Crouching tiger, hidden dragon?

With this in mind, it is clear that Asian companies that operate online will benefit from multiple tailwinds over the course of the next fifty years.

Asian technology companies tend to have diverse revenue streams, and are able to drive revenue and earnings across multiple platforms and sectors. For example, advertising slumped on Tencent’s WeChat network last year, but its video-gaming franchise surged during lockdowns. Similarly, Alibaba was able to offset falling consumer spending with rising demand for its cloud services over the course of the last few years.

Solid earnings growth is expected. 

The titans of Asian technology and online retail are forecast to maintain significant sales and earnings momentum as online payments are established as the predominant transaction platform.

Regulatory issues are ‘short term pain – long term gain’

Regulatory issues are a valid concern when considering an investment in the Asian technology sector, however, we need to remember that the Chinese Government recognises the technology sector is a growing, and already crucial part of their economy, and is an industry which is now maturing. The benefits from increased investment and growth within the Chinese technology sector flow not only to the industry and the Chinese economy, but also to the Chinese Government.

It’s also important to understand that ongoing regulatory risk affects other technology economies as well, for example U.S. regulators are looking at antitrust proceedings against the big U.S. tech names. As is the case in China, however, the technology space is vital for the U.S. economy. Regulators know this, and want to protect competition and foster continued investment and growth.

Alibaba, Tencent and other major Chinese tech companies have been targeted by Chinese regulators looking to assert control, and up until this point, they have been keen to keep the regulators happy.

These companies are local champions, and have an innate understanding that they must keep the state onside, so they have recently announced increased investment in the cloud, artificial intelligence (A.I.), autonomous driving, robotics, and logistics – all tech priorities for the state. 

Tencent has even earmarked US$8 billion for public welfare investments. The tech companies are ensuring they remain onside with the state, while for the state’s part, they are keenly aware of the importance of these companies to the Chinese economy.

Part of the situation is political positioning, with Chinese regulators wanting to encourage domestic listings. However, regulators are also concerned about longstanding problems such as personal information collection and cross-border data flow, which from a national security point of view may be valid.

To gain a perspective from inside the regulator’s ecosystem, the Chinese state-sponsored publication, The People's Daily: (5)

 “Internet giants with immense data and advanced algorithms should shoulder greater responsibility, aim higher and do more in tech innovation… but this is a fine line to tread for the state, as the state and its tech firms need each other, as tech companies drive innovation, efficiency and stimulate the consumer economy”

It is clear that there lies a middle ground between regulation and unabashed growth.

(1) As at 21/07/2021

(2) InternetLiveStats.com - 21/07/2021

(3) https://www.internetworldstats.com/stats.htm - 21/07/2021 

(4) Asian Consumers.” Deloitte Insights, Deloitte, www2.deloitte.com/us/en/insights/economy/asian-consumer-spending-growth.html

(5) (VIEW LINK)