Stocks of Chinese Tech ADSs Drop on Looming Investment, Export Restrictions

U.S. officials commented Monday on the possible new ban on the purchase of U.S. tech companies and technology by China-backed companies. Meanwhile, many U.S.-listed Chinese tech firms fell in New York trading.

Anna Vodopyanova
    Jun 25, 2018 3:54 PM  PT
Stocks of Chinese Tech ADSs Drop on Looming Investment, Export Restrictions
author: Anna Vodopyanova   

A multitude of Chinese tech ADSs ended the day in the red on Wall Street today after news spread that the U.S. Treasury Department would block firms with at least 25 percent Chinese ownership from buying U.S. companies with "industrially significant technology."

The expected move by the Treasury department, as reported by Reuters and other media on Sunday, could be announced as soon as this week.

According to Reuters citing a government official, the U.S. investment ban would target key sectors, including IT, aerospace, pharmaceuticals, vehicles, robotics, and other high-technology industries that China aims to develop as part of its "Made in China 2025" plan. The Wall Street Journal reported Sunday that the U.S. would also restrict certain technology exports to Beijing.

"All possibilities that would better protect American technology, including potential changes to export controls, are under review," Commerce Secretary Wilbur Ross told the news agency.

In response, Chinese e-commerce behemoth, Alibaba Group Holding Ltd. (NYSE: BABA), closed down 5 percent at $191.25 per share and lost an additional $1.07 after-hours Monday.

Shares of Baozun Inc. (Nasdaq: BZUN), an Alibaba-backed e-commerce servicer, which reported strong growth in its recent earnings, dropped 10 percent to $54.76 per share.

Alibaba's competitor, JD.com Inc. (Nasdaq: JD), ended the day at $39.18 per ADS, down 4 percent.

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The stocks of Alibaba and JD fell 5 percent and 4 percent, respectively.

(Source: Thomson Reuters Eikon)

One of the newer names among China's public tech companies, Huya Inc. (NYSE: HUYA), a game livestreaming platform, the stock of which soared as much as four times since its IPO price of $12 per share, fell 12 percent Monday to $31.49 per share.

A video streaming platform dubbed China's Netflix, iQiyi Inc. (Nasdaq: IQ), fell more than 9 percent to $32.88 per share, losing an additional 18 cents in after-hours trading.

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The shares of Huya and iQiyi fell 12 percent and 9 percent, respectively.

(Source: Thomson Reuters Eikon)

On Monday morning, Treasury Secretary Steven Mnuchin said in a tweet that investment restrictions will apply not only to China, but to all countries that threaten US intellectual property rights on technology.

"Statement will be out not specific to China, but to all countries that are trying to steal our technology," Mnuchin tweeted.

Peter Navarro, a top trade advisor to President Donald Trump later told CNBC the market was overreacting, refuting the talk that Washington was preparing for the next step in an escalating trade conflict with China.

"The only thing that's going to happen in the near term is on Friday the Treasury secretary is going to report to the president on the issue related to China. That's all that's going to happen," Navarro told CNBC. "With respect to other countries, there's absolutely nothing on the table."

However, White House press secretary Sarah Huckabee Sanders contradicted Navarro and sided with Mnuchin, saying the new policy would affect other countries as well.

The twin initiatives have not been finalized and are expected to complete by weeks' end. Only new deals would fall under the new policy and would not affect existing ones, as reported by The Wall Street Journal.

U.S. companies would have a chance to comment before the proposed export limitations on technology are implemented.

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