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Chinese equity markets hit their lowest level since December on Monday as investors feared tighter regulations. The tech sector has come under pressure in recent weeks and the Communist Party government has now turned its attention to the vast private education and real estate sector.
For profit tutoring in curriculum subjects will be banned, ostensibly to reduce the financial burden on families and make it more attractive to have more children, as China seeks to stop a decline in its population that has reportedly alarmed the country’s leaders . Foreign investment in private tutoring firms will also be severely restricted.
Private lessons are widely used in China. Indeed, Reuters cited data from the Chinese Society of Education to suggest that more than 75% of students aged 6 to 18 in China took after-school tutoring classes in 2016.
And in the technology sector Shares of Tencent, the giant internet conglomerate, fell after being ordered to forgo exclusive music licensing deals, a move that could reduce its streaming dominance in China. The government has already sought to cut the wings of ride-sharing company Didi Chuxing.
CN wire
(@Sino_Market)Tencent drops 6% below HK $ 500, the lowest since September 2020.#Tencent #Stock Exchange $ TCHEY pic.twitter.com/f6a3dbodvL
Meanwhile, the Chinese government has also said it will try to address irregularities in its real estate sector within three years. For years, many economists have watched the industry warily for possible overheating. The CSI 300 real estate index fell 6.2% on Monday, and developer Evergrande – whose massive debt burden is seen by some as a potential risk to financial stability – fell 5.7%, leaving it down by more than half this year.
The CSI 300 Index, which tracks blue chip companies on the Shanghai and Shenzhen stock exchanges, had fallen 3.4% at the time of writing. It was a 10 week low. Hong Kong’s Hang Seng Index lost 3.5%.
Nomura economists have warned that things could be tough for the Chinese economy this year in general. They wrote (via Reuters):
We believe that the Chinese economy, and in particular its financial system, will face significant risks in the coming months due to the unprecedented tightening measures applied to the real estate sector.
Japanese equities, however, performed better on Monday. On the first trading day of the Tokyo Olympics, its general Topix index gained 1.1% and the Nikkei 225 gained 1%.
Agenda
- 9 a.m. BST: Euro zone manufacturing purchasing managers index (PMI) (July; previous: 63.4; consensus: 62.6)
- 9:30 am BST: UK manufacturing PMI (July; previous: 63.9; versus: 60.4)
- 2:45 p.m. BST: US manufacturing PMI (July: previous: 62.1; against: 63.1)
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