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China’s Tech Industry Expecting Drop in Profit as Xi’s Crackdown Continues

Alina Wang
A native of New York, Alina has a Bachelors degree in Corporate Communications from Baruch College and writes about human rights, politics, tech, and society.
Published: November 9, 2021
An automated guided vehicle picks up a box with packages for delivery ahead of the Singles Day shopping festival which falls on November 11, at a warehouse in Beijing on November 9, 2021. (Image: JADE GAO/AFP via Getty Images)

China’s tech giants Tencent and Alibaba are expecting a major slump in revenue as Chinese leader Xi Jinping’s regulatory campaign to crackdown on tech companies continues.

Alibaba, China’s largest e-commerce company, was fined a record $2.8 billion in April this year after antitrust regulators docked the company for acting like a monopoly and preventing other merchants from selling products across rival e-commerce platforms.

The fine was equivalent to 4 percent of Alibaba’s total sales for 2019, shattering the previous record penalty of $975 million handed out to American chipmaker Qualcomm (QCOM) in 2015. 

The company’s financial affiliate — Ant Group — was also targeted by regulators after its IPO was called off at the last minute a year ago.

Since then, Alibaba’s market value has dropped an estimated $400 billion as authorities enforce new regulations. The online shopping giant’s share price also saw a drop of 35 percent in the July-September quarter. Experts believe the company will see a 12 percent decline in profit, the slowest in a year. 

Alibaba’s founder turned billionaire Jack Ma has kept a low profile since the crackdown began late last year, saying in an open letter released by the company on April 21 that the company had cooperated with the investigation and accepted the penalty “with sincerity and will ensure our compliance with determination.”

Tencent Holdings Ltd, the country’s largest gaming and Internet-based platform reported on Wednesday that they expected a 12 percent fall in quarterly profit, its first drop in two years.

After the government imposed new limits on the amount of time children can spend playing video games and using the Internet, Aljazeera reported the gaming giant’s revenue is expected to rise by 16.4 percent, its slowest pace since the first quarter of 2019.

The tech giant is reportedly also facing scrutiny for monopolistic practices with its social networking app WeChat. The company, which dominates online payments in China via WeChat Pay and owns hugely popular mobile games, said in a statement last month that a recent meeting with regulators was “voluntary.”

The company said in a statement: “Tencent has had meetings with regulators on a regular basis, and this was a regular meeting,” it said. “We discussed a broad range of topics, mainly focused on fostering innovation and creating a healthy environment for industry evolution. Tencent has always and will continue to conduct our operations in compliance with relevant laws and regulations.”

The country’s gaming regulator has also not approved any new games and barred the company from signing exclusive music deals, citing anti-competitive reasons.

Financial Times reported the sale of $119 million shares from shell agency GSX Techedu after Xi announced stricter control measures against big tech in March. The sale is amongst the highest seen for Chinese executives. 

It was also reported that Baidu, China’s biggest search engine operator, is expected to report an 80 percent profit plunge for this year’s last quarter. China’s advertising companies have been hurt after tutoring centers were barred from offering private, for-profit tutoring in school curriculums. China’s efforts to regulate medical beauty advertisements have also impacted advertising.