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<Research>G Sachs: Mkt Concerns Over Regulatory & Tax Policies for CN Dotcoms; This Yr Marks Strategic Turning Point for Giants
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Investors are continuously focused on the AI investment trends and regulatory risks of Chinese internet giants, Goldman Sachs wrote in its research report. Recently, the sector's stock prices have been under pressure, with the HSTECH dropping by about 10% over the past week, reflecting renewed market concerns over regulatory and tax policies. In Goldman Sachs's opinion, 2026 will be a strategic turning point for Chinese internet giants, centered around three major trends: (+/-) Intensified competition in consumer-end AI super applications, with proxy functions, seamless transactions, social interactions, and push capabilities becoming key to user retention and application diffusion; (+) increased AI capital expenditure by China's cloud business giants, with investments and full-stack capability building from 2026 to 2027 being core to long-term success, similar to Google's AI ecosystem; and (-) renewed concerns over regulation and taxation, with investors focusing on the similarities and differences with the 2020-21 regulatory cycle and worrying about pressure on corporate earnings. The report also listed a sensitivity analysis assessment of Chinese internet tech to potential VAT increases, assuming that for every 1 ppt increase in VAT rate on gaming, advertising, or value-added service revenue, the impact on pre-tax earnings for BABA-W (09988.HK)/ Pinduoduo (PDD.US)/ NTES-S (09999.HK)/ TENCENT (00700.HK) this year would be 0.4%/ 0.6%/ 0.8%/ 0.5%, with the estimated impact on their pre-tax earnings growth rates being 0.5%/ 0.6%/ 0.8%/ 0.5%. In addition, investors have been closely monitoring changes in the corporate income tax policy for Chinese internet companies, as it will affect the long-term profit tax rate of platform businesses, thereby impacting terminal value and free cash flow. Although tax policies may be adjusted, Goldman Sachs noted that most platform/ internet large companies currently enjoy a HNTE preferential tax rate of 15%, rather than the standard corporate income tax rate of 25% in China. Chinese internet giants, including TENCENT, BABA-W, MEITUAN-W (03690.HK), JD-SW (09618.HK), and TRIP.COM-S (09961.HK), will need to renew their HNTE qualification in 4Q26, while some companies will need to do so in 2027 and 2028. AAStocks Financial News |
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