China tech giants tumble amid growing fears of price wars
CHINA’S Internet firms are revving up efforts to outdo each other since Beijing began to wind back its bruising Internet crackdown, spurring an abrupt surge in competition that’s threatening margins and spooking investors.
A battle is brewing as companies that laid low or sought to limit expansion during the years-long crackdown now feel the shackles coming off. Beijing’s hasn’t sanctioned a return to the free-for-all that marked the sector’s pre-Covid heyday – but a flurry of aggressive campaigns announced by Big Tech in recent weeks is reviving the specter of debilitating price wars.
E-commerce leader JD.com slumped 8 per cent in US pre-market trading after a media report said it was planning a 10 billion yuan (S$1.94 billion) subsidy campaign to compete against rival PDD Holdings. Meituan is said to be expanding into Hong Kong and has embarked on a campaign to hire 10,000 people on the mainland – an effort to beat back heightened competition from new entrants such as ByteDance in the US$145 billion Chinese food arena.
Away from online commerce, NetEase and MiHoYo are upping their battle against gaming leader Tencent Holdings, while search-engine operator Baidu is rolling out a new chat service based on artificial intelligence to try and wrest ad revenue away from the likes of Alibaba Group Holding and Tencent.
The rush of initiatives comes after Beijing appeared to grow less stringent in recent months in efforts to curb the industry’s influence. While the growth plans caused a run-up in a number of shares, they also come with broader risks: intensifying competition has the potential to severely depress profit margins.
That concern is weighing on tech shares. US-listed shares of Alibaba fell 3 per cent and PDD declined more than 5 per cent, pushing the exchange-traded KraneShares CSI China Internet fund down by 2.3 per cent before the bell. The ETF is set to give back almost all gains since start of the year.
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“They are willing to invest and compete again after two years of being cautious and cost-cutting,” said Vey-Sern Ling, managing director at Union Bancaire Privee in Singapore “The companies are optimistic about China’s consumption outlook and normalisation of the regulatory environment” but subsidy-based competition is negative for the entire e-commerce industry, he added.
JD.com led losses on Tuesday following the reports of its subsidy campaign, which is aimed specifically at competing against budget shopping app Pinduoduo. The stock plunged the most in four months.
“Embarking on an aggressive subsidy campaign could be an acknowledgment on JD.com’s part that it is facing market share pressure from Pinduoduo,” said Ling at Union Bancaire Privee.
The offensives to lure cost-sensitive consumers also suggest Internet leaders’ superiority in elements such as logistics aren’t proving enough to thwart competition from newer entrants and smaller players. BLOOMBERG
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