Biggest tech firms are no longer just American

The technology world’s $400 billion-and-up club — long a group of exclusively American names like Apple, Google, Facebook, Microsoft and Amazon — needs to make room for two Chinese members.

The Alibaba Group and Tencent Holdings, Chinese companies that dominate their home market, have rocketed this year to become global investor darlings. They are now among the world’s most highly valued public companies, each of them twice as valuable as tech stalwarts such as Intel, Cisco and IBM.

While US technology giants dominate people’s online lives in Western countries, Tencent and Alibaba have soared by essentially carving up China, the world’s single largest Internet market with more than 700 million online users. That is roughly twice the size of the population of the United States.

Chinese people also spend more money online than Americans.

Their surge, which has taken place inside a tightly controlled internet space that has blocked international companies like Facebook, has increasingly set them apart from the rest of China. Despite headline numbers that suggest stable growth, the Chinese economy is grappling with many problems, including heavy debt and continued reliance on rusty industries like steel.

Yet Alibaba and Tencent last week both reported financial results that blew past investor expectations, suggesting the future of the Chinese technology world is bright.

Their rise is emblematic of a rebalancing of global technological influence. In recent years, places from Paris to Seoul have claimed the mantle of the next Silicon Valley. Yet the cluster of fast-growing startups and internet behemoths coming out of China has emerged as the one true rival in scale, value and technology to the West Coast homes of the American technology renaissance.

“We’ve come to the point where China has finally caught up with the US in the internet space,” said Hans Tung, a managing partner at venture capital firm GGV Capital.

Tung, who invests in many Chinese startups, said the main advantage for Alibaba and Tencent was that the US still had efficient “offline” — or non-Internet — options for shopping or entertainment. But in China, where there are fewer appealing options offline, Tencent and Alibaba play a central role in how people buy and pay for goods and services, communicate and entertain themselves.

The ascendance of Tencent and Alibaba is evident in their scale. Soon, Tencent will be the only company other than Facebook to have a social network with more than 1 billion users. (Facebook is still ahead with more than 2 billion members.) Tencent recently said its messaging app, WeChat — which includes payments and a social network — had 960 million monthly active users.

Alibaba has more than 500 million monthly active users for its online shopping apps. During the past three months, the revenue for both Tencent and Alibaba jumped by more than 50% from a year ago, meaning they are growing more quickly than both Facebook and Alphabet, the parent company of Google.

In Hong Kong, Tencent’s market capitalisation rose above $400 billion in early trading last Thursday before closing just below that threshold at $396 billion. Alibaba closed in New York trading last Thursday with a market value of $415 billion. The two companies still lag behind Amazon and Facebook, which are valued at more than $450 billion, and are significantly smaller than Apple, the world’s most valuable public company with a market capitalisation exceeding $800 billion.

In Silicon Valley, some tech companies have begun taking cues from their Chinese rivals. Tencent’s WeChat offered speedier in-app articles before Facebook, created a walkie-talkie function before WhatsApp, and made use of QR codes as a way to connect on a social network long before Snapchat.

Both Alibaba and Tencent have long been successful in China, but recent events have given them an added push. In China, people often talk about three internet companies that dominate the technology world: Alibaba, Tencent and a search company called Baidu, which is sometimes called the Google of China.

But Baidu has stumbled as Chinese users skipped personal computers entirely and turned to smartphones, and has had trouble competing in a financial arms race between Tencent and Alibaba. The two companies have been plowing money into new businesses like food delivery and online video. Alibaba and Tencent owe part of their success to China’s censorship and suspicion of foreign tech firms, which has kept American giants like Facebook and Amazon out of their orbit. But the two have also scored some major technology innovations in their own right.

They dominate a smartphone culture that in many ways is superior to that of the United States. Chinese people use their dueling mobile payment systems to settle their restaurant tabs, to shop online, to pay their utility bills, to rent bicycles and even to put money into investments. Despite their size, Alibaba and Tencent are mostly anchored in China, though both are pushing to expand. Most of Alibaba’s earnings come from its ad and commissions business in China. The company had just under $400 million in revenue from international commerce.

Both have made use of investments and acquisitions to enter into new markets in recent years — with uneven results. Alibaba has invested in a payments company in India, and bought into three different ecommerce companies in Southeast Asia. With Amazon also readying its own Southeast Asian campaign, the hugely populated region of disparate cultures could be the first place the two ecommerce Goliaths compete face-to-face on neutral ground.

Last year, Tencent paid $8.6 billion for Supercell, the maker of the hugely popular smartphone game “Clash of Clans.” Tencent also wanted to buy the global messaging app WhatsApp, but was outmaneuvered by Facebook.