Skip to main content

Navigating the regulatory environment for China equities

29 July 2021

Targeted regulatory policies are a strain on investors’ nerves and the broader Chinese equity market. We provide an update on how these developments are affecting key sectors and explain why investors should focus on identifying opportunities that can take advantage of policy tailwinds.

The latest pullback in China’s stock market raises a question: Is market volatility the old, new, or recurring normal? In the past few weeks, select industries and sectors have faced tighter regulatory policies, a development that has resulted in a sharp sell-off among certain sectors. 

However, sector-focused regulatory and policy changes aren’t unusual for emerging markets such as China. In the past, risk-off and indiscriminate sell-offs have created mispricing opportunities for long-term investors. For example, in 2018, the video-gaming sector went through a major review cycle and regulators suspended approvals of gaming licenses.¹ Policy wise, the rollout of a centralized bulk procurement program for generic drugs in late 2018 also caused a correction in pharmaceutical stocks and in the wider healthcare sector. Below is a summary of are our summarized thoughts on the key recent events. 

Recent events and their implications 


In regard to the recent sell-off of after-school tutoring (AST) stocks in China,² the key implications of the new policy released on July 24 include:

  1. The mandatory conversion of K−12 (kindergarten through 12th grade) subject-tutoring firms to nonprofit institutions
  2. The prohibition of foreign capital investments in academic tutoring institutions—this includes VIE structures (variable interest entity, i.e., an offshore listing structure) 

The scope of the official policy released was more significant than what we and the market had expected. With limited visibility on the future earnings profile in the space, the fundamentals of the AST sector had to be reassessed and expectations reset.

Given the subsequent sector-wide sell-off, it’s worth pointing out that the new policies are specific to tutorial schools, with the objective of protecting students’ well-being. However, tertiary and vocational training companies have been subjected indiscriminately to a sector-wide sell-off, which now present mispricing opportunities, in our view. 

Indeed, tertiary education and vocational training are key areas where Chinese policymakers enhance the skillset of its labor force, alongside the country’s agenda to move up the value chain to innovation-led manufacturing and economic activities. China has set for itself the goal of achieving a 60% higher education enrollment rate by 2025 (from 51% in 2019 and 54% in 2020) and has been making progress.³ In 2021, the number of enrollments to Gaokao (university entry exam) reached a record high of 10.78 million, suggesting there’s a lot of unmet demand for higher education. Since 2018, regulations for commercial for-profit tertiary education has been revisited. The country’s policy on operations and merger and acquisition (M&A) activities for tertiary education (i.e., the Implementation Rules for the Law for Promoting Private Education) was released in May 2021 after nearly three years of consultation.⁴ The objective of the regulatory revamp was to promote the development—and increase the supply of—quality private tertiary education. As the regulatory revamp was just concluded, we don’t foresee further policy announcement on the tertiary education segment while regulated M&A activities have continued since May.

Property management services 

A regulation notice was issued to property management services firms on July 23, triggering policy concerns among investors.⁵ The notice emphasized tightening control regarding inappropriate activities among firms within the space (for instance, failing to provide services in accordance with the standard contract and failing to disclose pricing rationale). While the controls on regulation notice aren’t new measures, the sector has been under pressure. 

It’s important to remember that property management is one of the sectors that the government intends to support under its 14th five-year plan. As the industry consolidates, the sector is expected to grow and, in our view, quality sector leaders could gain market share at the expense of smaller and unlisted peers. Our positive view on the investment opportunities in this sector is further supported by the enlarged revenue pool from community value-added services. In addition, we’re of the view that the valuation of high-quality companies in the sector is now more attractive after the recent sharp correction. 

Cybersecurity and antitrust review

The Cyberspace Administration of China (CAC) announced a cybersecurity inspection on certain ride-hailing platforms in early July soon after a few concerned companies listed their shares in the United States. In fact, the Measures for Cybersecurity Review, which aims to ensure the security of critical information infrastructure and safeguard national security, has already been in effect since June 2020. Platform operators are now expected to act as gatekeepers to protect personal information. 

As data security issues and privacy-related regulations have emerged in China, the regulators are keeping a watchful eye on the collection, application, and security of data, following global regulatory initiatives to protect data privacy.⁶ Given its importance, we believe the current tightened regulatory environment on cybersecurity matters may stay for longer. We also expect more self-inspections, proactive rectifications, and internal controls from key players. The financial implications of these measures are yet to be defined. 

Regarding antitrust investigations, we’re seeing some positive developments after a record fine was imposed on a leading player for monopolistic practices in April. Subsequently, most of the internet players summoned (33 in total) are reported to have signed anti-monopoly self-regulatory conventions in mid-July⁷ and pledged to gradually open up their platforms to promote fair competition. 


While staying mindful of regulatory headwinds, we believe investors shouldn’t overlook potential policy tailwinds on sectors that are supported by government policies. For instance, the renewable energy sector can do well under China’s sustainability initiatives. Industrial automation, manufacturing upgrades, and ensuring semiconductor supply chain self-sufficiency are also on the top of the Chinese government’s agenda. 

Renewable energy supply chain

We’re positive on China’s renewable energy sector—especially companies in the solar energy supply chain—where we see strong medium-term growth potential, driven by the government’s goal to reach carbon neutrality by 2060.⁸ In fact, solar power in China has achieved grid parity and could generate sustainable returns without government subsidies. We also like growth-oriented commodities, such as lithium, which are used for battery production. Battery and energy storage are important not only due to rising electric vehicle adoption in China, but they’re also critical in the context of wider renewable energy application. 

Healthcare innovation 

For companies in the innovation space, we’ve been positive on biopharmaceuticals, particularly those engaged in oncology drug development. The investment team also sees attractive opportunities in contractual research organizations that enjoy solid demand from both local and global biotech companies. We’re positive on specialised medical services providers such as assisted fertility, which can benefit from China’s third-child policy push.


Despite policy headwinds, we believe the Chinese government’s goal is to keep its key sectors in check—not to curb their development—while encouraging innovation. Beyond the near-term volatility, we believe China’s fundamental, structural growth story remains intact. As China continues to elevate its economic composition, we believe policymakers will continue to push ahead with corporate governance and sector-specific policy reforms, ensuring that growth is managed and sustainable.



1 South China Morning Post, August 8, 2018. 2 The “Opinions on Reducing Homework Burden and After-school Tutoring Burden of Students in the Compulsory Education Stage” (aka Double Reduction policy) was officially released by the Chinese government on July 24, 2021. 3 Ministry of Education of the People’s Republic of China, March 31, 2021. 4 On May 14, 2021, the People’s Republic of China State Council announced the Implementation Rules for the Law for Promoting Private Education (Education Sector Implementation Rules). 5 Ministry of Housing and Urban-Rural Development of the People’s Republic of China, July 23, 2021.  6 The implementation of General Data Protection Regulation in Europe in 2018. 7, July 14, 2021. 8 “China pledges to be “carbon neutral” by 2060,” Financial Times, September 23, 2020.


Important disclosures

A widespread health crisis such as a global pandemic could cause substantial market volatility, exchange-trading suspensions and closures, and affect portfolio performance. For example, the novel coronavirus disease (COVID-19) has resulted in significant disruptions to global business activity. The impact of a health crisis and other epidemics and pandemics that may arise in the future, could affect the global economy in ways that cannot necessarily be foreseen at the present time. A health crisis may exacerbate other pre-existing political, social and economic risks. Any such impact could adversely affect the portfolio’s performance, resulting in losses to your investment

Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments.  These risks are magnified for investments made in emerging markets. Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a portfolio’s investments. 

The information provided does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person. You should consider the suitability of any type of investment for your circumstances and, if necessary, seek professional advice.

This material is intended for the exclusive use of recipients in jurisdictions who are allowed to receive the material under their applicable law. The opinions expressed are those of the author(s) and are subject to change without notice. Our investment teams may hold different views and make different investment decisions. These opinions may not necessarily reflect the views of Manulife Investment Management or its affiliates. The information and/or analysis contained in this material has been compiled or arrived at from sources believed to be reliable, but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness, or completeness and does not accept liability for any loss arising from the use of the information and/or analysis contained. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline, or other expectations, and is only current as of the date indicated. The information in this document, including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Manulife Investment Management disclaims any responsibility to update such information.

Neither Manulife Investment Management or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained here.  All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment or legal advice. Clients should seek professional advice for their particular situation. Neither Manulife, Manulife Investment Management, nor any of their affiliates or representatives is providing tax, investment or legal advice.  This material was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security or adopt any investment strategy, and is no indication of trading intent in any fund or account managed by Manulife Investment Management. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation does not guarantee a profit or protect against the risk of loss in any market. Unless otherwise specified, all data is sourced from Manulife Investment Management. Past performance does not guarantee future results. 


Manulife Investment Management

Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. We draw on more than a century of financial stewardship to partner with clients across our institutional, retail, and retirement businesses globally. Our specialist approach to money management includes the highly differentiated strategies of our fixed-income, specialized equity, multi-asset solutions, and private markets teams—along with access to specialized, unaffiliated asset managers from around the world through our multimanager model.

This material has not been reviewed by, is not registered with any securities or other regulatory authority, and may, where appropriate, be distributed by the following Manulife entities in their respective jurisdictions. Additional information about Manulife Investment Management may be found at

  • Hong Kong/Mainland China market update

    Despite the market fall, we believe that the China Q4 2023 GDP growth trend has already been priced into the index, with some bright spots being neglected. Mainland China’s four mega trends (i.e., the “4As”) remain intact as better-than-expected inventory destocking and increased policy measures suggest a potential bottoming of the economy.  

    Read more
  • The Age of AI: Economic Impact and the AI Investment Universe

    Recent developments in Artificial Intelligence (AI) like breakthroughs in Natural Language Models (e.g. OpenAI’s ChatGPT), and advancements in Deep Learning, robotics and autonomous vehicles have sparked investor interest globally. 

    Read more
  • Transitioning to India’s next stage of growth

    India’s growth agenda are well embedding the primary driver of digitisation that supports the formalisation and reinvestment policies underpinning manufacturing expansion. This is starting to show results with visibly improved capital expenditure and industrial order books, as well as a narrowing current-account deficit and a healthier inflationary picture.

    Read more
See all