From tuition to takeaways, why China’s regulatory crackdown is proving unappetising for investors
China’s government has just provided investors with another reminder of why they should tread carefully when putting money into the country.
At the end of last month, the Chinese ride-hailing app Didi made history when it floated on the New York Stock Exchange with a valuation of $70bn, making it the biggest IPO of a Chinese company in seven years.
Just days later, the Chinese government told Didi to stop registering new drivers and users for its app, which it followed by demanding that Didi be removed from Chinese app stores.
Didi was targeted days after floating in New York
The shares plunged and are now 42% lower than the price at which they listed.
Now Beijing has done it again with a fresh salvo aimed at tech and education companies.
Firstly, the Chinese government announced on Friday night that it was banning private tutoring and test preparation for core school subjects, arguing the move would ease financial pressure on hard-up Chinese families.
Private tutoring in China is a $120billion-a-year business and around three-quarters of Chinese children are reckoned to have some form of private tuition outside school.
Beijing, which is concerned about the country’s rapidly-ageing population, suspects the financial pressure of educating children privately may be a reason why couples are still not having more children despite the abolition in 2015 of the “one child” policy.
The measure, which is believed to have come from President Xi Jinping himself, was accompanied by restrictions on foreign investment in private tutoring companies and is also expected to see advertising bans imposed – as well as restrictions on when tutoring can be made available.
The clampdown on tutoring is believed to have come from President Xi Jinping himself. Pic: AP
The move sent shares of private tuition companies, many of which are listed in Hong Kong, tumbling.
New Oriental Education & Technology finished the session down 47%, while Scholar Education fell by 45% and Koolearn Technology by 33%.
Next came an attack on Tencent, one of China’s biggest tech companies, which on Saturday was ordered to give up the exclusive music licensing agreements it has signed with record companies – including Universal Music and Warner Music – around the world.
Tencent, which owns China’s most popular messaging service WeChat, is estimated to have an 80% share of the exclusive music streaming market in the country.
Shares of Tencent fell by almost 8% on the news.
Then, Beijing unveiled measures aimed at cooling what it sees as an overheated property market.
The People’s Bank of China (PBoC) is reported to have ordered lenders to raise mortgage rates for first time buyers from 4.65% to 5%.
At the same time, the PBoC is said to have ordered an increase in the interest rate for people buying second homes from 5.25% to 5.7%. That sent shares in property development companies lower.
Private tuition is big business for companies such as Koolearn Pic: AP
Separately, China also today announced new rules aimed at better protecting delivery riders, following complaints that some are not being paid the minimum wage or are being sent on routes where it is impossible to complete the order in the time allowed.
That news sent shares of Meituan, one of China’s biggest food delivery companies, down by 14%.
Its shares have now halved in value since February.
Shares of the e-commerce giant Alibaba, which also operates a popular delivery service called Ele.me, fell by more than 6%.
Taken together, the various measures add up to an unappetising cocktail for investors, who reacted accordingly.
In Hong Kong, the Hang Seng slid by 4.13%, taking it to a level not seen since December last year.
In Shanghai, the blue-chip CSI300 index fell by 3.22%, again wiping out all gains for the year to date.
The broader Shanghai Composite, meanwhile, fell by 2.34% to a two-month low.
Didi’s shares are now lower than the price at which they listed
There are two schools of thought as to what Beijing is doing here.
One is that this is just part of a wider campaign by the Chinese Communist Party to reassert its influence over life in China and strengthen its hand – with businesses and investors merely being caught up in this.
The other argues that this is a specific set of measures aimed at clipping the wings of businesses amid concerns that too many of them are not always operating within the law.
Aside from complaints about the treatment of workers in delivery firms, there is also a sense that the accounting practices of some property companies many not stand up to scrutiny, that the banks are being too lax with their lending standards and that the wealth being created by some of these companies, particularly those in the tech sector, are being too concentrated among a handful of plutocrats.
That theory is given credence by, for example, the way Beijing scuppered last year’s proposed stock market flotation of the payments company Ant Financial, which would have further added to the wealth of Jack Ma, the billionaire entrepreneur that created Ant and its former parent company, Alibaba.
Concerns about the quality of accounting at some companies have been rumbling ever since a former stock market darling, the coffee shop operator Luckin Coffee, collapsed last year after falsifying its accounts.
Either way, investors have been spooked, although some will have only themselves to blame given the way regulatory risk in China has been overlooked in recent years.
But it has certainly prompted investors in China to look more closely at their portfolios as they try to assess what other companies are at risk of seeing their business models reduced to rubble overnight by regulators.
Rightly so.
This Chinese government is very different from its immediate predecessors and is clearly far more relaxed about alienating foreign investors if it considers more important principles are at stake.
The steel tycoon Sanjeev Gupta is mounting a last-ditch bid to salvage his British operations after seeing an emergency plea for government support rejected.
Sky News has learnt that Mr Gupta’s Liberty Speciality Steels UK (SSUK) arm is seeking to adjourn a winding-up petition scheduled to be heard in court on Wednesday.
The petition is reported to have been brought by Harsco Metals Group, a supplier of materials and labour to SSUK, and is said to be supported by other trade creditors.
Unless the adjournment is granted, Mr Gupta faces the prospect of seeing SSUK forced into compulsory liquidation.
That would raise questions over the future of roughly 1,450 more steel industry jobs, weeks after the government stepped in to rescue the larger British Steel amid a row with its Chinese owner over the future of its Scunthorpe steelworks.
If Mr Gupta’s operations do enter compulsory liquidation, the Official Receiver would appoint a special manager to run the operations while a buyer is sought.
A Whitehall insider said talks had taken place in recent days involving Mr Gupta’s executives and the Insolvency Service.
Steel industry sources said the government could conceivably be interested in reuniting the Rotherham plant of SSUK with British Steel’s Scunthorpe site because of the industrial synergies between them, although it was unclear whether any such discussions had been held.
Listen to The World with Richard Engel and Yalda Hakim every Wednesday
Mr Gupta is said to have explored whether he could persuade the government to step in and support SSUK using the legislation enacted last month to take control of British Steel’s operations.
Whitehall insiders said, however, that Mr Gupta’s overtures had been rebuffed.
He had previously sought government aid during the pandemic but that plea was also rejected by ministers.
The SSUK division operates across sites including at Rotherham in south Yorkshire and Bolton in Lancashire.
It makes highly engineered steel products for use in sectors such as aerospace, automotive and oil and gas.
A restructuring plan due to be launched last week was abandoned at the eleventh hour after failing to secure support from creditors of Greensill, the collapsed supply chain finance provider to which Mr Gupta was closely tied.
Under that plan, creditors, including HM Revenue and Customs, would have been forced to write off a significant chunk of the money they are owed.
The company said last week that it had invested nearly £200m in the last five years into the UK steel industry, but had faced “significant challenges due to soaring energy costs and an over-reliance on cheap imports, negatively impacting the performance of all UK steel companies”.
It adds: The court’s ability to sanction the plan depended on finalisation of an agreement with creditors.
“This has not proved possible in an acceptable timeframe, and so Liberty has decided to withdraw the plan ahead of the sanction hearing on May 15 and will now quickly consider alternative options.”
One source close to Liberty Steel acknowledged that it was running out of time to salvage the business.
They said, however, that an adjournment of Wednesday’s hearing to consider the winding-up petition could yet buy the company sufficient breathing space to stitch together an alternative rescue deal.
A Liberty Steel spokesperson said on Tuesday: “Discussions continue with creditors.
“Liberty understands the concern this will create for Speciality Steel UK colleagues and remains committed to doing all it can to maintain the Speciality Steel UK business.”
The Insolvency Service and the Department for Business and Trade have also been contacted for comment.
Energy bills are set to fall from this July and will continue to drop in the autumn and winter, a forecaster has said.
Households will be charged £129 less for a typical annual bill from July as the energy price cap is due to fall, according to energy consultants Cornwall Insight.
From July, an average dual fuel bill will be £1,720 a year, 7% below the current price cap of £1,849 a year.
The price cap limits the cost per unit of energy and is revised every three months by the energy regulator Ofgem.
The official announcement from Ofgem will be made on Friday.
Money blog: How markets reacted to EU-UK deal
Bills had already been made more expensive for three three-month periods, or quarters, in a row, in October, January, and April, as wholesale gas prices rose and European stores of the fossil fuel were depleted due to cold weather.
Electricity prices are tied to gas prices.
The UK is also heavily reliant on gas for home heating and uses a significant amount for electricity generation.
Drops when the cap is next changed in October and January will be “modest”, Cornwall Insight said.
Price falls are not a certainty, however, as weather patterns, gas storage rules, the war in Ukraine, and tariffs could all change pricing.
Please use Chrome browser for a more accessible video player
Which bills rose in April?
Bills still high since Ukraine war
Energy costs have remained elevated following Russia’s full-scale invasion of Ukraine, and bills are still “well above” the levels seen at the start of the decade, said Cornwall Insight’s principal consultant, Dr Craig Lowrey.
“Prices are falling, but not by enough for the numerous households struggling under the weight of a cost-of-living crisis.
“As such, there remains a risk that energy will remain unaffordable for many,” he said.
“If prices can go down, they can bounce back up, especially with the unsettled global economic and political landscape we are experiencing. This is not the moment for complacency.”
Read more from Sky News:
Reeves ‘open-minded’ on banks’ push for ring-fencing reform
Ryanair raises fares after profits hit by lower ticket prices
The government was called on by Mr Lowrey to explore options such as social tariffs, where vulnerable customers could pay less.
Proposals, including zonal pricing, which would see different regions of the country pay different rates, based on local supply and demand levels, are important but must be balanced with the urgent affordability crisis people are facing now, he said.
The continued growth of domestically produced renewable energy is “a positive step forward” and a cause for optimism as it helps protect against global energy price shocks and improves energy security, Mr Lowrey added.
“That progress needs to continue at pace, not just for the net zero transition, but to help build a more stable and secure energy future for all.”
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business3 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway