China seems to be warming up to Chinese IT companies after a more than $1 trillion decline.

The Chinese government’s regulatory crackdown on the tech sector in late 2020 resulted in a loss of over $1 trillion from the country’s largest companies. However, there are indications that the central government is softening its stance towards internet giants like Alibaba, which could have a positive impact on Chinese tech stocks. Alibaba announced a major reorganization recently, looking to split the company into six business units, in an initiative designed to unlock shareholder value and foster market competitiveness. This move could indicate a green light from the upper echelons of the Chinese government, according to George Efstathopoulos, portfolio manager at Fidelity International.

Further, Jack Ma, the founder of Alibaba, returned to public view in China for the first time in months, signaling Beijing’s more positive view towards the tech sector and entrepreneurs. The gaming sector, which was hard hit in 2021, has also seen some regulatory easing with the video game licensing regulator giving its stamp of approval to a batch of foreign titles for release in China. Additionally, foreign technology executives, including Apple CEO Tim Cook and Qualcomm CEO Cristiano Amon, have visited China and met with government officials, indicating that China is courting foreign business to revive its economy, which has been battered over the past two years.

However, investors should remain cautious as there is a possibility that the Chinese government could impose stronger political control over tech giants in the long run, warned Xin Sun, senior lecturer in Chinese and East Asian business at King’s College London. While Alibaba’s restructuring may provide some regulatory certainty for the sector in the short run, it raises questions about the fate of other tech giants such as Tencent, Meituan, and ByteDance. Such uncertainty could undermine entrepreneurs and investors’ confidence.