Over the past 20 months, Beijing has enacted sweeping regulation on the Chinese tech industry. Behind what looks to be the sector’s largest challenge to date lies the government’s attempt to weed out monopolistic and anti-competitive behavior and keep companies in check. It all started when fintech leader Ant Financial was reined in at the risk of becoming too influential. Shortly after, afterschool tutoring centers closed down, video game restrictions took effect and e-commerce live-streamers were scrutinized for tax evasion.
Since large-scale 5G deployment began in 2019, China has installed 1.42mn 5G base stations, accounting for 60% of the world’s total. 5G has driven social and industrial transformation, and in the face of challenging times, technological innovation has not ceased. In fact, Chinese companies found new ways to leverage 5G technology to adapt to a more stringent regulatory environment. Some started looking for new opportunities in the overseas or enterprise markets, while others forayed into new business models. For instance, education companies hit by a crackdown on private tutoring found new life in bilingual livestreaming. Market leader New Oriental pivoted to e-commerce livestreaming where tutors-turned-sellers would slip in English or history lessons as they promoted agricultural products online. The sessions were an overnight success, riding the wave of interactive social e-commerce started by Alibaba and becoming increasingly engaging amid the growing adoption of 5G and artificial intelligence (AI) technology.
Recently, things have started to look more positive as Beijing softened heavy-handed regulatory intervention and stimulus policies are expected to rekindle growth momentum. In June, China’s Vice-Premier Liu He pledged support for the technology sector and plans for internet companies to go public. U.S.-listed companies like Didi, Full Truck Alliance and Kanzhun were able to register new users after a year-long cybersecurity probe. Talk of Ant Financial resuming IPO preparation also emerged after the Chinese central bank accepted their application to set up a financial holding company. While regulation is expected to stay, a softened stance implies that growth of tech companies is encouraged as long as they comply and operate in a constructive manner.
We believe that lessons learned during the crackdown have helped companies shape up and streamline. As the saying goes, what doesn’t kill you makes you stronger. Chinese tech companies have demonstrated strong resilience amid uncertainty, and shown us that innovation will continue with or without regulation. The Chinese government is all for the healthy development of China’s tech sector, and we expect joint efforts to boost the economy through consumption. While Tencent, JD and Meituan look to benefit in the new era of sustainable quality growth, Alibaba stands out, in our opinion, in terms of influence and innovation.
China Livestreaming E-commerce Market
Source: bg.qianzhan.com, Analysis of the market status and development trend of China's live broadcast e-commerce industry in 2021.
China Public Cloud Market
Source: MoneyDJ.com, Research: China's public cloud market CAGR is estimated to exceed 30% in the next five years, with continued high growth.
Alibaba
Alibaba is one of the largest e-commerce companies in the world with 1bn annual active users. Established in 1999, Alibaba has a business portfolio spanning B2B wholesale, online retail, cloud storage, electronic payment and fintech. The company has three online retail platforms in China, including Taobao and Tmall. Advertising and commissions account for most of its revenue, but Alibaba also enjoys increasing contribution from Ali Cloud, China’s largest cloud provider, with 37% share.
Over the years, Alibaba has created an e-commerce empire with a thriving ecosystem that brings value to both the merchant and the consumer along all points of the transaction. Whether it be in terms of supply chain, retail channels, payment or distribution, Alibaba has defined China’s e-commerce industry: it has elevated the consumer experience with a multichannel approach that combines on- and offline shopping through data technology, and it offers seamless logistics that enable delivery of goods and services to meet consumer needs with delivery times as short as an hour thanks to an intricate network of warehouses and retail stores like Hema and RT Mart that provide both nationwide presence and local coverage.
Alibaba also has exposure to entertainment and online healthcare. It is at the center of a consumption-driven economy and stands out for its technological strength and scale compared to its peers. In addition to physical infrastructure, Alibaba has also built up strong digital infrastructure over time, and is now converting its vast experience in e-commerce operations into new services. This includes Ali Cloud, Ding Talk and Lingyang Intelligent Service, which are empowering enterprises to adapt to new work models and organizational structures in the areas of digital transformation. We believe Alibaba should remain an important contributor toward China's digitalization thanks to its expertise and investments in cloud computing, AI and autonomous driving.
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