The European Central Bank (ECB) plans to introduce a digital euro. The move would change the way currency is issued and used and address issues such as the decline of cash and the concern over the rise of rival digital currencies posing a threat to the ECB's monetary sovereignty. The idea is not appealing to many European consumers, banks or politicians and in Amsterdam earlier this year, demonstrations were held against the digital euro. Critics fear it could lead to state control of individuals' spending activity, while banks worry it could trigger bank runs as people move their money into a currency backed by the central bank. Some banks also fear that, as they will process the currency's day-to-day transactions, they might not get paid for their work. The ECB has said the digital euro should be free for consumers to use and that banks would do the processing.
Montana has signed into law what is believed to be the first-ever ban on TikTok, which will come into force in 2022. The legislation will impose a $10,000 fine per day on stores offering TikTok downloads, in addition to making it illegal for the platform to operate in the state. Some 200,000 Montanans use TikTok, along with 6,000 businesses, according to a company spokesperson. The ban echoes influential opinions shared by US lawmakers and security chiefs that TikTok could present a national-security risk as Chinese technology companies are subject to government control via laws on intelligence work.
Chinese technology stocks are continuing to struggle despite recent strong earnings results from the industry's leading companies. Tencent, China's most valuable firm, reported its fastest revenue growth in over a year, while the country's internet search leader, Baidu, announced better-than-expected sales results on Tuesday. However, shares have declined by more than 2.5% for Tencent and 2% for Baidu, reflecting the broader malaise that is affecting Chinese equities. Investors remain concerned over a slowing economic recovery that is not receiving government policy support, as well as the ongoing trade spat with the US.
China's economy is falling into a "confidence trap", with anxiety elevated after three years of heated tensions with the West, President Xi Jinping's punishing regulatory campaigns, and strict Covid-control policies that have left a record number of young people unemployed and undermined commerce, warns Bloomberg. China has slipped into a confidence trap for consumers, businesses, and investors, leading to increasing calls for greater forceful stimulus measures. However, investors have shown little tolerance for negative news and only a meaningful policy response will give companies and consumers long-sought clarity to spend.
Krafton, the South Korean gaming company backed by Tencent, has received approval from Indian authorities to resume its popular battle-royale game, which had been blocked in the country due to concerns about data-sharing and mining in China.
Leading Chinese internet companies, including Baidu, Tencent and Alibaba, have reported double-digit revenue growth in Q1 2021 from the same period the previous year. However, the companies' futures remain dependent on China's economy. Even though the country is reopening economically, Chinese consumers' low confidence levels in job prospects and future incomes could dampen sales recovery. The companies are also involved in the beginnings of a makeover that involves new growth areas, such as artificial intelligence (AI), which is driving new AI cloud divisions. However, US rivalry and tensions are limiting China's access to crucial microchips needed to develop AI, while a lucrative pool of domestic customers (China's state-owned enterprises) are preferring to use government-backed providers rather than private cloud computing providers. This is alongside client losses due to non-product reasons and investor wariness as growth cannot be expected to return to previous decades' levels.
China's competition regulator has unconditionally approved Microsoft's $69bn takeover of video game company Activision Blizzard. However, the deal still faces opposition from regulators in the UK and the US. Activision Blizzard suspended many of its games in mainland China earlier this year, following a dispute with its local publishing partner. European regulators conditionally approved the deal this week on the basis that Microsoft made promises to boost competition in cloud-based gaming. Although Microsoft's planned Activision acquisition has now been cleared in 37 countries, the blockbuster deal is still in jeopardy due to regulatory opposition.
Interest in eSports in the US is declining as investors are pulling out and viewers are tuning out. The warning signs were there when Madison Square Garden owners failed to sell Counter Logic Gaming, and instead laid off many staff and merged what remained into another firm. Other groups are laying off staff and ending contracts with star players. Riot Games, developer of League of Legends and the organiser of the League Championship Series, which pits ten teams against each other in games being watched by millions, has generated billions, but the league has never been profitable, causing tension with investors. Last month, Riot admitted its missteps and sought to reassure investors. Some eSport groups are parting ways with many of their expensive League of Legends players, others are selling their teams at a loss.
Microsoft has said that China has approved its $69bn purchase of Activision Blizzard. This is significant as Activision Blizzard had stopped offering many of its games in mainland China earlier this year following a dispute with its local publishing partner, NetEase. Both the China and the European Union are set to give their consents to the deal, in contrast to the United Kingdom and US where authorities are attempting to block it. The EU conditionally cleared the purchase earlier this week, while British regulators rejected Microsoft's promises to try to prevent the destruction of competition.
The poor performance of JD.com and Alibaba gives little indication of any Chinese economic revival, despite one hedge fund expecting to benefit from China's consumer economy being at its nadir and tripling stakes in JD.com on that basis. The revenue of JD.com increased 1.4% for the March period and Alibaba's 2%, whereas the international games division recorded a far-stronger 10.7% increase while online advertising climbed 17%. While advertising is a leading indicator that statistical evidence of recovery may emerge, cutbacks in marketing expenditure are also expected.
Plans to transform Hengqin, a Chinese special zone designated to help boost the economy of Macau, have been put in doubt by some visiting diplomats over the feasibility of the plan in the small island region. China aims to capitalise on the Greater Bay Area development, which consists of nine cities alongside Hong Kong and Macau, creating a large economic powerhouse able to compete with other regions such as Tokyo and San Francisco by 2035. The new special zone is meant to help Macau move beyond a reliance on gambling. Central government officials have often spoken about Macau-Hengqin collaboration, but visiting diplomats are skeptical whether technological aspirations would play out in a small, underdeveloped island. Alexandre Leitao, the Portuguese consul general in Macau and Hong Kong, said he found the concept of these in-depth cooperation zones “a challenge in itself” because of how new it is.
