China’s Tech Giants Lost Their Swagger and May Never Get It Back

On trading floors in New York and Hong Kong, the brightening mood toward Chinese technology companies is unmistakable: With stocks like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. surging from multi-year lows, talk of a new bull market is growing louder.
Yet speak to executives, entrepreneurs and venture capital investors intimately involved in China’s tech sector and a more downbeat picture emerges. Interviews with more than a dozen industry players suggest the outlook is still far from rosy, despite signs that the Communist Party’s crackdown on big tech is softening at the edges.
These insiders describe an ongoing sense of paranoia and paralysis, along with an unsettling realization that the sky-high growth rates of the past two decades are likely never coming back.

Alibaba and Tencent are expected to deliver single-digit revenue growth in 2022, a letdown after years of rip-roaring expansion. One prominent startup founder said he’d pass on money from those companies because of the attention it would attract. Another said his company is proceeding on the assumption that it’s only a matter of time before officials double down again.
A third Beijing-based entrepreneur recently sold his stake in a tech unicorn and said he’s reluctant to start a new venture until there’s more clarity on what the government will allow.

“China’s tech crackdown has happened. There is no comeback from that,” the entrepreneur said, asking to remain anonymous for fear of retribution. “The regulatory pressure on Chinese tech companies may have hit the brakes for now, given the sluggish economy, but it’s unthinkable that regulators in the country would loosen their grip on platform companies ever again.”

On the face of it, China’s trillion internet industry is finally emerging from a brutal reckoning. Jack Ma’s embattled Ant Group Co. is poised to revive a long-derailed initial public offering. Scores of new video games were recently greenlit for app stores. And after a sweeping data security probe, Beijing may soon let ride-sharing company Didi Global Inc. off with a mere fine.

During conference calls over the past few weeks, top executives proclaimed a new era in which they could once again focus on building products and delivering profits. Take Koolearn Technology Holding Ltd., an online education operator that was nearly wiped out last summer when the government banned for-profit tutoring companies. After its push into e-commerce went viral on social media, the company’s shares doubled during a single day of frenzied trading on June 13.

Alibaba has jumped 60% from its March low in Hong Kong, though the stock still trades at about half its peak valuation in 2020 — a sign that investors aren’t yet pricing in a return to pre-crackdown boom times. The Nasdaq Golden Dragon China Index of US-listed shares has rallied 52% from this year’s low, leaving the gauge about 60% below its peak.

Beijing has “gradually begun to release some policy signals,” Xin Lijun, retail chief of e-commerce giant JD.com Inc., told Bloomberg Television. But “a return to the past days of ‘riding the horse without holding the reins’ is not very likely.”

Still, startup heads have cautioned investors against getting too comfortable. After regulators scrapped Ant’s IPO plans in 2020, sending shock-waves across global capital markets, the change in temperature was unmistakable. Startups shunned money from big investors. Industry leaders grew nervous about consolidating power. Billionaires like Ma went into hiding.

Beijing has a long tradition of clamping down ahead of important events. This year’s upcoming party congress — when Xi Jinping is expected to win an unprecedented third term — is about as significant as it gets. Some worry that the government is merely loosening the leash temporarily to spare an economy devastated by coronavirus.