Chinese technology giants are experiencing a tough time, and experts say the slowdown is mostly because of Beijing’s strict Covid policies. In the second quarter of the year, Alibaba had its first flat year ever on quarterly revenue growth. Tencent, a social media and gaming company, declared its first-ever fall in sales. JD.com, China’s second-largest e-commerce player, reported the slowest revenue growth in history. Another renowned technological company, Xpeng, reported more losses than expected. These firms have a market capitalization of over $77 billion.
Covid Policies And The Chinese Economy
Since the start of the dreaded Covid, China has maintained a zero-covid policy, which adheres to lockdowns and testing to stop the spread of the virus. Major cities were completely locked down for several weeks to stop the spread of Covid. Due to the strict policies, China’s economy saw economic growth of 0.4%. The slow growth directly influenced consumer spending and business spending on advertisements.
Daniel Zhang, CEO of Alibaba, stated that their retail sales started decreasing in April and May due to the emerging Covid cases in Shanghai and other countries. The head further stated that its logistics network was also affected, and some of its projects were delayed.
The owner of the WeChat messaging app also faced the impact of this policy. He stated that because of such policies, their revenue growth was the slowest as fewer people were going out and using their services. The company had to tighten its budget, which made them reduce its online advertising budget. JD.com maintained tight control over its inventory and supply chain, but it did experience cost rises to fulfill its functions. Electric car manufacturer, XPeng, is expected to deliver 29,000 to 31,000 vehicles in the third quarter of the year. However, the forecast proved to be inaccurate as there were fewer customers in the store because of the post-Covid situation.
Tencent – The Chinese Tech Giant – Declared Its First Ever Decline In Revenue
The internet giants enjoyed a boom in sales during the pandemic as people switched to online shopping, chatting, and games due to the lockdown. However, this year is different for the technology sector as they have to abide by a strict regulatory environment. China has introduced tough policies specifically for gaming and data protection-related industries. With the growth rates decreasing much more rapidly than before, investors have become a lot more cautious in their outlook.
Tariq Dennison, wealth manager at GFM, told CNBC that the narrative of the big tech companies has changed due to Covid. In the recent Covid times, the tech companies benefited at the expense of offline businesses as most people were stuck at home with few options to entertain themselves. On the other hand, the recent scenario has led to a fall in the revenues of the big tech companies due to zero Covid policies. This has also led many short-term and long-term investors to revise their investment plans. Alibaba, Tencent, and JD.com were previously able to sustain 25% annual revenue growth but the long-term slowdown would be a serious concern for such companies.