Australia
China
India
Indonesia
Japan
Malaysia
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam
Germany
Hong Kong
USA
Switzerland
Singapore
United Kingdom
Over the past year, China has been reining in its tech giants over concerns about data privacy and monopolistic practices, starting with the suspension of Ant Group’s IPO. China’s biggest e-commerce firm Alibaba has been at the centre of the tech crackdown, and the company’s US stock had retreated to its IPO price.
The regulatory scrutiny coupled with Covid-19 lockdowns and the supposed US delisting led to a massive rout in China’s tech stocks. The NASDAQ OMX China Technology Index, which tracks technology companies domiciled in China or Hong Kong, has dropped over 45% in the past year.
Even as China’s tech sector is in a quandary, Alibaba recently announced it is widening its share buyback program to $25 bn from a previously planned $15 bn, the company’s biggest offer yet.
Bolstering China’s e-commerce segment
Alibaba shares were up 11% after the company said it was raising its share buyback program to $25 bn, and the e-commerce giant’s Deputy Chief Financial Officer Toby Xu said, “Alibaba’s stock price does not fairly reflect the company’s value given our robust financial health and expansion plans.”
The share buyback may come as a surprise since Alibaba’s US- and Hong Kong-listed shares have lost over half their value in the past year. The company recently posted a 10% revenue growth for the quarter, its slowest since 2014.
“The stock is overly impacted, but we believe the company is not as weak as the market’s estimate. We believe the stock has an upside of 68%,” writes Ming Lu, an analyst at Aequitas Research, on Smartkarma.
China’s anti-trust regulations have reduced Alibaba’s market share, but business has increased for other players such as JD.com, Pinduoduo and Meituan, according to Mirae Asset Global Investments. China’s National Bureau of Statistics says e-commerce gross merchandise value (GMV) grew to RMB13 tn in 2021, albeit at a slower pace compared to previous years.
Analyst Lu writes that investors must not be pessimistic about China’s e-commerce, especially of big platforms such as Alibaba and JD.com that have a growth advantage. “The risk is that consumers care significantly more about product brand than platform reputation.”
Does China’s e-commerce sector hold any promise?
China is home to three of the world’s five largest e-retailers and has seen a year-on-year e-commerce retail sales growth of 14.8% despite problems posed by the pandemic. The country’s digital economy makes up over 57% of global online sales, writes Cheng Li, Director at John L Thornton China Center.
As of 2020, China had more than 904 million internet users, according to data published by the state-run China Internet Network Information Center (CNNIC). Alibaba Singles Day shopping festival is one of the biggest e-commerce events of the year and has clocked higher sales than Thanksgiving, Black Friday and Cyber Monday in the US. As of December 2021, around 81.6% of internet users in China had shopped online, largely thanks to the pandemic that forced consumers to turn to online retail, as per Statista.
E-commerce giants such as Alibaba and JD.com have an extensive logistics network and they also offer same-day delivery on certain orders. Additionally, an HSBC report said that a lack of retail infrastructure in lower-tier Chinese cities is driving consumers online.
Potential headwinds for China’s e-commerce
While the market fundamentals for Chinese e-commerce firms seem positive, the future is clouded by regulatory uncertainty and weakened consumer demand due to reduced mobility.
JPMorgan economist Zhu Haibin in a note said that consumption faces headwinds this year from uncertainties in the labour market, travel restrictions and “insufficient policy support”. Another analyst from UBS Securities said weak consumption will make it hard for e-commerce firms to increase revenue.
Data from the National Bureau of Statistics showed that China saw a slowdown in the growth of online consumer spending on physical goods, with just a 12% growth in 2021.
Global Times, the publication owned by China’s communist party, in a report published late last year said e-commerce firms were reporting mixed results. Alibaba missed market expectations for the third quarter, while JD.com saw a growth in net income. Baidu’s revenues too rose significantly. The publication cites a tech analyst saying that top-tier platforms like Alibaba and Meituan will see shrinking profits in the short term, but the long-term outlook remains positive.
“Investors should not expect continuous and ultrahigh growth for our future,” said Chen Lei, chairman of Pinduoduo, told analysts during a conference call.
However, much of the sector’s future depends on China’s regulatory stance. “I would say right now, patient capital is actually buying more and more shares of Baidu, Alibaba, Tencent and JD because they’re looking at the long-term prospects,” GFM Asset Management’s Tariq Dennison told CNBC in an interview.
On the other hand, the US Securities and Exchange Commission (SEC) wants to delist Chinese firms listed on New York Stock Exchange and Nasdaq, which could spell trouble for e-commerce giants having dual-listing such as Alibaba and JD.com.
