The Chinese government's regulatory actions on technology giants over the past year demonstrates its shift to address the social costs of economic development, leaving a massive opportunity for active investors, a fund manager has said.
"For western investors sent scurrying for the exits in recent weeks and months by regulatory actions in the Chinese mainland, the temptation is to view events through the lens of political risk alongside a vacuum of policy foresight," Ronald Chan, founder of Chartwell Capital, a Hong Kong-based investment management provider, said in his recent essay published in Singapore's Business Times.
Viewed one way, the past year has been marked by several regulatory crackdowns and share price corrections afflicting technology giants.
"However, investors should be looking through a different lens. What they should be seeing is changes in response to a well-flagged government shift," Chan said.
For example, what emerged after a period of rapid accumulation and expansion in the technology industry was a "winner takes all" approach, which created extremely high barriers to entry and stifled small and mid-sized enterprises, and resulted in jobs being sacrificed and intensified social divisions, he said.
"The new regulations are in response to such social issues. They are not anti-capitalist. The introduction of a series of regulatory measures is demonstrating the government's determination to take on company managers on matters of fair competition, responsibility for products made, and social benefits accrued," he said.
The repeated introduction of multiple measures shows that the Chinese government is still adjusting its supervision in the face of the unknown. But this is not a reason to avoid the Chinese market, according to Chan.
He said the smart response is for investors to focus on bottom-up evaluation, and inject social and governance elements into the investment analysis to find valuable companies with low risk costs.
"China is still a high-growth and low-price-to-earnings ratio market. There is significant potential in its emerging industries and innovative technologies," Chan said. Enditem