What happened
Shares of the large Chinese tech conglomerate Alibaba (BABA 0.64%) traded nearly 6% lower as of 2:10 p.m. ET today after the Chinese government proposed stricter regulation on artificial intelligence.
So what
Yesterday, China's Cyberspace Administration issued draft rules regarding how the agency plans to oversee artificial intelligence.
Included in the proposed rules is the requirement that Chinese companies clear a government security review before releasing AI technology. Companies that deploy AI will also bear the responsibility for the content that it creates, which will likely increase their liability if something goes wrong. It may also make companies think twice before releasing certain AI capabilities.
Interestingly, the proposal came on the same day that Alibaba released its iteration of ChatGPT, Tongyi Qianwen, which possesses Chinese- and English-speaking capabilities. Alibaba said yesterday it would roll out its generative AI technology across all of its products at some point, although it will be interesting to see how these new regulations impact that plan.
In other news, analysts at UBS today said there's plenty of reason to be bullish on Chinese stocks, especially as markets like the U.S. could soon find themselves in a more challenging economy.
"Ongoing U.S.-China tensions will likely continue to be a risk factor for the performance of Chinese equities," UBS' Global Wealth Management's Chief Investment Officer Mark Haefele said in a recent research note. "But we believe that the fundamental economic recovery should drive another leg up for the market. We therefore view Chinese equities as most preferred in our global strategy."
Now what
The proposed AI rules are another reminder of how big of a role regulation and the Chinese government can play in influencing Chinese stocks. But this should not be a surprise at this point.
I still believe there is a good investment case to be made for Alibaba now that the company is planning to split itself into six different units. This should allow it to unlock a lot of value for shareholders and also decrease the regulatory risk as well because regulatory issues at one unit may not impact the others.
Despite these proposed rules, I still expect Alibaba to be a leader when it comes to technology. While staying on top of AI is important, I don't think ChatGPT is make or break for the company right now. However, if it couldn't use the technology altogether, that would be a different story.
