What happened
Shares of Alibaba (BABA 1.72%) were sinking today as the Chinese government's crackdown on big tech companies expanded. After the removal of Didi Global's (DIDI 0.71%) ridesharing app downloads from major platforms in China, including Tencent's WeChat and Alibaba's AliPay earlier this week, the catalyst today seemed to be a small fine against Alibaba as well as other Chinese companies.
As a result, most Chinese tech stocks were down today with Alibaba off 3.7% as of 3:16 p.m. EDT and Didi 4.9% lower.
Image source: Alibaba.
So what
Alibaba has been sliding all week, but the sell-off seems to have accelerated today as U.S. stocks are down broadly as Japan reinstituted a state of emergency over COVID-19 ahead of the Olympics, and as doubts about the durability of the recovery seem to be lingering.
In a brief announcement on Sunday night, China's Office of the Central Cyberspace Affairs Commission said it had found serious violations of laws on collecting user information in Didi's travel app, and yesterday, anti-monopoly regulators fined six of Alibaba's subsidiaries $75,000 each.
The move was the latest sign of China's tightening grip on big tech companies, especially those listed in the U.S., and Alibaba has already found itself squarely in the sights of the ruling Communist party. In November, Ant Group's IPO was blocked by the government after Alibaba Founder Jack Ma made disrespectful comments about Chinese financial regulators at a conference.
In April, Alibaba was fined $2.8 billion after an anti-monopoly investigation into the company concluded. Investors reacted favorably to that news, assuming the worst of the crackdown was over, but this week's developments seem to have brought those threats to the surface and shares of the tech giant fell to a 52-week low.
Now what
The Chinese government has long been a bogeyman to U.S. investors, and this week's events make it easy to see why. Additionally, the U.S. has threatened to delist some Chinese companies if they don't allow U.S. regulators to examine their financial audits.
As a business, Alibaba's performance has been stellar and the stock looks like a bargain. However, it won't reach its potential until investors believe the threat from the Chinese government has been neutralized. At this point, that doesn't seem to be imminent.
