Debt and tech in China

Business & Technology

“China has become addicted to debt. Now, its tech industry is hooked too.” So says Elliott Zaagman on TechNode, citing a variety of problems:

  • A flood of venture capital into tech is encouraged and partly funded by the government.
  • Financialization of internet companies whereby their profits actually come from investing user funds, rather than selling the users goods or services.
  • Founders are motivated to grow users in order to attract greater and greater sums of investment rather than build sustainable business models — Zaagman names the on-demand bike firm Ofo as typical.
  • More than 2,000 peer to peer (P2P) lending firms sprang up in the last few years — many of them were little more than Ponzi schemes.
  • Real estate companies and other firms that know nothing about tech are going into venture capital.

Zaagman predicts that with tighter credit, tough times are ahead for the tech industry in China. I have to agree. And it’s not just debt or a shutdown of the funny money pipeline: Other problems include the fallout of the Didi murders, increasing U.S. suspicion of Chinese tech companies, and regulatory overreach killing gaming — the goose that lays Tencent’s golden egg. On Tencent’s travails, here is a number to think about from a Reuters report yesterday:

Tencent Holdings, which has lost some $200 billion in market value this year, is facing fresh criticism from analysts and investors unnerved by regulatory roadblocks, a fuzzy overseas strategy, and growing debt.