1.5 trillion dollars. This was the amount wiped off Hong Kong and Chinese mainland stock exchanges in the last week of July alone. Amid rapid and unpredictable government crackdowns, China’s largest tech, education, and healthcare companies have suffered precipitous plunges in stock price. As the Chinese government implements a series of sweeping economic reforms, will it be safe to continue investing in China?

The answer is… probably, yes, though investors should no longer be under the illusion that any stock they buy will inevitably rise. Chinese and foreign investors have enjoyed four decades of economic boom ever since the “opening of China” in 1978. In fact, China became the top country for direct foreign investment in 2020, with $163 billion of money flowing into the country. But this meteoric rise has likely come to an end, as Chinese officials begin enforcing stricter regulations on capital markets. This means investors will need to be more careful in their stock selection. High social impact sectors, such as tech or education, will likely have much slower gains in the coming years. But companies focused around clean energy and other environmental technologies may have more optimistic futures.

Chinese officials have cited data security and antitrust as primary concerns for cracking down on consumer tech companies. For instance, Didi, the Chinese equivalent to Uber, was taken down from Chinese app stores just a few days after going public in the US. The Cyberspace Administration of China (CAC) had suggested the company conduct an internal investigation due to potential user data leakage, but Didi’s executives filed confidentially with US regulators to list on the NYSE. Alibaba, the world’s largest retailer, was fined $2.8 billion for forced exclusivity. Alibaba was requiring vendors to deal solely with its own platform, an act the government deemed exploitative due to the company’s dominant market position. Regulators have also blamed Big Tech for causing social issues, such as video game addiction among children, as well as potentially destabilizing the Communist Party’s grip on power. Due to new tech regulations, as well as the sector’s falling out of favor with the government, consumer tech is likely no longer a safe investment.

Private tutoring was hit by a harsher and even more extensive set of restrictions by regulators in late July. Once popular with investors for its astronomical returns, the entire private education sector was razed to the floor by a single administrative order. The new policy banned K-12 curriculum tutoring and also ordered tutoring firms to register as non-profits. This has caused a catastrophic plunge in stock prices. For instance, the three largest tutoring companies in China have collectively lost around 95% of their stock values, or about $102 billion.

The main purpose behind the policy was raising birth rates. Due to China’s former One-child Policy, seniors now account for almost 12% of the country’s total population. Therefore, officials have hoped to boost the youth population to prevent economic collapse. But in China’s largest cities, hourly tutoring rates range from $60 to $150, and with an average urban annual income of around $18,000, parents are wary about having multiple children. The Chinese government thus banned the tutoring industry in order to lower the cost of raising children. Chinese officials have historically been very adamant about population control policies, so during the coming few decades of population rebalance, private education will probably not be a viable investment.

This recent season of unclear government crackdowns has alarmed many foreign investors. Softbank Group, Japan’s leading venture capital firm, has announced it plans to stop new investments in China. Some investors see the regulations as movements towards a centralized economy, but certain sectors of the Chinese market still retain strong investment potential. For example, President Xi Jinping has committed to carbon neutrality by 2060. This means environmental technology companies, such as clean energy or electric vehicle firms, will be given governmental support and laxer regulations in order to encourage innovation. By aligning themselves with the government’s long-term goals, as well as avoiding high social impact sectors, investors can continue benefiting from the Chinese stock market.