The hope for China’s tech ‘uninvestables’

While higher interest rates have been the prime reason investors have been getting out of US tech stocks, spare a thought for the Chinese companies and their stockholders, hit by a perfect storm of negative sentiment.

Already beset by US sanctions and delistings, and damaged by supply chain issues and Covid lockdowns, the coup de grâce has been Beijing’s reining in of the tech sector that has seen businesses crippled and top executives under pressure.

The crackdown and Covid halved profits and reduced revenue growth to less than 1 per cent at Tencent in the first quarter, sending its shares 6.5 per cent lower today and helping drag the Hang Seng Tech index down 4 per cent.

Lex says the market value of Chinese tech groups listed in Hong Kong and the US has fallen by about $2tn in the past 10 months, and the falls have further to go.

At this darkest hour, there are some glimmers on tech’s horizon of Beijing easing up. Ed White reports that a stark change of rhetoric from policymakers in recent months, including top economic official Liu He and premier Li Keqiang, has stoked hopes the purge may be close to ending.

In a meeting of China’s top political consultative body attended by industry leaders on Tuesday, Liu pledged support for the “platform economy” and for “digital enterprises” to list shares overseas. But his efforts to spur growth are still at odds with other factions still concerned about security and Communist party control.

Kendra Schaefer, an analyst at Beijing-based consultancy Trivium China, said the pro-growth faction has a “30-year vision for how tech companies will fit into the ‘socialist market economy’”, with them “supercharging” the trading of data “providing that is done safely”.

But the pro-growth planners have increasingly been outgunned by the Cyberspace Administration of China (CAC), whose influence has snowballed from propaganda and censorship to data and network security as well as content control. The CAC is led by Zhuang Rongwen, a member of President Xi Jinping’s “Fujian clique”, a network of his closest allies.

Despite the infighting, some investors and analysts see hopeful signs. Just two months ago, JPMorgan Chase analysts said some Chinese tech stocks were “uninvestable”. On Monday, they upgraded NetEase, Tencent, Alibaba, Meituan, iQIYI, Dingdong and Pinduoduo to “overweight”, saying positive regulatory announcements in China had come sooner than anticipated.

The Internet of (Five) Things

1. Cisco takes China hit
Shares in Cisco Systems closed down 14 per cent after the US networking equipment maker warned that its fourth-quarter revenue would fall between 1 per cent and 5.5 per cent year-on-year, as lockdowns from China’s zero-Covid policy caused supply chain bottlenecks.

2. Chinese censors thwarted by blockchain
Crypto-savvy web users in China are finding their way around censorship by uploading articles and videos to the blockchain and casting them into non-fungible tokens (NFTs) that can’t be deleted, report Eleanor Olcott and Gloria Li.

3. Google going bankrupt in Russia
Google’s Russian subsidiary plans to file for bankruptcy after the authorities seized its bank account following a series of clashes between Moscow and the US tech giant over content on its site. Google said it was “untenable for our Russia office to function, including employing and paying Russian-based employees, paying suppliers and vendors and meeting other financial obligations”. Lex says roughly 1 per cent of Google’s revenues emanate from Russia, largely from advertising.

4. Streaming’s age of austerity
Netflix last week updated the principles of its corporate culture to include “You spend our members’ money wisely”, marking the first time it has codified any notion of expense control. Industry giant Warner Bros Discovery has also announced plans to slice billions from its budget. A new age of austerity may be emerging in the streaming wars, reports Anna Nicolaou.

5. Keeping up with dynamic pricing
There are costs, benefits and occasional absurdities in the algorithmic pricing now used by train, airline and ecommerce companies to maximise yield, comments John Thornhill. The challenge of regulating such online marketplaces is mind-bendingly complex considering their velocity and opacity.

Tech tools — Framework’s laptop upgrade

Framework is making good on its promises of an eco-friendly truly upgradeable laptop with the announcement of a second generation of parts to improve it. As well as the upgrade kits, you can pre-order a new version of the laptop with these parts, which include the latest 12th generation Intel® Core™ processor. The lid has also been made more rigid, and battery life optimised. The Verge reports the base model runs a Core i5-1240P and starts at $1,049 fully assembled.