What does China's stock market implosion mean for tech?

For Europeans, the eyes of the media have been firmly trained on Athens and the minutiae of Greece’s ongoing financial woes. But what’s happening in China is already threatening to put the ‘Grexit’ in the shade. With trillions of dollars wiped off the country’s stock markets, the loss in the value of Chinese firms is expected to be around 20 times that of any eventual Greek sovereign debt write-offs, according to the BBC.

So what’s the potential impact on the tech industry? In a worst case scenario, the effects could be severe and wide-reaching.

What’s happened?

Here are the key stats. Since mid-June there has been a fall in the price of Chinese shares of around a third, which has wiped $3 trillion off the value of companies listed there. It doesn’t seem to be getting any better. On Wednesday the Shanghai Composite closed down 5.9%, the Shenzhen Composite lost 2.5% and Hong Kong’s Hang Seng fell 5.8%, according to CNN Money. Over half of the country’s main listed firms have halted trading.

Many are claiming the bust is simply a natural rebalancing given that shares had soared 150% between June 2014 and 2015. But government intervention to slash interest rates to record lows, suspend IPOs, and order SOEs not to sell any more shares, appear to be causing even greater uncertainty.

“At the moment there is a mood of panic in the market and a large increase in irrational dumping of shares, causing a strain of liquidity in the stock market,” the China Securities Regulatory Commission has said in a statement.

What it means for tech

So what could the potential impacts be on the technology industry? After all, many of the world’s biggest technology firms are Chinese, many Western firms are heavily dependent on the region for sales, and the manufacturing of their products, and many Chinese firms are listed on US exchanges.

Chinese tech firms pull back on international expansion/growth plans. With even the likes of Huawei apparently closing down over 8% in Shenzhen on Monday, and many having halted trading completely, any long term collapse in markets could mean cut-backs in all sorts of areas; from wages to marketing, and even R&D.

Investors lose confidence in China’s tech firms. The Shenzhen Composite – often likened to the Nasdaq – is chock full of tech and internet players. It has dropped 41% since 12 June, far further than Shanghai. The big boys (Huawei, Lenovo, Alibaba, Tencent etc.) are probably safe, but that long tail of mid-sized and smaller Chinese tech firms could be in trouble. Start-ups in particular could be hit, blowing a hole in the government’s plans to create an innovation-fuelled economy.

Chinese consumers begin to rein in spending. This is the last thing the government wants, but the truth is around 80% of China’s investors are of the small retail, or “mom and pop”, variety. If this crash hits their spending power, it could harm Chinese and international tech firms, as these small scale shareholders think twice about buying that shiny new iPad or Xiaomi handset.

Investors in US-listed Chinese tech firms pull money from non-Chinese tech stocks. Chinese internet firms listed in the US like Weibo and Sina have all seen sharp drops this week, influenced by the fact that the majority of their business is still China-based. As Quartz says, “in a worst-case scenario, these downturns could leak over into the non-China tech sector, as investors burned by losses seek less-risky investments.”

Defcon One. Many of China’s 90 million-odd shareholders lose huge sums, the economy slumps, and social unrest foments. Western tech firms not only lose vast amounts of revenue through lost China sales, but are forced to halt manufacturing due to strikes and unrest.

The good news is that last scenario isn’t likely. A note sent to me by IHS Global Insight China economist Brian Jackson claimed that, although there is currently a “rapid shift in attitudes by retail investors”, only 8.8% of urban households participated in the stock market in Q2. “The total exposure of private households in China is relatively low compared to western countries, where often a third or more participate in equity markets,” he added.

IDC’s China lead Kitty Fok was similarly optimistic, she told me that various government initiatives, from Made in China 2025, to Internet+ and the New Silk Road plan would keep things on the right track.

“I think overall, the impact [of the stock market turmoil] will be short term and will stabilise,” she added. “However, investors maybe more cautious to invest in start-up companies.”


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Phil Muncaster

Phil Muncaster has been writing about technology since joining IT Week as a reporter in 2005. After leaving his post as news editor of online site V3 in 2012, Phil spent over two years covering the Asian tech scene from his base in Hong Kong. Now back in London, he always has one eye on what's happening out East.

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