None of China’s top tech companies, whether listed or unlisted, have been invulnerable to the downdraft that has blown through public markets and parts of the private markets.
These days, though, some have been more vulnerable than others. Among them are many of the first generation companies that once seemed invincible.
At one time, they were the creative spark that ignited the fortunes of the country as well as themselves; even today nine of the top 20 groups by market capitalisation globally are Chinese. The trio that became best known by the market acronym BAT — Baidu, Alibaba and Tencent — were a shorthand for the emergence of leading edge homegrown mainland tech groups that would rival the might and reach of their counterparts in Silicon Valley.
They also became so powerful that many analysts feared that just as they once gave rise to innovation, they were beginning instead to stifle it.
Today, though, many of them look far less imposing than they did only a short time ago. Virtually all face significant challenges from business models that must inevitably show slowing growth — at least at home — to issues of succession and regulation.
Furthermore, once the embodiment of disruption, they themselves face being disrupted by a new generation. That gives rise to the question that is also facing the first generation of groups on the other side of the Pacific: why do some groups fail to evolve? And how much is due to the failure or shortcomings of the founders themselves?
The debate centres around the degree to which these groups are still about one man or have become more institutionalised. When the board of California-based Uber removed founder Travis Kalanick from his perch as head of the ride-sharing company for inappropriate behaviour, the decision led to heated discussion both on social media and among investors about whether such a thing could happen in China.
Question marks hang over almost all of China’s first generation of tech groups, given how much power the executives have.
For instance, Baidu has suffered a series of departures by top executives, most notably that of Lu Qi, who quit as chief operating officer after a mere 18 months to join Y Combinator.
Baidu’s founder Robin Li was the only one of the BAT trio to have a background in tech on both sides of the Pacific, which gave him the ability to attract and recruit the best and brightest Chinese with international exposure. But he has been unable to hold them and nobody in China today refers to BAT any more.
Instead, the focus is shifting to the second generation of Chinese tech companies such as food delivery app Meituan Dianping and ecommerce operator Pinduoduo that are nipping at the heels of their more established rivals.
There are also serious challenges facing Tencent. These include Beijing’s unhappiness with the company for causing game addiction among children, which recently prompted it to introduce heightened controls to curtail children’s binge-playing. Another serious challenge comes from second generation tech company ByteDance, whose news app and short video services have been gaining the attention of users at the expense of Tencent’s WeChat and other content — helping it to achieve a $75bn valuation in its fundraising.
Most recently was the arrest of JD.com’s founder, Richard Liu, following an allegation of rape in the US — which he denies. Mr Liu, who has 15 per cent of the shares of his ecommerce group, has 80 per cent of the voting rights, according to Credit Suisse, and is widely regarded as the company’s emperor. But even before these allegations, JD’s shares were slipping in contrast to those of its great rival, Alibaba, in part because it was seen to be doing a much poorer job at logistics and its capital intensive model is no longer as attractive, investors say.
Meanwhile, ride sharing group Didi Chuxing has faced a storm of criticism for its poor response following a series of attacks on passengers by drivers. In one of these, a passenger was raped and murdered by a driver who only the day before had attempted to do the same with a passenger who escaped and alerted the company. Didi has since changed the way it hires drivers for that service.
When Jack Ma announced a few months ago that he would gradually withdraw from day-to-day management of Alibaba, it seemed to some analysts that he was stepping down at a time when the company looked in far better shape than many of its contemporaries. However, its payments unit Ant Financial has been affected by official concern that non-banks are undermining state-owned banks, underlining how Mr Ma’s empire remains vulnerable to constraints imposed from Beijing.
There have been very few examples of the transition to the next generation in China and even fewer where investors or directors were able to orchestrate such change. How change is brought about will say much about whether these groups prosper in the future or decline.
Get alerts on Chinese business & finance when a new story is published