The plunge has wiped 756 billion Hong Kong dollars ($97 billion) off the market value of Alibaba, the e-commerce giant founded by billionaire Jack Ma. Rival JD.com has lost 201 billion Hong Kong dollars ($26 billion).
The regulator said that curtailing the domination of e-commerce websites and other apps would protect fair market competition and ensure healthy growth for the internet economy.
“The China government is concerned about actual or possible monopolistic behavior, and the sheer size of the incumbents, either leading to unfair competition or squeezing out new players and reducing competition,” said Jeffrey Halley, senior market analyst for Asia Pacific at Oanda, adding that the drafted guidelines signal a “much more vigorous regulatory environment.”
Halley said he expects tech stocks to remain under pressure until the scale and scope of the new regulations becomes clearer.
Other analysts believe China’s tightening regulation could affect the growth of the internet sector, especially e-commerce sites.
“We believe the guidelines, if strictly enforced, could weaken the bargaining power of those big platforms in dealing with merchants,” analysts from Nomura said in a research report on Tuesday.
The Chinese government has been intensifying efforts recently to exert pressure on rapidly growing internet firms.
The regulators warned against monopolistic behaviors and said the government would publish more regulations targeting online transactions, streaming, and other services. They said they would also launch a crackdown after the Singles Day shopping season on “illegal cases,” and warned firms against inflating their sales figures and cheating customers.
But it’s also been accompanied by official criticism. The China Consumers Association, a state-backed national consumer rights group, last week urged “rational consumption” and state-run news network CCTV called for “fewer tricks” by shopping platforms.