Powerful hands with a $1 trillion market, but China’s Big Tech may ‘never regain its glory’

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2022-06-29 11:42:49

“1-digit revenue growth”

On the New York and Hong Kong exchanges, the flourishing of Chinese tech companies is extremely clear. Stocks like Alibaba and Tencent have rebounded from multi-year lows and the possibility of strong upside momentum is increasingly expected.

However, Chinese tech executives, entrepreneurs and venture capitalists are not so optimistic. Bloomberg’s interview with more than 10 industry players shows that the outlook for the industry is still not very good, although there are many signs that Beijing’s regulatory tightening is easing.

Insiders revealed that fear is playing out across the industry. Along with that, many fear that the rapid growth of the technology sector over the past two decades may never happen again.

Revenue growth of Chinese technology giants in the past 1 year.

Alibaba and Tencent are expected to record single-digit revenue growth in 2022, a big drop after years of flourishing growth. The founder of a popular startup said he will withdraw money from these businesses because it has received too much attention from the leadership agencies. Another predicted that it is only a matter of time before Chinese authorities get tougher on the tech industry.

Meanwhile, a businessman in Beijing recently sold a stake in a tech unicorn and said he doesn’t want to build a new venture until there are clearer rules on where to go. government allowed to operate.

This person said:A regulatory crackdown on China’s tech sector has occurred. Regulatory pressure on industry players may have been less intense at this point, as economic growth decelerates. But it is very unlikely that Chinese authorities will relax the ‘diamond’ rule..”

Prosperity is just “appearance”

On the surface, China’s $1 trillion internet industry is finally recovering from a long slide. Ant Group is getting ready for its long-delayed IPO. New titles will most likely be released on the app stores. And after an investigation into the confidential data, Beijing may soon allow ride-hailing firm Didi to resume operations after paying the fine.

In business briefings over the past few weeks, executives have announced a new era where they can once again focus on building products and delivering profits.

For example, Koolearn Technology was an online tutoring company that almost “flipped” last summer when the government banned for-profit tutoring companies. After turning to e-commerce business, the company’s shares doubled in the session on June 13.

They have potential in their hands with a market worth 1 trillion dollars, but China's Big Tech may 'never regain their glory' - Photo 2.

Tencent’s capitalization just surpassed TSMC after the stock rebounded.

Xin Lijun – retail director of JD.com, told Bloomberg: “Beijing has begun to give some policy signals. However, a return to the previous era of ‘riding a horse without a rein’ will be less likely..”

But startup executives have warned investors against being too optimistic. After Beijing postponed Ant’s IPO indefinitely in 2020, which rattled global capital markets, a turnaround was inevitable. Startups lose capital from big investors and billionaires like Jack Ma are forced to stay hidden.

Ahead of the upcoming Party Congress, some fear that the Chinese government’s loosening of regulations on the technology sector is only a temporary step, to support the economy affected by the measures. blockade and high global inflation.

Regulations are not clear

Guo Changchen, founder of Keeko Robot Technology, said:I feel some regulations have been relaxed somewhat. In fact, over the past few years, we’ve seen a number of businesses grow rapidly. Only if Beijing makes clear rules, we can still develop.”

The founders said that the Chinese government introduced quite complicated regulations in 2021, causing them many difficulties. The new rules govern everything from the platform economy to what kind of entertainment is broadcast in the media.

The move of strict supervision on all aspects has caused investors to withdraw money from the capital market. Capital flows from the US have “disappeared” during the regulatory crackdown and show no signs of returning. JP Morgan and the giants on Wall Street once called China a “uninvestable” market.

They have potential in their hands with a market worth 1 trillion dollars, but China's Big Tech may 'never regain their glory' - Photo 3.

The amount of capital and deals that Chinese startups make with venture capital funds.

Regardless of the stock rally, China is still seeing a sharp drop in venture investments, despite being once considered a major rival to Silicon Valley. According to data from research firm Preqin, the value of deals made in the country fell about 40% from a year ago, to $34 billion in the first five months of 2022. Meanwhile, the Venture capital and private equity funds raised $6.2 billion, down more than 90% year-on-year.

Even companies that have benefited from regulatory easing are on a bumpy road. According to close sources, although the regulatory authorities allowed Baidu to release a new game starting in April, the company delayed the development and launch of the game, they also cut staff. Therefore, the title “The Advancing Rabbit” will probably never be released.

Of the 105 gaming companies that received new licenses since April, at least 11 are no longer operating as they used to, according to a Bloomberg analysis based on data from subscription tracker Qichacha. Some studios have dissolved the company, while others have deleted all of the content on the site or used it to post content like finding jobs or renting a home.

Even under the most favorable conditions, China’s once illustrious tech giants are now set to see single-digit revenue growth. Many people fear that the easy “golden egg” period is over when regulations are tightened.

Most likely, Ant will never make the historic IPO again. Didi also failed to expand overseas. And Tencent and Alibaba say they will focus on safer and more familiar areas such as social networks and online commerce, ceding the leading position to areas that have not been “restricted” such as fintech.

Refer to Bloomberg

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