A billboard advertisement promoting Chinese video app TikTok on Wangfujing Street in Beijing on August 20, 2020.
VCG | Visual China Group | Getty Images
GUANGZHOU, China – China’s tech giants – like their counterparts in the United States – have seen business thrive during the coronavirus pandemic. However, the tech industry is at a crossroads and faced an uncertain economic and geopolitical environment.
China’s gradual, if uneven, economic recoveryBeijing’s focus on domestic consumption and the digital trends accelerated by Covid-19 will benefit the tech sector. But the risks remain.
“On the user behavior side (in China), the pandemic gave impetus to the proliferation of several large digitization companies and helped some of them grow significantly in a short period of time to reach the required levels and achieve economic efficiency,” said Charlie Chai, analyst at 86 Research, said CNBC.
“On the other hand, a drag is a cut in investment on the corporate side as large industry leaders, including BAT (Baidu, Alibaba, Tencent) Prioritize margins in a potentially turbulent economic and geopolitical environment. ”
Just like in China, tech companies in the US have benefited from the pandemic as people have been forced to stay at home. Services like Zooming have boomed as consumers turned Amazon for shopping and Netflix for entertainment.
Investors around the world are wondering what’s next. The topics of globalization, digitization, economic prospects and the coronavirus will be the focus at the CNBC event East Tech West in the Chinese district of Nansha in Guangzhou.
Pandemic and digitization
China, where the coronavirus first appeared, closed more than half of the country Early February to contain the outbreak. This led to a decline in growth of 6.8% in the first quarter. When the spread of the disease stalled in March, businesses started reopening, and official gross domestic product grew 3.2% in the second quarter.
Locked up at home, people increasingly trusted digital services that ranged from e-commerce to video games. This trend has staying power.
“Because of the virus, China is hungrier for technology than ever,” Abishur Prakash, a geopolitical specialist at the Center for Innovating the Future (CIF), a Toronto-based consulting firm, told CNBC via email. “From healthcare to transportation to financing, there are projects going on that are rewiring China – and putting technology at the center of all activities.”
That has helped China’s major technological pillars. Alibaba’s shares are up 30% this year and Sales in June quarter increased 34% year over year.
“We were well positioned to capture the growth of the ongoing digital transformation accelerated by the pandemic in both consumer and corporate operations,” said Daniel Zhang, chairman and CEO of Alibaba, in a statement at the time of the second quarter results in August.
Tencent beat analysts’ estimates for the second quarter and achieved strong results thanks to gaming.
Companies trying to digitize more of their businesses and move them to the cloud are now “back in full swing” after being hit during the pandemic, Chai said. In China, as in the US and Europe, remote work and collaboration tools are experiencing “explosive growth”. The analyst named Alibaba’s DingTalk platform and Tencent’s enterprise version of WeChat messaging service as two beneficiaries.
Technology and healthcare
The technical “decoupling”
TikTok is now part of a deal that was forced by the Trump administration. As part of the contract, a US-based TikTok Global is co-founded oracle and Walmart Own 20%. ByteDance will own the other 80%, the company says. Oracle denied that ByteDance would not own the new company. These talks are still ongoing.
These steps have often been cited as evidence of so-called technical “decoupling” – the concept of Chinese technology and American technology separating into two different ecosystems that function differently from one another.
The idea comes at a time when Chinese technology companies are trying to penetrate international markets. But that is proving difficult.
“What Covid has done is it has accelerated everything – especially in the geopolitics of technology. The technical decoupling, which may have been slow over the next decade, is now in full swing,” Prakash said.
People in face masks watch the flag being raised on Tiananmen Square to mark the 71st anniversary of the founding of the People’s Republic of China on October 1, 2020 in Beijing.
Sheng Jiapeng | China News Service | Getty Images
For their part, American tech firms have been in the crosshairs of US and European politicians and regulators, and some are banned in China.
US lawmakers are increasingly concerned that tech companies are getting too powerful. In July, the CEOs of Amazon, Apple, Facebook and google parents alphabet Testified from afar before the House’s Antitrust Subcommittee.
What does this all mean for technology giants – both in the East and in the West? According to Prakash, it “creates new business realities”.
In China, it could define the types of products they sell. For example, if Huawei doesn’t get access to the chips it needs, can it still make next-generation smartphones? Access to talent could also succeed, Prakash said. And the possibility that Chinese technology companies can operate globally like their Western competitors will “quickly become impossible,” he added.
“They are being forced to play by different rules, including being forced to sell or being banned,” said Prakash. “All of this means that Chinese technology firms, navigating the geopolitics of technology, will pioneer a new way of working. This could become the new business strategy for companies around the world.”