Global Courant 2023-05-19 23:34:25
Eight months ago, the future of China’s largest internet companies looked bleak. Covid-era lockdowns weighed on sales, and Beijing’s strict tech regulations had scared the hell out of even daring Chinese investors. Shares of Alibaba, Baidu and Tencent fell to some of their lowest levels in years.
As the Chinese economy reopens, the tech giants released earnings reports this week that showed the first signs of a recovery. But the financial results, the first published since the end of “zero Covid” restrictions, also reflected the uneven pace of China’s economic recovery and indicated that the companies’ makeovers, while underway, likely to be rocky.
Baidu, China’s leading internet search company, and Tencent, owner of the ubiquitous messaging app WeChat, both posted double-digit sales growth in the first three months of the year during the same period in 2022, marking the first time in more than a year that they had reached that level.
Sales were up 10 percent at Baidu, which said on Tuesday that strong digital advertising sales had continued in the current quarter. Tencent attributed its 11 percent increase in revenue on Wednesday in part to a rebound in digital payments as Chinese consumers began spending again after a long dry spell. Tencent, China’s dominant video game company, also benefited last year from an easing of restrictions on gambling licenses after a nine-month freeze.
On Thursday, Alibaba reported that sales were up 2 percent from a year earlier, below analyst estimates. Its main online e-commerce division and cloud computing unit reported revenue declines in the single digits, though online shopping began to recover in March, the company said.
The reports followed two turbulent years for technology companies under Beijing’s strict regulations. After Alibaba founder Jack Ma criticized financial regulators in 2020 for hindering innovation, officials halted the public offering of Ant Group, a financial technology company founded by Mr. Mon.
In January, a month after China abruptly reversed its “zero Covid” restrictions under public pressure, a top official at China’s central bank said the campaign against tech companies was “basically complete.” China’s top leader, Xi Jinping, now hopes the country’s technology industry can provide a lifeline for growth. And spurred on by escalating tech competition with the United States, China is eager to resurrect its beleaguered titans.
“The worst time for them in terms of policy is over,” said Tian Hou, the founder of TH Data Capital, a data analytics firm in Beijing. “The government now wants to use these Internet companies to create more jobs, innovate and catch up with the United States.”
Initial investor reaction to the companies’ first-quarter results was subdued. Shares of Baidu and Tencent were roughly flat in Hong Kong this week, though both have been up since October. Shares of Alibaba fell about 6 percent on Friday, but fell about 2 percent this week.
The fortunes of the companies will remain tied to the Chinese economy. Municipalities are saddled with debts. The real estate sector, long a driver of growth, is sputtering. Data released by China’s National Bureau of Statistics for April disappointed analysts: Chinese spent more on food, but seemed to shun items such as cosmetics and cars. Youth unemployment hit a record 20.4 percent.
“People are going on vacation but not spending compared to prepandemic levels,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle, the global real estate and investment consultancy. “They are cautious because they have little confidence in job prospects and future sources of income.”
Alibaba is undergoing an overhaul. It announced a reorganization in March that split the company into six units. And this week it announced a spin-off of its esteemed cloud division, which the company said would be completed within 12 months in preparation for a public listing.
The e-commerce giant also said it was exploring a public offering for its supermarket chain and logistics arm after a series of regulatory investigations prevented many promising tech companies from going public.
The break-up of Alibaba, one of China’s most iconic business empires, shows just how high the re-evaluation is in the tech sector. For years, China’s internet companies grew as millions of Chinese went online. That migration has recently reached a ceiling and companies are fiercely competing for the same customers.
All three of China’s big internet companies are hoping to tell investors a new story, one tied to artificial intelligence, the new technology that underpins services, like ChatGPT, that promise to dismantle old ways of doing business.
Daniel Zhang, Alibaba’s chairman, who will also serve as CEO of Alibaba’s future independent cloud unit, described AI as a technology that would “reshape every aspect of our society”.
The companies hope that investments in artificial intelligence will pay off for their cloud computing units, a technology that underpins AI services. Baidu said its AI cloud division reported its first profit last quarter.
This year, Baidu and Alibaba unveiled artificial intelligence systems similar to ChatGPT, developed by the Silicon Valley research lab OpenAI. Baidu said it sought approval for the green light after China’s cyberspace watchdog released guidelines for the AI systems in April.
Tencent has made “good progress” with its own AI model, the company said Wednesday, with teams planning new AI offerings, though it didn’t elaborate.
The companies are targeting their AI services at enterprises, in part because chatbots with mass appeal could disrupt China’s firm grip on information. Alibaba and Baidu each said more than 100,000 companies lined up to try their artificial intelligence products.
Alibaba, Baidu and Tencent are making makeovers in a difficult time. Beijing’s grip on the economy is tighter than ever. Intensified rivalry with the United States has denied Chinese companies access to some of the advanced microchips needed to develop the most advanced artificial intelligence systems. And analysts say a lucrative pool of domestic customers – Chinese state-owned companies – are rejecting private cloud computing providers in favor of government-backed alternatives.
Recently, US officials have called for a review of Chinese cloud providers like Alibaba on national security grounds. Alibaba said on Thursday that its cloud business fell in part over the past quarter because a major customer pulled out of its international service for “non-product reasons.”
Those issues, both in China and abroad, are keeping some investors away, knowing that the Internet companies are unlikely to return to the growth rates they had a decade earlier. Others feel they deserve a second look.
“I would suggest forgetting the past,” said Kenny Wen, head of investment strategy at Hong Kong-based asset manager KGI Asia. “Now they are coming back and we are seeing a gradual improvement. We need to give them a new assessment standard.”
