Tencent, Alibaba Steam Ahead After Shaking Off Regulatory Restraints

Tencent Holdings Ltd. and Alibaba Group Holding Ltd. are set to show how quickly they’ve recovered from a period of intense regulatory scrutiny in China. As the tech industry crackdown faded, the Chinese government has changed course and said it will support their overseas listings and funding needs. Tencent, Alibaba and JD.com Inc. are also stepping up share buybacks, urged by regulators to boost shareholder returns.

The Chinese tech industry experienced a significant downturn in 2021 as regulatory authorities intensified their crackdown on monopolistic practices. Key players, including Tencent Holdings Ltd. and Alibaba Group Holding Ltd., faced penalties for non-compliance with anti-monopoly transaction disclosure laws (1). However, recent developments indicate that the regulatory environment may be softening, allowing these tech giants to rebound.

In July 2022, China's State Administration for Market Regulation (SAMR) announced fines for multiple companies, including Alibaba and Tencent, for failing to report past merger activities (1). While these penalties marked a setback for these tech giants, they also served as a reminder of the evolving regulatory landscape in China.

As the tech industry crackdown faded, the Chinese government signaled its support for the overseas listings and funding needs of Tencent, Alibaba, and JD.com Inc. (1). In addition, the companies are stepping up their share buyback programs, encouraged by regulators to boost shareholder returns (1).

Tencent, which owns the popular social media platform WeChat and the video game platform Tencent Games, was fined a total of 12 times by SAMR for various infractions (1). However, these penalties have not deterred the company's growth. In the first half of 2022, Tencent's revenue increased by 17% year-over-year to RMB 223.4 billion ($32.6 billion) (2).

Similarly, Alibaba, China's largest e-commerce company, has faced regulatory challenges in recent years. In 2020, the company was hit with a $2.8 billion fine for anti-competitive practices (1). However, Alibaba's financial performance remains strong. In the second quarter of 2022, the company reported net income of RMB 28.2 billion ($4.1 billion), a 33% year-over-year increase (3).

The regulatory environment in China is expected to continue evolving in the coming years. While the government has signaled its support for the tech industry, companies must remain vigilant and adapt to changing regulations. As Tencent and Alibaba demonstrate, resilience and adaptability are key to navigating the complexities of the Chinese market.

References:

1. Qian, Q. (2022, July 13). Alibaba and Tencent Fined in China Tech Crackdown. Forbes. https://www.forbes.com/sites/qai/2022/07/13/alibaba-and-tencent-fined-in-china-tech-crackdown/?sh=30b9f38d644f
2. Tencent. (2022). Tencent Reports Second Quarter 2022 Results. Tencent. https://ir.tencent.com/news/press-release/details/2022/Tencent_Reports_Second_Quarter_2022_Results_2022-07-20.html
3. Alibaba Group. (2022). Alibaba Group Reports Second Quarter 2022 Results. Alibaba Group. https://www.alibabagroup.com/en/news/press/2022-07-20-alibaba-group-reports-second-quarter-2022-results