It’s coming home. That Baddiel & Skinner ditty was coursing through my bored TV brain the other night when something odd happened. The advertising boards at Wembley suddenly flashed up the corporate name and logo of Alipay. China’s really coming here I thought to myself. Alipay may not be familiar to all readers but this Chinese mobile payments company is the world’s largest with over one billion active users. China and Chinese tech is on the march globally but financial markets are not so sure.

International capital markets have typically taken a benign view of Chinese government influence in the commercial activities of its corporates. However, the Chinese authorities are beginning to show some teeth and the ‘byte’ marks are being felt acutely by investors in Chinese technology shares. Since February more than $800 billion of market value has been wiped from Chinese tech giants but this is not a normal episode of tech valuation volatility. There is quite a bit going on….

Let’s start at the top – the political leadership. Tension between China and the US is not a secret but President Xi’s recent speech at the centenary celebrations of the Chinese Communist Party (CCP) struck a surprisingly defiant and aggressive note. The translators usually apply some diplomatic lip-stick but there’s not much nuance or wiggle room on “we will never allow anyone to bully, oppress or subjugate China. Anyone who dares to do that will have their heads bashed bloody against the the Great Wall of Steel forged by over 1.4 billion Chinese people”. Pretty clear to most observers, and the Uighur minority in western China can confirm the bashing heads bit. But what about the rest of the world being wooed with Wembley wishes..?

There appears to be three current targets of CCP aggression. First, Chinese technology companies and their owners are experiencing a regulatory crack-down under the guise of data security. The following events were shots across the bow for tech investors:

• The biggest IPO ever was going to be financial services monster, Ant Group, owned by Jack Ma and parent of the already huge, Alipay. However, Chinese authorities blocked the transaction in April, Jack Ma went to ground for weeks and then re-emerged to announce a restructuring of the group.

• In May the Chinese Cyberspace Administration warned 100 mobile app companies(including TikTok’s parent) about the illegal collection and exploitation of user data.

On the face of it, these moves looked like a clipping of big tech data wings but then international investors were literally taken for a ride in the past week. The Chinese version of Uber, Didi Chuxing, was offered to international investors as a New York IPO on June 30th. The shares were priced valuing the ride-sharing giant at almost $70 billion but just days later Chinese authorities ordered app stores to stop offering Didi’s app due to “ a serious violation of regulations in its collection and use of personal imformation.”

Didi’s share price promptly collapsed by 25% and continues to fall post the July 4th holiday. That $20 billion slap of wealth destruction with such suspicious regulatory timing raises a far bigger question. Is China trying to force Chinese tech companies to list their shares closer to home, in Hong Kong, or face the regulatory wrath of the CCP? Given there is a whopping $2 trillion of Chinese tech shares listed on US markets this has serious implications for investors and global capital markets. It certainly might be the end of US IPOs for Chinese tech companies. We note TikTok parent, ByteDance, and medical data play, LinkDoc, have just abandoned plans to list on US markets. Clearly, trading desks are buzzing as speculation grows on the future of $2 trillion of Chinese tech shares which might be coming home. And that’s not the only buzzing….

China is significantly increasing its activity over the Straits of Taiwan. It seems very deliberate and the data is clear. In 2020 there were incursions of Taiwan’s airspace on 87 days, more than the previous 5 years combined. Half way through 2021 and that number has already been surpassed. We have already written about the global economy’s acute dependence on Taiwan’s semiconductor manufacturing base so the implications of conflict or interruption is almost unimaginable. Unless… you are the top US military officer in the Asia-Pacific region.

Admiral Philip Davidson is not preoccupied, like Wall Street analysts are, with byte bashing. In fact, he had already expressed his views months before President’s Xi’s ‘head bashing’ threat and imagined the very real threat of Chinese military might and ‘bite’ – “Taiwan is clearly one of their ambitions before that(2050). And I think the threat is manifest during this decade, in fact, in the next six years.” That might explain China’s longer-term motive to position its technology and capital markets closer to home.

Plenty to chew on and hope that some things don’t come home…..