The South China Morning Post has recently released a report that highlights how the China tech space has changed since last year, and how it will likely evolve.
On the one hand the underlying market continued to grow as the country added another 85 million internet users in 2020, but on the other hand many listed Chinese tech-companies have experienced a massive stock sell-off, losing over 1 trillion US dollars of market cap since the beginning of 2021.
To put it in context, that is more than all of the GCC stock exchanges market caps combined.
There is a multitude of reasons behind this downfall. Following a period of rapid growth and innovation, the Chinese tech sector has entered a new phase that is forcing internet companies to evolve. Let us discuss the 3 most obvious trends for the future.
1. Stricter regulation
China’s tech industry has been hit by sweeping regulatory crackdowns since the second half of 2020. The abrupt suspension of Ant group’s IPO made it into the world’s headlines. The record $2.8 billion anti-trust fine on Alibaba was another unexpected news.
Finally, China’s ban on bitcoin mining. By the end of July 2021, the share prices of China’s largest internet companies had dropped between 30 to 50 per cent from their peaks.
According to the South China Morning Post: “The regulatory tightening is driven by Beijing’s desire to better align the country’s technology development with national strategic goals and public interests.” The increased regulation has 4 main areas of focus: antitrust, fintech, data protection, and cryptocurrencies.
2. Challenging IPO routes
Chinese tech firms have been choosing the US exchanges for their listing since the early 2000s. Sina Corporation listed in 2000. Followed by 51job, and Baidu in 2004 and 2005 respectively. More recently, in 2014 Alibaba, Weibo and Momo all listed in the US.
But the strained relationship between the two countries resulted into some forced delisting from the US markets. Some of the most well-know victims were China Unicom, China Mobile and China Telecom. So, Chinese tech firms are now facing increasingly difficult decisions on where to list their shares.
Consequently, more businesses hedged against the risk of delisting through secondary listings in Hong Kong. In turn benefiting from the relaxation of listing rules at the Hong Kong stock exchange. Highly anticipated IPOs such as LalaMove, ByteDance and LinkDoc are now left suspended.
3. Heterogenous demographics
The landscape of China’s internet users is constantly evolving creating new niche customer segments for internet companies. Given the huge population, a niche in China could turn into a gigantic market.
First, the elderly, known as the Silver Economy. China has 260 million citizens age 60 or above, but only 40 per cent of them are now using the internet.
This means an untapped population of approximately 150 million available for grab. That is nearly 3 times the population of the entire GCC.
Secondly, a generation of well-educated, financially independent, and confident female consumers in China is providing traction to the so-called She-economy.
They are bringing changes in consumption preferences with an increasing emphasis on personal characteristics and quality life. In a sectors like food and beverages, female consumers are pursuing healthier eating habits, increasing the demand for low carb, and low fat foods, as well as high proteins snacks. [The columnist is a member of the International Press Association]