In China, the tech crackdown started in late 2020, knocking trillions of yuan off the nation’s big tech corporations’ valuations, negatively impacting the Chinese economy and adding pressure to its recovery. Since then, fortunately, the tech industry has managed to adapt to the new situation while seizing new opportunities.

Bearing the brunt of a regulatory crackdown, Ant Group’s slumping profit is on a losing streak. Following the decision to withdraw from its planned initial public offering (IPO) under tremendous regulatory pressure in late 2020, Ant’s profitability has deteriorated since then.

Ant’s profit, as revealed in parent company Alibaba’s latest financial report, was 7.86 billion yuan (US$1.08 billion) in the year ending April 2024, representing a 23% year-on-year drop and a sharp 67% decline since the year ending in 2022, the year Ant experienced its most exponential growth.

Weighing the 33% ownership from Alibaba, the total profit of Ant for 2024 is estimated at 23.8 billion yuan.

After 7.12 billion yuan worth of fines were announced against Ant in July 2023, expectations were high in the market that there could be a turnaround for the company, with hope of a remounting of its IPO. However, that plan is still in the doldrums.

Meanwhile, the group has yet to obtain the financing licence necessary to become a regulated financial institution, rather than a tech company – a critical pinch point that has stalled the company’s pursuit of its IPO.

Following the fines, the shareholder structure of the company and its affiliated businesses also experienced seismic changes with an eye to revamping management transparency. Jack Ma, a name that is no stranger to the market, slashed his controlling stake in Ant in 2023, with his ownership in the group dropping from 53.46% to 6.2%.

As well, earlier this year, China’s central bank, the People’s Bank of China, approved removing Ma as the controlling shareholder in Alipay, the country’s predominant payment brand, rolled out by Ma and owned by Ant. These actions mean that both Alipay and Ant, in eliminating Ma’s, or anyone else’s, control of the company, have eased Chinese authorities’ concerns about his dominance over two of the nation’s major companies in its fintech sector, one of the pillars of the Chinese economy.

And, as part of the effort to streamline Ant’s operation, the company’s personal loan business has been transferred to Ant Consumer Finance, which is controlled by both Ant and state-owned entities. Through this action, Ant has ditched its most contentious business unit, which had been attacked for inducing high-cost spending and, thus, negatively impacting retail borrowers’ credit.

Despite a stream of ongoing governance and business model transformations, Ant has continued to expand its business by engaging in trending technologies, including blockchain and artificial intelligence (AI).

To this end, Ant, in its ESG Report 2023, noted that it has set aside 21.2 billion yuan for technology research, which is heavily involved in AI and data applications. And the company’s tech arm Ant Digital has increased its capital by 2 billion yuan after announcing its operations will be in independent from those of the parent group.

IPO debacle

Another big tech firm that faced considerable hurdles in its pursuit of an IPO was the ride-hailing company Didi, which withdrew its US listing early after the clampdown on Ant, in the light of problems relating to personal data use breaches and displeasure from the Chinese government with the company intent to capitalize in the US market. The government suspended the company’s operation in China and, only after 18 months, in 2023, was it allowed to relaunch its app and register new users.

During the period when Didi’s operations were suspended in China, the company established a strong presence overseas, setting the stage for the overseas business to thrive; and during 2022, it grew its international revenue by 62% to 5.9 billion yuan, compensating for the 22% loss in the Chinese market.

In 2023, Didi snapped its losing streak to secure a profit of 535 million yuan, with the positive result refuelling excitement for an IPO, hopefully in Hong Kong, which could be leveraged to boost the city’s IPO market.

Diversifying business

Tencent, another tech giant singled out in the government clampdown, is experiencing a profitability downturn as well. It earned 118 billion yuan in 2023, a sum that was half the amount recorded at the company’s peak in 2021, and down 37% from 2022.

Although the figure fell short of expectations, the 36% yearly growth in adjusted profit topped the market. The result boosted market confidence in Tencent’s diversified business, which has pivoted away from being gaming-centric.

According to Tencent’s financial performance in 2023, earnings brought in by the fintech business surged. This particular area reaped a total amount of 203.8 billion yuan in profit, 13% more than that of the long-standing flagship gaming business. And online advertising profit, grounded in AI applications and soaring demand for live video advertising, posted 23% yearly growth to reach 101.4 billion yuan.

The growing revenue contribution from fintech and other businesses alludes to Tencent’s strategy to pare back its reliance on the intensively regulated gaming sector. Interest in its fintech business sustained in the first quarter of 2024, underpinned by the 7% increase in revenue compared with the same period in 2023.

Amid its forecast-beating 2023 result, Tencent implemented a HK$100 billion (US$12.8 billion) share buyback programme early this year. In the first half of 2024, the company was over half way to its target, having spent HK$52.35 billion, an amount that surpassed the entire sum spent in buybacks in 2023.

Despite exploring new market opportunities, Tencent needs to be wary of the Chinese government’s continuing intent to stamp out improper practices. After levying 3 billion yuan in fines last July when the market thought the tech crackdown had wrapped up, Tencent still continued to received fines. Infractions included the messaging software QQ being accused of using illegal content, which led to a 1 million yuan fine along with a month of suspension. Sprawling regulation is still considered the major headwind to Tencent’s long-term operations.

Paring back

Baidu, one of the largest search engines in China, was another company in the eye of regulators. The company has multiple areas of burgeoning business, including AI and live streaming. In 2021, it settled an anti-monopoly dispute after being fined 500,000 yuan along with other tech giants. Although Baidu paved the way for a range of deals to expand its business, some of its plans were withdrawn at the last moment, rattling investors monitoring the company.

On January 1 2024, Baidu terminated its US$3.6 billion acquisition plan for YY Live, the live-streaming arm of the Nasdaq-listed social media platform Joyy. In late 2020, when Baidu proposed the acquisition, YY Live was a rival of market leaders like Douyin and Kuaishou. The sudden cooling of interest was for several reasons, among them, the gloomy outlook of the livestream industry, which is about to come with tighter regulation.

And, apart from the live-streaming business, Ernie Bot, Baidu’s AI product, which was rolled out in early 2023, was severely criticized for its censorship, such as steering away from topics surrounding Chinese President Xi Jingpin, wars and protests. However, the Baidu-powered chatbot still attracted an unprecedented number of users. Facing intense competition in the local market, Ernie Bot recorded the highest number of visits among Chinese AI platforms in March at 15 million, a staggering figure achieved in the eight months it was accessible to the public.

In the year since the clampdown on the tech industry drew to a close, the targeted tech firms have either deviated or diversified their operations to assimilate to the new regulatory requirements. And, the tech industry, although progressing at a different pace, as a whole is skilfully transforming itself into one that is more regulated and transparent – and one that, as the Chinese economic model transforms, will be able to take advantage of this transformation, and once again buttress the national economy.