What’s Driving the Latest Slide in China Tech? Two Key Pressures
Chinese tech stocks have lost one-fifth of their value since early October. Here are the forces behind the drop.
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There’s been an Asia-wide malaise for markets this week, with Hong Kong and Chinese stocks hit particularly hard by fears over China’s economic growth.
It certainly appears that global investors have also rotated out of China tech, meaning that names that were locking in strong gains at the end of Q3 have lost all momentum.
The China tech plays in Hong Kong have lost one-fifth of their value since early October.
Loss of Momentum
The Hang Seng Index in Hong Kong shed 1.5% Tuesday, for a two-day loss of 2.9%. That coupled with a correction that has run since mid-November erases all its gains since the start of September.
Since hitting its highest level in four years on October 2, the Hong Kong benchmark has corrected 7.5%.
The Hang Seng Tech Index has been hit even harder, down 1.7% Tuesday in a broad selloff, with all but two of the names in the 30-strong index in the red. Even more dramatically, the tech index is down a whopping 19.1% since its high close for the year on October 2.
Charts Similar for Big Names Like BABA
The chart looks pretty similar for most major China and China tech plays. Alibaba Group Holding (BABA) (HK:9988), for instance, peaked on October 3, at which point it had doubled and then some in 2025, up 124.6% for the year.
Alibaba has descended a sharp 22.1% since then, still looking at handsome gains of 77.4% for the year but with the stock only continuing to weaken.
Tencent Holdings (TCEHY) (HK:0700) has moved in a similar pattern, down 12.0% since its peak for the year on October 6. It remains 43.4% higher in 2025, but the chart captures a listing that has lost its head of steam.
Tax Change in the Offing?
Alibaba and Tencent are also being hit by a rumor referencing “tax recognition involving related high-tech companies,” which brokers are assuming could hurt earnings.
Details are thin on the ground, with no official confirmation of any change. But “high and new technology enterprise” businesses in China are taxed at a preferential rate of 15% compared with the normal 25% corporate tax rate. Any tightening of the tax rules could force a repricing of future earnings.
Mainland stocks tend to move less dramatically than the Hang Seng. But the CSI 300 Index of the largest listings in Shanghai and Shenzhen is nevertheless off 1.8% this week, and 5.3% since late October.
China’s Agenda-Setting Meeting
Hong Kong tech stocks are hit by a double whammy as doubts creep in about the runup in Artificial Intelligence valuations, just as China’s growth indicators are looking weak.
There was a downturn in consumer demand and spending in the second half of last year, too, but the spending slump has been particularly pronounced in H2 2025.
The Chinese government’s Central Economic Work Conference took place last Wednesday and Thursday, to set the economic agenda for next year. The memo out of the meeting in Beijing warns of “risks and hidden dangers” in key areas, and voices concern over the downturn in investment. But the indication that Beijing will “continue” and “maintain” its levels of spending has disappointed investors who would like to see stronger stimulus measures rolled out.
The Beijing administration also vowed, again, to stabilize the property market, which as I noted in my last story has been the cause of a massive loss in household wealth since China began a crackdown on the overuse of leverage in the real-estate sector back in August 2020. The government is also concerned with “involution,” with intense competition in industries such as electric vehicles leading to a wave of price cuts, leaving companies with razor-thin margins and forcing them to look abroad for sales.
New data show the signs of strain in November. Investment, consumption and industrial output all weakened more than expected for November. The 1.3% growth in retail sales for November was the weakest pace in three years, while fixed-asset investment fell for the third straight month, the 2.6% decline intensifying the 1.7% drop in October.
Property Sector the Root Cause of Problems
Beijing needs to find a way to underpin the property sector, the focal point of most of these woes. Investment into real estate fell almost 16% in November, while home prices fell yet again, down 2.8% year on year for November. Out of 70 major cities, 59 saw declines, indicating how broad the weakness has become.
Housing starts are down almost 30%, with developers not keen to build and sell into such a depressed market, and investment into real estate has followed suit, down 30.1% year-on-year in November.
Tech shares pulled back region-wide Tuesday, with the Kospi also down 2.2% and Taiwan stocks off 1.2%. We can expect those markets, driven by their major chipmakers, to track closely with the Nasdaq composite and the major chip and AI plays.
The broader selloff in Hong Kong and China will require not only a change in direction for tech stocks, but also a correction in demand and investment. Expect those markets to continue to struggle into next year as a result.
At the time of publication, McMillan was long BABA.
