Softbank to Stop Investments in China’s Tech as Profits Dip 40%

Global tech investment juggernaut, Softbank has announced that it will stop further investments in Chinese tech firms until there is more clarity on the scope of the Chinese government’s crackdown on its tech sector.

Last quarter Softbank’s net profits dropped by 40% compared to the same period last year. The investor brought in $6.9 billion (761.5 billion yuan) in the latest quarter. The drop in profit is driven largely because of the drop in valuations for Chinese tech firms Didi Global Inc. and Full Truck Alliance Co Ltd.

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More about China’s crackdown on tech

Over the past few months, Chinese President Xi Jinping’s government has cracked down on China’s tech sector that is worth approximately $4 trillion. The government has passed over 50 regulatory measures against many of China’s biggest tech firms. Offenses range from antitrust violations, anti-competitive practices, data abuse, etc. The prospect of bans and fines from the government has caused the share prices for many tech companies to drop. Investors have reportedly lost around $1 trillion.

The reason behind the tech crackdown is not known. Some suspect that this is Xi’s way of humbling tech tycoons and give regulators more control over digital markets. Currently, these markets largely operate with little to no regulation. Other experts have pointed out that China’s actions may have a more long-term agenda. The is a growing concern around the world that digital markets lead to monopolies. In Europe, the United States, and Australia legislators are considering new laws to improve competitiveness in the digital market and reduce the sway that some big tech firms have.

Tech giants have been accused of anti-competitive behavior, acquiring their rivals and competition, and treating workers poorly. By introducing regulations, the Chinese government is aiming to stop this misconduct which will ultimately benefit the end-users.

Geopolitics could also be one of the motivating factors for the new crackdown. Trade sanctions by countries like America have made it clear that China needs to reduce its reliance on outside markets for critical tech components. By cracking down on digital platforms like social media and E-commerce giants there is a chance that qualified programmers and engineers will opt to work for ‘hard-tech’ firms instead of in SaaS (software as a service).

What happens next with China’s tech and Softbank

It is unclear exactly when the Chinese tech market will settle down. In a statement Chief Executive at Softbank, Masayoshi Son said, "Until the situation is clearer we want to wait and see. In a year or two, I believe new rules will create a new situation." Chief Financial Officer of Softbank’s Vision Fund, Navneet Govil clarified that the company is still positive about the Chinese tech market saying, “Our broader thesis in China is unchanged: It's still a large, growing and compelling economic opportunity.”

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