Alibaba Stock Down after Charitable ‘Common Prosperity’ Donation

The stock prices of Chinese tech companies dropped after Alibaba Group Holding Limited (HKG: 9988) made a huge donation. The multinational technology company fell by about 4.1% on the Hang Seng Tech Index after a $15.5 billion pledge. Before this, the e-commerce giant’s stock was on a four-day rallying streak and rose 0.8% as of Thursday morning.

Alibaba’s sizable pledge is towards Beijing’s ‘common prosperity’ vision, a wealth distribution program by the Chinese government. President Xi Jinping recently called for the “reasonable adjustment of excessive incomes” and encouraged “high-income groups and businesses to return more to society.” However, there are concerns over whether the aforementioned gesture would realize profits in the near future.

In addition, the Hang Seng Tech Index dropped by 1.2 % just before noon in Hong Kong. This happened because of the drop in Alibaba’s stock and the decline of several other listed tech companies.

The tech space in China looks uncertain at the moment, due to a lot of recent regulatory clampdowns. Castor Pang, head of research at Core Pacific Yamaichi International H.K. Ltd., touched on the subject. Pang opines that the law of regulation will take its full course. He believes this will happen regardless of noble and generous donations from the same companies directly affected.

In Castor Pang’s own words, “The donation doesn’t guarantee that there will not be more regulations to target at Alibaba.” He further added, “It’s more or less affecting the whole tech sector sentiment today.” Pang concluded by saying that the recent charitable gesture from Alibaba is a “big deal”, and could affect the company’s future earnings growth. This, in turn, would render the shares of the e-commerce giant relatively lower in value.

Alibaba Donation Is One of Many Among Leading Tech-Oriented Corporations

Alibaba is not the only major corporation to pledge huge donations. Other successful tech-oriented companies with similar pledges include Pinduoduo Inc and Tencent Holdings Ltd. The former pledged to donate its next $1.5 billion in profit to farmers’ welfare. Last month, Tencent Holdings Ltd announced that it would double the amount of money meant for social responsibility projects to $15 billion.

Meituan was the worst-performing company on the Index on Friday. Traders continued to short the stocks of the shopping platform after its recent issue with Chinese regulators. The Chinese government recently criticized some car-hailing service providers, including Meituan, over unfair practices. Officials from the transportation ministry and other departments summoned executives from 11 companies and admonished them for a host of infractions. According to a statement published on Thursday, these included disrupting fair competition and hurting the interests of drivers and passengers.

Meituan, Didi Global Inc., and Alibaba received a December deadline to rectify instances of what the government considers misconduct, drawing more scrutiny to the industry.

Regulatory action sweeping across the Chinese tech space has also made inroads into the nation’s entertainment industry. On Thursday, the Chinese broadcast regulator began proceedings for punitive measures on film stars with questionable business ethics. These include ‘incorrect’ politics and cap salaries. In addition, the agency is looking to address fan-based culture issues. Unlike the tech space, which unanimously saw a decline in shares, entertainment shares were mixed. For instance, Mango Excellent Media Co. dropped 5.3%, while Huayi Brothers Media Corp. and Alibaba Pictures Group Ltd. rose 1.7%.