Analysis: China's small tech firms step out of the shadows as giants reel from regulatory crackdown
19/03/2021 03:03
By Samuel Shen and Sumeet Chatterjee
SHANGHAI/HONG KONG, March 19 (Reuters) - One firm's loss is
another's gain. China's smaller technology companies and
investors are eager to seize the day as a sweeping crackdown by
anti-monopoly regulators on the country's internet giants
creates a wealth of new opportunities.
Nasdaq-listed microlender 360 DigiTech Inc QFIN.O is one
such firm, having seen an increase in new business and a run-up
in its share price after the introduction of new rules designed
to rein in fintech giant Ant Group and other large rivals.
"Since December, we've seen clients whose credit lines have
been reduced or restricted by lending giants transfer to our
services," 360 DigiTech Chief Financial Officer Alex Xu told
Reuters.
"We can grab the market share that's being abandoned by
leading players."
The regulatory heat began with the scuppering of Ant's $37
billion IPO in November and has rapidly spread across the tech
sector. That's marked an end to an era of laissez faire
treatment that had seen companies including Ant, Alibaba Group
Holding Ltd 9988.HK BABA.N and Tencent Holdings Ltd
0700.HK grow to dominate many aspects of Chinese consumer
life.
In fintech, draft rules published in November require online
platforms like Ant to put up sizable capital for co-lending.
Regulations updated last month also now mean caps on lending
that an online lender can conduct with an individual bank.
Hopes for a more level playing field have seen 360
DigiTech's shares almost triple for the year to date, valuing it
at nearly $5 billion. Rival LexinFintech Holdings LX.O has
seen its share price more than double, valuing it at around $2.4
billion.
Both firms are online loan facilitators which recommend
clients to commercial banks using credit-risk screening
technologies and big data and do not commit their own capital
for loans.
"Previously, the market was worried about whether they can
survive... now the uncertainty lies in how much they can grow,"
said Richard Xu, an analyst at Morgan Stanley who has lifted his
price targets for both 360 DigiTech and Lexin.
For the broader tech sector, regulators have flagged that
new rules for online transactions are in the works and have
announced a probe into Alibaba over its practice of demanding
that its merchants not sign up with rival platforms.
And in the past week alone, live streaming e-commerce and
"deepfake" technology have come under scrutiny while 12
companies, including Baidu Inc BIDU.O , Tencent, and Didi
Chuxing have been fined over 10 deals that violated
anti-monopoly rules. urn:newsml:reuters.com:*:nL1N2LG0J4
Roby Chen, founder of DaoCloud, a Shanghai-based startup
that provides cloud computing services to companies, said he
expects the anti-monopoly campaign to drive more clients his
way.
"Previously, big companies liked to boast of strategic
partnerships with Alibaba Cloud or Tencent Cloud," he said.
"Now, there's an obvious shift in attitude."
The crackdown has prompted New York-based investor Tom Masi
to slash his holdings in Alibaba to 3.3% of his fund's portfolio
from 9.9% previously.
That's allowed him to double down on bets in smaller payment
company Yeahka Ltd 9923.HK and online health service provider
Meinian Onehealth Healthcare Holdings Co Ltd 002044.SZ
002044.SZ .
"We're realising ... that (the crackdown) opens up the
window for other companies to have a very nice growth rate
overall," said Masi, portfolio manager for the Emerging Wealth
Strategy fund at GW&K Investment Management.
Yeahka's shares have more than doubled this year while
Meinian Onehealth's stock has shot up 30%.
Ming Liao, founding partner of Beijing-based Prospect Avenue
Capital, noted that Chinese authorities were also sending a
clear message to deep-pocketed tech giants to sharply rein in
investment that had too often crowded out others.
"This is good news for the whole venture capital industry
because negotiations will become much easier for other
investors," he said.
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ANALYSIS-China delivers on threats to rein in internet economy
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(Reporting by Samuel Shen in Shaghai, Sumeet Chatterjee in
Hong Kong and Cheng Leng in Beijing; Additional reporting by
Josh Horwitz in Shanghai; Editing by Edwina Gibbs)
((sumeet.chatterjee@thomsonreuters.com; +852 3462 7757;))