China Promised to Shore Up Its Battered Tech Companies. It Helped Boost Stocks for Now.

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China’s leaders met with executives of gaming companies Tencent and NetEast, and offered support for the battered tech sector. Here, people play computer games at an internet cafe in Beijing.

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Greg Baker/AFP/Getty Images

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Chinese stocks ended the week up, after days of erratic trading as investors weighed mixed policy signals.

Tech stocks, in particular, had a rollercoaster week, with big firms rising, diving, then rallying after government promises to support the sector sought to offset weak first-quarter earnings.

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On Tuesday, Chinese officials met with tech titans such as Baidu (ticker: BIDU) CEO Robin Li and NetEase (NTES) CEO Ding Lei. After the conference, titled “Promoting the Continued Healthy Development of the Digital Economy,” vice premier and economy czar Liu He voiced clear support for the sector, which has been battered by more than a year of government crackdowns on the industry’s biggest players.

“Tech entrepreneurs are the most important agents of innovation. It is necessary to support the platform economy and the continued healthy development of the private economy,” said the high-level Communist Party official, according to the official Xinhua News Agency.

Liu’s comments were widely seen as a move to shore up a sector vital to a Chinese economy besieged by draconian Covid-19 policies, an exodus of foreign talent and wealthy Chinese, and a still-ailing property market. The Harvard-trained Liu also promised support for “the listing of digital companies in the capital markets at home and abroad,” a partial signal that China is still seeking to resolve delisting threats from the US

But Liu’s comments went further, hinting at the strategically important role the sector has been tasked with in helping China aggressively accrue advanced technological capabilities.

“It is necessary to wage a successful battle for the strategic ground of critical core technologies, improve the quality of basic research, and focus on the research and development and diffusion of advanced applied technology,” Liu said.

The Hang Seng Tech Index, which tracks China’s 30 most valuable Hong Kong-listed tech firms, leapt 6% amid the Tuesday meeting. But things soon soured, as analysts and even tech executives publicly expressed skepticism over the government’s promises. Further crimping that was a spat of weak earnings reports from numerous big tech firms.

“At this point there seem to be two pretty distinct camps evolving in Beijing: one focused on social issues like income inequality and unhealthy internet habits, and one that’s increasingly worried about the economy,” said Doug Young, director of Bamboo Works, which provides analysis on Chinese companies listed in Hong Kong and the US

“Liu He and Premier Li Keqiang are emerging as the champions of the economy side, while President Xi Jinping is most focused on the social issues. So it’s not surprising that Liu is saying that the government might back off its pressure on big tech, which is a huge innovator and economic growth engine,” Young told Barron’s from lockdown in Shanghai.

As skepticism mounted over when and whether supportive policies will materialize, Tencent Holding (700.Hong Kong)—China’s most valuable private-sector company—reported its worst revenue growth in the 18 years since it’s been a listed company, at 0.1%, or 135.5 billion yuan ($20 billion), for the first quarter. Profits dove 51% to 23.4 billion yuan.

As the earnings report began to hit Tencent’s stock price, the company’s president, Martin Lau, compounded things by saying that government support, if it materializes at all, won’t help immediately.

“For this to translate into real impact on our business, there is going to be a time lag. It would take the specific regulators and ministries to translate this direction into real action,” he said on a conference call with analysts and reporters.

The next morning, Tencent’s Hong Kong-listed shares tumbled more than 8%, alongside an 8% fall for Alibaba Group Holding (9988.Hong Kong) and a 5% decline for rival JD.com (9618.Hong Kong).

Although JD.com‘s
revenue grew 18% year-on-year for the quarter, to 239.7 billion yuan ($36 billion), that too was its worst quarterly performance on record. Its net loss shocked observers, at 3 billion yuan ($450 million) versus a projected profit of 655.7 million yuan. China’s ongoing Covid outbreaks “affected consumer income and confidence,” CEO Xu Lei said in a Tuesday press release.

But China’s central bank on Friday cut its key long-term interest rate, which mainly affects mortgages, by the most on record, sending stocks sharply up.

The benchmark Shanghai Composite Index rose 1.6% for the day, while the large-cap CSI 300 climbed nearly 2%. But Hong Kong shares ended the week strongest. The Hang Seng Index closed up 3.31% Friday, while its tech subindex jumped 4.74%.

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Credit: www.marketwatch.com /

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