Tencent has faced a number of headwinds in 2022 including a Covid-induced slowdown in the Chinese economy and a tougher market for gaming.
Bobby Yip | Reuters
Tencent said it will launch new cloud computing products aimed at overseas markets as it searches for new avenues for growth amid a slowdown in its core online video games business.
On Thursday, Tencent will host a launch event for cloud products specifically aimed at markets outside of China, including a suite of cloud-based audio and video products.
The move marks a realization that Tencent needs to find new sources of growth abroad as China’s economy slows. Besides continued pressure from Covid outbreaks, Chinese tech companies also face a tougher regulatory environment at home.
Tencent, in particular, has been hurt by stricter regulation on online games. Last year, Beijing introduced rules that cut the amount of time people under 18 could play online games to a maximum of three hours a week. Regulators also froze game approvals for several months, meaning companies like Tencent and rival NetEase could not launch and monetize new titles.
While there are signs that the gaming crackdown could now be over, Tencent has felt the impact. Domestic online game revenue fell 7% in the third quarter compared with a year ago.
Tencent’s second-biggest revenue driver is online gaming, so a slowdown in this segment is a drag on overall growth.
The Shenzhen-headquartered company views cloud computing as an area that could pick up the slack. Tencent’s fintech and business services division, which includes its cloud computing division, grew 4% year-on-year in the third quarter.
Chinese tech giants are not only looking to new business divisions for growth, they are also looking for new revenue streams overseas. E-commerce company Alibaba has used its AliExpress and Lazada brand to expand abroad, for example, while Tencent has found big success with its online games.
Now, Tencent is banking on cloud computing. The products released Wednesday focus on audio and visual products such as live streaming for e-commerce or online meetings.
The products are aimed at companies that want such services but don’t necessarily want to maintain the infrastructure, such a servers, or build those features themselves.
Tencent’s strategy could focus on trying to sign up global firms with a presence in China as well as Chinese companies expanding abroad. Already, companies such as BMW use some of Tencent’s cloud products.
As the Chinese firm expands overseas, it will enter a very competitive cloud computing market dominated by U.S. giants Amazon and Microsoft. Tencent’s international push with cloud computing is relatively late compared with that of rival Alibaba, which expanded outside China in the last few years. Now, Alibaba is among the five largest cloud computing firms in the world.
Tencent’s focus on audio and video products plays to its strengths as one of the world’s largest gaming companies and the owner of WeChat, China’s most popular messaging app with over 1 billion users.
Pressure on China’s factories grows as U.S. demand falls
Employees work on an electronics production line on Feb. 2, 2023, at a factory in Longyan, Fujian province in China.
China News Service | China News Service | Getty Images
BEIJING — For some factories in China, it’s not full steam ahead after the end of zero-Covid.
All the factories that U.S. toy maker Basic Fun works with in China — about 20 of them — told workers not to return immediately after the Lunar New Year holiday, said CEO Jay Foreman.
That’s because of a flood of inventory in the first half of last year, which didn’t get sold as consumer prices in the U.S. surged over the summer and into the fall, he said. Basic Fun’s products include Care Bears and Tonka Trucks.
The official Lunar New Year holiday in China ended Jan. 27, but the travel period runs until Feb. 15. The festival is typically the only time each year that migrant workers — more than 170 million people in China — can visit their hometowns.
“Every factory I spoke to said they’re going to have less people employed this year than last year,” Foreman said. He expects U.S. consumer demand to pick up later this year.
China’s exports to the U.S. in the toys, games and sports category account for about 6% of all exports to the country, according to China customs data accessed through Wind Information. That category of toy exports to the U.S. saw a slight drop in 2022, the data showed.
“Retail, anything consumer discretionary, they were hit quite hard. It was really a combination of high inventory and demand dropping quite a lot for the export markets,” said Johan Annell, partner at Asia Perspective, a consulting firm that works primarily with Northern European companies operating in East and Southeast Asia.
He said consumer electronics was seeing a similar situation.
“For other industries, the picture is much better. Some are struggling to keep up with trailing orders and catch up with everything they had to deliver last year,” he said.
China abruptly ended its zero-Covid policy in December. But restrictions on business activity were tight for most of 2022, including a lockdown of Shanghai for about two months in the spring.
Retail sales in the U.S. — China’s largest trading partner on a single-country basis — have slowed in the last few months. China’s exports to the U.S. barely grew in 2022, and the U.S. economy is expected to slow further in 2023.
That’s on top of tariffs and bilateral tensions, which have escalated over the last several years.
“We expect we will continue to grow, but the pressure is very great,” Ryan Zhao, director of Jiangsu Green Willow Textile, said in Mandarin, translated by CNBC.
“What I heard about the market, 2023 will be very hard. U.S. demand is declining. The Russia-Ukraine war hasn’t ended.”
Some U.S. clients’ orders have disappeared.
Zhao said his company was working with a high-end bedding and textile brand in New York that filed for bankruptcy last year. To survive in the “shrinking” market, he said the company is shifting to lower-priced products popular with younger consumers.
That means in order to grow revenue, Zhao has to sell more items than before – and he plans in the next few months to hire 10 more workers locally for his factory of 30 people in China.
When asked by CNBC in January, China’s customs administration acknowledged the pressure on China’s exports from slowing external demand, and noted rising risks of a global recession.
Trade data show demand for Chinese goods is going up in other markets, such as Southeast Asia.
Since China’s Covid wave ended, employers have increased the share of part-time positions and manufacturers are increasingly paying workers every week, instead of once a month, according to Qingtuanshe, a job search platform within the Alipay mobile app.
While there’s no clear change in wages since the reopening, Qingtuanshe noted the pay range for factory jobs declined sharply during the pandemic.
For China’s domestic economy, the drop in overseas demand reveals a more widespread employment problem: lack of highly skilled factory workers.
“It’s generally becoming more difficult to find workers and to find the right workers,” Annell said.
“You have some high youth unemployment and there is a pool of labor, but when you start looking into it in a specific city, it’s hard to find both the qualified supervisors” and technical workers, he said.
Manufacturing accounts for 18% of China’s labor force, and construction workers another 11%, said Dan Wang, Shanghai-based chief economist at Hang Seng China. However, the majority only have at best a middle school education, making it hard for them to change to another industry, she added.
She expects there will be more than 1 million unemployed people in rural areas — who are not counted by official statistics on urban unemployment. She attributed it to the decline in exports and a push for automation in China, while the real estate sector’s demand for construction workers declines.
Lackluster growth in consumption also limits how much the services sector can absorb new workers, as it had prior to the pandemic, Wang said.
“It looks like the ultimate solution is still on some government-sponsored training. As time goes by, more of those workers need to be trained to actually earn a living.”
FTX bankruptcy fees near $20 million for 51 days of work
The FTX logo on a laptop screen.
Andrey Rudakov | Bloomberg via Getty Images
FTX’s top bankruptcy, legal, and financial advisors have billed the company more than $19.6 million in fees for work done in 2022, according to Tuesday bankruptcy court filings. More than $10 million of that was for work done in Nov. 2022, as Sam Bankman-Fried’s crypto empire entered bankruptcy protection in Delaware.
The firms will initially only be paid a little over $15.5 million, or 80% of the value of their work, under a court-ordered interim compensation plan.
The law firms that billed FTX are Sullivan & Cromwell, Landis Rath & Cobb, and Quinn Emanuel Urquhart & Sullivan. Professional advisor Alvarez & Marsal and financial advisor AlixPartners also billed the company.
Some of the work that the firms billed for involved meetings with other companies that also were billing FTX for their time, or involved corresponding with former and current executives, including Caroline Ellison, the former CEO of Bankman-Fried’s hedge fund, Alameda Research.
Landis Rath & Cobb and Sullivan & Cromwell, FTX’s primary legal firms, billed the company a combined $10.7 million for over 8,400 hours of work. Landis Rath & Cobb billed $1.16 million for work done between Nov. 11 and Nov. 30.
Sullivan & Cromwell, a target for both lawmakers and Bankman-Fried over their pre-petition work with FTX, sought over $9.5 million in compensation for over 6,500 billable hours, in the period between Nov. 12 and Nov. 30. Over a third of those billable hours, totaling over $4.8 million, were for the work of partners, who typically charge the highest hourly rate.
Sullivan & Cromwell assigned over two dozen partners to FTX’s case, according to the filings. Jim Bromley, a partner at Sullivan & Cromwell and a lead attorney on the case, billed over 178 hours for the weeks between Nov. 12 and Nov. 30.
The legal filings offer a glimpse into the ferocious work done by advisors to untangle FTX’s complex web of accounts and slipshod accounting standards. Sullivan & Cromwell lawyers spent over 1,900 hours in November alone on work related to analyzing and recovering FTX’s global asset base, according to the filings.
Alvarez & Marsal, an advisory firm, billed $1.9 million for over 2,300 hours of work on “business operations,” meeting with lawyers, FTX executives, analyzing FTX’s holdings using blockchain explorers, and reviewing “cybersecurity scenarios.” Those operations included multiple hours in November corresponding with and calling Ellison, 5.3 hours in a single day imaging iPad files and other electronic devices, and a first-day hearing conference call that lasted 2.5 hours.
Quinn Emanuel, which billed over $1.5 million for work done between November and December, assigned over a dozen lawyers to the case, nine of whom were partners. One of those partners, Sascha Rand, billed over $13,000 for a single day’s work in November, corresponding and reviewing first-day issues. Another Quinn lawyer filed for over $17,000 on a “non-working travel” day trip beginning Nov. 21, returning on Nov. 22.
AlixPartners, a financial consulting firm, billed $1.1 million for work done over the course of a little more than a month, from Nov. 28 to Dec. 31.
FTX’s advisors aren’t entitled to their full fees yet. Under an interim compensation order, professional advisors are paid 80% of their filed fees, provided that no objection is filed. Full compensation for legal and advisor fees will not occur until a final fee application is filed, whenever FTX’s bankruptcy saga concludes.
That doesn’t mean that advisors won’t get their due, however. A 2019 Federal Reserve study said professional and consulting fees in Lehman Brothers’ bankruptcy were over $2.56 billion.
Lawyers for Sullivan & Cromwell did $40,000 worth of work just to appear in FTX’s first bankruptcy hearing on Nov. 22, based on court filings of hours billed and hourly rates.
ByteDance testing food delivery service via Chinese version of TikTok
ByteDance’s Douyin has been trialing a food delivery service since December as it looks to expand its business beyond advertising.
Jakub Porzycki | Nurphoto | Getty Images
ByteDance told CNBC on Wednesday that it has been testing a type of food delivery service in China via its short video app Douyin, potentially pitting itself against major e-commerce companies like Alibaba and Meituan.
And the company is now considering extending the service beyond the trial.
Douyin is the Chinese version of TikTok which are both owned by ByteDance.
A Douyin spokesperson said that the company has been “testing a feature in Beijing, Shanghai and Chengdu that enables merchants to promote and sell ‘group-buying’ packages to Douyin users in these select cities and have them delivered.”
Restaurant owners often livestream on Douyin to market their business. While doing this, they can offer discounts and coupons for their food to users watching the videos. Multiple users can then purchase that offer and choose a time within two days for the food to arrive.
The model is very different from Meituan and Alibaba’s Ele.me which are both on-demand food delivery services, much like Uber Eats.
“We would consider expanding the feature to more cities in the future depending on the testing results. There is no detailed timeline yet,” a Douyin spokesperson said.
The company has been testing the feature since December.
China’s food delivery industry is dominated by Meituan and Ele.me.
But ByteDance’s tentative steps into the market suggests it wants a slice of the market, which was worth $66.4 billion in 2022, according to research firm IMARC Group.
ByteDance has been dipping its toes into different areas of online shopping. Last year, the company launched a fashion website called If Yooou outside of China.
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