China tech crackdown: e-commerce and online advertising to contend with weak spending in 2022, UBS analyst says
- Regulatory pressure and weak economic growth will continue to create uncertainty for internet businesses for another year, analyst predicts
- Tech stocks were already hammered in 2021 after a slew of regulatory crackdowns that shaved half the value off many companies
China’s tech sector faces a tough 2022 amid regulatory pressure and weak economic growth, a UBS Securities analyst said on Monday, offering another dour 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 slow further as the Chinese government’s zero-tolerance approach to slowing the spread of Covid-19 dampens consumer spending and confidence.
Other economists have shared Liu’s view of weak consumption this year. In a recent research note from JPMorgan, economists led by Zhu Haibin wrote that consumption in China faces headwinds this year from uncertainties in the labour market, travel restrictions and “insufficient policy support”.
HSBC economists led by Qu Hongbin said in another note that weak consumption stemming from residents’ restricted mobility is a main risk clouding the country’s economic outlook in 2022.
Liu said China’s regulatory pressure on the tech sector will remain through 2022, although it is unlikely to be as severe as last year, when China’s antitrust probes, ban on private tutoring and crackdown on video gaming took investors in Hong Kong and New York by surprise.
Liu said the Chinese authority is trying to regulate the gaming industry, not to kill it, because Beijing hopes the medium can be used to “export Chinese culture”. The approval of new game licences is only a matter of time, he said.
“For the large tech firms, it’s more of an investment for the future than a lucrative business,” he said.