(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.
Most Read from Bloomberg
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.
104.41 -4.20 (-3.87%)
At close: October 21 at 4:03:43 PM EDT
99.88 -4.50 (-4.31%)
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.”