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Chinese Big Tech firms are on the comeback trail amid economic recovery and US tensions

SCMP | May 29 , 2023

From SCMP， 2023-5-29

 ■ Recent earnings reports from Alibaba, Baidu and Tencent show optimism in an improved regulatory environment and a recovering Chinese economy.

■ The achievements of Chinese tech companies in international markets showcase their entrepreneurial spirit and commitment to globalisation.


Illustration: Craig Stephens

By Wang Huiyao | Founder of the Center for China and Globalization(CCG)

 

China’s leading technology companies are making a comeback. Recent earnings reports from Alibaba, Baidu and Tencent for the first quarter of this year show optimism in an improved regulatory environment and a recovering economy after the lifting of Covid-19 pandemic restrictions in the world’s second-largest economy.

Alibaba, which owns the South China Morning Post, witnessed a 2 per cent increase in revenue compared to the previous year. Despite a slow start to the year, the operator of two of China’s top e-commerce platforms observed positive domestic growth momentum in March. Baidu, which is working hard to position itself as an artificial intelligence pioneer, reported a 10 per cent growth in earnings, which surpassed analysts’ expectations.

After a series of negative and flat quarters, Tencent posted an impressive 11 per cent rise in revenue, also exceeding expectations. The company attributes its performance to a substantial rebound in payment volumes, advertising sales and gaming, based on the solid recovery of domestic consumption in China, which saw Covid-19 restrictions lifted in December.

This was also the first quarter since the central economic work conference held in December, where Beijing pledged its support for tech companies in leading development, creating jobs and competing internationally. Gone are the targeted investigations and massive fines. Instead, officials now talk about “normalised regulations” and have signalled the end of the campaign to rectify major internet platforms.

China’s Big Tech firms are now championing the integration of digital and real economies. This goes beyond providing cloud services to corporate clients. For instance, Tencent is assisting local highway operators in deploying radar to help prevent traffic accidents, and Huawei is automating coal mines to significantly reduce the need for underground personnel. These ventures, although they are less publicised, are making China’s tech giants stand out from “pure” internet platforms such as Meta.

The fortunes of these companies remain closely tied to China’s economy. The primary business operations of most tech companies are concentrated in sectors such as consumer goods and advertising, which are inherently correlated with the overall economy. The revival this year of China’s economy, which the International Monetary Fund projects to grow by 5.2 per cent, is the foundation of a rapid upturn in the revenue stream.

Furthermore, China’s Big Tech firms are increasingly looking beyond the country’s borders. Tencent’s gaming revenue from international markets experienced 25 per cent year-on-year growth, continuing its upwards trajectory since the third quarter of 2019. Overseas gaming revenue is now more than a third of the size of the company’s domestic gaming revenue.

According to Chinese media outlets citing anonymous sources, Tencent plans to design games that appeal to a global audience from the outset, instead of targeting specific markets. The company aims to expand its local teams to foster an integrated global game collaboration ecosystem.

Additionally, Chinese e-commerce platforms Shein and Temu are helping to alleviate the burden of inflation for consumers by reducing costs in clothing and fashion products. Meanwhile, TikTok continues to cater to more than 1 billion users worldwide. Alibaba Group CEO Daniel Zhang Yong has emphasised that globalisation will be one of the group’s three pillars as it reorganises.

At a time when geopolitical tensions between China and the United States are escalating, the achievements of Chinese tech companies in international markets showcase their entrepreneurial spirit and sustained commitment to globalisation. This serves as an inspiration for many smaller start-ups.

Despite recent accusations that Chinese tech companies are obliged to hand over data to the central government, as seen in the scrutiny that TikTok CEO Chew Shou Zi faced during a hearing at the US House of Representatives in March, their accomplishments abroad continue to demonstrate the resilience of private businesspeople.

As I have argued previously, China should incorporate its Global Initiative on Data Security into domestic laws and regulations, amending or officially interpreting laws accordingly. The initiative, which Beijing has promoted internationally, says that states “shall not obtain data located in other states through companies or individuals without other states’ permission”.

Putting noble political declarations into domestic laws is leading by example. This would aid China’s tech companies in expanding internationally, as the government pledged to do during the central economic work conference.

Finally, it is worth noting the dramatic decline in young people’s contribution to the success of Chinese tech companies. Tencent reported a 96 per cent decrease in the total time those under 18 spent on domestic games compared to the same period in 2020, with the figure standing at a mere 0.4 per cent. Similarly, the revenue generated from gaming by minors plummeted 90 per cent, to 0.7 per cent of gross receipts, compared to the same period in 2020.

In the US, concerns have rightfully been raised about the impact of platforms like TikTok on young people’s mental health. China faces a similar problem, and Beijing took action to restrict children’s access to online gaming and to Douyin, the Chinese version of TikTok.

Tencent’s efforts to limit teenagers’ access to gaming demonstrate the effectiveness of such campaigns and the limited side effects on corporate earnings. The US could consider implementing reasonable legislation to prevent excessive screen time for children on social media or games, taking inspiration from China’s approach.

 

From SCMP， 2023-5-29

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