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Global investors sold $2bn of Chinese stocks on Monday as Beijing’s crackdown on education companies raised fears of more regulatory tightening across the world’s second-biggest economy.
Investors offloaded Rmb12.8bn ($2bn) worth of Shanghai and Shenzhen-listed shares through market link-ups in Hong Kong, marking the fastest pace of foreign selling in a year.
The market tumult was sparked by a move by Beijing over the weekend to ban academic tuition groups from making profits, raising capital or going public. News of the measures, which were unveiled via a leaked memo and were later confirmed, wiped about $16bn from the value of three of the sector’s biggest companies on Friday.
Losses continued on Monday, with China’s benchmark CSI 300 of Shanghai and Shenzhen-listed stocks closing 3.2 per cent lower while a sub-index of education companies tumbled more than 9 per cent. In Hong Kong, the China Enterprises index of mainland companies fell 4.2 per cent while the broader Hang Seng shed 3.5 per cent. The Hang Seng Tech index was down 5.6 per cent, its worst single-day fall in almost five months.
Investors said the crackdown, which followed regulatory moves to rein in financial and technology companies including ride-hailing app Didi Chuxing and ecommerce group Alibaba, raised concerns that no sector would avoid more stringent policing.
“The growing speed and intensity of these crackdowns is unprecedented,” said Frank Benzimra, head of equity strategy at Société Générale.
China’s after-school tutoring industry has grown rapidly in recent years as middle-class parents have sought advantages for their children in the tests that determine admission to the country’s top universities. But the overhaul outlined in the leaked documents aimed to “effectively” reduce students’ academic burden and household spending on education within one year.
The Hong Kong-listed shares of New Oriental Education, one of the sector’s heavyweights, plunged more than 40 per cent on Monday, taking the stock’s losses to about 65 per cent over two sessions.
Beijing has launched successive crackdowns on fast-growing sectors over the past year. Regulators in November pulled the plug on the record $37bn initial public offering of Ant Group, a fintech company controlled by billionaire Jack Ma, at the last minute.
That was followed by a broader clampdown on technology groups, including an anti-monopoly investigation into Ant affiliate Alibaba and other big ecommerce platforms. Shortly after Didi’s New York IPO this month, new rules were introduced governing listings abroad for Chinese companies whose data-gathering activity covers more than 1m users.
“We can’t say what sector will be the next that the Chinese government wants more control over,” said Dickie Wong, head of research at Hong Kong brokerage Kingston Securities. “This will create fear and selling pressure in the near term.”
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