China tech sector faces tough year amid slowing economy and crackdowns

China’s tech sector faces a tough 2022 amid regulatory pressure and weak economic growth, a UBS Securities analyst said yesterday, offering an uncertain outlook for the year ahead after a rough 2021.

Weak consumption in China this year will make it hard for e-commerce platforms and other businesses relying on advertising to increase revenue, according to analyst Felix Liu.

Growth in retail sales, a rough indicator for consumer spending in the world’s second-largest economy, slowed to 3.9 per cent in November and is expected to ease further as the government’s zero-tolerance approach to containing the spread of Covid-19 dampens consumer spending and confidence.

Other economists shared Liu’s view of weak consumption this year. In a research note from JPMorgan last week, economists led by Zhu Haibin wrote that consumption in China faced headwinds this year from uncertainties in the labour market, travel restrictions and “insufficient policy support”.

HSBC economists led by Qu Hongbin said in a separate note that weak consumption stemming from residents’ restricted mobility was a main risk clouding the country’s economic outlook in 2022.

Chinese tech stocks were already hammered in 2021 by a host of crackdowns in the sector. Many related stocks lost half of their value for the year, if not more. Alibaba Group Holding, owner of the Post, saw its share price halved from its peak and is expecting the slowest annual revenue growth since its initial public offering in New York in 2014.

Short-video app operator Kuaishou saw its shares plummet by 80 per cent from their peak last February, about two weeks after going public in Hong Kong.

Liu said China’s regulatory pressure on the tech sector would remain throughout 2022, although it was unlikely to be as severe as last year when Beijing’s antitrust inquiries, ban on private tutoring and crackdown on video gaming took investors in Hong Kong and New York by surprise.

Multiple Chinese regulatory agencies have been involved in Beijing’s tech crackdown over the past year. The antitrust authority looked into old cases to levy fines on Alibaba and Tencent Holdings, while the tax authorities across the country have been scrutinising live-streaming hosts and demanding money for past underpaid taxes.