China’s telcos dial it back and south-east Asia’s green shift slows

Hello, this is Kenji from Hong Kong.

We are in the midst of the annual earnings season here, with hundreds of listed companies filing results almost every day over the last couple of weeks in order to comply with the exchange’s disclosure rules.

While this is one of the busiest times of the year for business journalists like us, it is also a time to learn a lot more about companies that we follow, beyond their headline numbers. Details provided in their disclosures help us understand what they are up to and what we should report on.

The major highlight for Hong Kong earnings is the rare appearances of executives from Chinese state-owned enterprises. These press conferences went online during the Covid pandemic, but a lot of them have returned to a face-to-face format.

Because these executives — some of whom have cabinet minister-level standing in the Communist Party — are all but inaccessible in mainland China, even our reporting colleagues from the mainland have flown in for a chance to hear from them.

Some SOEs apparently allow only chosen reporters to ask pre-determined questions, much like the press conferences held during the National People’s Congress in Beijing, but others do take unscripted questions, giving reporters a chance to ask what we want, not what the companies want to be asked. There is also a chance to rush over to these executives immediately after the official presser to try and get further comments directly.

In this week’s newsletter, we feature one of the fruits of such reporting: a look at China’s state-owned telecom operators as their 5G capital investments appear to reach their peak.

Wait until 6G?

Investment by China’s three state-owned telecom operators is starting to decline this year, as infrastructure building for the country’s 5G mobile network appears to have reached its peak.

The chairmen of China Mobile, China Telecom and China Unicom all spoke on this trend at their annual earnings conferences, Nikkei Asia’s Kenji Kawase reports.

The aggregate capital expenditure of the trio, plus their jointly invested affiliate, China Tower, came to 385bn yuan ($53.3bn) in 2023, a 2 per cent rise from the year before. But their combined plans for this year come to about 366bn yuan, 5 per cent less than last year. And while 2023 was the peak year for 5G investment across the sector, the amount was smaller than the height of 4G investment in 2015, which was about 440bn yuan.

China Telecom chair Ke Ruiwen told reporters on Tuesday that his company’s capex will “continue falling” in the years to come, unless “there’s something large scale like 5G or 6G”, which he does not seem to foresee at this point.

China Mobile chair Yang Jie expects 6G, the next-generation mobile technology standard, will be in place around by 2030, but said for now it is simply too far away to predict how much it would cost. He is hopeful, however, that the investment level “could be relatively reasonable, as we may have [made] technological progress”.

A positive picture

Xiaohongshu, China’s answer to Instagram, has netted a profit for the first time as the unicorn monetised the platform wildly popular with young women.

The Shanghai-based company, valued at $20bn in the latest fundraising round three years ago, raked in $500mn in net profit last year on revenues of $3.7bn, write the Financial Times’ Eleanor Olcott and Ryan McMorrow. By contrast, it made a $200mn loss on revenues of about $2bn in 2022.

The figures, which are not public, reveal a rare glimmer of light in an internet sector battered by falling valuations and divestments from foreign investors. Xiaohongshu is backed by big name venture capitalists including HongShan and GGV Capital, and internet giants Alibaba and Tencent.

Xiaohongshu has 312mn monthly active users, mostly women seeking travel, beauty and fashion tips. It has recently been accelerating efforts to monetise the platform through livestream ecommerce and is also seeking to broaden its appeal to male users with content about cars, science fiction and memes.

AI on the cheap(er)

Japan’s Sakura Internet is trying to make computing power for training artificial intelligence models more affordable to help foster development of generative AI in the country, which is lagging behind the US.

“We feel a sense of urgency that not many generative AI [products] have materialised in Japan despite the global trend,” Yohei Ueno, the company’s executive officer in charge of corporate communications, told Nikkei Asia’s Ryohtaroh Satoh in Tokyo.

Sakura plans to supply cloud-based computing power on a subscription basis, rather than renting out entire servers. This should translate to savings for clients, as they can access the service only when they need it and are charged based on how much they use it.

The company was in the spotlight last year when it announced plans to purchase 2,000 Nvidia H100 chips, the most popular semiconductor used for training advanced AI. The Japanese government is backing Sakura under a program aimed at “ensuring a stable supply of cloud programs”.

The colour of money

Concerns over “greenflation” — the idea that ditching fossil fuels will lead to higher energy costs — are growing in south-east Asia, according to Nikkei Asia’s team of reporters in the region, including Erwida Maulia, Norman Goh and Lien Hoang. Signs of this trend include a lowering of renewable energy targets in Indonesia and surging coal imports in Vietnam.

“Greenflation concerns in south-east Asia are real,” said Prakash Sharma, vice-president of multicommodity research at energy consultancy Wood Mackenzie. He points to the significant shift in the macro environment over the past three years, such as rising capital costs, supply chain pressures and inflation, that have had an impact on the cost of renewable technologies, making delays in renewable uptakes “unavoidable”.

South-east Asia is one of the regions most vulnerable to climate change, as it faces rising sea levels, floods, tropical cyclones, heatwaves and droughts. Yet, the pace of transition to renewable energy sources has been painfully slow.

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