China tech crackdown: e-commerce and online advertising to contend with weak spending in 2022, UBS analyst says
- Regulatory pressure and weak economic growth will continue to create uncertainty for internet businesses for another year, analyst predicts
- Tech stocks were already hammered in 2021 after a slew of regulatory crackdowns that shaved half the value off many companies
China’s tech sector faces a tough 2022 amid regulatory pressure and weak economic growth, a UBS Securities analyst said on Monday, offering another dour outlook for the year ahead after a rough 2021.
Weak consumption in China this year will make it hard for e-commerce platforms and other businesses relying on advertising to increase revenue, according to analyst Felix Liu.
Growth in retail sales, a rough indicator for consumer spending in the world’s second largest economy, slowed to 3.9 per cent in November and is expected to slow further as the Chinese government’s zero-tolerance approach to slowing the spread of Covid-19 dampens consumer spending and confidence.
Other economists have shared Liu’s view of weak consumption this year. In a recent research note from JPMorgan, economists led by Zhu Haibin wrote that consumption in China faces headwinds this year from uncertainties in the labour market, travel restrictions and “insufficient policy support”.
HSBC economists led by Qu Hongbin said in another note that weak consumption stemming from residents’ restricted mobility is a main risk clouding the country’s economic outlook in 2022.
Chinese tech stocks were already hammered in 2021 by a number of crackdowns in the sector. Many related stocks lost half of their value for the year, if not more. Alibaba Group Holding, owner of the South China Morning Post, saw its share price halved from its peak and is expecting the slowest annual revenue growth since its initial public offering in New York in 2014.
Short video-sharing app operator Kuaishou saw its share price plummet 80 per cent from its peak last February, about two weeks after going public in Hong Kong.
Liu said China’s regulatory pressure on the tech sector will remain through 2022, although it is unlikely to be as severe as last year, when China’s antitrust probes, ban on private tutoring and crackdown on video gaming took investors in Hong Kong and New York by surprise.
Multiple Chinese regulatory agencies have been involved in Beijing’s tech crackdown over the past year. China’s antitrust authority looked into old cases to levy fines on Alibaba and Tencent Holdings, while tax authorities across the country have been scrutinising live-streaming hosts and demanding money for past underpaid taxes.
Last July, the General Office of the Chinese Communist Party and the State Council banned private tutoring firms, known for their online services, from making a profit.
The crackdown on gaming came in August when the country announced new restrictions to curb video game addiction, restricting people under the age of 18 to only playing between 8pm and 9pm on Friday, Saturday, Sunday and statutory holidays. The National Press and Publication Administration has not granted any new game licences since the end of July, putting pressure on small game developers.
Liu said the Chinese authority is trying to regulate the gaming industry, not to kill it, because Beijing hopes the medium can be used to “export Chinese culture”. The approval of new game licences is only a matter of time, he said.
As for the metaverse, a hot concept in the industry involving a shared immersive world, it remains in the early stages of development and prospects for the technology are currently unclear, according to Liu.
“For the large tech firms, it’s more of an investment for the future than a lucrative business,” he said.
Author: Cheryl Heng, SCMP