It began with a record crash in Chinese stocks on Wall Street and only got crazier from there.
The nearly $1 trillion selloff ignited by Beijing's shock ban on profits at tutoring companies has triggered a new round of soul searching about the investment case for Chinese assets in the Xi Jinping era.
After a week of wild market swings and tense calls with clients, some investors have decided China just isn't worth the trouble. Others spot buying opportunities after valuations sank to the lowest level in decades. As Xi's Communist Party attempts one of its biggest economic policy shifts since the 1980s, almost everyone agrees the regulatory onslaught has further to run.
Friday, July 23
2 p.m. Hong Kong
Word begins spreading through chatrooms long before it becomes official: much of China's booming tutoring industry will be forced to turn non-profit. Even after months of anticipation, it's worse than investors feared. New Oriental Education & Technology Group Inc. loses half its value in an hour as short sellers pounce. Nirgunan Tiruchelvam, a research analyst at Tellimer, wonders which sectors will become targets next. High on his list: property, gaming and health care.
3:26 p.m. Beijing
China's housing ministry issues a warning to the country's real estate companies, saying it will "notably improve order" in the property market and crack down on violations. China Evergrande Group, the indebted developer that some investors fear is on the brink of default, sinks to session lows.
4:10 p.m. Hong Kong
The Hang Seng Index closes with a 1.5% loss. There are few signs of widespread contagion, for now.
5:30 a.m. Austin
Soren Aandahl, founder of short seller Blue Orca Capital LLC, sees the headlines on his phone. His first thought: "Buckle up." The U.S.-listed shares of New Orient and TAL Education Group tumble more than 40% in pre-market trading. Less than six months ago, they were some of the highest-flying stocks on Wall Street.
4 p.m. New York
The Nasdaq Golden Dragon China Index closes with an 8.5% decline, after earlier falling by as much as 10.3%. All but two of the index's 98 members retreat. Some investors wonder if the tutoring crackdown could presage broader changes in the tenuous VIE structure used by most big Chinese companies listed in New York.
Saturday, July 24
10:09 a.m. Beijing
China orders Tencent Holdings Ltd. to give up its exclusive music streaming rights, the latest salvo in a months-long assault on the nation's tech giants. Pony Ma, the company's billionaire founder, has so far weathered the clampdown better than his long-time rival Jack. But that hasn't stopped Tencent shares from losing a third of their value since February.
7:22 p.m. Beijing
The government finally confirms its sweeping tutoring overhaul, saying the industry has been "severely hijacked by capital."
Cliff Zhao, head of research at CCB International Securities Ltd. in Hong Kong, works through the weekend writing research reports. It was "just as busy as the U.S.-China friction in 2018 and the pandemic outbreak in March last year," he says later. "These events have no precedent."
"That's nuts," says Paul Nolte, a portfolio manager who helps manage $4 billion at Kingsview Investment Management, as he watches Asian markets react to the weekend news.
Nolte hasn't owned Chinese shares directly since selling Tencent and Alibaba in 2019, but he's beginning to worry about his exposure via holdings of global exchange-traded funds. The weighting for mainland- and Hong Kong-based stocks in the MSCI Emerging Markets Index has doubled in 10 years to about 35%.
Monday, July 26
9:20 a.m. Hong Kong
The open is ugly and Alvin Cheung's clients are getting nervous. The associate director at Hong Kong-based Prudential Brokerage Ltd. says "no one knows," when they ask him if the market is near a bottom.
10:54 a.m. Beijing
The selloff is most extreme in the tech sector, but it's starting to spill over. The CSI 300 Index of shares in mainland China tumbles more than 3%. The rout is especially painful for Alice Wang, a 27-year-old who works in the education consulting business in Beijing. "We are in the front line for the hit," she says later. "It's a double whammy for me."
3:49 p.m. Beijing
China issues new guidelines for online food platforms, saying they must ensure the welfare of delivery workers. Xi has made "common prosperity" a cornerstone of his economic agenda amid rising discontent in China over the country's yawning wealth gap. Food delivery giant Meituan, already under investigation for suspected monopolistic practices, tumbles as much as 15%.
"The stock drops on Friday and Monday again took me back to my days in Indonesia" during the Asian financial crisis in the late 1990s, says Herald van der Linde, HSBC Holdings Plc's head of Asia Pacific equity strategy. "There were moments where you just think — Oh my God!"
Tuesday, July 27
8 a.m. Hong Kong
Evergrande, the world's most indebted developer, disappoints equity investors by deciding against a special dividend. S&P Global Ratings had cut its credit rating by two notches the previous night, the third downgrade by a global ratings company in about a month.
