When Didi (NYSE:DIDI) proceeded with an initial public offering, it did not get the Chinese government’s blessing. Within days, regulators banned the DIDI app from new user downloads. It cited online data privacy concerns as the reason.
In late July, China decided to forbid non-profit online education firms from earning profits. TAL (NYSE:TAL) stock, which peaked at $90.96 in Feb., traded in the single digits.
Guilty by association, firms with solid fundamentals fell in sympathy. Alibaba (NYSE:BABA) paid a fine earlier in the year but could still face new regulatory headwinds. Gaming firm Bilibili (NASDAQ:BILI) may suffer from China’s renewed regulations against the online gaming market.
China is cracking down on video gaming because President Xi criticized gaming as the “incidence of myopia among students.” A newspaper called it "spiritual opium."
In the internet retail space, JD.com (NASDAQ:JD) could not avoid selling. The firm found new 52-week lows recently. Still, JD has a solid moat thanks to its superior logistics network. Investors who are too busy dumping good companies may forget why they should still own JD stock.
Cautious investors should understand why nearly all China-based companies are not fully investable. The Chinese Communist Party abruptly introduced new regulations. The market must now adjust for the slowdown ahead.
