While Alibaba and Tencent continue to reign supreme, Baidu lags behind, and China’s digital economy could be restructured by rising tech startups.

Search engine Baidu, ecommerce entity Alibaba, and Tencent, a mobile payments and gaming platform – the Chinese tech titans known collectively as BAT – is no longer the power trio it once was. Alibaba and Tencent are going strong. With market capitalisations of nearly $700 billion each, they are the world’s seventh- and eighth-biggest listed companies. Baidu’s market value is small in comparison, at $45 billion, as it has struggled with consumers’ migration from desktop to mobile.

China’s digital economy is also becoming more diffused, as other players gain traction. At the top are ecommerce firm JD.com, worth $100 billion and listed in New York; Didi Chuxing, a massive privately held ride-hailing firm valued at about $60 billion; and the world’s biggest unlisted startup, ByteDance, the $100 billion online content platform and owner of TikTok.

Among the up and coming, two tech startups in particular are attracting the attention of investors and analysts: Meituan Dianping and Pinduoduo. Both companies went public in 2018, and the share prices of both have been skyrocketing this year. Each of them is now worth over $100 billion.

Elinor Leung of brokerage firm CLSA described Meituan as “a search engine for services”. It was founded in 2010 and got its start in discount vouchers, but has since become broadly diversified. It now offers meal delivery, travel booking, and following a 2015 merger with Dianping, a restaurant review and booking platform. Meituan added bike-sharing to the mix after it acquired Mobike in 2018, and has since also added ride-hailing. Thus it has some low-margin, high-volume businesses, such as food delivery and bike-sharing, but their volumes are very high, and Meituan’s high-margin businesses help make up the difference.

In contrast Pinduoduo focuses solely on e-commerce. Vice President David Liu, who heads strategy, says there is no need to be “a jack of all trades”, given how quickly online retail is growing in China. Indeed, eMarketer estimates that Chinese ecommerce sales will grow by 16% this year, to 14.4 trillion yuan ($2 trillion). And Pinduoduo itself is growing. The Economist reports that between 2017 and 2019, its share of Chinese ecommerce expanded from 2% to 10%. Research firm Bernstein projects 18% by 2024, which means it’s gaining on JD.com.

Feisty tech startups like these have some unique advantages, and they are holding their own. But for Meituan, Pinduoduo and other contenders to truly tip the balance of China’s digital economy, they will need to attain to the consistently hefty profits of Alibaba and Tencent, which stand firmly at the top.

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