Chinese tech companies face more risks in expanding their businesses overseas this year after Donald Trump returns to the White House later this month, with more policies expected to curb the expansion of the industry, according to a UBS analyst.
“As the new US government takes office, we expect that there will be more policies or news that will affect Chinese companies’ overseas businesses, including cross-border e-commerce, video gaming, and artificial intelligence,” Kenneth Fong, head of China internet research at UBS, said in a media briefing in Shanghai. However, Chinese companies will continue to invest in overseas markets amid the geopolitical risks, he added.
Fong’s comments came days after the US Department of Defence added Tencent Holdings, China’s most valuable company, to its list of “Chinese military entities”, along with other tech companies including electric vehicle (EV) battery maker CATL and artificial intelligence (AI) champion SenseTime, raising concerns about further bifurcation in the technology spheres of the world’s two largest economies.
Chinese tech companies should worry about three things regarding geopolitical risks, according to Fong: the possibility of US companies being barred from investing in Chinese tech firms, potential additional restrictions on the purchase of AI chips, and the impact of trade tensions on their overseas businesses.
While the Pentagon’s designation has no legal ramifications, analysts said it may give the US Treasury a reason to impose further sanctions and trade restrictions, which would make it harder for Tencent to buy certain products from US tech giants such as chip-design company Nvidia. Meanwhile, Beijing-based ByteDance is struggling with a looming US ban of its flagship product, the popular short-video platform TikTok.
The US Supreme Court last week heard arguments to determine whether the app can continue operating in the country without severing ties to its Chinese parent by January 19. A law passed last year gave ByteDance until that date to sell the US operations of the app, which has 170 million American users, or have it removed from US app stores.
The law allows for a single 90-day extension. President Joe Biden has given no indication that he plans to use that extension, but president-elect Trump, who takes office on January 20, asked the court to delay the deadline.
A ban would have a huge impact on the company’s cross-border e-commerce business, TikTok Shop, which is now competing with Chinese rivals such as PDD Holdings’ Temu and fast fashion retailer Shein. A key step for these e-commerce platforms in 2025 is to expand into different countries and build scale, Fong said, adding that they still have a unique advantage in terms of algorithms, logistics and supply chain.
The drive by these big tech companies to venture overseas comes as the domestic internet industry, especially the e-commerce sector, faces fierce competition amid a slowing economy and sluggish consumer demand.
UBS expects overall competition in the industry to decrease this year, while e-commerce platforms continue to fight for their piece of a sector with an expected annual growth rate of just 6 per cent.
