China tech stocks enters bear market as tax, AI fears take hold
UBTech humanoid robot is on display at the 27th China Beijing International High-Tech Expo held at the China National Convention Center on May 8, 2025 in Beijing, China.
VCG | Visual China Group | Getty Images
China’s Hong Kong-listed technology shares entered bear market territory on Thursday, marking a sharp reversal from last year’s rally as tax concerns and global risk aversion rattled investor confidence.
Hang Seng Technology Index, dominated by mainland Chinese tech firmsIt fell more than 1%, leaving the index down just over 20% from its October peak.
Market participants noted fears of a possible increase value added tax on internet services It is seen as the main trigger of the recent decline. The concern comes after an increase in VAT has already been imposed on certain telecom services, and concerns are growing that internet platforms may be next.
Speculation briefly extended This surge in online gaming and other digital transactions raises fears of new policy swings for an industry already damaged by years of regulatory tightening. Following the decline in technology stocks, officials said on Tuesday He dismissed speculation that a tax would be imposed on the gaming industry.
“The recent sell-off is driven by concerns about a possible VAT tax increase on internet services, online games and other online transactions. This follows the recent VAT increase on certain telecom services,” said Qi Wang, investment strategist at UOB Kay Hian.
Performance of Hang Seng Tech index in the last year
The decline in China’s tech stocks also coincided with broader volatility in global tech markets driven by fears that software companies are tapping into artificial intelligence.
“To me, this is a barrage of negative news globally,” said Phelix Lee, senior equity analyst at Morningstar.
“Anthropic has reportedly released an AI plugin that automates legal work, triggering fears in legal tech firms and fueling broader software sales, followed by rumors of a VAT hike at Chinese internet firms as there are reports of a disconnect between Nvidia and OpenAI, and risk aversion sentiment is rising in the hardware AI trade.”
Despite the sharp decline, some investors see the sell-off as a corrective move rather than the beginning of a deeper downturn. Looking at the broader Hong Kong and China stock markets, recent weakness appears to be concentrated in pockets that have previously outperformed, according to Morningstar.
“I view this action as a healthy pullback, largely concentrated in sectors that have exceeded fair values,” said Lorraine Tan, the firm’s director of Asian equity research.
Other asset managers say the fundamental outlook for Chinese tech has not deteriorated materially, although short-term upside triggers lack visibility. “There is a lack of catalysts in the industry,” said Vey-Sern Ling, general manager of Union Bancaire Privée.
“There has also been some concern about value-added tax as well as regulatory noise in travel and e-commerce lately, which we think is specific rather than systematic,” Ling said.
“Fundamentally, nothing has changed that would disrupt our positive outlook.” [for Chinese tech stocks]. Valuations remain supportive, sector earnings have potential to rebound, and AI could provide a catalyst stream going forward.”
