Chinese tech giants are facing a slowdown in China’s economy

Chinese technology giants are feeling the pinch of the economic slowdown, and this adds financial pressure on an industry that is already so subject this year to a whole system of further regulation.

Some of China’s largest technology companies attributed the weak growth in their revenues from July to September to the deterioration of macroeconomic conditions. The quarterly sales of the social networking and computer games giant Tencent have grown at the slowest rate since the company’s launch in 2004. The online shipping company Meituan reported that the growth rate in food orders has slowed. The Baidu search engine reported a slowdown in advertising, while online commerce giant Alibaba cut its fiscal year growth forecast.

The recent challenges facing companies can be compared to the results presented by some of the equivalent American companies, including Google from Alphabet and Microsoft, which the move to work from home and online shopping gave them a boost during the epidemic. While Amazon quarterly sales slowed due to staff shortages and delays in supply chains, both Amazon and Google said demand for digital advertising remained strong.

Chinese Internet platforms are already facing the impact of new policies that strictly control areas such as information gathering, algorithms they run and the amount of time teens spend online. “The question is whether these platforms are designed to serve traders in what can be described as recession-proof or punitive-action industries. And there are not many such platforms at this point in time,” said Michael Norris, director of research and strategy at Shanghai AgencyChina.

China’s economy grew by 4.9% in the third quarter compared to a year earlier, less than economists had forecast, and a very large slowdown compared to the second-quarter expansion rate, 7.9%. Recently, economic growth has slowed due to a variety of factors that included power outages, issues of supply chains and punitive actions on the private sector including in the areas of technology, real estate and education.

For some Chinese Internet giants, the economic slowdown has translated into weaker demand for digital advertising.

Tencent’s third-quarter revenue from online advertising rose 5% year-on-year, slowing from 23% in the previous quarter, as a result of tighter regulation in areas such as education, insurance and online computer games. Meanwhile, other industries have not returned to full activity, senior executives say.

“Other categories will jump into the gap and fill or take advantage of lower prices,” said James Mitchell, Tencent’s director of strategy. “I think it will happen over time, but when the macro environment is more challenging, it happens less quickly.”

Online platform operator Pinduoduo’s online marketing services – mainly digital advertising – rose 44% year-on-year, down 64% in the second quarter and 157% in the first quarter.

On Friday, Beijing’s most powerful regulator released a draft of new rules for the online advertising industry, including a ban on private tutoring after-hours aimed at young students as well as imposing liability on advertisers and Internet platforms for the content of advertisements displayed on them.

Baidu Chief Strategy Officer Herman Hugh said the weakness in advertising revenue is likely to continue even after the third quarter, especially if the locksmiths imposed because of the corona and regulatory expansion continue. China has recorded a very small number of corona cases compared to other countries, but isolated outbreaks have continued to occur and are causing temporary stops in travel and company operations.

Revenue from third-quarter ads at ByteDance, which runs the Tic Tac app and its Chinese version, Douyin, was smaller even though online commerce was growing rapidly in those apps, company employees said. ByteDance is not traded and does not publish quarterly revenue data.

Outside of China, ByteDance is expanding its operations in international markets. Last week, the company launched an app for sellers at Tic Tac, its latest attempt to reflect the success of its online trading in China with Douyin, said people familiar with the subject. The company has also relocated some of its marketing staff to Singapore to support tic tac advertising and online commerce, the people said.

At ByteDance, we asked questions of tic tac employees. A spokeswoman for Tic Tac said the app did not move marketing team employees from China to Singapore.

Other companies are also seeking to diversify their growth engines as the Chinese economy slows.

Alibaba said revenues in the period from July to September suffered from a slowdown in domestic consumption as well as rising competition, and revenue for fiscal year 2022 is expected to increase by 20% to 23% compared to a May 30% forecast.

The company has announced that it is exploring the field of cloud computing and international trade as areas of growth, although they are responsible for only a small portion of e-commerce which is Alibaba’s revenue base in China. Meanwhile, Baidu said core revenue was driven by 73% growth in cloud computing, on an annualized basis.

By Editor

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