UBTech’s humanoid robot will be exhibited at the 27th China Beijing International High-tech Expo to be held at the China National Convention Center in Beijing, China on May 8, 2025.
Video Visual China Group | Getty Images
Hong Kong-listed Chinese tech stocks slipped into bear market territory on Thursday, marking a sharp reversal from last year’s gains as tax concerns and global risk aversion shake investor confidence.
The Hang Seng High-Tech Index, which is dominated by mainland Chinese tech companies, fell more than 1% and is down more than 20% from its October high. The index has fallen for six consecutive sessions.
Market participants pointed to concerns about a possible increase in value-added tax on internet services as a key factor in the recent decline. The unrest follows the already-imposed value-added tax hike on certain telecommunications services, raising concerns that internet platforms could be next.
Speculation briefly spread to online gaming and other digital transactions, amplifying concerns about new policy headwinds for a sector already scarred by years of increased regulation. Officials on Tuesday dismissed speculation of taxing the gaming industry as tech stocks fell.
“The sell-off in recent days has been driven by concerns about a possible increase in value-added tax on internet services, online gaming and other online transactions. This follows the recent increase in value-added tax on some communication services,” said Qi Wang, investment strategist at UOB Keihian.
Hang Seng Tech Index performance in the past year
The decline in Chinese tech stocks coincides with growing volatility in global technology markets due to concerns about artificial intelligence disrupting software companies.
“To me, this is a barrage of negative news globally,” said Felix Li, senior equity analyst at Morningstar.
“Anthropic has reportedly rolled out an AI plug-in to automate some legal tasks, causing anxiety among legal tech companies and accelerating sales of a wide range of software. Then there are rumors of a value-added tax hike for Chinese internet companies, and reports of a break-up between Nvidia and OpenAI fuel risk-off sentiment in the hardware AI industry.”
Despite the sharp drawdown, some investors see the decline as a correction rather than the start of another economic downturn. Looking at the broader Hong Kong and Chinese stock markets, the recent weakness appears to be concentrated in previously outperforming markets, according to Morningstar.
“We think this is a healthy reactionary move, most of which is probably concentrated in sectors that have exceeded fair value,” said Lorraine Tan, director of Asian equity research at the firm.
Other asset managers say the fundamental outlook for China’s high-tech industry has not deteriorated much, despite the lack of near-term positive news. “There is a bit of a lack of catalysts in this sector,” said Vaisaan Lin, managing director of Union Bancare Prive.
“There has also been some regulatory noise recently around travel and e-commerce, which we believe is more specific than institutional, and there are also concerns about value-added tax,” Lin said.
“Fundamentally, nothing has changed to derail our positive outlook[for Chinese tech stocks]. Valuations remain supportive, sector earnings could recover, and AI could be a catalyst for the series going forward.”
