Technological giants in China are reportedly bearing the brunt of the lowest quarterly growth in their history as the second largest economy in the world records a substantial slowdown due to Beijing's stringent zero-Covid policy.
For Q2 of 2022, e-commerce firm Alibaba reported its first-ever flat year-on-year rise in quarterly revenue. On the other hand, social media and gaming giant Tencent experienced its first-ever drop in sales.
JD.com, the second biggest e-commerce firm based in China, recorded the lowest sales hike in history, while the electric carmaker Xpeng registered a bigger-than-estimated loss and grim guidance. These companies collectively have a market value of over $770 billion.
In the April to June quarter, Covid cases in China increased significantly. China has abided by its strict zero-Covid policy, which mandates lockdowns and extensive testing to limit the virus outbreak. Major cities, most notably Shanghai, were in lockdown for a number of weeks.
The June quarter's 0.4% growth in China's economy influenced both consumer confidence and corporate investment in areas, including cloud computing and advertising. These challenges impacted China's technology companies.
However, the pandemic helped China's internet companies, as more people turned to the internet for lockdown-related pastimes like gaming and shopping, making it even more difficult to compare results over time. The challenges hindering the Chinese economy at the moment have made the macroeconomic situation significantly more difficult.
A much stricter regulatory environment continues being a cause of concern for the technology industry in China. The country has imposed more stringent mandates in the last two years, covering everything from data protection to gaming.
Investors are apprehensive about their outlook due to a more dramatic drop in growth rates compared to past years.
Tariq Dennison, wealth manager of GFM Asset Management, remarked that Alibaba, Tencent, and JD.com have previously maintained yearly revenue growth rates of over 25%, and a long-term decline would be a concern.