US-listed Chinese stocks crash to their lowest point in more than a year as Beijing ramps up its crackdown on corporations

Traders work on the floor of the New York Stock Exchange while the price of Alibaba Group's initial price offering (IPO) is decided
  • The S&P/BNY Mellon China Select ADR Index – which tracks US-listed Chinese stocks – is now at a more than one-year low.
  • The latest leg of the slide has come as China has expanded efforts to overhaul various industries, including food delivery and online education technology.
  • Alibaba and Didi Global are among the companies whose stocks have been under pressure.
  • See more stories on Insider’s business page.

A gauge of stocks of Chinese companies listed in the US equity market sank to its lowest level in more than a year on Monday amid new efforts from Beijing to overhaul a range of industries.

The S&P/BNY Mellon China Select ADR Index fell by as much as 8% to levels not seen since May 2020. The index contains 56 constituents, the largest of which is e-commerce behemoth Alibaba Group followed by electric vehicle maker Nio. The index was down more than 30% year-to-date at Monday’s intraday low.

Shares of Chinese companies overall dropped Monday after the government issued new directives affecting online platforms behind food delivery services and at online education technology companies, with that industry alone valued at $US100 ($AU135) billion. China’s policy changes for delivery companies call for them to make sure drivers earn more than the country’s minimum wage and to ensure union access, according to reports. NYSE-listed shares of Alibaba fell 7% as that company owns food-delivery service Ele.me.

Monday’s sell-off extended losses from Friday that were ignited after reports that China was considering rule changes that would turn online education technology companies into non-profits. Education stocks plunged and the China Select ADR Index tumbled by 13%.

Beijing over the weekend issued new regulations that ban after-school tutoring businesses from making a profit, a move that JPMorgan said could make that sector uninvestable. NYSE-listed shares of Tal Education Group, which runs after-school tutoring programs for primary and secondary school students, fell by 17% and New Oriental Education & Technology Group tumbled 28%. Gaotu Techedu, formally known as GSX Techedu, dropped 25%.

Those same stocks on Friday suffered losses of at least 50% in heavy volume as investors raced out of the group.

Beijing in recent weeks has launched regulatory reviews into a number of companies, citing concerns such as cybersecurity, data collection and privacy and monopolistic behavior. Beijing’s cybersecurity review of ride-hailing company Didi Global just days after it launched its IPO on Nasdaq on June 30 has sent shares of that company down by nearly 45%.

Policymakers “want to address equality, they want to address competition, they want to address the rising cost of education. But in a country like China, that policy can take effect immediately. That’s what you’re seeing in terms of a risk factor,” Tom Hainlin, national investment strategist at US Bank Wealth Management, told Insider on Monday.

Emerging markets such as China attract investors who see opportunities in rising middle classes, increased consumer discretionary spending, and in new industries. “But [opportunities] don’t come risk-free. They come with the additional policy risk and we’re seeing those play out right now with what’s happening in China,” said Hainlin.

Shares in each company plunged on Friday after Bloomberg reported that China may ask companies that offer school curriculum tutoring to become non-profits.

Among China-focused exchange-traded funds, the iShares MSCI China ETF and the SPDR S&P China ETF each fell by more than 5% on Monday.