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BIG TECH UNDER PRESSURE
China deal announcements usually tail off during holiday periods and around days of national significance. The 100th aniversary of the country's Communist Party last week week was no exception. But the lull represents the continuation of a trend rather than a blip – one that is widely connected to Beijing’s crackdown on tech companies.
Investment in the technology space came to $7.3 billion in the second quarter, according to AVCJ Research, half the first quarter total. The growth-stage surge has dissipated, with no more than half a dozen rounds of $300 million-plus, compared to 14 in the previous three months. Given how frequently the country’s incumbent tech giants feature in these rounds, would anyone want to announce one right now?
PE and VC-backed IPOs have also tailed off in Greater China. Proceeds from technology offerings in the mainland in the second quarter were down by half on the first, while Hong Kong saw no activity at all, even as other sectors prospered. At least the US was firing, but the prospects for Chinese companies in that market now seem uncertain after recently listed Didi, Boss Zhipin, and Manbang fell under the spotlight .
The crackdown is happening on multiple fronts. It began with a clipping of Ant Group’s wings and an antitrust investigation of Alibaba Group, but more than 30 other companies have been drawn in, including Tencent Holdings, ByteDance, JD.com, Didi, and Meituan. Abuse of monopoly power is the primary stated concern. The more recent targeting of Didi, Boss Zhipin, and Manbang was for violation of personal data collection rules. Separately, online tutoring platforms will be more closely regulated.
While various agendas are at work, the net effect appears to be restricting the tentacular expansion of the country’s largest tech companies, most of which have seen COVID-19 driven spikes in growth and influence. The consequences could be severe – for example, a draconian stance on data collection that undermines business models – and investors must be wary of risks that previously didn’t register. But China tech is unlikely to become a turn-off, whether the targets are giants or upstarts.
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