Hong Kong-listed Chinese tech stocks entered bear market territory on February 5, with the Hang Seng Tech Index falling 1.1% to cross the 20% decline threshold from its October 2025 peak.
Alibaba dropped 2% to HK$156.30, Kuaishou fell 3%, and SMIC declined 3.3%. The sell-off mirrors a broader global tech rotation, with the Nasdaq down 1.5% on the same day.
The tax question
Market anxiety centers on potential value-added tax increases for internet services. China recently raised VAT on certain telecom services, sparking speculation that online platforms could face similar treatment. Officials dismissed gaming industry tax rumors on Tuesday, but the damage was done.
"The sell-off in recent days is driven by concerns over possible VAT tax increase on internet services, online gaming and other online transactions," said Qi Wang, investment strategist at UOB Kay Hian.
For enterprise tech leaders tracking APAC exposure, this matters beyond the immediate price moves. Hong Kong-listed Chinese tech stocks offer different regulatory exposure than mainland listings, but not immunity. Tax policy changes affect enterprise software spending and cloud adoption patterns across the region.
AI reality check
The timing isn't coincidental. Global tech stocks face valuation pressure as investors reassess AI-driven growth assumptions. Anthropic's legal automation tools sparked concerns about software company moats, while reports of tension between Nvidia and OpenAI added uncertainty.
The Hang Seng Tech Index has underperformed the broader Hang Seng Index by 11 percentage points over three months. Stretched valuations made the sector vulnerable when sentiment shifted.
Baidu bucked the trend, gaining 0.1% after announcing a $5 billion buyback and new dividend. That's the playbook when growth narratives wobble: return cash, prove you're real.
What enterprise leaders should watch
Three things matter here:
- Tax policy clarity: Actual implementation details, not speculation
- Earnings season: Whether fundamentals support current valuations
- Global tech rotation: This could be healthy correction or start of broader reassessment
The pattern is familiar. Regulatory uncertainty plus valuation concerns equals volatility. The question is whether this is noise or signal about enterprise tech spending in China's largest market.