China’s Internet Billionaires Suffer $73 Billion Wipeout As Economy Slows And Government Cracks Down

Colin Huang, founder of Pinduoduo.(Photo by Qilai Shen/Bloomberg)

© 2017 Bloomberg Finance LP

The fortunes of China’s richest Internet billionaires are still getting slammed, with four of the country’s best-known tycoons–Colin Huang, Jack Ma, Pony Ma, and Wang Xing—losing more than $73 billion from their combined net worth since April, when Forbes published this year’s World’s Billionaires List.

The tycoons face heightening risks from China’s regulators. Ride-sharing giant Didi Global just announced on Friday that it would delist from the New York Stock Exchange–which is widely reported to have come at the behest of government departments such as the Cyberspace Administration of China—and could be a harbinger of similar delistings in the future. If they opt to maintain their U.S. listings, there could be changes to their long-used ownership structure known as variable interest entities (VIE), creating additional risks for shareholders.

The added pressure of further scrutiny is clouding outlooks. Already, companies from e-commerce giant Alibaba to food-delivery platform Meituan are battling a protracted growth slowdown in the Chinese economy, and their business outlook is likely to remain downbeat until at least early next year, analysts say.

“They [investors] are now back to looking at fundamentals, but the near-term outlook isn’t that exciting,” says Shi Jialong, Hong Kong-based head of China Internet and New Media Research at Nomura Securities.

Shi was referring to softer-than-expected earnings released in the third quarter. The Chinese economy, for its part, is expected to ease to 5.5% growth next year amid sporadic Covid-19 outbreaks and a slowing property sector. Meanwhile, China now has more than 1 billion internet users, meaning most of its population is already online and new users are harder to come by. 

In this challenging environment, Alibaba, cofounded by billionaire Jack Ma, cut its growth forecast for fiscal 2022 from a projected 29.5% in May down to 20% to 23%, causing its New York-listed shares to plunge 11% that day. Led by billionaire Wang, Meituan lowered the outlook for its core food-delivery business and reported widening losses after swallowing a 3.44 billion yuan ($532 million) anti-trust fine in October. Tencent, whose billionaire Chairman Pony Ma Huateng is currently the country’s third-richest person, recently reported its slowest revenue growth since the company went public in Hong Kong in 2004. The company warned about a weak advertising sector into next year, as Beijing’s crackdown on education and real estate companies continues to curb once lavish ad budgets. 

The biggest wealth wipeout, however, goes to Pinduoduo’s Colin Huang. The 41-year-old tycoon lost almost $35 billion in the eight months since April, as the Nasdaq-listed shares of his discount e-commerce platform more than halved. Previously, investors were willing to give the unprofitable but high-growth company rich valuations, buoyed by rapid increases in its user base that even overtook that of Alibaba. They are now dialing back expectations amid intensifying competition and plateauing growth. Pinduoduo missed revenue expectations in the third quarter, and its user base is believed to have peaked.

“Competitors such as Taobao Deals are also very aggressive,” says Shawn Yang, a Shenzhen-based managing director at research firm Blue Lotus Capital Advisors. “Investors can look past a lot of problems when there is high growth, but not so much now.”

Pinduoduo didn’t respond to an e-mailed request for comment. The company plans to step up investment in agriculture technology, after pledging to donate all future profits –until the amount reaches 10 billion yuan–to support agriculture and rural revitalization in China. Under President Xi Jinping’s common prosperity campaign, boosting income in those areas is one priority.

Other tech billionaires are also answering the state’s call. As the country pushes for technology self-reliance, Alibaba launched in October a chip “built upon advanced 5nm process technology,” which it says can be used in data centers. The e-commerce giant is also expanding aggressively into so-called community group-buying, a sector involving using steep discounts in groceries and daily goods to attract shoppers who live close by.

But analysts have sounded a note of caution. “We think it is unlikely that the stock will rerate until Alibaba demonstrates that its investments have generated industry-leading user scale, user stickiness, or a monetization level that will serve as strong entry barriers to deter competitors,” Morningstar analyst Chelsey Tam wrote in a November 19 research note. 

Blue Lotus’s Yang says investors are also unlikely to pile into the tech companies’ shares due to chip advances, although Tencent and search-engine operator Baidu have also announced progress in this field.

“The low-hanging fruits in China’s internet sector have been divided up,” he says. “And it is going to take time for newer businesses to contribute to revenue growth.”