China's stock market crisis - What impact for technology companies?
Tuesday, 25th August 2015
The Chinese stock market is falling after years of sustained growth and there are wide concerns that a transition to a slower pace of growth may be disruptive to markets throughout the world. Yesterday's panic saw China's worst trading day since 2007.
China is the world's second largest economy and the world's third biggest technology market, so these conditions will have a big effect on the technology sector.
The sudden change in outlook is causing significant changes in opinion and panic selling as a result. Facebook (who don't operate in China), Apple, Amazon and Microsoft have lost a cumulative $200 billion in the past week and Chinese internet giants Alibaba, Baidu and Tencent Holdings have each lost over a quarter of their value, demonstrating that both Chinese and worldwide companies are at risk.
US based companies currently developing their business in China (such as Cisco Systems, Intel, Hewlett-Packard and Microsoft) could have a difficult time during the economic uncertainty. The market conditions, paired with Beijing's preference for the use of domestic companies and products, will have significant consequences. Cisco, whose Chinese interests currently account for 3% of the company's total business, has reported a drop in business of 20% in their third quarter.
Whilst some Asian and European markets have shown some recovery today, and the pound has bounced back against the euro, it is inevitable that any uncertainty surrounding the Chinese economy will force investors to think twice before investing heavily in private tech companies.
Many global technology companies that rely on the Chinese market to boost growth, manufacture goods and sell products, will experience a drop in business but it is the smaller private technology companies that are likely to suffer more during this downturn. These private companies that rely on private investors will be affected by the natural reluctance to invest heavily in this uncertain period.
This is a storm that investors and technology companies alike will need to ride out, it remains to be seen if there are some high profile casualties along the way.