#techAsia

August 17, 2023

Hello, this is Kenji from Hong Kong.

Reporters here including myself have been busy covering corporate earnings, but lately we are also devoting much time and energy to following developments at distressed mainland Chinese real estate companies, many of which are listed in Hong Kong.

China's property crisis has been dragging on for about two years, but anxiety was reignited last week when Country Garden Holdings, one of the country's largest developers by revenue, missed coupon payments on two offshore bonds. Property's vital importance to the broader Chinese economy means weakness there can have painful ripple effects.

Concerns over the state of the economy and consumer sentiment formed the backdrop to tech conglomerates' latest quarterly results. Tencent Holdings announced on Wednesday an 11% year-on-year increase in revenue for April-June, falling short of forecasts despite strong online advertising demand. Alibaba Group Holding meanwhile logged a 14% rise in revenue for the quarter, but flagged slow growth and weak demand in its key cloud segment.

Economic statistics released on Tuesday underscored the sluggishness of the economy, with retail sales growing 3.1% in June and just 2.5% in July, while industrial output growth also slowed.

The tech industry has yet to show convincingly that it can take over the role that the property sector has long played in the Chinese growth story.

Generating competition

China's biggest tech companies are pinning their hopes on generative artificial intelligence to unlock fresh growth.

Tencent Holdings said on Wednesday it plans to roll out its own foundation model for generative AI this year, writes Nikkei Asia's Echo Wong in Hong Kong.

"We look at the opportunity and the technology much more broadly than just a chatbot," Tencent President Martin Lau told analysts on Wednesday night, referring to the potential of generative AI as a "growth multiplier" across businesses.

According to Lau, Tencent is building what he calls a "proprietary foundation model" that it aims to incorporate into a range of businesses, including public services, tourism and finance.

Alibaba Group Holding is taking a slightly different approach.

It is set to develop large language models on which tech companies can build their own AI-based tools, such as apps. Alibaba Chairman and CEO Daniel Zhang, who made his last appearance in his current capacity at an analysts call last week, said this approach is different from that of rivals, who build AI tools for specific domains and industry applications.

Some of the initial target clients for Alibaba's generative AI in Zhang's mind are internet companies, financial services and automakers among others. But he added that the company is assessing the landscape surrounding generative AI on a monthly basis, as the technology is evolving rapidly.

Foxconn's India shift

Foxconn Chairman Young Liu said this week that the iPhone assembler will pour "several billions of dollars" into India as the Taiwanese group seeks to accelerate its expansion in the world's most populous country, write the Financial Times' Kathrin Hille in Taipei and John Reed in New Delhi.

The contract manufacturer will for example invest in components factories in three different states that will take operations beyond assembly.

But while the move reflects the push by its customers, such as Apple, to reduce their reliance on China, India is nowhere near matching the global manufacturing hub Foxconn built in China.

Company executives told the Financial Times that the South Asian country's growing domestic market justified building a supply chain there, but that it would gain only regional significance.

"[It] can become a production base for a limited region," one of them said. More than 70% of Foxconn's global production remains in China, according to Liu.
Foxconn's drive will test the extent to which the mass production model developed in China can be replicated in India in a trial of the "China plus One" strategy of diversifying global supply chains.

The next big thing

Cloud services have long been a key revenue source for China's private internet companies like Alibaba and Tencent. Now the country's three state-owned telecom carriers are looking to catch up by heavily promoting their own services, writes Nikkei Asia's Kenji Kawase.

The trio -- China Mobile, China Telecom, and China Unicom -- each reported double-digit year-on-year growth in cloud service revenue for the first half of the year, and all revealed ambitious targets for the full year. The aggregate annual revenue targets for 2023 add up to 230 billion yuan ($31.9 billion).

The shift in focus comes as the fervor for 5G networks and applications gradually recedes. Even the intensifying competition and threat of a price war do not seem to be dampening the trio's enthusiasm for the cloud.

"We have an advantage as a central company and as a state team," China Mobile Vice President Zhao Dachun said in Hong Kong last week, hinting that his company expects to have an edge in obtaining contracts from fellow state companies.

Clampdown 2.0

Vietnam's population of 100 million has long been a tempting target for internet companies, despite the government's already harsh restrictions on online freedoms. Soon they may have a new hurdle to reckon with, writes Nikkei Asia's Lien Hoang in Ho Chi Minh City.

Hanoi is preparing to require internet service providers, or ISPs, to kick people offline, if authorities deem they have shared "illegal" content.

Although Vietnam does not have an equivalent to China's Great Firewall, which keeps the population largely cut off from the global internet, the Southeast Asian country already blocks around 1,000 websites, including those of the BBC and Freedom House. The new regulation, which could go into effect as early as this year, would add another layer to their web control regime.

The Open Observatory of Network Interference, a nonprofit organization tracking online censorship around the world, found that of those websites barred in Vietnam, about 33% relate to politics, 27% to news outlets, and 15% to human rights.