November 29, 2020
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Global investors pummeled shares of China’s tech giants for a second day Wednesday following signs of a crackdown by Beijing regulators.

On Tuesday, the Chinese government released sweeping new draft rules aimed at curbing monopolistic behavior among China’s largest Internet firms by imposing tighter restrictions on online payment systems, e-commerce platforms, and user data.

China’s State Administration for Market Regulation said it issued the draft rules to block anti-competitive behavior and create a more balanced playing field in China’s booming tech market.

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Investors saw the proposed rules as a direct threat to China’s tech giants, and by Wednesday, Internet firms like Tencent, Alibaba, JD.com, and food delivery company Meituan had lost a combined $260 billion in market value over a two-day period. Hong Kong’s Hang Seng tech index dipped nearly 8% on Wednesday, the biggest single-day drop since the 2008 Global Financial Crisis.

The proposed regulations are worrying for tech giants because the rules target practices that fueled their growth.

Perhaps most concerning is the rule that threatens Chinese tech’s biggest weapon: massive troves of data. Chinese tech companies like Tencent and Alibaba collect mountains of consumer data that they use to target consumers with personalized ads and purchase suggestions. The new rules may limit how platforms collect and deploy user data. The legislation also may prevent companies from employing price discrimination practices, in which the same products are sold at different prices based on the user.

For major e-commerce platforms like Alibaba and JD.com, the proposed regulations may eliminate their ability to enter into exclusive brand relationships with their retailers.

That Beijing proposed the new rules on the eve of Alibaba’s Singles Day, the biggest shopping event in the world, seems to underscore the message that the government is no longer interested in business as usual.

The new rules also came just one week after Beijing pulled the plug on Ant Group’s highly-anticipated dual-listing in Shanghai and Hong Kong. The fintech giant’s debut was set to be the world’s largest-ever IPO, but now appears to be delayed at least six months after the company failed to meet new, separate legislation aimed at leveling the playing field in China’s fintech industry.

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