Alibaba Shares Post Steepest Drop in Two Months on China Curbs

(Bloomberg) — Alibaba Group Holding Ltd.’s (BABA) shares suffered their steepest decline in two months after Chinese authorities summoned e-commerce operators and called for tightening product-quality standards and strengthening consumer protection.

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The Chinese e-commerce giant’s shares fell as much as 6.1% on Thursday, the most since Aug. 24. The stock was the biggest contributor to Hong Kong benchmark Hang Seng Index’s decline of as much as 3%. The Hang Seng Tech Index slumped as much as 4.7%, the biggest intraday drop since July.

Thursday’s decline highlights the regulatory and business challenges facing China’s e-commerce industry, as companies seek to preserve growth in core businesses while boosting spending on artificial intelligence and other cutting-edge technologies prioritized by Beijing. Adding to broader investor caution in the market is the expiration of a 90-day grace period for wealthy families to settle taxes on offshore trusts.

“Such ‘reminder’ on quality is not new to the sector, but it feels like never ending,” said Steven Leung, executive director at UOB Kay Hian. “The impact on earnings has been diminishing, but more on the sentiment level.”

Representatives from Alibaba and other major platforms, including JD.com Inc., PDD Holdings Inc. Xiaohongshu Technology Co., Kuaishou Technology, ByteDance Co. and Vipshop Holdings, attended the meeting, according to a statement from the State Administration for Market Regulation.

The Hang Seng Tech Index is undergoing a brutal stretch, down 31% for the year as investors question whether hyperscalers’ massive spending on AI will generate sufficient returns. The gauge is close to erasing all of the gains it has made since Beijing’s sweeping stimulus package in September 2024.

Some of the sector’s traditionally profitable e-commerce businesses have also faced challenges, raising concerns about cash burn, regulatory scrutiny, and intense competition.

“It seems the selloff in Chinese e-commerce, particularly Alibaba, appears to be part of a broader de-risking trend,” said Gerald Gan, chief investment officer at Reed Capital Partners Pte. “The concerns are similar to those facing US AI stocks, with investors increasingly questioning the scale of AI spending and whether current valuations are justified.”

Investors were also closely watching the expiration of a tax grace period. In late July, China moved to tax offshore trusts held by its citizens, closing a loophole wealthy families have used to protect and pass on their fortunes. Owners had a 90-day grace period ending Oct. 22 to settle what they owe without late-payment surcharges, and some market participants linked recent stake sales by major shareholders to the tax deadline.

“It is because the tax filing deadline for offshore trusts is today,” said Bosco Wu, a strategist at Bank of East Asia, referring to Thursday’s stock decline in Hong Kong. “We also see that some major shareholders of listed private enterprises have reduced their shareholding, which is likely related to the tax issue, weighing on market sentiment.”

(Updates with details throughout.)

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