Top investors planning exit from China tech

President Xi Jinping recently led a parade of officials vowing to revive China’s economy, hoping to repair the damage wrought by years of zero Covid-19 and regulatory clampdowns. Some of the world’s biggest investors are selling anyway.

Two pioneering financiers of China’s private sector — and hence the country’s economic miracle — have signalled their intentions to continue pulling back from marquee investments in the country.

European internet powerhouse Prosus registered more than $4bn of stock in Tencent for potential sale in Hong Kong, while news emerged that SoftBank is preparing to hasten its exit from Alibaba.

The moves accelerate the unwinding of some of the most lucrative bets in business history. While both Prosus and SoftBank declared their overarching plans in 2022 and are acting partly due to reasons outside their China outlook, the latest steps have dented investor optimism over a litany of recent promises from Beijing to welcome foreign capital and loosen its grip on the tech sector.

Tencent slid the most in more than two months on Wednesday, while Alibaba wiped out $13bn of value on Thursday.

“Reported plans to lower exposure in Alibaba by SoftBank may reiterate the prevailing loss of confidence in Chinese tech firms by foreign investors, giving rise to concerns that more may do the same,” said Jun Rong Yeap, an analyst at IG Asia.

The developments mark the latest challenge to China’s effort to mend its image as a country that is increasingly isolating itself from the West and hostile to private capital.

Xi again called on foreign investors to “seize opportunities” in China during a tour of southern Guangdong this week, during which he stopped by an LG Display plant.

But beyond the tech crackdown of 2021 and 2022, years of clashes over the treatment of ethnic minorities in Xinjiang, the quashing of political dissent in Hong Kong, and the status of Taiwan have stoked scepticism in the US and Europe about Chinese intentions.

It is a dramatic reversal from past decades, when an increasingly open China produced a succession of corporate successes thanks in part to foreign dealmakers.

Optimists counter that there may still be upside for companies such as Alibaba.

“There will definitely be impact in the short term,” said Gong Jingjie, an analyst at Toyo Securities. “But in the longer run, we need to look at its fundamentals.”

Alibaba recently announced a plan to unlock value by splitting itself into six separate companies — its most aggressive move since antitrust regulators slapped a record fine on the company in 2021.

The company is also working on potentially game-changing initiatives such as investments in artificial intelligence.

In March, billionaire and Alibaba co-founder Jack Ma — one of the country’s best-known corporate figures — returned to China after an overseas jaunt lasting more than a year.

That has been taken as a sign that China, if not exactly back to business as usual, was moving in the right direction.

SoftBank founder Masayoshi Son famously invested about $20m in Alibaba in 2000, holding on through the dot-com bust and the Chinese company’s initial public offering in 2014.

Naspers, Prosus’ parent, invested in Tencent in 2001 — long before smartphones and apps such as WeChat became ubiquitous.

But prospects for both of the Chinese businesses have deteriorated markedly in the past two years.

In 2022 the companies reported their first revenue declines ever and are now eking out single-digit gains every quarter — a far cry from their swashbuckling days of consistent double-digit expansion and constant flow of start-up deals.

SoftBank’s sell-down also partly reflects the precarious state of global markets.

The company has been offloading some of its biggest holdings in part to shore up its balance sheet at a time when the failure of Silicon Valley Bank and rising interest rates have drained liquidity and added pressure on investment firms to reward jittery limited partners.

Prosus has said that it would use the proceeds from Tencent share sales to fund buybacks.

XI AGAIN CALLED ON FOREIGN INVESTORS TO ‘SEIZE OPPORTUNITIES’ IN CHINA DURING A TOUR OF SOUTHERN GUANGDONG