Chinese tech benefits from support that veers on nationalization
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Chinese tech benefits from support that veers on nationalization

Few stories in the investment world have been as compelling as that of the Chinese technology sector. Private equity and venture capital investment grew from $14 billion in 2012 to $120 billion in 2017, and last year saw 34 Chinese companies join the ranks of startups valued at more than $1 billion. That puts it second only to the U.S. But, as is the case with the countries’ economies more generally, number two is growing far faster than number one.

In the west, big tech goes by the acronym FANG (Facebook, Amazon, Netflix and Google). In the east, it’s called BAT (Baidu, Alibaba, and Tencent). These companies are titans in the Chinese market – Tencent is China’s most valuable company by market cap, and the world’s most valuable social networking company. Alibaba, that hemisphere’s most dominant online retailer, expects to grow by 55% this year.

BAT stocks have surged in the past 12 months

graph 1604 chinesetech

SOURCE: Yahoo Finance

The company’s government, which has, as one of its stated aims, the goal to become an artificial intelligence market leader, is not sitting by idly. Reports suggest that Communist Party committees have been installed at some of these tech firms, ensuring that the companies are working sensibly towards “national goals”. An executive at a Chinese search engine said:

“We're entering an era in which we'll be fused together. It might be that there will be a request to establish a Party committee within your company, or that you should let state investors take a stake, you know, as a form of mixed ownership. If you think clearly about this, you really can resonate together with the state. You can receive massive support. But if it's your nature to want to go your own way, to think that your interests differ from what the state is advocating, then you'll probably find that things are painful, more painful than in the past.”

Jack Ma, Alibaba’s founder and CEO, counts himself a fan of the Chinese government, and has spoken publically about the benefits of leader that have longer terms than those parceled out in western democracies. The value to what seems, to western eyes, to be a fairly illiberal regime is that it can get things done: each successive leader is on the same page, thereby allowing them to accomplish goals that western governments, which often see much of their legislation reversed by subsequent governments, have struggled to achieve.

It remains to see how this political experiment will evolve. But for now, big tech is benefiting in China. As they may have said in that most western of television shows, Star Trek: “It’s capitalism, Jim, but not as we know it.”


Dominion holds Baidu, Alibaba, and Tencent in its Global Trends Ecommerce Fund.

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