How to Dodge the Dragon: Why You Should Avoid Investing in Chinese Tech Giants?

If you are looking for a high-growth opportunity in the investment marketplace, you might be tempted by the allure of Chinese tech giants.

After all, they have been dominating the global scene with their innovative products and services, massive user base, and strong profitability.

However, before you put your money into these companies, you should be aware of the risks and challenges they face.

In this article, I will share with you some of the reasons why I think investing in Chinese tech giants is a bad idea and what you can do instead.

Reason 1: Regulatory Crackdown

One of the biggest threats to Chinese tech giants is the regulatory crackdown by the Chinese government. In recent years, the authorities have been tightening their grip on the tech sector, imposing stricter rules and regulations on various aspects such as data security, antitrust, content moderation, and social responsibility. For example:

●      In November 2020, the Chinese government halted the $37 billion IPO of Ant Group, the fintech arm of Alibaba, citing concerns over its financial stability and consumer protection.

●      In April 2021, Alibaba was fined a record $2.8 billion for abusing its market dominance and engaging in anti-competitive practices.

●      In July 2021, Didi Chuxing, China’s largest ride-hailing platform, was ordered to stop signing up new users and remove its app from app stores after it went public in the US without obtaining approval from the regulators.

●      In August 2021, Tencent, China’s largest social media and gaming company, was banned from acquiring new video game licenses and ordered to limit the time and money that minors can spend on its games.

These are just some of the examples of how the Chinese government is cracking down on the tech sector. The regulatory environment is unpredictable and hostile and can change at any time without warning.

This creates a lot of uncertainty and volatility for investors who have to deal with constant regulatory risks and potential losses.

Reason 2: Geopolitical Tensions

Another reason why you should avoid investing in Chinese tech giants is the geopolitical tensions between China and other countries.

As China rises as a global power, it faces increasing resistance and hostility from other nations, especially the US. The trade war, the COVID-19 pandemic, the Hong Kong protests, the Xinjiang issue, and the Taiwan conflict are some of the sources of friction and conflict between China and the US.

These tensions have spilled over to the tech sector, as both sides try to limit each other’s influence and access to technology. For example:

●      In May 2019, Huawei, China’s largest telecom equipment maker, was placed on a US blacklist that restricted its access to US technology and suppliers.

●      In August 2020, ByteDance, the parent company of TikTok, was forced to sell its US operations to a US company or face a ban by the Trump administration over national security concerns.

●      In January 2021, Xiaomi, China’s second-largest smartphone maker, was added to a US blacklist that barred American investors from buying its shares or bonds.

●      In March 2021, SMIC, China’s largest chipmaker, was cut off from US suppliers of equipment and materials after being placed on a US blacklist for alleged military ties.

These are just some of the examples of how geopolitical tensions can affect Chinese tech companies. The tech sector is highly dependent on global supply chains and markets, and any disruption or restriction can have serious consequences for their business operations and growth prospects.

Reason 3: Ethical Dilemmas

A third reason why you should avoid investing in Chinese tech giants is the ethical dilemmas they pose. As Chinese tech companies expand their reach and influence around the world, they also face increasing scrutiny and criticism over their ethical standards and practices. Some of the issues that have been raised include:

●      Data privacy: Chinese tech companies have been accused of collecting and sharing user data with the government or third parties without consent or transparency. For example, Zoom was found to have routed some of its calls through China and shared user data with Facebook.

●      Censorship: Chinese tech companies have been accused of censoring or manipulating content that is deemed sensitive or unfavorable by the government or regulators. For example, WeChat was found to have censored keywords related to COVID-19 and human rights violations in China.

●      Human rights: Chinese tech companies have been accused of enabling or facilitating human rights abuses by the government or other actors. For example, Alibaba was found to have provided facial recognition technology that can identify Uyghurs in China.

These are just some examples of how Chinese tech companies can pose ethical dilemmas for investors who care about social responsibility and values. Investing in these companies can expose you to moral hazards and reputational risks.

What You Can Do Instead

So what can you do instead of investing in Chinese tech giants? Here are some alternatives that I think are more attractive and less risky:

●      Invest in other emerging markets: There are many other emerging markets that offer high-growth opportunities without the same level of regulatory and geopolitical risks as China. For example, India, Southeast Asia, Latin America, Africa, etc.

●      Invest in other sectors: There are many other sectors that offer innovation and profitability without being dependent on or affected by China. For example, biotechnology, renewable energy, cyber security, etc.

●      Invest in yourself: The best investment you can make is in yourself. You can use your time and money to learn new skills, start a business or pursue your passions.

Conclusion

In conclusion, investing in Chinese tech giants is not a good idea because they face many challenges and risks, such as regulatory crackdowns, geopolitical tensions, and ethical dilemmas. You should avoid them and look for other opportunities in the investment marketplace that are more attractive and less risky.

I hope this article has given you some insights and guidance on how to make better investment decisions and dodge the dragon. If you enjoyed this article, please share it with your friends and leave a comment below. Thank you for reading!