China’s internet industry experienced a remarkable surge in profitability, with a staggering 43 percent increase during the initial five months of this year.
This impressive growth reflects the resilience of tech giants who emerged victorious from a two-year crackdown, defying expectations of a sluggish post-Covid economic recovery.
The Ministry of Industry and Information Technology (MIIT) disclosed in a recent report that internet firms amassed profits totaling 57.6 billion yuan (equivalent to US$7.9 billion) from January to May.
Comparatively, the industry recorded profits of 49.5 billion yuan during the same period last year, signaling a significant 16 percent gain without any revisions or changes in methodology. However, the MIIT did not provide an explanation for this discrepancy.
The report also revealed a slight uptick in revenue, which increased by 2.8 percent to reach 531 billion yuan.
The MIIT report examined companies offering internet-related services with an annual revenue of at least 20 million yuan.
This profit surge stands in stark contrast to the previous year when profits experienced a daunting 14.8 percent year-on-year decline during the first five months.
This year, the industry managed to leave behind the far-reaching crackdown imposed by Beijing.
The Chinese government initiated the crackdown on internet firms in late 2020, citing concerns about antitrust issues, data security, and the need to regulate the “disorderly expansion of capital.”
However, by the end of last year, the severity of the crackdown had considerably eased.
Furthermore, strict measures implemented to control the spread of Covid-19 also weighed heavily on the economy. These measures began to taper off in December, yet the recovery has been slower than initially anticipated.
National retail sales for the period reached an impressive 18.8 trillion yuan, representing a year-on-year growth of 9.3 percent.
This growth rate accelerated from the 8.5 percent recorded during the first four months of the year.
Premier Li Qiang expressed the government’s expectation of faster economic growth during the second quarter, following the first quarter’s modest 4.5 percent growth.
The financial performance of China’s tech sector is most notably evident in the earnings reports of its major players.
For instance, Alibaba Group Holding, the prominent Chinese e-commerce giant reported a net income of 23.5 billion yuan in the quarter ending in March.
This was a notable recovery from the 16.2 billion yuan loss suffered during the same period last year, primarily attributed to profit erosion caused by investments.
The company also observed a 2 percent increase in revenue for the period, driven by the rebound of economic activities in China.
Similarly, Tencent Holdings, China’s largest social media and video gaming company, experienced a significant surge in revenue, growing by 11 percent, while profit increased by 10 percent in the first quarter. This remarkable growth was fueled by the expansion of advertising and video game sales.
This positive turnaround stands in stark contrast to the global trend of major tech firms downsizing their workforce at the end of 2022 and early 2023, as they sought to mitigate costs amid concerns of an impending recession.
Alibaba and Tencent, along with numerous other Chinese companies, have also joined this cost-cutting trend.
The resurgence of growth in the industry marks a significant reversal of fortunes from 2022 when internet firms experienced a 1.1 percent decline in revenue, amounting to 1.46 trillion yuan for the entire year.
This decline represented the first annual decrease in revenue since data became available in 2017.
Among the three segments identified by the MIIT within the internet industry, online sales performed exceptionally well, with a remarkable 33.9 percent increase in revenue during the first five months of this year. Internet
services, including ride-hailing, travel, finance, and flat rentals, experienced a healthy growth rate of 12.5 percent.
However, the information services segment, which encompasses news, search, social media, and video games, declined by 1 percent.
Furthermore, the mobile tech segment has also witnessed substantial growth on its own. As of the end of May, China had a total of 2.61 million active apps available in Apple’s App Store and various domestic Android app stores, compared to 2.32 million the previous year.
The MIIT reported that there were approximately 820,000 mobile software developers operating in China by the end of the specified period.