Don’t Get Distracted By China Tech Gossip

Ecommerce, Selling Online, Online Sales, E-Commerce

China is leading global equity markets higher this year, expanding on its strong gains from last year. This is particularly true for tech stocks: The pandemic accelerated the adoption of Internet-oriented businesses in China, and we see major growth ahead for China’s tech stars. 

But there are serious questions that could affect a longer-term outlook for China, like what to make of the tense political environment. 

We expect the Biden Administration will be more friendly to global trade partners, alleviating some pressure on China and the global economy from Trump’s trade wars. Yet not all of the political debate is centered on U.S. actions. Will China’s government take actions to limit the growth of its Internet powerhouses like Alibaba? 

We believe the answer is clearly yes. The outcome will be a push-and-pull game among Chinese regulators, entrepreneurs and public sentiments. 

Given all the questions surrounding Chinese technology, we want to highlight the most important points for investors.

Alibaba’s main business continues to operate with brisk sales growth

 As Alibaba grows to larger scale, some of its growth rates are lower than new companies like Pinduoduo, as the latter has been successfully serving Chinese consumers and orienting business toward their buying habits. But Alibaba leads its other main competitor, JD.com, in growth. See the below table that compares U.S. tech and media companies with those of China. One reason we are positive on the WisdomTree China ex-State-Owned Enterprises Index is because leading companies in China are growing at faster rates than comparable technology companies in the U.S. 

Politics is only one of Alibaba’s growth headwinds. One thing people outside of China have not appreciated is how competitive the Chinese business environment is in the ex-state-owned arena, particularly in technology and consumer-oriented sectors. In a seemingly duopolistic business environment where Alibaba and Tencent dominate every segment, new companies like Pinduoduo and TikTok are able to rise to challenge them. The top news recently is that Alibaba has decided to shutter its music streaming business as it lags behind Tencent and NetEase, even though it was among the early frontrunners. 

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William K. 1 week ago Member's comment

Quite an interesting analysis. And an interesting recommendation.

But there is a reality that nobody should forget, which iis that CHINA is still a communist police state! That is the reality, and I am not intending to tie that to the financial area, just to remind folks that the entire government is different and thus it runs by different rules. I am not judging, just reminding folks about the difference.

Jack S. Chen 1 week ago Member's comment

Good article. In what way is China tech duopolistic with #Baba and #Tencent. #JD is first to have drone delivery, they have autonomous level 4 delivery, self driving and ev already In works, they have fully automated warehouses and logistics centers that require no human, seem tripolistic.