China’s tech crackdown is forcing investors to give other markets a second look

Chinese authorities scrambled Wednesday to calm global investors traumatized by Beijing’s regulatory blitzkrieg on the nation’s private education industry.

In a hastily convened video conference Wednesday night, Fang Xinghai, vice chairman of China’s Securities Regulatory Commission, sought to reassure about a dozen senior executives from Wall Street banks and Chinese financial groups that last weekend’s crackdown on education companies was a targeted action meant to discipline a handful of bad actors—and not the latest salvo in a multi-front government crusade against global capitalism.

To further soothe investor jitters, The People’s Bank of China today injected $4.6 billion of extra liquidity into China’s financial system using reverse repurchasing agreements.

Those efforts bolstered China shares Thursday. Hong Kong’s Hang Seng Tech index gained 7%; the mainland’s CSI 300 rose 2%. But the Financial Times warns that, despite today’s rebound, buying was “halfhearted,” with many investors expecting China shares to slide again in days to come.

Investors are right to be wary. After all, the CSRC and PBOC aren’t the agencies that have been turning the screws on China’s tech sector in recent months; indeed, financial authorities appear to have watched from the sidelines as a host of other regulatory entities vied for the honor of which could slap the harshest restrictions on China’s most valuable tech companies.

A crackdown on leading e-commerce companies, including Alibaba Group and Meituan, was led by anti-trust regulators. The data security probes that tanked shares of ride-hailing giant Didi Chuxing days after its Wall Street debut were the work of China’s cybersecurity watchdog. Draconian reforms for China’s online tutoring sector—which forbid the companies from accepting foreign capital, selling shares to the public, or even turning a profit—were announced by the State Council, China’s highest governing body.

Meanwhile, the November decree that torpedoed Ant Group’s $37 billion IPO—and signaled the beginning of Beijing’s “tech rectification” campaign—is reported to have come straight from President Xi Jinping himself.

Until the dramatic selloff of China shares Monday and Tuesday, China’s rule-makers don’t seem to have weighed the risk of a market meltdown—or considered why a global collapse in China shares might not be in the nation’s best interest.

The cloud of regulatory uncertainty that now looms over China has many global investors giving other growth markets a second look. Fortune‘s South Asia correspondent Biman Mukherji reported earlier this week that China’s tech crackdown has been a boon for digital unicorns in India. China still dominates the overall unicorn list in Asia with 138 of them—more than four times the number in India, according to CB Insights. But, as Biman points out, this year alone ten Indian companies turned into unicorns by raising capital. In the first six months of this year, Indian startups have raised a record $12.1 billion from venture capital and private equity firms, according to Venture Intelligence.

The startup scene in Southeast Asia, too, is getting interesting. That market’s Big Three tech giants—SEA and Grab, based in Singapore, and GoTo, based in Jakarta—get most of the buzz. Fortune has followed them with keen interest.

But there’s a second tier of roughly a dozen “unicorns” (ventures with a valuation of $1 billion or more) in the region. The Low Down blog offers this thoughtful if now slightly dated, assessment of which Southeast Asia companies should and shouldn’t be granted unicorn status. Cento Ventures, in a recent report, estimated there is a third tier of at least 70 independent companies in Southeast Asia with a valuation of between $100 million to $1 billion. On Friday, I had great conversation with a panel of four experts about the challenges of trying to scale a new venture in a region with so many different regulators, cultures, languages, and states of economic development. You can read the highlights of that discussion here.

More Eastworld news below.

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Yvonne Lau. Reach her at yvonne.lau@fortune.com  

EASTWORLD NEWS

Tokyo heat

The Tokyo 2020 Olympics have so far endured public backlash, a series of scandals and a COVID-19 ‘bubble’ that hasn’t exactly worked. It’s now facing another problem: stifling heat that’s hurting athlete performance. The Tokyo Games are set to be one of the hottest and most humid Games on record, with daily average temperatures hovering around 30 degrees Celsius—plus extreme humidity. On Wednesday, Spanish tennis player Paula Badosa left her quarter-final match early due to heatstroke. Last Friday, Russian archer Svetlana Gomboeva suffered heat exhaustion and fainted during a qualifying round. NPR

Lockdown, week five

Sydney, Australia’s largest city, recorded 239 locally-transmitted COVID-19 cases on Thursday, the highest one-day jump in Australia since the start of the pandemic. Six million Sydney residents are in their fifth week of a nine-week lockdown as the country struggles to contain the new Delta variant. In Sydney's state of New South Wales, only 17% of people over age 16 are fully vaccinated, given its tight supply of Pfizer vaccines. Australian federal treasurer Josh Frydenberg said that the country’s economy is likely to shrink in the September quarter. Reuters

India’s green deal

Gaurav Singhal, managing director at Bank of America in India, predicts that over $150 billion of equity will flow into the country’s green M&A space by 2030. Singhal estimates that over $500 billion is needed to reach India’s green energy targets. For the first half of 2021, $6.1 billion poured into India’s renewable M&A space—tripling 2020’s full-year sum of $2.1 billion. Notably, Singhal’s team advised a $3.5 billion deal between SoftBank and Adani Green Energy, in which the Japanese VC firm sold its Indian renewables business to the latter. Bloomberg

A new envoy in town

China’s new ambassador to the U.S. Qin Gang, arrived in Washington, D.C., on Wednesday. Qin, who joined China’s foreign ministry in 1988, has not shied away from criticizing the U.S. and the west; his appointment comes in an era of heightened Sino-American tensions. In a Wednesday media briefing, the new envoy struck a more conciliatory tone however, stating: “The China-U.S. relationship has once again come to a new critical juncture…[I] endeavor to bring China-U.S. relations back on track, [paving] the way for the two countries to get along.”  New York Times

Are China’s health stocks next?

After Beijing’s crackdown on its high-flying private education companies last Saturday, investors fear that China’s health-tech companies are next in line for a regulatory reckoning. The worries sparked yet another selloff. Hong Kong’s Hang Seng health care index is down 11% on the week, while China’s CSI 300 Healthcare index has dropped 13% since last Thursday. As part of its fourteenth Five Year Plan, China wants to rectify social inequalities—in education, health care, and real estate—and its homegrown businesses have gotten caught in the firing line. Reuters

MARKETS AND MOVERS

UBox – UBox, the Beijing-based smart vending machine maker, is gearing up for a Hong Kong IPO that could take place later this year and raise up to $500 million. The company’s current valuation is approximately $1 billion, and it counts Alibaba’s Ant Group as an investor. The 10-year-old firm manufactures vending machines that use smart technology—such as A.I. and facial recognition—to distribute snacks, drinks, and jewelry. One hundred thousand UBox machines can be found in 300 cities in China and other markets.

KakaoBank – South Korea’s only digital bank, KakaoBank, raised $2.2 billion in its IPO fundraising. It received a record number of bids—1,800—from institutional investors for a homegrown listing; its IPO was also 1,700 times oversubscribed. Founded in 2016, KakaoBank’s market value has reached $16.2 billion, making it the third most-valuable financial services firm in the country. The Internet bank will debut on the Korea Exchange on Aug. 6.

SoftBank – Japan’s SoftBank is selling 45 million shares, or one-third of its holdings in U.S. ride-hailing giant Uber as it seeks to recoup its losses from its investment in ‘Chinese Uber’ Didi. Uber’s stock fell 5% following the news. SoftBank has taken a huge walloping from its stake in the Chinese ride-hailing firm—losing approximately $4 billion. Didi, which listed in New York last month, is currently under investigation by China’s cybersecurity watchdog and other government agencies.

Binance – The world’s largest cryptocurrency exchange is "very open" to a new CEO, its current chief executive Changpeng Zhao said in a press briefing on Tuesday. Zhao later clarified on Twitter that there are “no immediate plans” for the succession. Binance is revamping its operations—applying for licenses in multiple jurisdictions, establishing headquarters and hiring more compliance experts—as it seeks to become a regulated financial entity amid heightened scrutiny from global regulators.

FlipKart – Indian e-commerce unicorn Flipkart says the Competition Commission of India’s (CCI) investigation into its operations is "invasive" and has asked the Supreme Court to put the CCI probe on hold. On July 15, the CCI presented Flipkart with a list of 32 questions, which included queries into the company's top sellers, top products, and deals with smartphone makers. The antitrust agency gave the company two weeks to respond. Retailers in India have criticized Flipkart for favoring certain sellers on its platform at the expense of smaller retailers.

Tencent – Chinese tech titan Tencent is the world's worst stock bet this month. Since last Wednesday, Tencent shares have plunged 23%—wiping out $170 billion of its market value. Since its January peak, the company has lost 40% in value as Beijing continues its clampdown on its Internet companies in a bid to rein in control of the tech sector and keep a tighter grip on issues related to cybersecurity and more. But Tencent wasn't the only Chinese company that took a pummeling in July—nine out of the ten worst performers this month were Chinese firms, including Alibaba ($104 billion loss) and Meituan ($88 billion loss).

FINAL FIGURE

$8.37 billion

South Korean smartphone and chipmaker Samsung Electronics posted a second-quarter net profit surge of 73% to $8.37 billion. Its revenue increased 20% to $55.6 billion. Samsung's memory chip business paved the way for its stellar Q2 results, as the pandemic-induced digital boom has meant continued high demand for electronic devices and data servers. Samsung’s chip division recorded operating profit growth of 28% to $6 billion, and a revenue increase of 25% to $20 billion for the same period.