Growing Concerns on Price Wars Cause a Tumble in China's Tech Giants

China's internet firms are ramping up their efforts to outdo each other as Beijing eases its tech crackdown, leading to a surge in the competition that is threatening margins and worrying investors.

Even though Beijing has not officially authorized a return to the pre-Covid period for the industry, the increased number of aggressive campaigns announced by Big Tech in recent weeks is causing a potential return to damaging price wars.

Earlier in December, China's plan to hold internet users accountable for their "likes" on posts deemed illegal or harmful raised concerns about greater control over social media. This move came as the country's internet regulator ramped up its efforts to regulate cyberspace and crack down on online dissent, amidst increasing public frustration with the strict Covid restrictions in place.

During the lengthy crackdown, some companies decided to limit their expansion and lay low. Now as China has lifted its stringent zero-COVID policy these companies are on a comeback mission.

JD.com, one of China's e-commerce leaders, raised up to 11 percent in U.S. trading, following reports that the firm was preparing to launch a $1.5 billion subsidy campaign to compete with its rival PDD Holdings.

Meanwhile, Meituan, a Chinese shopping platform, is expanding into Hong Kong and hiring 10,000 people on the mainland to counter heightened competition from new players like ByteDance.

In addition to online commerce, NetEase and MiHoYo are escalating their competition against Tencent, the gaming leader. While Baidu is releasing a new ChatGPT-like service to try and take ad revenue from the likes of Tencent and Alibaba.

While these growth plans have led to a rise in share prices, they come with the risk of severely depressing profit margins due to intensified competition.

This risk puts pressure on tech shares, with U.S.-listed shares of Alibaba and PDD declining, and JD.com falling the most in four months after reports of its subsidy campaign to compete against budget shopping app Pinduoduo.

“Embarking on an aggressive subsidy campaign could be an acknowledgment on JD.com’s part that it is facing market share pressure from Pinduoduo,” Vey-Sern Ling, managing director at Union Bancaire Privee in Singapore told Bloomberg.

He said “the companies are optimistic about China’s consumption outlook and normalization of the regulatory environment,” but engaging in competition based on subsidies is unbeneficial to the e-commerce sector as a whole.