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Temasek pauses China tech investments amid Beijing crackdown

Singapore state investor wants regulatory clarity as Didi, others face scrutiny

Ride-hailer Didi is just one of the Chinese companies in Temasek's portfolio that has been caught up in Beijing's clampdown on the tech sector. (Photo by Akira Kodaka)

SINGAPORE -- Singapore state investor Temasek is holding off on new investment in Chinese tech companies for the time being due to uncertainty over Beijing's crackdown on the sector.

In an interview with Nikkei Asia, Chief Investment Strategist Rohit Sipahimalani said Temasek is waiting to see how China defines the rules governing the ways its tech players can operate before making any fresh bets on the country's digital players.

"We will probably wait to deploy more capital till we have a little bit more regulatory clarity in that space," he said. "I would expect in the next few months you will have regulatory clarity, and that will shape some winners and losers out there."

The state investor, which answers to the Singapore government as its sole equity shareholder, has raised its Chinese stakes over the years. In 2020, its exposure to China surpassed that of its home country for the first time, according to figures the firm released then.

According to its July performance report, however, Temasek's exposure to China by underlying assets dropped by 2 percentage points to 27% of its total, while Singapore's share was unchanged at 24%.

In China, Temasek has backed e-commerce giants Alibaba Group and Tencent Holdings, financial technology giant Ant Group and ride-hailing company Didi Global -- all companies that have come under Beijing's regulatory microscope.

In July, the Cyberspace Administration of China admonished Didi for breaching national security in its data management -- two days after shares in the company started trading in New York following a $4.4 billion initial public offering.

"The Chinese government wants to address things like monopoly power of big tech platforms," Sipahimalani said. "They want to address issues around direct data privacy, and they want to address issues of income inequality."

"It's just that in China, the way it is being executed has been a little more blunt and quick, and that is why it has created a lot of shocks out there," he said.

China's crackdown on the tech industry has reached the fast-growing online securities sector, with shares in Futu Holdings and Up Fintech Holding both suffering a major blow in the U.S. following criticism from Chinese authorities.

In an online article published in mid-October, the People's Daily, the official newspaper for the Chinese Communist Party, warned that online brokerages operating across borders could violate user privacy and face regulatory risks.

The piece explicitly named both Futu and Up Fintech -- companies widely seen as the Chinese answer to the popular U.S.-based platform Robinhood.

Sipahimalani raised the example of Didi to illustrate the uncertainty around how Beijing intends to ensure data privacy on the country's tech platforms.

"Today the concern investors have is no one knows what is it that the company needs to do to comply," he explained. "So therefore, it is difficult to know whether they will be able to, will not, or what the impact on the company will be -- so then it becomes difficult to invest."

Sipahimalani said once it is known what is expected of the tech platforms, it will be possible to assess the impact on businesses like Didi, and thus determine the merits of investing in a particular company.

Temasek is looking specifically for clarity on China's antimonopoly stance -- how authorities will define a monopoly and what restrictions will be placed on companies to satisfy Beijing's regulatory benchmark.

"Right now, [the Chinese authorities] are asking Alibaba and Tencent to open their platforms, [to] open to each other and the others -- you know, what else?" Sipahimalani said of China's reported move to ask the two tech rivals to stop blocking each other on their respective platforms.

Last week, Tencent reported its slowest revenue growth as a public company as Chinese regulatory pressures took a toll on both gaming and advertising revenues.

Tencent last month released a mobile version of its successful "League of Legends" franchise, which is expected to boost revenues in the fourth quarter.

But Chinese state media have warned that video games are a form of "spiritual opium" for young people, and a recent government mandate has restricted players under the age of 18 to just three hours of gaming time each week. As a result, young users accounted for just 1.1% of Tencent's gross domestic gaming receipts in September, down from 4.8% a year earlier.

Despite Beijing's clampdown, however, Sipahimalani said China will remain a focus for Temasek.

He cited areas like medical technology, biotech, electric vehicles and renewable energy as high growth spaces in China that the investment firm will continue to look at, in addition to keeping an eye on how the situation in the tech sector plays out.

"These internet platforms are not going way," Sipahimalani said. "They create millions of jobs, so ... I don't think anyone is going to think that they are going to go away, but the framework under which they operate, the rules under which they operate may go through some changes."

"That may have an impact on value," he added. "When there is no clarity about the regulatory rule book, it is difficult to say -- is this fair value or not fair value -- so I think we would rather be patient and wait."

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