A US$33 billion hit shows China’s newest stock worry

Just as China’s beleaguered tech stocks look to have put the worst of their regulatory blues behind them, a new threat is emerging as firms ramp up a battle for business at home.

A report this week that JD.com is launching a subsidy campaign to fight back against the advances of rival PDD Holdings sent fresh shivers through the sector, slamming shares in both firms and their larger e-commerce rival Alibaba Group Holding. Together, the three companies lost US$33 billion of market value in US trading on Tuesday, according to data compiled by Bloomberg.

Moves by Beijing to wind back its bruising crackdown on the tech sector were well received by investors in the back half of last year, but that optimism is now starting to ebb. Instead, markets are fretting about costly price wars and fresh rounds of cash burn as firms that are struggling to expand internationally intensify rivalries at home.

“With overseas opportunities for Chinese Internet companies drying up, it will be harder for them to do business and make acquisitions overseas going forward,” said Robert Lea, an analyst at Bloomberg Intelligence. “Hence they will be more focused on the domestic market for growth, resulting in rising competition, including on pricing.”

It’s not just JD’s planned US$1.5 billion subsidy campaign that’s ruffling feathers. Moves by Meituan to hire 10,000 people on the mainland were seen as an effort to beat back heightened competition from new entrants such as ByteDance’s Douyin in the US$145 billion Chinese food arena. Away from online commerce, NetEase and MiHoYo are upping their battle against gaming leader Tencent Holdings.

To be sure, analysts are still upbeat with hardly a sell recommendation to be seen for JD or its main peers. According to Citigroup’s Alicia Yap, JD has a track record of spending prudently and can be expected to offer sensible promotions. With its profit margins already among the lowest in the Nasdaq Golden Dragon China Index and expected to slip further, the firm has limited room for manoeuvre.

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For some investors, concerns run deeper than the impact of heightened rivalries on companies’ bottom lines and financials.

“We still lack clarity on what kind of behaviour is considered acceptable and what is not, for tech giants, and cut-throat competition may drive these firms to do extreme things,” said Wu Yuefeng, a fund manager at Wenzhou Jia Yue Investment Management. “No one can tell what these firms will do for market share and at what point authorities will say ‘enough.’ That is the source of anxiety.” BLOOMBERG