A sharp reversal in Chinese technology shares pushed the Hang Seng Tech Index close to bear market territory on Tuesday, underscoring how quickly sentiment could shift after last year’s rally. The index reversed earlier gains to fall as much as 3.4% during the session, briefly extending its decline to roughly 20% from its October peak, before recovering part of the move to close down 1.1%. Shares of Kuaishou Technology (KUASF), Baidu 
BIDU and Tencent (TCEHY) were among the largest decliners as investors reacted to renewed policy uncertainty.
The selloff was sparked by concerns that authorities may raise value-added taxes on internet companies, following a recent tax increase affecting telecommunication firms. The move came alongside broader volatility in global technology markets, as doubts resurfaced over elevated valuations and reduced expectations for US interest rate cuts. Although state-backed Xinhua News Agency later dismissed speculation around a potential levy on the gaming industry, the episode highlighted heightened sensitivity to negative headlines. Daniel So, a senior trading strategist at Goldhorse Capital Management, said Chinese stocks are no longer viewed as cheap, leaving investors more reactive to downside risks.
Fiscal pressures may also be adding to caution across the sector. China ran a record budget deficit last year as social welfare spending grew at its fastest pace since 2017, according to Bloomberg calculations, while authorities have intensified efforts to tax undisclosed overseas assets to help meet funding needs. Sentiment was further weighed down by Tencent’s decision to distribute cash through digital red packets to promote its artificial intelligence app Yuanbao, a strategy that followed similar campaigns by rivals and has possibly reinforced concerns about an increasingly intense price war among China’s technology companies.
