This Article was first published on 29th Nov 2017 on our Asia-In-Focus Newsletter. To get the latest newsletters, click here.
Nov 2017 Edition
How Can We Invest In The Chinese Tech Space?
A few weeks ago, I had a small gathering with a group of our readers in Kuala Lumpur when I dropped by the city for a day. We spent the night talking about how to start investing, how to build your portfolio and also some interesting companies that are worth keeping a tab on.
However, one particular question stayed with me during that gathering. Asked by Wing Hun (thank you for the question); on how can we invest in the Chinese technology space?
I thought I would spend this email to highlight some of the key players within the Chinese tech space and introduce some companies worth researching on.
The Is No Place Like China
China’s internet space evolved apart from the rest of the world. For starter, there is no Google or Facebook or Youtube, three of the most visited sites worldwide. All of these three sites are banned in China, that is why the internet space in China is so much different compared to what the rest of the world has experienced.
China has developed their own version of the internet and its development has been rapid. This was probably because it was not held down by legacy infrastructures and can develop straight into what the 21st century can offers. And with close to a billion active internet users soon, their domestic tech companies have more than enough customers to create a sustainable business.
Today, Chinese Technology companies are not only some of the largest in the world, many are starting their overseas expansion. There could be a day where some of our most commonly used online platforms and services are from China.
The Kings; BAT
The giants within the Chinese technology space are the BAT; (B) Baidu Inc, (A) Alibaba Group and (T) Tencent Holdings. Instead of viewing them as the Google of China or the Amazon of China, we should see these companies as a leader in their own rights. In fact, all of them are such huge technology conglomerates that it is impossible to compare them with any of their western counterparts. Here are the breakdowns of the BAT of China.
The Super App King: Tencent Holdings
Tencent Holdings (HKG:0700) is listed on the Hong Kong Stock Exchange. It is the largest company on the exchange and the Hang Seng Index, with a market capitalization of about USD 500.0 billion in size. That is about the same market capitalization as companies like Facebook Inc and Amazon Inc.
Tencent got its start as a gaming company. Today, it is still making most of its revenue from its gaming and other related services. Through its QQ and WeChat social Platforms, Tencent Holdings has close to about 1 billion users on each service, making them the most popular social media platforms in China.
However, apart from these two platforms, Tencent Holdings owns many other services. Some of them are also the top few services within their own niches.
E-Payment: Through its e-wallets on Tenpay, WeChat Pay and QQ Wallet, Tencent allows their users to make payment and even invest their money directly from their platform.
Games: Tencent Games and Qzone are one of the largest gaming ecosystems in China, publishing some of the most popular games in the country and allowing users to manage their games from their platform.
Online Reading: Tencent recently just spinoff its online publishing arm, China Literature Ltd (HKG:0772). Together with Tencent Comic, Tencent has one of the largest online literature community in China.
Tencent Pictures: Tencent has a picture sharing platform that allows users to share and sell their pictures to one another.
QQ Music: QQ Music is one of the largest music platform in the country, commonly known as the Spotify of China.
Entertainment: Tencent is now an entertainment powerhouse in China. It has a platform for e-sports “Penguin e-Sports”, live streaming “NOW Live”, News “Tencent News”, Videos (Netflix & Youtube combined) “Tencent Video”.
Email: QQ Mail
Browser: QQ Browser
Anti-Virus: Tencent Mobile Manager / PC Manager
Cloud Services: Tencent Cloud
Learning: Tencent Class Room
Map: Tencent Map
Artificial Intelligence: Tencent AI Lab
App Store: China mobile app stores are not dominated by Apple App Store or Google Play. In fact, it is filled with many domestic app stores, Tencent’s YingYongBao is one of the most popular appstores in China.
Tencent Holdings is a complete conglomerate in the technology space. It has multiple services and platforms, all of which has the potential of huge growth in the future as well.
However, competition is intense as all the other tech giants in China are also pursuing a similar strategy.
The E-Commerce King: Alibaba Group Holding
Alibaba Group Holding (BABA) is listed on the US New York Stock Exchange. In term of size, it is almost as huge as Tencent Holdings with a market capitalization of USD480 billion. The two companies are considered as the twin pillars of the Chinese Tech industry.
Alibaba Group started out as an e-commerce platform; Alibaba.com. Today, it is still mainly generating most of its revenue from its e-commerce platforms like Taobao.com and Tmall. However, it is also expanding rapidly into other services and can also be deemed as a huge technology conglomerate. Here are just some of its services.
E-Commerce: Alibaba Group serves a wide range of e-commerce transactions from B2B, B2C, C2C, for import and export through its multiple platforms including Taobao.com, Tmall, AliExpress, Alibaba.com.
Ad-Exchange: Alibaba has an ad exchange for advertisers to buy and sell ads spaces through its big-data driven platform, Alimama.
Video: Alibaba Group owns one of the most popular video sharing and premium video site Youku Tudou.
Browser: UC Browser
News: UC Headlines
Search: Shenma (Search)
Cloud Services: AliYun
Mobile Operating System: YunOS
Enterprise Communication: DingTalk
Logistics Database: Cai Niao
Many of its services are directly in competition with its arch-rival, Tencent Holdings. We are seeing more and more direct competition between the two giants, in particular in the field of e-commerce and e-payment.
The King of Search: Baidu Inc
Baidu Inc (BIDU), listed on NASDAQ, is commonly considered as the Google of China. However, it is not generally known that the two companies started out during the same time period. Google managed to dominate the search ecosystem globally while Baidu ended up very dominating in China.
Today, Baidu Inc is a USD 86 billion company and generates most of its revenue from its search advertising.
Nonetheless, Baidu is also considered as a technology conglomerate with many other services that are very popular in China.
Search: Baidu Search is the most dominant search engine in China.
Encyclopedia and File Sharing: Baidu WenKu
Appstore: Baidu Mobile Assistant is the most popular appstore in China.
Anti-Virus: Baidu Mobile Guardian
Personal AI-Assistant: Baidu Duer is a virtual assistant similar to Amazon Alexa or Apple’s Siri
Social Media and Publishing: Baijiahao
Cloud Services: Baidu Cloud
E-Finance: Baidu Wallet, Baidu Wealth Management, Baidu Consumer Credit
Map: Baidu Maps
Video: iQiyi and PPS are two of the most popular premium video and video sharing platforms in China.
Other Notable Companies
There are other technology companies that compete with the three giants above but due to their smaller size, they are less talked about. Here are some of them.
The Twitter of China? Or The Weibo Of The States?
Weibo Corp (WB) is a social media company listed on NASDAQ. Sized at USD 25billion, it is even larger than its comparable in the west; Twitter Inc. Many commentators like to see Weibo as the “Twitter of China”. However, after from their broadcasting feature, Weibo is nothing like Twitter. In fact, Twitter felt like a cheap knockoff of Weibo if you have ever tried both services.
Weibo has very powerful features for broadcasters to further enhance their brand and channel through interactive videos, payment gateway, Weibo Groups and other features. Due to the lack of Facebook-like services in China, Weibo has in many cases became the de-facto social media platform, especially for brands and celebrities.
The Gaming Competitor
Although Tencent Holdings is the dominant player in the Chinese gaming space, another notable contender is NetEase Inc (NTES). Listed on the NASDAQ exchange with a market capitalization of USD44 billion. NetEase is like a smaller version of Tencent Holdings. The company also operates a huge online gaming community and publishes many popular games.
However, it also has services such as news, e-commerce, emails, search and other online services that the BAT provides.
However, please note that many of these companies operate in the extremely competitive market and many of them are still unproven outside of China. Therefore, for those that are embarking on an international expansion, it is still too early to know if they are able to duplicate the success they have in China to the rest of the world.
On top of that, there are many multi-billion technology businesses in China that remain in private investors’ hands. Companies like XiaoMi, Mobike, Didi Chuxing, DJI Innovations, Meituan Dianping, Lu.com and Toutiao are all huge enterprises in their own rights but are not accessible for investors like ourselves.
Interestingly, many of these companies count the BAT of China as their cornerstone investors. This means that apart from having great operating businesses, the BAT of China is becoming more and more like the venture capitalists of China.
The world is changing so rapidly and China seems to be leading the change. Stay with us as we bring you more development from time to time.
Till Next Time, Choose Your Investment Wisely.
Editor of ValueInvestAsia.com