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Amid crackdown, Chinese tech companies set to see profits slide in July-Sept quarter

In recent times Beijing has reasserted control over its once-freewheeling internet sector and has started punishing well-known names via new regulations

As Beijing continues its crackdown on top homegrown tech giants, China’s biggest listed companies including Tencent and Alibaba are set to see profits slide with slowing revenue growth in the July-September quarter. In the midst of the Covid-19 pandemic, the Communist-led country has pushed through stiff regulatory measures that are bleeding major tech companies.

In recent times Beijing has reasserted control over its once-freewheeling internet sector and has started punishing well-known names for engaging in what were previously considered regular market practices and drafting new rules to change how they compete and engage users.

While Tencent Holdings Ltd, the country’s largest firm by market value and its first big tech name to report earnings on Thursday – is expected to post a 12% fall in quarterly profit, its first drop in two years.

The gaming giant’s revenue is expected to rise 16.4%, the slowest pace since the first quarter of 2019 after the government imposed new limits on the amount of time minors can spend playing video games. China’s gaming regulator also has not approved any new games since August.

During the quarter, China also barred Tencent from signing exclusive music deals, citing anti-competitive reasons. E-commerce powerhouse Alibaba, which became China’s first regulatory target late last year, is expected to post a 12% decline in profit in the quarter. Revenue will likely rise 32%, the slowest in a year.

Two quarters ago, Alibaba had posted its first quarterly operating loss since going public in 2014 after it was fined a record $2.8 billion.

Its smaller rival JD.com Inc is expected to post a 71% slump in profit and the slowest revenue growth in six quarters. Slowing retail sales in China due to COVID-19 lockdowns and recent power shortages will hurt Alibaba and smaller rivals.

Further, big e-commerce companies in China are also facing rising competition from short video apps Kuaishou and ByteDance’s Douyin, which have growing e-commerce businesses.

Baidu, China’s biggest search engine operator, is expected to report that quarterly profit plunged 80%, hurt by a slump in advertising revenue from tutoring centres that have been barred from offering private, for-profit tutoring on the school curriculum. China’s efforts to regulate medical beauty advertisements have also hit advertising.

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