China has had a tough road in 2022.
Throughout the year, the economy was plagued by frequent resurgence of Covid and associated containment measures disrupting daily life. Well below the annual growth target of 5.5%.
Of course, the country’s technology industry was not immune to the overall economic downturn. Chinese companies in the Hurun Global 500, a list that tracks the world’s most valuable companies, many of which are in the technology sector, lost $2.9 trillion in 2022. This is more than half of last year’s value.
In particular, the e-commerce and content sectors were hit hardest as consumers and advertisers cut spending. Industry leader Alibaba reported a sharp decline in revenue growth, but budget retailer Pinduoduo saw rapid growth as people became more price sensitive. Content giant Tencent also reported quarterly revenue declines, with ad revenue dropping significantly.
Meanwhile, green energy vehicle sales are a rare growth point in China, and China’s shopping platform is growing rapidly in overseas markets despite domestic challenges.
It may be too early to tell if the country is nearing a tipping point. After his three-year battle with the highly mutable and highly contagious Covid-19, the Chinese government abruptly eased her Covid-control policies in early December, replacing the stringent measures by then. I got rid of it in less than a week. Such dramatic changes have caused the rapid spread of COVID-19 across China, causing shortages of medicines and forcing many to stay home to recover.
China’s earlier-than-expected reopening could bring an economic recovery in 2023. But the country may also take time to learn to live with Covid after three years of strict controls.
In its annual China outlook report released in November, Goldman Sachs predicted that China would reopen in the second quarter of 2023, with China’s GDP growth “up from 3.0% this year to 4.5% next year.” I expected it to accelerate.” The first quarter after reopening could see negative growth as Covid cases surge and people temporarily cut back on travel, the report says. As the experience of other East Asian countries implementing
BYD asserts dominance as EV drives growth for automakers
With consumer confidence sluggish this year, new energy vehicles (NEVs, including plug-in hybrids and electric vehicles) are a rare bright spot in China. The country’s car buyers have shown a strong preference for his NEV over conventional gasoline vehicles. NEVs’ share of new vehicle sales reached 36.2% in November, up from 22.5% last year and surpassing China’s target of 25% by 2025 three years ahead of schedule.
And no Chinese automaker has had a better year than BYD. The local EV and battery manufacturer has achieved a dominant position in the new energy vehicle segment. At the same time, China’s leading EV trio Nio, Xpeng and Li Auto faced a variety of problems and lost some of their luster.
BYD was able to gain market share from other strong rivals this year. In a year, BYD increased its share of NEV sales from 19.5% to 31%, Wuling decreased from 14.4% to 8%, and Tesla China from 10.7% to 7.9%.
As of November, BYD recorded sales more than doubled last year, selling more than 1.57 million NEVs in China this year, accounting for more than 31% of the market share, ranking first, followed by Far more than car manufacturers. In second place is state-owned mini EV maker Wuling, with sales surpassing his 400,000 units, a 7.1% increase from last year and more than his 8% share of the market. Tesla’s China business has sold more than 397,800 vehicles, with annual growth of 59% and market share of 7.9%, putting him in third place. Li Auto, Xpeng and Nio ranked 10th, 11th and 12th, respectively accounting for less than 2.3% of him in the market, down about 1% from last year.
Other local automakers such as Geely, GAC’s Aion, Chery, Changan and Hozon also had strong years and gained market share, but BYD’s growth rate and scale were unmatched. . Hozon overwhelmed his state-owned joint venture, SAIC, to enter his top 10 EV brands by sales volume for the first time this year. Geely’s market share has also grown significantly, rising from his 2.7% last year to 5.3% this year.
BYD has two main advantages: competitive pricing and an integrated supply chain. BYD’s hot models, his BYD Song Plus and BYD Qin have been frequent best sellers in their respective categories over the past six months. Prices range from RMB 150,000 to RMB 220,000 ($21,470 to $31,490) and are known for their affordability and fuel efficiency. Unlike many other automakers that have been hit by supply chain crises and rising raw material prices, BYD has been able to maintain competitive pricing as its own major battery maker (and Tesla Blade is reportedly set to power his battery). Beyond China, BYD has also expanded its operations systematically into Japan, Southeast Asia and Western Europe, with more overseas expansions planned.
However, such impressive growth could slow in 2023. Several Chinese automakers have given conservative outlooks for the first half of 2023, citing the end of his EV purchase subsidies at the end of 2022. Many brands can also reduce prices and order buyers by the end of 2022 to boost year-end sales and take advantage of last-minute subsidies. These moves could overdraft 2023 sales in advance.
Pinduoduo wins in China, competition intensifies in overseas markets
During the recession, budget retailer Pinduoduo overtook established platforms such as Alibaba and JD. In the third quarter, Pinduoduo reported a 65% growth in revenue and a whopping 388% growth in operating profit. This contrasts with Alibaba’s relatively flat growth of 3% in revenue and 68% in operating profit, and JD’s 11.4% growth in revenue and 276% growth in operating profit. in operating profit. Alibaba has struggled more than his JD, with annual growth in his first three quarters of 2022 falling below 10%, a significant departure from the 20% or 30%-plus growth rates he has been accustomed to in the past. Revenue growth slowed sharply. A few years.
Pinduoduo’s vice president of finance, Liu Jun, said on the third-quarter earnings call that the company was “unlikely to sustain” that level of profitability, but temporary strong growth still , showed the broad appeal of budget retailers operating well during the downturn. times.
China’s year-end shopping festival, Singles’ Day, was also becoming less and less attractive. Industry leaders Alibaba and his JD have not released their overall sales data for the first time in a decade. Additionally, these established retailers also faced a serious threat from ByteDance’s Douyin. This is because short video platforms continue to grow strongly in live commerce.
Outside of China, China’s offshore retail platform is becoming more competitive, in contrast to slow growth at home. Shein, a Chinese online fashion platform known for its ultra-low prices, expanded its market share of fast fashion sales in the U.S. to 40% in March, ahead of H&M’s 27%, Zara’s 17% and Forever. increase. Bloomberg Second Measure reports 9% of 21 and 6% of Fashion Nova. Shein became the largest fast fashion retailer in the US in Q2 2021, and between March 2020 and March 2022, he grew US sales more than 5.6 times.
Seeing Shein’s success, Pinduoduo also launched its overseas retail platform Temu in September. The platform surpassed his $1.5 million in average daily gross merchandise value (GMV) in his first month. While the numbers were slightly below internal expectations, the platform is spending heavily on advertising to acquire new customers, surpassing Amazon, Walmart and Shein as the most downloaded shopping mall in the US. It’s now an app. However, it remains to be seen whether such growth is sustainable.
Tough year for China’s semiconductor industry
Since Chinese tech giants ZTE and Huawei began to take a hit from US sanctions five years ago, the Chinese tech industry has been skeptical about US sanctions progress. This fall, the multi-year effort reached a new level.
In October, the United States announced a wide-ranging series of restrictions on semiconductor exports to China, aimed at cutting off China’s access to high-end chips and the tools to make them. Instead, the new regulation targeted China’s entire semiconductor sector and related industries.
In particular, the Biden administration seeks to limit China’s ability to manufacture advanced chips below 16nm or 14nm, DRAM memory chips at least 18nm, and NAND flash memory chips with 128 layers or more. (ASML) and Japanese (Tokyo Electron) chip-making tool makers are also pursuing, putting pressure on them to stop selling tools to China for making high-end chips. There aren’t many ways to get around these curbs. China’s dream of manufacturing its own advanced chips in the next few years may be limited unless advanced chip-making techniques change or undergo a fundamental evolution.
Content platform ad revenue headed for winter
The content and entertainment sector has been hit hard in the past year, not just in China, but around the world. According to the Hurun Global 500 list, media and entertainment companies will see the biggest price drops in 2022, followed by retail, software and services, with the biggest gains in energy and insurance.
Ad spend fell on China’s major content platforms as companies slashed their marketing budgets to weather the recession. To make matters worse, the remaining budget would go directly to e-commerce platforms like Pinduodou and JD instead of content platforms like Tencent, Baidu and Weibo.
Content giant Tencent saw annual revenue declines of 3% and 2% in the second and third quarters, while advertising revenue fell about 18% in the second quarter. In late December, Tencent CEO Pony Ma said in an internal speech that Tencent News, the company’s flagship news website, founded in 2003, would not be able to break even if the site itself did not break even. He said it could be closed.
Search engine giant Baidu also posted a 5% decline in revenue in the second quarter and a 1.9% increase in the third quarter. His Weibo, a microblogging site, also suffered heavy losses, reporting a 22% and 25% drop in revenue in the second and third quarters, respectively.
Chinese gaming companies have seen some signs that the situation is easing. In April, China began issuing gaming licenses again after his eight-month freeze. However, tougher regulations on the sector in 2021 continue to have ripple effects, with the video game company projected to see its annual revenue drop 2.5% in 2022. New games are approved by the authorities. The worst may be over, but the pain is still being felt across the industry.
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