China’s technology giants — like their U.S. counterparts — have seen business thrive during the coronavirus pandemic. But the tech industry is at a crossroads, facing an uncertain economic and geopolitical environment, CNBC writes.
China’s gradual though uneven economic recovery, Beijing’s focus on domestic consumption, and the digital trends that have been accelerated by Covid-19 are all set to benefit the technology sector. But risks remain.
“On the user behavior side (in China), the pandemic gave an impetus to the penetration of several major digitization businesses, helping some of them grow significantly to reach the necessary scale and achieve economic efficiency in a short time,” Charlie Chai, analyst at 86 Research, told CNBC. “On the other hand, a countervailing force is a cut in investment on the business side, as major industry leaders including BAT (Baidu, Alibaba, Tencent) prioritize margins amid a potentially turbulent economic and geopolitical environment.”
Just as in China, technology firms in the United States have seen benefits from the pandemic as people have been forced to stay at home. Services such as Zoom have boomed, while consumers have turned to Amazon for shopping and Netflix for entertainment.
Investors around the globe wonder what’s next. The themes of globalization, digitization, economic outlook and the coronavirus will take center stage at CNBC’s East Tech West event, in the Nansha district of Guangzhou, China.
China, where the coronavirus first emerged, shut down more than half the country in early February in order to stem the outbreak. That led to a 6.8% decline in growth in the first quarter. As the spread of the disease stalled in March, businesses began to reopen, and the official gross domestic product grew 3.2% in the second quarter.
Locked down at home, people began to rely more on digital services ranging from e-commerce to video games. That trend has staying power.
“Because of the virus, China is more hungry for technology than ever before,” Abishur Prakash, a geopolitical specialist at the Center for Innovating the Future (CIF), a Toronto-based consulting firm, told CNBC by email. “From health care to transportation to finance, projects are underway that will rewire China — and put technology at the heart of everything.”
That has helped China’s big technology mainstays. Alibaba’s shares are up 30% this year and its revenue grew 34% year on year in the June quarter.
“We were well-positioned to capture growth from the ongoing digital transformation, which has been accelerated by the pandemic, in both consumption and enterprise operations,” Daniel Zhang, chairman and CEO of Alibaba, said in a statement at the time of the second-quarter results in August.
Tencent blew past second-quarter analyst estimates and posted strong results, thanks to gaming.
Companies attempting to digitize and bringing more of their businesses to the cloud are now “moving back to full speed” after taking a hit during the pandemic, Chai said. Meanwhile, remote work and collaboration tools are seeing “explosive growth” in China, as they have in the United States and Europe. The analyst cited Alibaba’s DingTalk platform and the enterprise version of Tencent’s WeChat messaging service as two beneficiaries.
There are just fewer than 200 vaccine candidates in development globally, with 40 of those in the clinical evaluation phase, according to data from the World Health Organization. Much hope is pinned on vaccines to end the pandemic, though experts have warned that may not be how it plays out.
China’s technology companies see opportunities in health care. During the pandemic they moved into services ranging from consultations with doctors online to algorithms they claim can assist vaccine development.
The increased focus on health care during the height of the pandemic in China has continued beyond the disease’s worst phase there.
Internet search giant Baidu is in discussions with investors to raise up to $2 billion over three years for a new biotech company, a person close to the matter told CNBC earlier this month. And JD Health International, an online healthcare business owned by e-commerce company JD.com, has filed for a Hong Kong initial public offering, the Wall Street Journal reported on Monday.