Analysis: China’s small tech firms step out of the shadows as giants reel from regulatory crackdown

Analysis: China’s small tech firms step out of the shadows as giants reel from regulatory crackdown

News: Analysis: China’s small tech firms step out of the shadows as giants reel from regulatory crackdown.

SHANGHAI / HONG KONG (Reuters) – The loss of one company is the gain of another. China’s smaller tech companies and investors are eager to seize the day as a sweeping crackdown by antimonopoly regulators against the country’s internet giants creates a plethora of new opportunities.

Nasdaq-listed micro-lender 360 DigiTech Inc is one such company that has seen new business spike and share price spike after introducing new rules to contain fintech giant Ant Group and other major competitors.

“As of December, we’ve seen customers whose credit lines have been reduced or restricted by the transfer of credit giants to our services,” 360 DigiTech’s chief financial officer Alex Xu told Reuters.

“We can secure the market share that is being given up by leading players.”

The regulatory heat started with the $ 37 billion failure of Ant’s initial public offering in November and has rapidly spread to the tech sector. This marks the end of an era of laissez-faire treatment in which companies like Ant, Alibaba Group Holding Ltd, and Tencent Holdings Ltd have grown to dominate many aspects of Chinese consumer life.

In the case of fintech, the draft regulations published in November require online platforms such as Ant to provide considerable capital for joint lending. The rules, updated last month, now also include caps on the lending that an online lender can do with a single bank.

In the hope of a level playing field, 360 DigiTech’s shares have nearly tripled year-to-date, valued at nearly $ 5 billion. Rival LexinFintech Holdings’ share price has more than doubled to around $ 2.4 billion.

Both companies are online loan intermediaries who recommend commercial banks to customers with credit risk screening technologies and big data and do not provide their own capital for loans.

“The market used to be concerned about whether they could survive … now the uncertainty is how much they can grow,” said Richard Xu, an analyst at Morgan Stanley, who has raised his price targets for 360 DigiTech and Lexin.

For the broader tech sector, regulators have indicated that new rules for online transactions are in the works and announced an investigation by Alibaba to require its merchants not to sign up with competing platforms.

In the past week alone, live streaming e-commerce and “deepfake” technology have been scrutinized, while 12 companies including Baidu Inc, Tencent and Didi Chuxing fined 10 deals in violation of antimonopoly rules were occupied.

Roby Chen, founder of DaoCloud, a Shanghai-based startup offering cloud computing services to companies, expects the anti-monopoly campaign to attract more customers.

“Large companies used to like to have strategic partnerships with Alibaba Cloud or Tencent Cloud,” he said. “Now there is an obvious change in attitude.”

The move has prompted New York-based investor Tom Masi to reduce his stake in Alibaba from 9.9% to 3.3% of his fund’s portfolio.

This enabled him to place his bets with the smaller payment company Yeahka Ltd and the online healthcare provider Meinian Onehealth Healthcare Holdings Co Ltd. double.

“We see that (the crackdown) opens the window for other companies to an overall very good growth rate,” said Masi, portfolio manager for the Emerging Wealth Strategy fund at GW & K Investment Management.

Yeahka shares have more than doubled this year, while Meinian Onehealth shares are up 30%.

Ming Liao, founding partner of Prospect Avenue Capital in Beijing, noted that the Chinese authorities were also sending a clear message to deep-pocketed tech giants to sharply curb investments that others had crowded out too often.

“This is good news for the entire venture capital industry as it will make negotiations a lot easier for other investors,” he said.

Reporting by Samuel Shen in Shaghai, Sumeet Chatterjee in Hong Kong and Cheng Leng in Beijing; Additional reporting from Josh Horwitz in Shanghai; Arrangement by Edwina Gibbs

Original Source © Reuters

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