Commentary: Can Chinese tech giants cope without consumers?

TOKYO: Last week’s earnings reports from Chinese technology companies should have been a wake-up call for Beijing.

Alibaba Group and JD.com pulled out all the stops to entice shoppers during their 618 shopping festival, a Black Friday-style extravaganza that took place during the quarter ending in June. They offered bigger-than-ever discounts on everything from iPhones to loungewear, tapped A-list celebrities like Rihanna to endorse products and even experimented with a digital avatar of an executive to hype up wares on a livestream.

However, Alibaba’s revenue from its main e-commerce platforms fell about 1.4%, while retail revenue from JD.com, which offered some of the biggest discounts, rose 1.5%.

Despite price cuts and the launch of some of the most aggressive campaigns, it hasn’t been enough to get Chinese consumers to reach into their pockets. That may not come as a complete surprise, as the country continues to grapple with a difficult economic environment marked by a prolonged housing crisis and high youth unemployment.

Tencent Holdings, meanwhile, posted strong profit growth that beat analysts’ expectations. But that was driven by the release of its hit game Dungeons & Fighter Mobile in May. The fact that China’s most valuable tech company’s revenue was fueled by its gaming unit is another warning sign for the broader economy.

Spending on digital entertainment has historically been countercyclical, meaning consumers will continue to spend money on it even as they cut back on major purchases. Unemployed workers may also spend more time gaming. And it’s unclear whether Tencent will be able to translate DnF Mobile’s one-time launch into sustainable business growth.