 50%; and PDD, the rising ecommerce platform, by 82%.

Why? Because Chinese tech companies are no longer profitable, at least in the investors’ eyes. Ultimately, investors are looking for returns, and it has become much harder for Chinese tech companies to turn a profit when they are consistently squeezed by regulations, a domestic economic slowdown and other political factors.

  • The macroeconomy is weak, particularly domestic consumption, said Liqian Ren, quantitative investment specialist at WisdomTree and host of the podcast China of Tomorrow. And since these tech companies are mostly operating in mainland China, the lack of consumer demand is hurting them badly.
  • Russia, regulations, COVID-19 … all of these end up as mere factors in the earnings prospect. “If a Chinese company is still making a huge amount of money with all these risks, then who cares? The market will be up,” Ren told Protocol.

Visualizing ‘996’

How does the infamous “996” Chinese tech work schedule really manifest? A data visualization by state media subsidiary Sixth Tone highlights just what 12 hours a day, six days a week looks like for workers, using data from a viral campaign last year where thousands of employees shared their work hours anonymously.

On Protocol China

The Cyberspace Administration of China has come a long way from being an online content censor in 2013 to its status now as a mighty party-entity that regulates tech companies’ data security, overseas listings, algorithms and everything else. AJ Caughey and Shen Lu have the data that illustrates CAC’s steady rise to prominence.


If you’re a CEO these days, odds are that your CIO understands something you may not: Your company’s cybersecurity strategy is fundamentally flawed, and has been ever since your organization began using cloud-based services.

Learn more

Big Brother Beijing

Beijing tries to calm the panicking stock market. Following two disastrous days for Chinese companies listing overseas, China Vice Premier Liu He held an urgent meeting on Wednesday to stabilize the capital market. The most interesting line from the readout is calling other government agencies to coordinate with the financial regulators before they announce major policies that can disrupt the market. CAC and SAMR, that’s probably you.

Tencent faces huge fines for money-laundering risks. Chinese financial regulators are thinking about giving Tencent a ticket that could cost it hundreds of millions of RMB, The Wall Street Journal reported Monday. Sources say China’s central bank found out last year that Tencent’s payment product WeChat Pay can be used for gambling and money laundering.

China goes global

Drone-maker DJI is in the hot seat. On Wednesday, Mykhailo Fedorov, vice prime minister of Ukraine, posted a public call to Chinese drone company DJI to suspend its service in Russia. Fedorov claims Russian troops have used DJI drones to navigate their missile attacks. Earlier this week, U.S. design software company Figma blocked DJI’s corporate accounts, citing U.S. sanctions.

Apple and Tesla are hit with Chinese COVID-19 restrictions. Omicron cases are flaring up in at least three regions in China, prompting local governments to enforce quarantine policies and halt business activities. Apple supplier Foxconn temporarily stopped production in China and just resumed “some production.” Tesla is also closing its Shanghai Gigafactory for two days. Their future production depends on how soon China can contain the variant.

Straight from China's web

Will you sell your privacy for a free subscription? Chinese video platform Bilibili found itself in another controversy this week after two screenshots showing how users can register their real names, phone numbers and ID numbers (think an SSN in the U.S.) in exchange for a free subscription went viral. The company has responded that it’s the standard practice in co-promotion activities with telecom operators, but it would take down the promotion nonetheless. Considering how the entire social media business is built around selling user data for free services, Bilibili might have just said the quiet part out loud.

One more thing

As Chinese city Shenzhen — the home of Tencent and Huawei — entered a weeklong lockdown to contain the rising COVID-19 cases, Tencent obviously had to do its part too. The company announced that any user in Shenzhen could get a one-week free premium subscription to Tencent’s streaming platform to help them pass time in isolation more comfortably, as TechCrunch journalist Rita Liao pointed out on Twitter.


As a business leader, you need to understand that zero-trust is not just another buzzword. It’s a fundamentally different mindset that you will need to embrace — and the sooner you do so, the better.

Learn more

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