HONG KONG (BLOOMBERG) – On trading floors in New York and Hong Kong, the brightening mood towards Chinese technology companies is unmistakable: With stocks such as Alibaba Group Holding and Tencent Holdings 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 start-up founder said he would pass on money from those companies because of the attention it would attract. Another said his company is proceeding on the assumption that it is 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 is reluctant to start a new venture until there is more clarity on what the government will allow.
“China’s tech crackdown has happened. There is no comeback from that,” the entrepreneur said, asking to remain anonymous for fear of retribution.
“The regulatory pressure on Chinese tech companies may have hit the brakes for now, given the sluggish economy, but it is unthinkable that regulators in the country would loosen their grip on platform companies ever again.”
On the face of it, China’s US$1 trillion (S$1.39 trillion) Internet industry is finally emerging from a brutal reckoning. Mr Jack Ma’s embattled Ant Group is poised to revive a long-derailed initial public offering. 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.
During conference calls over the past few weeks, top executives proclaimed a new era in which they could once again focus on building products and delivering profits. Take Koolearn Technology Holding, an online education operator that was nearly wiped out last summer when the government banned for-profit tutoring companies. After its push into e-commerce went viral on social media, the company’s shares doubled during a single day of frenzied trading on June 13.
Beijing has “gradually begun to release some policy signals,” Mr Xin Lijun, retail chief of e-commerce giant JD.com, told Bloomberg Television. But “a return to the past days of ‘riding the horse without holding the reins’ is not very likely”.
Beijing has a long tradition of clamping down ahead of important events. This year’s upcoming party congress – when Mr 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 Covid-19 curbs and high global inflation.
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 40 per cent from a year ago to US$34 billion in the first five months of 2022, according to data from research firm Preqin. Meanwhile, venture capital and private equity funds raised US$6.2 billion, a fall of more than 90 per cent compared with the first five months of last year.
Even in a best-case scenario, China’s once-swaggering tech titans are now effectively utilities eking out single-digit growth. Many are afraid to pursue moonshots in an age of knee-jerk regulation.
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 will focus on safer, familiar bets such as social media and online commerce while gradually ceding the lead in yet-to-be disrupted arenas like fintech.
The founder of a farming start-up said he recently asked an investor whether his money counted as “disorderly expansion of capital”. Without spelling out its scope, President Xi has used the term to explain why regulatory oversight of tech moguls is necessary.
“That investor couldn’t answer,” the founder recalled. “In fact, no one knows the answer.”