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Tencent’s First-Quarter Net Profit Halved

Well-known Chinese news site NetEase (NASDAQ: NTES) recently reported that Tencent Holdings just released its financial report for the first quarter of 2022. According to the financial report, the company’s revenue in the first quarter was RMB 135.5 billion (around US$20.2 billion), flat year-over-year, while net profit was RMB 23.4 billion (around US$3.5 billion), down 51 percent year-over-year. This is its worst performance since its listing. Tencent also warned that advertisers in consumer, e-commerce and travel businesses are cutting spending. Tencent, as the WeChat messaging platform operator, said advertising sales fell 18 percent in the first quarter, year-over-year. This is the category that saw the deepest loss. The domestic gaming market revenue was down one percent year-over-year, citing tighter government regulations. Ma Huateng, the founder of Tencent, said that Tencent implemented cost control measures and adjusted some non-core businesses. Another senior executive also said that, the more people, the higher the cost, so structural changes are needed, and the company may “optimize personnel structure.” The Chinese government established the Measures for the Administration of Internet Advertising in the fourth quarter of 2021, which “enhanced” the industry supervision system. As one of the biggest sponsors of internet advertising before, the online education and training industry has plummeted. Tencent’s stock price has halved since its peak in January last year, wiping US$440 billion off its market value. This happened after China launched a regulatory crackdown to control the influence of big internet companies.

Source: NetEase, May 19, 2022
https://www.163.com/dy/article/H7NLLLT505509EKV.html?f=post2020_dy_recommends
https://www.163.com/dy/article/H7M6DK620519SUH3.html?f=post2020_dy_recommends

China’s Social Media Platform Mandated to Display Region of User IP

In October of last year, the Cyberspace Administration of China (CAC) released a draft copy of the “Internet User Account Information Management Regulations.” The draft copy specified that social media platforms should prominently display the region of the IP address of the user. Domestic users would show the province (or city) of the IP address and foreign users would display the country where the IP address belongs.

According to media in China, Weibo, WeChat, Douyin (the Chinese version of TikTok), Kuaishou, Xiaohongshu, Toutiao, and Zhihu have recently enabled this mandatory function to display the province or the country where the user’s IP is located. The user cannot turn off function.

More than a majority of Chinese netizens think that the mandatory display of IP region targets overseas users. Many criticized the move as an infringement on privacy and fear that it may fuel conflicts between users from different regions. Others expressed support, saying it could effectively block foreign forces.

Source: Central News Agency (Taiwan), April 29, 2022
https://www.cna.com.tw/news/acn/202204290361.aspx

ESMC: Huawei 2021 Consumer Revenue Cut in Half, with Significant Net Profit Increase

Electronics Supply and Manufacturing (ESM) China, the China branch of AspenCore (the largest electronic industry media group, headquartered in Cambridge, MA, USA), recently reported that Huawei just released its 2021 annual report. The company reported a total revenue of RMB 636.8 billion (around US$100 billion) in 2021, which reflects a year-over-year decline of 28.6 percent. This is the first time in a decade for Huawei to report a revenue decline. Its consumer business saw the sharpest drop of 49.6 percent. The company explained that this sharp decline was the result of rounds of U.S. sanctions, the covid impact, and a decline in demand. However, in the meantime, Huawei’s net profit reported an eye-catching year-over-year increase of 76 percent. Diving deep into its annual report numbers shows that the vast majority of the net profit increase came from the sale of its high-end mobile device branch Honor. The company sold Honor last year due to the cut-off of its chip supply from Taiwan as a result of U.S. sanctions. The annual report also showed Huawei’s cloud services achieved a 34 percent growth. On the investment side, Huawei devoted 22.4 percent of its annual revenue into research and development (R&D). In the past decade, the company spent more than RMB 845 billion (around US$133 billion) on R&D. The report also mentioned that, in the future, Huawei plans to focus on using less advanced manufacturing processes to achieve product competitiveness.
Source: ESM China, March 29, 2022
https://www.esmchina.com/news/8837.html

HKET: Report on Surge in Cyberattacks against NATO: Originating from Chinese IP Addresses

Hong Kong Economic Times (HKET), the leading financial daily in Hong Kong, recently reported that, with the war between Russia and Ukraine, the conflict has spread to the Internet. Many hacker organizations have participated. Check Point Research (CPR), the threat intelligence division of the software technology company Check Point, just released a research report showing that cyber-attacks by hackers against government organizations outside Ukraine increased by 21 percent. The attacks launched from Chinese IP addresses against NATO countries increased by 116 percent. Overall cyber-attacks against all industries in Ukraine increased by 20 percent, with an average of 1,466 attacks per Ukraine organization per week. However, the number of active networks in Ukraine has dropped by 27 percent due to the impact of the war. Overall cyber-attacks against Russia have grown by only one percent. Cyber-attacks against governments or military sectors in all regions of the world have increased significantly, up 21 percent from pre-conflict levels. It is worth noting that the attacks from Chinese IPs are 72 percent higher than before the conflict between Russia and Ukraine. The attacks from Chinese IPs on NATO corporate networks are 116 percent higher. Check Point indicated that hackers aren’t just targeting government or military targets. They are also taking advantage of the public’s eagerness to launch phishing attacks. The attacks cannot be attributed directly to China, as both domestic and foreign hackers can use Chinese IP as the source of the attack.

Source: HKET, March 23, 2022
https://bit.ly/3JKnEvf

LTN: Alibaba, Tencent and Didi to Lay Off Many Workers

Major Taiwanese news network Liberty Times Network (LTN) recently reported that Chinese tech giants Tencent, Alibaba and Didi will slash jobs this year due to a slowing economy and regulatory pressure from Beijing. Some departments will lay off 20 percent of their workers. Thousands of employees will lose their jobs. Shenzhen-based Tencent plans to lay off 20 percent of its 20,000-person cloud and smart industry business group this year. As of September, last year, Tencent had about 107,000 employees. After Chinese regulators ordered the Didi app to be removed from the AppStore Beijing-based Didi will lay off 20 percent of its staff in some of its business groups, including its core ride-hailing service. Its app was banned from accepting new customers, and the app has so far not been reinstated as Didi failed to fully resolve concerns over how it handles data security. By the end of 2020, Didi had about 16,000 employees. Alibaba, headquartered in Hangzhou, is considering laying off about 20 percent of the workforce in some of its business groups related discounted shopping, grocery shopping, travel services and food delivery. These consumer-facing sectors are suffering the slowdown in China’s economy. As of September last year, Ali had about 259,000 employees. Stock shares of Chinese internet companies have tumbled over the past year. Alibaba’s share price has plunged nearly 60 percent in a year. Tencent’s has shrunk by about 40 percent, and Didi’s stock price has dropped to about $4 since it was listed on the New York Stock Exchange in July last year at $14 per share.

Source: LTN, March 22, 2022
https://ec.ltn.com.tw/article/breakingnews/3867177

Global Times: U.S. Revoked Chinese Telecom Companies’ Licenses Again

Global Times recently reported that the U.S. Federal Communications Commission (FCC) continues to target Chinese telecommunications companies,and revoked the operating licenses of two Chinese companies in the United States on the grounds of “national security.” The FCC officially decided on March 16th to terminate the licenses of Pacific Networks and its wholly-owned subsidiary ComNet for providing interstate and international communication services in the United States. In its announcement, the FCC offered a range of reasons for the action. The FCC indicated that Pacific Networks and ComNet belong to Chinese state-owned enterprises and are exploited, influenced and controlled by the Chinese government. They are likely to be compelled to implement the Chinese government’s demands without adequate legal procedures under independent judicial oversight. China’s national security environment has changed since the FCC authorized the companies to provide communications services in the United States. Their ownership structure gave them, their parent companies and affiliates, and the Chinese government the opportunity to access, store, disrupt and mislead the U.S. in its communications, allowing them to engage in espionage and other harmful activities against the United States, thereby greatly increasing the U.S. national security and law enforcement risks. Earlier this year, the FCC also revoked the licenses of China Unicom, China Telecom and China Mobile. The Chinese Ministry of Commerce and the Ministry of Foreign Affairs both responded by stating that the United States continues to generalize the concept of national security, abuses government power, and maliciously suppresses Chinese telecommunications companies without a factual basis. China firmly opposes this.

Source: Global Times, March 18, 2022
https://world.huanqiu.com/article/47EcXX8ntB9

The Chip Industry Encounters another Unexpected Event

Well-known Chinese news site Sina (NASDAQ: SINA) recently reported that a magnitude 7.4 earthquake struck off the coast of Fukushima, Japan. The earthquake also shut down some factories, including chip maker Renesas Electronics. This tragedy in Japan once again casts a shadow over the auto industry, which is suffering from chip supply bottlenecks and rising raw material prices. A total of three Renesas factories were affected. One of them is an important chip production base for Renesas, and automotive chips account for about two-thirds of the products it produces. The earthquake also affected Japanese car companies such as Toyota and Nissan. Renesas is the world’s third largest automotive chip maker and the world’s largest manufacturer of microcontrollers (MCUs), accounting for about 19 percent of the global market. In addition to Toyota, Nissan, Ford, Great Wall Motors and other automakers are also customers of Renesas Electronics. Many automobile companies are planning to raise prices. Since 2020, the global auto industry has been plagued by chip shortages. According to Auto Forecast Solutions (AFS) data, due to the shortage of automotive chip supplies, the global automobile production volume was reduced by 11.31 million vehicles in 2021, a drop of 14.6 percent, of which the Chinese vendors reduced production by 2.148 million vehicles in 2021. According to the latest forecast from AFS, global automakers may cut production by more than 1 million vehicles in 2022 due to chip shortages. In this context, chip prices have also risen. The shipment cycle of chips is also much longer than before the pandemic. China’s auto production and sales account for about 33 percent of the global market, but auto semiconductors and other components mainly rely on overseas suppliers.

Source: Sina, March 18, 2022
https://news.sina.com.cn/s/2022-03-18/doc-imcwipih9278428.shtml

China’s Cyber Regulator Sends Team to Social Media Firm Douban

On March 15, the Cyberspace Administration of China (CAC), China’s top cyber regulator, directed its office overseeing the city of Beijing to send a team to Douban to “supervise its rectification and reform.”

Douban is an interest-based networking site in China that lets users form online communities and review films, books and music. At the end of last year, the head of the CAC had already met with the person in charge and chief editor of Douban.com, as there were “repeated appearances of information prohibited by laws and regulations being published or transmitted on Douban.com and its accounts.”The  CAC ordered Douban “immediately to rectify and seriously deal with the persons responsible” in accordance to the Cybersecurity Law. The CAC’s office in Beijing imposed administrative penalties totaling 1.5 million yuan (US$ 0.24 million) in fines on Beijing Douwang Technology Co., the main operator of Douban.com.

In fact, this is not the first time that the CAC punished Douban. From January to November 2021, the CAC directed its office in Beijing to impose 20 penalties on Douban, for a total cumulative fine of 9 million yuan (US$ 1.4 million).

Source: China.com.cn, March 15, 2022
http://tech.china.com.cn/app/20220315/385795.shtml