Thursday, November 24, 2022
Google search engine’s pay cuts and LG’s US battery bet’s pay cuts and LG’s US battery bet

Hello everyone, this is Cissy from Hong Kong.

It’s corporate earnings season once again and I’ve been busy tuning in to tech companies’ results calls. In addition to offering the usual business outlooks, the calls can sometimes provide unexpected insights into Chinese companies.

For instance, there was a rumour circulating on social media back in May that the chairman of a major tech company had been taken away for investigation. But he showed up on the earnings call that month and made a few brief remarks.

It was good to hear from that chairman, as it is getting more and more difficult to interview top tech executives in China these days — even on non-sensitive topics — as many are wary of saying something that upsets Beijing and provokes a retaliation.

So while most executives are still very cautious during these calls, listening in has been a valuable way for me to learn what they are thinking.

Most Chinese businesses reported moderate sales growth for the July-September quarter, a slight improvement from the prior quarter’s record-low growth. In this season’s calls, senior executives agreed that Covid-19 conditions in China will continue to pose challenges to the economy and consumption in the near term, and there is still no clear indication of when a rebound will come or how robust it will be.

China’s State Council recently introduced 20 guidelines detailing what officials should be doing on everything from quarantine to testing in order to refine its stringent approach to controlling Covid-19. Yet the city of Beijing is essentially in lockdown this week as the country’s case numbers soar — a move that could prompt a return to endless lockdowns if other cities follow suit.

Pay cuts at the top

The chances that Chinese consumer tech companies will return to their earlier days of breakneck growth are looking rather low these days. On the one hand, Beijing’s wide-ranging crackdown on the industry has forced companies to scale down their so-called non-core businesses, while on the other hand, expanding existing businesses is becoming harder for many platforms as user growth slows.

It was against this backdrop that announced it will slash top executives’ pay by up to 20 per cent, the first big pay cut revealed by a Chinese internet company since the pandemic began, writes Nikkei Asia’s Cissy Zhou.

More than 2,000 senior executives from the company will be impacted. In an internal email seen by Nikkei Asia, founder Richard Liu explained that the move would help deal with slowing growth, but also “improve welfare for lower-paid staff” by covering medical insurance for all of its 540,000 employees, an apparent nod to Beijing’s push to narrow the country’s wealth gap.

Under Chinese president Xi Jinping’s Common Prosperity campaign — dubbed “robbing the rich to help the poor” on social media — authorities have launched a crackdown on tax evasion on rich influencers and other alleged misdeeds in the tech sector. Companies have also been stepping up charitable donations in response to Xi’s call.

Implied pain

Xiaohongshu, China’s answer to Instagram, has seen its implied valuation halved on private markets after the once high-flying internet group was forced to shelve its US initial public offering last year, write the Financial Times’ Eleanor Olcott and Nian Liu.

The Alibaba- and Tencent-backed social media platform hit a $20bn valuation in a funding round last year. But Beijing’s move to limit the flow of Chinese internet firms going public in the US, coupled with a downturn in advertising spending — Xiaohongshu’s main source of revenue — has forced investors to reassess the company.

Private market stake sales since the beginning of the year have given Xiaohongshu an implied valuation of between $10bn and $16bn, according to data provider Altive.

The company is part of a global cohort of technology start-ups that have had their valuations reappraised as venture capital funding has dried up and prospects for exiting investments through IPO and blockbuster buyouts have faded.

Xiaohongshu is trying to diversify its business model through ecommerce but experts are sceptical that it can compete in an already crowded market. “Even $10bn seems like a high valuation in current market conditions,” said one investor.

Spacs adrift

US-, South Korea-listed Spacs attracting Asian mergers

The Hong Kong and Singapore stock exchanges both welcomed their first special purpose acquisition companies (Spacs) earlier this year, and the consensus among analysts and observers was that Hong Kong would prove more popular. A Spac raises money and lists on an exchange with the aim of then acquiring or merging with, for example, a start-up.

But as the year comes to a close, neither market has much to show on this front. Across the Asia-Pacific region, at least 28 Spac deals were announced in the first nine months this year worth a total of $23.4bn — and none of them involved Singapore or Hong Kong exchanges, writes Nikkei Asia’s Dylan Loh.

Spacs generally have two years from when they list in which to find a company to acquire. With the clock ticking, analysts say some Singapore and Hong Kong Spacs may even “lower their standards” to secure a target.

A power play in batteries

The US is offering new tax incentives to encourage people to buy electric vehicles, and South Korea’s LG Group is keen to gain a slice of the pie.

Its affiliate LG Chem said it will invest $3.2bn to build a key material plant for EV batteries in the US to meet the growing local demand, writes Nikkei Asia’s Kim Jaewon.

The company said it will build a 170-hectare factory — the largest of its kind in the country — in the state of Tennessee to manufacture 120,000 tonnes of cathode material annually by 2027. That is enough to power batteries for 1.2mn EVs, according to LG Chem.

The move comes as global automakers, including South Korea’s Hyundai Motor Group, prepare to establish EV production lines in the US to attract customers who would benefit from the new tax breaks. Hyundai broke ground on a $5.5bn plant in Georgia last month that will produce electric cars and batteries for the group.

Suggested reads

  1. China recruits villagers to restore Foxconn’s iPhone production after staff exodus (FT)

  2. Microsoft CEO Nadella: Cloud business ‘situated’ for growth (Nikkei Asia)

  3. Beijing claims child video game addiction ‘resolved’ (FT)

  4. India releases more tech friendly data protection bill after backlash (FT)

  5. China tops US to take research crown at global chip conference (Nikkei Asia)

  6. Sonic the Hedgehog co-creator accused of insider trading (FT)

  7. Taiwan looks to boost its chipmakers with sweeter tax breaks (Nikkei Asia)

  8. Masayoshi Son owes $4.7bn to SoftBank following tech rout (FT)

  9. FTX’s Japan unit poised for sale as bankruptcy process begins (Nikkei Asia)

  10. S Korea, Taiwan affected by growing US-China high-tech tensions (Nikkei Asia)

#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London

Sign up here at Nikkei Asia to receive #techAsia each week. The editorial team can be reached at

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