What happened
Shares of the Chinese tech stocks Tencent Music Entertainment (TME -1.68%), iQIYI (IQ -1.89%), and Bilibili (BILI -2.69%) were all rising today as the Chinese government indicated it's taking steps to help support the country's economy and ease off of some restrictions on technology companies.
Tencent Music's share price was up by 5.2%, iQIYI had gained 8%, and Bilibili had jumped 11.4% as of 2:46 p.m. ET.
So what
Investors in Chinese tech stocks have experienced a rough few months, as the country's government has implemented its strict "zero-COVID" policy, which has put many major Chinese cities into lockdown, including Shanghai currently.
Image source: Getty Images.
But The Wall Street Journal reported today that the Chinese government is now taking steps to help the country achieve its goal of 5.5% gross domestic product (GDP) growth. Some experts have been skeptical that the country will reach that goal as the government continues to put cities into lockdown.
In addition to taking steps to help stimulate its economy, China's policy-making body indicated it might back away from some restrictions its implemented for technology stocks over the past year and instead promote the "healthy development of the platform economy."
Chinese tech stocks -- including Tencent Music, iQIYI, and Bilibili -- have plummeted over the past year as the Chinese government has issued new restrictions on some forms of online content, curbed usage of some platforms, and shifted away from entire markets including online tutoring.
The result has led the share prices of Tencent Music, iQIYI, and Bilibili to each fall more than 75% over the past 12 months.
But with the Chinese government signaling today that it could remove some restrictions for Chinese tech companies, investors are regaining some of their optimism. Investors could receive more insight next month when Chinese officials are scheduled to meet with the leaders of some major Chinese tech companies.
Now what
While it's still not entirely clear what the Chinese government will do to help boost its economy, the fact that the government appears to be committed to economic growth is boosting investor sentiment today.
And if the Chinese government indeed backs off some of the content restrictions it has implemented for technology companies over the past year, then that could be a boon to Tencent Music, iQIYI, and Bilibili's platforms as well.
I still think investors should be cautious about Chinese stocks right now, though. The Chinese government can change its mind about how it regulates tech companies and the Chinese economy at any given time. So any changes to its current policies could easily be undone if the government decided to do so.
Additionally, the government doesn't appear to be backing off of its zero-COVID policies, which means it will have to balance strict lockdowns with keeping its economy firing on all cylinders in order to reach its 5.5% growth target. That's easier said than done.
Tencent Music, iQIYI, and Bilibili investors may want to wait until the companies report several quarters of financial results to get a better understanding of how any governmental policy changes affect the companies' top and bottom lines.
