China's tech giants are bleeding value at a pace that's catching Wall Street off guard. The Hang Seng Tech Index tumbled into bear market territory Thursday, sliding over 20% from its October peak as fears of new tax hikes and AI-driven market chaos converge. What looked like a solid recovery rally just months ago has turned into a sixth straight day of losses, leaving investors scrambling to figure out whether this is a buying opportunity or the start of something worse.
The Hang Seng Tech Index, packed with mainland China's biggest internet and tech names, fell more than 1% Thursday morning in Hong Kong trading. That pushed the benchmark down just over 20% from its October peak - the technical threshold that officially marks bear market territory. It's a brutal reversal for an index that was riding high on optimism about China's economic recovery and AI ambitions just a few months back.
The immediate trigger? Tax anxiety. Market participants are pointing fingers at fears of a possible value-added tax increase on internet services, according to Qi Wang, investment strategist at UOB Kay Hian. The worry isn't coming out of nowhere - China already implemented a VAT hike on certain telecom services, and now investors are worried internet platforms could be next on the chopping block.
Speculation spread like wildfire earlier this week, with rumors extending to online gaming and other digital transactions. That sent shockwaves through a sector that's already been beaten down by years of regulatory crackdowns. Chinese officials moved quickly Tuesday to dismiss speculation about a gaming industry levy, but the damage was done. Trust is fragile when you've spent years watching Beijing tighten the screws on tech.
"The sell-off in recent days is driven by concerns over possible VAT tax increase on internet services, online gaming and other online transactions," Wang told CNBC. "This follows the recent VAT increase on certain telecom services."
But the tax fears are only part of the story. China's tech woes are colliding with broader chaos in global technology markets, driven by mounting fears that AI is about to disrupt entire software categories. Phelix Lee, senior equity analyst at Morningstar, described the situation as "a barrage of negative news globally."
