Jessica Goodfellow
Aug 24, 2021

Chinese tech giants split over long-term impact of Beijing's regulatory crackdown

China's biggest tech firms posted strong second-quarter revenues despite regulatory headwinds, leading to mixed expectations for the long-term.

Chinese tech giants split over long-term impact of Beijing's regulatory crackdown

The Chinese government has unleashed a regulatory crackdown on the country's technology sector in recent weeks that has resulted in the removal of several apps, halted international expansion plans and wiped out the stock value of giants like Alibaba and Tencent.

Ride-hailing giant Didi has reportedly suspended its plans to launch in the UK and continental Europe for at least a year while it is under a cybersecurity review in its home market, according to The Telegraph. Didi is facing potentially severe penalties from Chinese regulators after it pushed ahead with a US IPO in June despite warnings from the Cyberspace Administration of China (CAC). Days after its IPO, the CAC announced a review of the company’s data practices and banned downloads of Didi’s app from the country’s app stores. 

For other tech giants, the regulatory crackdown has erased billions in market capital. Alibaba has lost half of its value from a peak in October last year, while Tencent Holdings has lost about 40% in stock value from its January peak. Alibaba was hit with a record 18.2 billion yuan (US$2.8 billion) antitrust fine in April after authorities said it had abused its market dominance, leading to its first ever operating loss.

But despite the regulatory headwinds, the tech giants have continued to post strong quarterly results. Alibaba revenues rose 34% year-on-year to $31.86 billion for the quarter ended June 30, while both Baidu and Tencent posted a 20% revenue climb to $216 million and $21.3 billion, respectively. However, Tencent warned investors that more regulatory changes could impact its business going forward.

Others believe the regulatory changes will be positive for long-term growth. Ecommerce giant on Monday (August 23) told investors that Beijing's regulatory goals "are conducive to JD's long-term business growth".

Xu Lei, chief executive of JD Retail, said on the company's Q2 earnings call: "We believe these policies are not intended to restrict or suppress the Internet and relevant industries but rather to create a fair and orderly business environment and to promote long-term and sustainable development of these industries. 

"So far, our business maintained steady growth while committing to best compliance practices...We believe JD's business model and strategy position us well to move forward in line with the general direction of regulatory policies and will foster healthier growth in the future," Lei added.

His comments came as beat analyst expectations in its second quarter, with net revenue rising 26% to 253.8 billion yuan (US$39.14 billion). It added a record 32 million users over the quarter, now counting 532 million customers.

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