(Bloomberg) — A wave of selling in China’s bellwether technology stocks continued for a fifth day, following Beijing’s latest move to tighten its grip on the nation’s internet giants.
The Hang Seng Tech Index dropped as much as 1.9%, as China’s market regulator released draft rules banning unfair competition among the nation’s online platform operators. That followed Monday’s selloff in Chinese online game stocks in the wake of state media criticism of the sector.
Baidu Inc. and NetEase Inc. slumped as much as 5% and Tencent Holdings Ltd. dropped almost 4%. U.S-listed China tech shares sold off overnight as the Securities and Exchange Commission warned about the risks of investing in Chinese stocks.
The wide-ranging proposals released Tuesday come after the tech-industry ministry launched a campaign last month aimed at rooting out a raft of problematic behavior. It follows moves by Beijing to rein in the country’s internet leaders in areas from antitrust to data security and ride-hailing.
The draft covers protections for intellectual property and brand reputation as well as a ban against using algorithms or fake reviews to promote goods and services. Alongside expressly prohibited behaviors like forced exclusivity arrangements, companies will also not be permitted to use technical means to interfere with the operations of rival platforms or maliciously render those services incompatible with their own.
The latter could force giants like Tencent and Alibaba Group Holding Ltd. to dismantle their walled-off ecosystems that had prevented users from accessing one company’s services from the other’s platforms. Alibaba Chief Executive Officer Daniel Zhang earlier this month signaled support for the removal of those barriers, saying that he saw “cross-platform openness and connectivity as a positive trend.”
Why China Is Cracking Down on Its Technology Giants: QuickTake
“State media commentaries or official measures are still affecting market sentiment,” said Daniel So, strategist at CMB International Securities Ltd. He added that investors were also cautious ahead of Tencent’s earnings release, due Wednesday.
China’s uncertain regulatory environment continues to cast a shadow on the tech sector. U.S. filings showed that other funds joined George Soros’s investment firm in dumping China-based companies with listings in the U.S. in the second quarter.
In the weeks following a ban on profits in China’s tutoring sector, stocks have gyrated on state media warnings on everything from gaming addiction, alcohol and e-cigarettes to over-marketing of infant formula.
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