Cold seeps through China's tech firms even as crackdowns ease (2023)

Von ZEN SOO - AP Technology Writer

HONG KONG (AP) – Astrenuous repressionthat eroded billions of dollars into Chinese tech companies is fading, but the once free industry is poised for much slower growth.

Analysts talk about China easingtrade restrictionssuch as e-commerce giant Alibaba and online gaming company Tencent, and talk of supporting the private sector reflects Beijing's decision to refocus growth after the economy was hit by the pandemic and restrictions imposed to combat COVID-19. 19.

Butinternet content controls rstay firmly in place. And the crackdown has left a "chilling" effect on the industry, potentially slowing down innovation, while US restrictions on China's computer chip industry are hampering progress in the development of China's 5G and artificial intelligence technologies.

In January, a senior Chinese central bank official said in an interview with state media that theAction against technology companiesit was "basically" over, adding that companies would be encouraged to lead economic growth and create more jobs. This comes just weeks after China lifted the strict entry restrictions and testing and quarantine requirements that were part of its "zero-COVID" strategy aimed at suppressing the virus.

“With the end of the COVID-zero policy, China is once again prioritizing economic growth, and the tech sector is clearly a key driver of growth in China and a celebrated source of innovation,” said Gregory Allen, researcher principal of the US Research Institute. organization Strategic Technologies Program Center for Strategic and International Studies.

Companies like Alibaba and Tencent control everyday apps and services that are widely used by large segments of the population, including online payments, messaging, grocery delivery and e-commerce.

These companies thrived with little regulation for two decades before Beijing launched an antitrust ban.data securityand other restrictions since late 2020 to contain e-commerce, social media, and other businesses deemed too large and independent.

Didi Global noted the flexibility, which wasordered to stopRegistering new users in 2021 after accusations that it broke privacy rules recently allowed new users to resume.

Regulators said e-commerce giant AlibabaFinancial subsidiary Ant Groupit may proceed with plans to raise $1.5 billion for its consumer finance unit, a major step forward after the government canceled a proposed initial public offering two years ago and ordered a restructuring of the company.

After labeling online gaming "spiritual opium" and imposing strict controls on minors' screen time, regulators began last AprilApproval of New Gamesafter an eight-month hiatus, with the first foreign titles being given the green light in December.

Shares in tech companies including Alibaba, Tencent and others such as food delivery company Meituan and search engine and artificial intelligence company Baidu have nearly doubled in price since bottoming in late October. However, the market valuations of these companies are still a long way from their 2019 peak.

The crackdown's chilling effects on investors and business owners will continue, Allen said, as authorities have shown they are willing and able to give up growth to impose controls on the sector at any time.

Over the past two years, several tech company founders have resigned as CEOs or presidents of their respective companies, including Alibaba.jack ma,JD.comRichard Liu de Bytedance, Zhang Yiming de Bytedance and Colin Huang de Pinduoduo.

In January, Alibaba's finance subsidiary Ant Group said Ma, once China's richest man, would relinquish control of the company after a reorganization and that no individual shareholder would have control. Ma has rarely been seen in public since regulators canceled Ant Group's debut in the Hong Kong and Shanghai markets following his criticism of China's financial sector in 2020. He is said to have moved to Tokyo.

"If you were a tech entrepreneur in China five years ago, chances are someone like Jack Ma would be your hero, your idol, exactly what you wanted to achieve and the kind of person you wanted to be," Allen said. "And to see a man like that get knocked down sends a really powerful message, I think."

He and other analysts say the crackdown could stifle innovation as investors and entrepreneurs grow more cautious about doing business in China.

"The crackdown was deep and bone deep, probably more than the government anticipated," said Shaun Rein, founder and chief executive of the China Market Research Group in Shanghai. "Given what happened in the last two years, venture capitalists and entrepreneurs are afraid to put up capital and start new businesses."

According to research firm Preqin, the value of venture capital deals in China dropped 44% to $62.1 billion in the first 10 months of 2022 compared to the same period of 2021.

Some entrepreneurs and venture capitalists are taking a wait-and-see attitude, "worried that in the long run if they invest in a hot sector, the government will go against China's agenda or not go along with China's agenda. of the US private sector". government that could be annihilated," said Rein.

Established internet companies still have an advantage over other tech industries in China, which face greater uncertainty due to tensions between Washington and Beijing over advanced technology and trade, as the US has companies as a frontier.huawei technologies,the world's largest manufacturer of telecommunications network equipment.

The Biden administration has stopped approving license renewals for some US companies that have sold critical components to the Chinese tech giant. So say two people familiar with the matter who were not authorized to comment publicly on the sensitive issue and spoke on condition of anonymity.

Washington has gradually tightened controls on US exports to Huawei, but has allowed some companies like Intel and Qualcomm to sell its used processors in devices like low-end laptops and smartphones. The United States justified such sanctions on grounds of national security. Huawei denies the allegations.

Under that pressure, China has accelerated efforts to become more self-sufficient in semiconductors and other advanced technologies, allocating billions in subsidies and investment to the sector. However, it is years behind on some of the most advanced semiconductor manufacturing processes, and the US ban on supporting the design and production of integrated circuits at some chip factories in China has deprived Chinese chip companies of foreign talent that has long been lost. greatly contribute to the domestic industry. .

Another hurdle is the US ban on selling key semiconductor manufacturing assets to China.

"It's one thing to get into areas like software and cloud services, where Chinese companies are already quite strong," said Allen of CSIS.

"It's another thing to take Chinese companies that are a decade or two behind in cutting-edge semiconductor manufacturing facilities and tell them to immediately grow by replicating some of the most advanced technology the world has ever produced."