SEA change
Tech titans eye South-East Asia
China’s technology giants are having a torrid time. At home, a regulatory crackdown is intensifying. In the latest move, on August 17th the authorities released draft antitrust rules that would hurt the business models of titans like Alibaba and Tencent. In the West, meanwhile, governments want to make it harder for Chinese companies to do business in their countries and, in America’s case, to list shares. Some global asset managers are calling Chinese tech stocks “uninvestable”.
The firms are thus casting around for friendlier climes. Foreign markets account for a relatively small share of the Chinese groups’ sales. Tencent made around $5bn in revenues outside mainland China last year, less than 8% of the total. So little of Alibaba’s income is derived from abroad that the company doesn’t bother publishing a geographical breakdown. If it were to start, however, no place would feature more prominently than SouthEast Asia.
The region is home to nearly 700m people, fastdigitising economies and, crucially, no hardened geopolitical persuasion. Having taken an interest in SouthEast Asian online darlings such as Lazada (an ecommerce venture majorityowned by Alibaba) or Sea Group (in which Tencent holds a 23% stake), China’s giants are expanding more directly in the region. Last year Alibaba bought half of a 50storey skyscraper in Singapore, the regional commercial hub. Tencent and ByteDance, the unlisted owner of TikTok, a hit shortvideo app, have also opened beachhead offices there and set out on local hiring sprees.
Cloud computing presents a particular opportunity. Although the cloud market’s total size in SouthEast Asia is still relatively small, at less than $2bn a year, it grew by more than 50% in 2020, and shows no signs of slowing. And the Chinese firms are winning an ever greater share of this ever larger pie, mostly from Amazon Web Services (aws), the American ecommerce empire’s cloud division.
According to Gartner, a research firm, in 2020 Tencent, Alibaba and Huawei, a privately held telecoms colossus, had 22% of the cloud market in SouthEast Asia and the smaller AsiaPacific economies, up from 18% in 2019. This year Tencent opened its first data centre in Indonesia and its second in Thailand. In June Alibaba said it would build its first in the Philippines.
Unlike aws and its American cloud rivals, Google Cloud and Microsoft’s Azure, Chinese firms are comfortable with the principle of data localisation. Many SouthEast Asian governments mandate that data about their citizens be processed and stored in their territory. Whereas Microsoft and aws publish reports on the data requests made to them by governments and lawenforcement agencies, Chinese firms do not. This makes the Chinese services attractive to authorities unwilling to compromise on localised data. It also complicates embryonic efforts by America to negotiate a digital trade pact with Asian countries, which would almost certainly try to limit data localisation.
Even before it contributes a big slug of revenues, business activity in SouthEast Asia is a way to learn what works outside China, notes Tan Bin Ru, the regional boss of OneConnect Financial Technology, a subsidiary of Ping An, a huge Chinese insurer. The environment is both familiar (with millions of Chinesespeakers, who often dominate commerce) and diverse (with different legal jurisdictions and a wide range of income levels). Asian companies have used the region as a staging post to global conquest in the past, notably Toyota, which began its international expansion in Thailand in 1957. China’s giants would love to follow in its tyre tracks. n