What happened
These days, many parents around the world are worried about the amount of time their children spend on smartphones and other devices. On Wednesday, the Chinese government acted the part of a very large mom or dad, recommending strict limitations on screen time. Investors took this as a threat to top tech companies in the country, and many of these stocks saw notable declines in price on Wednesday.
Few were spared. Alibaba (BABA +0.48%) fell by 5%, for example, while peers JD.com (JD +6.13%) and Tencent Holdings (TCEHY +2.08%) declined a respective 4.5% and 3.8%. All three did significantly worse than the beleaguered S&P 500 index, which slumped by 1.4% on the day.
So what
The Cyberspace Administration of China (CAC) was the entity behind the push. It stated that people under 18 years of age should be restricted to, at most, two hours of daily use on smart devices. The younger the user, the stricter the limits -- the CAC said users aged eight to 16 would get only one hour, and finally those under eight would receive a mere eight minutes per day.
The regulator also wants makers of such products to introduce "minor mode" functionalities. These would entirely block people under 18 from using the internet on these devices from 10 p.m. to 6 a.m.
These concepts were itemized in a set of draft guidelines. These are to be open to public comment until Saturday, Sept. 2.
With their various and highly popular services, Alibaba, Tencent, and JD.com are sure to be affected by such draconian restrictions, assuming they are implemented. All three are nearly unavoidable businesses in China, and much of this has to do with the great volume of traffic they receive.
This is hardly the first time the Chinese authorities have cast a wary eye on the country's tech sector. In late 2020 the government scotched the initial public offering of Alibaba affiliate Ant Group, a move seen as an opening gambit in a long-lasting crackdown on big tech.
A recent study from Refinitiv, quoted by Reuters, found that the crackdown has sapped over $1 trillion in value from Chinese tech giants like Alibaba, Tencent, and their peers.
NYSE: BABA
Key Data Points
Now what
When the Chinese government seriously explores ways to curb any aspect of its tech sector, it tends to follow through with tough new measures. Although clever young users will surely find a way to circumvent any mandated time restrictions, many will not, and traffic to the giants' sites is sure to thin. Hopefully for investors in those companies, this won't be too pronounced or affect business too significantly.
