Already struggling Chinese tech giants face economic headwinds as some seek new growth drivers

An economic slowdown is pinching China’s digital behemoths, including Alibaba, Tencent and Baidu, adding financial pressure on a sector already troubled by a slew of new rules imposed by Chinese authorities this year.

Social media and video game giant Tencent Holdings Ltd. has seen quarterly sales increase at the slowest pace since its IPO in 2004. Food delivery orders have slowed, according to Meituan, a delivery company. online in China.

Baidu Inc., which is a search engine supplier, has announced a slowdown in advertising, while Alibaba Group Holding Ltd., China’s most talked about e-commerce powerhouse, lowered its growth forecast for the exercise.

The new challenges these companies have faced contrast with the good performance of several of their American contemporaries, such as Alphabet Inc.’s Google Inc. and Microsoft Corp., which have benefited from a shift to online shopping and remote work. the pandemic. .

Despite the fact that Amazon’s quarterly sales growth has slowed due to supply chain obstacles and labor difficulties, along with Google, it also reported strong demand for digital advertising.

Chinese companies have already seen the effects of new policies that tighten controls on data collection, algorithms and online time for minors. In this case, Michael Norris, head of research and strategy at AgencyChina, a Shanghai-based consultancy firm, said, “The question is whether these platforms are designed to serve traders in what you would describe. as industries resistant to recession or repression. And there aren’t many at the moment.

China’s economy grew 4.9 percent year-on-year in the third quarter, falling short of economists’ expectations and slipping significantly from the 7.9 percent pace of expansion in the previous quarter. A number of issues, including the electricity crisis, supply chain challenges, and crackdown on private industries, have slowed economic growth, leading to a drop in demand for digital advertising for several giants. Chinese technology.

For example, due to tighter regulation in industries such as education, insurance and online video games, Tencent’s online advertising revenue in the third quarter grew 5% year-on-year, up from 23%. % in the previous quarter. Other industries, on the other hand, have been slow to take over, according to executive officials.

According to the Wall Street newspaperJames Mitchell, Chief Strategy Officer, Tencent, said, “Other categories are going to take the plunge and sort of fill in and take advantage of the lower prices. I think it will happen over time, but in a tougher macro environment, it happens less quickly. “

China’s main regulator last week announced draft guidelines for the online advertising industry, including banning extracurricular training ads targeting children and detaining advertisers, as well as internet platforms responsible for advertising content.

The decline in ad revenue, according to Baidu chief strategy officer Herman Yu, will certainly persist beyond the third quarter, especially if pressures from Covid-19 closures and tighter regulations continue.

Likewise, advertising revenue for ByteDance Ltd., which is unlisted and does not report quarterly earnings, a company that runs the short video platform TikTok and its Chinese counterpart Douyin, were reduced in the third quarter. despite the rapid growth of e-mail. business activities on these apps, employees said.

Sources said ByteDance this week created a TikTok app for vendors, its latest attempt to replicate its e-commerce success in China with Douyin. According to people familiar with the matter, TikTok has also transferred several marketing professionals from China to Singapore to help its advertising and e-commerce activities.

Meanwhile, Alibaba said its July-September results were hampered by slowing domestic spending and increased competition. However, he expects FY2022 sales to rise 20% to 23%, down from a forecast of around 30% in May.

He also said cloud computing and overseas commerce are areas of growth for the company, despite only making up a small portion of Alibaba’s Chinese e-commerce business.

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