As China’s stocks fall after a market boom earlier this year, Chinese tech companies are the worse off. We spoke with Chris Low, chief economist at FTN Financial, to find out why.
Click the media player above to hear Marketplace Tech host Ben Johnson in conversation with Chris Low, chief economist at FTN Financial.
According to Low, the Chinese state fueled much of the enthusiasm around China’s stock market boom because it “looked like a terrific way of paying off debt by issuing new shares. So they absolutely encouraged it.”
Low explains that the stock market boom was seen as “another part of China’s transition to a consumer driven economy and a way of sharing the wealth with the Chinese people.”
The center of the euphoria, Shenzhen, has been hit the hardest. Likened to the NASDAQ, the Shenzhen market has smaller, more entrepreneurial companies. At the height of the boom, these Shenzhen tech companies were the poster-children for entrepreneurialism and getting away from state owned enterprises. However, now “they are faring worse” says Low. And they may need some help from the Chinese government.
Low predicts that the state “may step in and start buying shares.” To explain, he compares the present situation to how “the old mainstream companies, the steel makers and the car makers were government owned enterprises” and says “so too the tech companies might become government owned enterprises.”
In Low’s opinion, this possibility reveals “one of the fundamental differences between China and the U.S. They don’t have this reverence of private markets that we have.”