Beijing: Chinese technology stocks are going through a phase of intense turbulence, with the sector now standing close to bear market territory. After slipping nearly 20 percent from the highs recorded in October, investor anxiety deepened following a sudden and sharp sell-off on Tuesday, February 3. The Hang Seng Tech Index, which tracks major Chinese technology companies, has been on a steady downward path for several months, with recovery attempts proving weak and short-lived.
Tax Concerns Drive Market Nervousness
The biggest trigger behind the recent fall is growing concern over taxation. Investors fear that the Chinese government may raise Value Added Tax (VAT) on internet and digital service companies. Since telecom firms have already been subjected to higher taxes, market participants believe that online platforms could be the next target. This uncertainty has created nervousness, prompting investors to cut exposure to tech stocks.
What Happened on Tuesday?
On Tuesday, the Hang Seng Tech Index fell as much as 3.4 percent during intraday trade. Interestingly, the index had opened with mild gains, but sentiment changed rapidly as heavy selling emerged across major stocks. Within a short period, the early optimism faded and panic-driven exits pushed the index sharply lower.
A Prolonged Phase of Weakness
This decline is not limited to a single trading session. The index has remained under pressure since the October 2025 peak. From those levels, it has already corrected between 19 percent and 20 percent. November and December witnessed deeper weakness, and even in January 2026, the market failed to show any strong or sustainable recovery, highlighting a prolonged downtrend.
Major Stocks Under Pressure
The heaviest selling has been seen in large, high-weightage stocks. Shares of Kuaishou Technology, Tencent Holdings, and Alibaba Group faced significant pressure. As these companies dominate the index, their fall dragged the entire tech sector lower, intensifying the overall decline.
Why Taxes Matter So Much
Any increase in VAT on internet companies would directly impact profitability. Higher taxes would raise operating costs and squeeze margins. Since Chinese tech stocks are already trading at relatively high valuations, even the possibility of higher taxation is enough to trigger profit booking and risk reduction.
Global Factors Add to Weakness
The fall is not driven by domestic factors alone. Global developments are also playing a role. Wall Street has seen increased volatility, with growing doubts about whether major artificial intelligence companies can justify their high valuations amid rising costs and uncertain growth prospects.
What the Chart Signals?
The chart clearly shows the Hang Seng Tech Index nearing a 20 percent decline from its peak. Technically, such a fall places the market on the edge of a bear phase, where investors tend to treat every bounce as an opportunity to sell.
What Investors Will Watch Next?
Going ahead, investors will closely track any official announcement on China’s tax policy, especially related to VAT for digital companies. Additionally, expectations of fresh government stimulus to support economic growth will remain a key factor shaping market sentiment.
