PE and VC fund managers deserve sympathy at this time, having raised so much money recently only to be blindsided by Chinese policy shifts, as this Reuters article points out. But to continue throwing good money after bad is unconscionable. It would be far better to wait, watch and learn from what is going on at the moment in both Washington and Beijing.
Investing at this level in China has become next to impossible, if for no other reason than public exit strategies are likely to be held hostage by either or both of the US and Chinese governments as their trade war morphs into a financial war. Nevertheless, three strategies seem to have emerged as the consensus: 1) Invest in the government’s priorities; 2) Invest in domestic-focused firms; and 3) Brush up on Xi Jinping Thought.
Each begs rebuttal: 1) Investing in the Chinese government’s priorities is akin to investing in future victims of the US-China conflict; 2) Investing in domestic-focused firms is no assurance of avoiding US Entity Lists; and 3) Xi Jinping Thought is mass-market propaganda that is useless to read in isolation from the broader context of Chinese history.
Now is the time to keep the powder dry. There is further carnage ahead, believe it. This is especially for funds investing in the GBA from their offshore base in Hong Kong.
Reassurances that the recent tutoring industry crackdown was aimed at easing Chinese parents’s financial burdens turns out to have been only partly true. As the latest purges of overseas tutors from these platforms show, the crackdown was also aimed at ending foreign influence in the industry.
Could the same follow-up action be reasonably expected of “spiritual opium”, online gaming? What might that mean for the hundreds of billions still locked up in VIEs such as Tencent?
Moreover, what about the pending Bytedance IPO? Could “inappropriate” short-form videos – probably bigger time-sucking distractions for the nation’s youth than games – be next for criticism by state-run media? If so, why would China want to allow that tool to fall under the influence of foreign investors?
The Greater Bay Area has been at the vanguard of private-sector development of industries such as online tutoring and gaming. This is the home of companies such as Tencent because of the ease in melding entrepreneurial minds in Shenzhen, China’s experimental city, with capital-raising minds in Hong Kong, China’s offshore financing center.
Those advantages are increasingly starting to be seen as baggage. The question every foreign investor in the GBA should be considering now is whether China is reversing the push of the past four decades into greater private-sector participation in the economy, while at the same time cleansing industries of their foreign influence. It is hard to avoid that conclusion after witnessing what has been happening here over the past few weeks.
A glance at the financial scorecard of Shenzhen’s publicly listed companies in the most recent quarter shows an impressive performance: Across 393 companies, listed on six stock exchanges at home and abroad, revenues rose by 13.05%, profits by a whopping 33.08%, YoY.
Fintech Week is proving to be a global PR bonanza for Hong Kong. Local media have been buzzing for the past two days about Alipay’s decision to open its payment platform inside the Chinese mainland to foreigners, the announcement of which was clearly timed to coincide with the Hong Kong event. And Mu Changchun, the central bank’s whizzkid overseeing the imminent launch of the digital Renminbi, kept the momentum going yesterday by suggesting foreigners could use it, too.
As reported by SCMP, Mu said the central bank is working to
separate the virtual currency from the banking system. “Actually it could be
decoupled from traditional bank accounts,” he said during an event at Fintech
Week, which is being held at the AsiaWorld-Expo. “Thus, those who don’t have
bank accounts in China can still open a digital wallet and enjoy mobile payment
services in China.”
Scapegoats or scoundrels? SCMP takes a closer look at the political weight of Hong Kong’s property oligarchs and notes that they have been shedding pounds ever since President Xi Jinping came to power. Read more.
online opinion poll claims that most Hongkongers would rather see the police
force disbanded than merely held accountable for recent alleged violent acts. Read
for IPO: Alibaba
has bought out a direct one-third stake in its finance subsidiary, Ant
Financial, which analysts see as a precursor to its next mega-listing. This IPO
would give the battered HK Stock Exchange a major boost. Read more on Caixin.
CICC teams with Tencent: One of the country’s biggest
asset managers has established a joint venture with Tencent to run an online
wealth-management firm. Talk about a fintech disruption. Read more on Caixin (in Chinese).
Tencent seems to have taken a shine to Zhuhai. After signing a deal with the city’s Xiangzhou district back in May to build a cloud computing base, its cloud-computing subsidiary – surprise! – recently won a public tender to provide AI-powered cloud services to the district worth RMB75 million.
Tencent Cloud will provide full-stack public cloud services supported by AI technology, including machine learning, facial recognition, image recognition, voice recognition, natural language processing, optical character recognition and supporting infrastructure as a service (IaaS) cloud services.
The company will also set up various “platforms” for local innovators and entrepreneurs to “enhance their R&D skills”. This will involve the establishment of AI colleges and labs cofounded by Tencent and local universities.
Xiangzhou district is the political, financial and cultural center of Zhuhai, at the forefront of the city’s efforts to digitalize the local government, boost the AI industry, and create a smart city.
Trade war? What trade war? Qualcomm and Tencent have announced that they are cooperating on projects to “optimize the user experience” for the Shenzhen-based company’s video games running on deviceswith Qualcomm chips. Moreover, they are going to develop a 5G version of a Tencent-backed gaming phone, reports Reuters.
Working with Qualcomm, the world’s leader inmobile phone chips that power a dominant share of Android devices, is a no-brainer for Tencent. The company is seekingnew areas for growth as gaming revenues sag amid increased scrutiny by Chinese authorities.Under the agreement, future Tencent games could be “optimized” for Android phones that run Qualcomm’s Snapdragon Elite gaming chips, the companies said in a joint statement.
What’s more, with the dawn of 5G, mobile gaming is poised for acceleration. “Faster speeds, more bandwidth, and cutting edge ultra-low latency will support real-time, multi-player and immersive gaming experience,”says Pu Meng, chairman of Qualcomm in China.
Chinese internet and entertainment giant Tencent has paid US$1.5 billion to renew its exclusive five-year digital licensing contract with the National Basketball Association, some three times the value of their previous agreement, according to a press release by NBA.
Tencent will retain the rights to offer live NBA broadcasts, videos on demand and short video services to Chinese fans through various websites, apps and social platforms under the new deal, Tencent said today in a statement. It will also work with the NBA to create innovative advertising products and to build a fan community, it added.
The prestigious Fortune China 500 list has been released for 2019, with GBA companies standing out in measures of both revenues and profits. Shenzhen-based Ping An, which began as an insurer but is now more of a fintech firm, is the GBA’s leading light, ranking No. 4 in revenues and No. 6 in profits nationwide.
A total of 86 from the GBA made the top 500. Moreover, 12 of the top 40 most profitable were from the GBA.