Exclusive | China’s Big Tech companies, from Tencent to ByteDance, cut back on strategic investments as Beijing’s scrutiny continues
- Tencent has downsized its investment department, months after TikTok owner ByteDance dissolved its own strategic investment unit
- The Shenzen-based internet giant made just 32 investments and acquisitions in the first half of this year, compared with 129 in the same period in 2021
That personnel adjustment was reflected in the company’s latest investment and acquisition figures, which have headed south. China’s most valuable tech enterprise made just 32 investments and acquisitions in the first half of this year, which accounted for about a quarter of its 129 total transactions in the same period in 2021, according to data from ITjuzi, a market research firm that tracks deals in China’s internet industry.
Shenzhen-based Tencent, which was once thought of as “owning half of the mountains and rivers” in China’s tech industry because of its aggressive investment strategy, declined to comment.
Investments have been more financially important for Tencent, according to Arete Research. It indicated that Tencent’s pre-tax profit from investment, for example, contributed to 63 per cent of its overall income in 2021, compared to 36 and 15 per cent in 2020 and 2019.
“With the collapse in both public and private valuations, investment gains are unlikely to provide a further boost to Tencent’s earnings,” said Richard Kramer, founder of Arete Research and a long-time analyst covering Tencent. “We have long argued that investors should value China’s internet [industry] only on operational parts of businesses, not one-off gains, especially from opaque private stakes.”
While there are no explicit regulatory restrictions on most Chinese firms’ external investments, there is a general understanding that Beijing is wary of Big Tech companies’ expansion initiatives, according to another industry source, who also declined to be identified.
That reflects the dilemma that Tencent – along with its other major internet peers on the mainland – face, as they consider pursuing fewer acquisitions and more divestments to abide by Beijing’s stance on Big Tech.
The number of investments and acquisitions by ByteDance dropped to only nine in the first half of this year, compared with 27 deals in the same period in 2021, according to data from ITjuzi.