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As crypto enthusiasts, I'm sure you are aware of how China clamped down on its cryptocurrency industry just this June, banning crypto mining operations and ordering major banks to refrain from having business transactions with crypto companies. Well, it appears that China's iron fist has extended to other sectors. Last month, China banned tuition enterprises from making profits, raising profits, and going public.
After-school tuition related to the formal school curriculum is usually favored by anxious Chinese parents who wish to ensure that their children stand a cut above their competitors in their academic pursuits. Undoubtedly, this outright ban hurt the pockets of many a tuition center. The multibillion tuition industry was caught off-guard by this surprise announcement; the stock market responded likewise as education stocks immediately saw a sharp, drastic dip. Trillions of yuan were wiped off the stock market.
As someone who is invested in an equity portfolio that includes China stocks, I was rather dismayed by such a development. Upon exploring the rationale behind such a move, the Chinese government seemed to want to narrow the ever-growing divide between the haves and the have-nots since affluent parents can afford to give their children a leg up in the education arms race with costly tuition and other enrichment classes. Additionally, even if middle-class families scrape by, the Chinese government will want to regulate the tuition industry because it is currently encouraging its citizens to raise a three-children family. Tuition for three children will erode the majority of working professionals' salaries!
So which other sectors will face similarly harsh regulatory measures by the government? Experts pointed to the healthcare sector as one possibility. As China's population is ageing, the demand for healthcare services burgeons exponentially, leading to a corresponding increase in healthcare costs. Hence, medical practitioners may be required to lower their fees so that healthcare remains as an accessible public good for Chinese citizens. The property sector is said to be yet another sector.
All eyes are on the Chinese government to continue to implement broad rules-based policies and frameworks so as to alleviate social and economic inequalities. Till then, the stock market will remain highly sensitive and volatile for the next few months or even years.
My Thoughts on China Stocks:
Since China is the world's second largest economy, I think it doesn't seem feasible for me to entirely ignore China together, especially if I wish to continue to invest my money with roboadvisors whose portfolios typically include China tech stocks. So while I remain optimistic about China stocks, I am made aware of the fact that I should hold these equity portfolios for the long term. It's akin to HODL-ing my crypto assets, so I am fine about riding out this stormy and turbulent period!
What about you? What's your opinion on China stocks?
Caption for Thumbnail: Posing in front of a lake in Beijing - As Chinese as it gets!
