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Chinese tech giants’ swagger may be gone for good

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Chinese President Xi Jinping. Photo: AP

Chinese President Xi Jinping. Photo: AP

Chinese President Xi Jinping. Photo: AP

On trading floors in New York and Hong Kong, the brightening mood toward Chinese technology companies is unmistakable: With stocks like Alibaba Group Holding Ltd and Tencent Holdings Ltd surging from multi-year lows, talk of a new bull market is growing louder.

Yet speak to executives, entrepreneurs and venture capital investors intimately involved in China’s tech sector and a more downbeat picture emerges. Interviews with more than a dozen industry players suggest the outlook is still far from rosy, despite signs that the Communist Party’s crackdown on big tech is softening at the edges.

These insiders describe an ongoing sense of paranoia and paralysis, along with an unsettling realisation that the sky-high growth rates of the past two decades are likely never coming back.

Alibaba and Tencent are expected to deliver single-digit revenue growth in 2022, a letdown after years of rip-roaring expansion. One prominent startup founder said he’d pass on money from those companies because of the attention it would attract. Another said his company is proceeding on the assumption that it’s only a matter of time before officials double down again.

A third Beijing-based entrepreneur recently sold his stake in a tech unicorn and said he’s reluctant to start a new venture.

“China’s tech crackdown has happened. There is no comeback from that,” the entrepreneur said, asking to remain anonymous for fear of retribution. 

On the face of it, China’s $1trn internet industry is finally emerging from a brutal reckoning. Jack Ma’s embattled Ant Group Co is poised to revive a long-derailed IPO. Scores of new video games were recently greenlit for app stores. And after a sweeping data security probe, Beijing may soon let ride-sharing company Didi Global off with a mere fine.

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Still, startup heads have cautioned investors against getting too comfortable. After regulators scrapped Ant’s IPO plans in 2020, the change in temperature was unmistakable. Startups shunned money from big investors. Industry leaders grew nervous about consolidating power. Billionaires like Ma went into hiding.

Beijing has a long tradition of clamping down ahead of important events. This year’s upcoming party congress “when Xi Jinping is expected to win an unprecedented third term” is about as significant as it gets. Some worry that the government is merely loosening the leash temporarily to spare an economy devastated by coronavirus curbs and high global inflation.

Founders say a maze of government regulations introduced in 2021 have made their lives difficult. The rules govern everything from the platform economy to what kinds of entertainment are permissible on social media. Scrutiny over practically every facet of the industry has led to a chilling effect. 

Putting aside this year’s stock rally, China is still weathering a decline in venture capital investments, despite once being touted as a primary rival to Silicon Valley. The value of deals in the country fell roughly 40pc from a year ago to $34bn in the first five months of 2022. Meanwhile, venture capital and private equity funds raised $6.2bn, a fall of more than 90pc compared to the first five months of last year.

Even apparent beneficiaries of China’s easing of rules face a rocky climb. Although regulators greenlit Baidu to release new games starting from April, the company has shelved its game development and publishing arms and downsized staff.

In February, Shanghai outfit Lilith Games cancelled a new mobile game after deciding its anime-style graphics were unlikely to get past regulators. Chinese censors have a low tolerance for what they consider lewd imagery such as the more sexualised or explicit iconography popular in Japanese anime.

“The licensing hiatus has triggered layoffs and streamlining among game developers across the board,” says Jesse Sun, a headhunter with Shanghai-based consultancy Gamehunter. “It’s a dead-end for many small and medium-sized studios.”

Even in a best-case scenario, China’s once-swaggering tech titans are now effectively utilities eking out single-digit growth. Ant is unlikely to ever again pull off history’s largest IPO. Didi has dialled back its overseas expansion. And Tencent and Alibaba say they’ll focus on safer, familiar bets like social media and online commerce while gradually ceding the lead in yet-to-be disrupted arenas like fintech.


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