Tencent remains in "winter" amid regulatory crackdown

Asian Tech Press (Mar. 14) -- The cold winter for Chinese Internet companies has not been slightly tempered by the arrival of spring.

Just shortly after Tencent (0700.HK) and Alibaba were rumored to have laid off tens of thousands of employees, came news that China's central bank would fine Tencent for anti-money-laundering violations.

This is potentially worse news for Chinese Internet companies. Chinese tech stocks are continuing to be hit hard as the authorities continue to tighten regulations on the Internet industry.

The popular Chinese stocks listed in Hong Kong, including Tencent, Alibaba, JD.com, NetEase and Meituan, continued their previous declines.

Stock performance of major Hong Kong-listed Chinese tech stocks on Monday.

Alibaba, Meituan and JD.com fell more than 10% on Monday. Despite having the highest share price among these five Hong Kong-listed companies, Tencent still tumbled nearly 10%. And its main rival NetEase, dropped more than 8%.

Alibaba and Tencent's layoff plans have been revealed on Chinese social media platforms by some of their employees, with Tencent expecting to cut 10% to 30% of its workforce and Alibaba estimating a 30% layoff.

Alibaba employees disclosed in an online chat group, "Alibaba's MMC business unit will cut 20% of its staff, and other departments also have indicators for layoffs". At the same time, Alibaba's travel-services platform Fliggy, or Feizhu in Chinese, also has layoffs, and a number of operations and technical staff have said they were suddenly interviewed.

Along with Alibaba, Chinese gaming and social media company Tencent has also been caught in layoff rumors.

A chat record circulating on the Internet shows that Tencent would lay off 6,000 employees, including 4,000 in Platform & Content Group (PCG) and 2,000 in Cloud & Smart Industries Group (CSIG).

The laid-off employees would be drawn from several project groups, and some project groups were cut entirely. The layoffs in the two business groups alone have reached about 10% of Tencent's total workforce.

A source close to Tencent revealed Sunday that Tencent's PCG unit does have layoffs. Recently, the PCG's Xiao'E PinPin project group was disbanded, and the app store YingYongBao project group also cut some of its staff. Those streamlined from the two project groups were either laid off or jumped ship internally.

However, the above layoffs are only rumors and have not been confirmed more precisely, and Alibaba and Tencent have not made any response to them.

When the news of layoffs came out, it sparked a hot debate on Chinese social media platforms. A number of people expressed their concern about the layoff signals, saying that rumors of salary cuts and layoffs in the Internet industry have further increased the sense of crisis and anxiety.

However, such rumors at major Internet and technology companies have long been nothing new in China. News of layoffs at China's major Internet firms has emerged frequently over the past year, but has been subsequently debunked.

For example, in July 2021, it was rumored that smartphone maker Oppo had started layoffs, involving the IoT business group, Internet business unit, marketing and other departments of the company. At that time, Oppo also publicly responded that it was seriously untrue information.

In August 2021, media reports said that Tencent's short video service Weishi was optimizing its staff and laying off up to 70% of its employees, which was later denied by the company, saying that the information was false.

In March 2022, it was reported that a number of business executives of Chinese online video platform iQIYI had recently resigned, and many other projects were shelved and suspended by the country's answer to Netflix.

Tan Yinzi, general director of variety show "iQIYI Scream Night 2019" and head of the Meike studio, one of the parties involved denied the rumors, saying that he "did not leave", "nor did he intend to leave."

It is worth mentioning that the high-frequency rumors of layoffs by Internet giants are not hot spots that have emerged only in the past two years. For example, as early as 2018, there were rumors that "Alibaba cuts 50% of the staff", "Huawei and JD.com stop social recruitment" and so on, which were essentially denied by the relevant companies publicly.

In recent years, major Chinese Internet companies have faced a more complex business environment and suffered from more impact factors, making their development more difficult, such as the long-running cycle of multiple declines in Chinese stocks.

According to financial data provider Wind, of the 272 Chinese private stocks listed in the U.S., a total of 244 have fallen since 2021, with 178 stocks down more than 50% and 31 stocks down more than 90%.

Alibaba has fallen as much as 62.9% in the past year, and its market cap has shrunk to HK$1.76 trillion. And Tencent has dropped 45.7% over the same period and its market capitalization is now HK$3.27 trillion.

Tencent stocks on Monday.

Despite the poor situation in the capital market, the two Chinese Internet giants, Alibaba and Tencent, have maintained a solid growth trend from the operational level.

As shown in the latest earnings reports of both companies, Alibaba posted revenue of 242.580 billion yuan ($38.066 billion) in the fourth quarter of 2021, up 10% year-on-year. And Tencent earned 142.4 billion yuan ($22 billion) in revenue in the third quarter of 2021, up 13% YoY.

The "winter" in the Internet industry has been quite cold, but it seems that this is not the worst time, as China does not seem to be relaxing its regulation of the industry.

Just on Monday, Tencent may face a hefty fine after its WeChat Pay mobile network was exposed for violating China's anti-money laundering regulations.

The People's Bank of China (PBOC), the country's central bank, found during a routine inspection of WeChat Pay that ended in late 2021 that Tencent failed to fully comply with regulations such as "know your customer" and "know your business," resulting in users transferring and laundering funds through Tencent's mobile payment network, the Wall Street Journal reported Monday.

In fact, Tencent's controlling third-party payment platform Tenpay, also the operator of WeChat Pay and QQ Wallet, was fined by the PBOC in 2020 for failing to fulfill its obligations to identify customers and to report suspicious transactions in accordance with the regulations.

With the anti-money laundering case revisited, is Tencent's "cold winter" getting worse?

You must be login to post a comment.