Philippa Kaur

On February 14th Adani Enterprises reported robust earnings. Its ports-to-power parent conglomerate had a solid 2022. Not solid enough to reassure investors: the Indian group’s market value is down by $130bn since a short-seller accused it of fraud last month (which the group denies). Its rebuttal of the charges has slowed but not arrested the slide. To preserve cash, Adani will reportedly halt some capital spending. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

Last summer European leaders began hearing a huge sucking sound. The source of the din? The Inflation Reduction Act (IRA), a 725-page doorstopper of legislation passed in August to speed up American decarbonisation. Europe’s budding clean-tech industry, they feared, would be hoovered up across the Atlantic by the promise of handouts, which amount to around $400bn over ten years. To stop this from happening, some EU politicians argued, the bloc would have at the very least to match the IRA’s sums.So far the noise has turned out to be mostly in the politicians’ heads. Worries about a green exodus, bordering on panic in some quarters, have subsided. When the continent’s heads of government gathered for a summit last week in Brussels, they did not shower billions of euros more on the EU’s greening efforts—which are already, it turns out, comparable to the IRA in their generosity. Nor did they (for the time being) further water down rules against state aid to favoured businesses, which would have given freer rein to member states keen to splurge. Instead, they focused on making the system for doling out this money more efficient. This is music to the ears of Europa SA. In the eyes of its European fans, the beauty of the IRA is less its size than its simplicity. Rules are the same all over America. Getting tax credits, grants or soft loans will be straightforward provided a firm meets certain criteria, such as investing in one of the targeted sectors. The law sets aside sums for specific technologies, which can create markets, such as solar energy, carbon capture and storage and “green” hydrogen, made from renewable power (see chart). Producers of such hydrogen, for example, can get tax credits of up to $3 per kilogram of the gas.Replicating this set-up exactly would be unthinkable in Europe. The EU may see itself as an ever-closer union, but taxes are still a national affair, which rules out continent-wide tax incentives. If member states want to institute their own credits, or other forms of subsidies, they typically need the approval of the European Commission in Brussels, whose job it is to ensure a level playing field in the EU’s single market. To the resulting cacophony of national schemes, the EU has in recent years added a few bloc-wide grant programmes, such as InvestEU and Innovation Fund, to support clean tech.The upshot is ear-splitting, particularly for smaller green-tech firms in need of funds to scale up their projects, says Craig Douglas of World Fund, a venture-capital firm, who has a long experience in dealing with the EU’s subsidy bureaucracy. To have a chance at tapping one of the many pots, startups often have to hire pricey consultancies to help them write grant proposals. “We would need at least four people full-time to figure this out,” explains Vaitea Cowan, co-founder of Enapter, a maker of electrolysers, machines that produce hydrogen. Once an application is filed, it often takes months, if not years, before a decision is made. In the case of Plastic Energy, which recycles plastic waste, it once took so long that “we had to file again because the delay made us miss a deadline”, reports Carlos Monreal, the firm’s chief executive. And decisions tend to come without explanation. “It’s a black box. There should be a dialogue,” says Henrik Henriksson, boss of H2 Green Steel, which is erecting a steel mill in northern Sweden that is powered by green hydrogen. The EU’s green subsidies are also often poorly targeted. Jules Besnainou of Cleantech for Europe, a lobby group, points out that most of the European money does not go to the continent’s startups, which tend to be more innovative, but to big established firms, which do not always need government support.The commission’s draft “Green Deal Industrial Plan”, unveiled on February 1st, tries to deal with these shortcomings. The plan is meant to simplify the EU programmes and streamline the approval of national green-finance tools in Brussels. It proposes an “administratively light” auction, the winners of which will receive a premium, based on their bids, for each kilogram of renewable hydrogen produced over ten years. The scheme will offer incentive to the tune of €800m ($860m). The IRA has clearly shocked the EU into thinking harder about its green subsidies, says Jeromin Zettelmeyer, who heads Bruegel, a think-tank in Brussels. That may be so. Still, those who have read the eight pages dedicated to “speeding up access to finance”, which mention no fewer than a dozen different acronym-rich programmes, may be excused for not holding their breath. Claudio Spadacini, CEO of Energy Dome, an Italian firm which uses liquid carbon-dioxide to store energy, approves of the EU’s moves but still hopes to take advantage of the IRA. Ms Cowan of Enapter, whose firm has just built a factory in Germany, is getting lots of calls from American state governments since the IRA was passed. “They are rolling out the red carpet,” she says. Whoosh. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

PERHAPS NO COMPANY embodies the ups and downs of Chinese big tech better than its biggest tech firm of all—Tencent. Two years ago the online empire seemed unstoppable. More than a billion Chinese were using its ubiquitous services to pay, play and do much else besides. Its video games, such as “League of Legends”, were global hits. Tencent’s market value exceeded $900bn, and the firm was on track to become China’s first trillion-dollar company. Then the Communist Party said, enough. Xi Jinping, China’s paramount leader, decided that big tech’s side-effects, from distracted teenagers to the diversion of capital from strategically important sectors such as semiconductors, were unacceptable. Tencent was, along with the rest of China’s once-thriving digital industry, caught up in a sweeping 18-month crackdown. With regulators declaring video games to be “spiritual opium”, and barring under-18s from enjoying them for more than three hours a week, Tencent’s new titles were held up by censors. It was forced by trustbusters to tear down the walls of its super-app to let other payment processors in. Last year it sold its stakes in JD.com and Meituan for a combined $36bn, in part to shore up its balance-sheet but possibly also to assuage regulators’ concerns about its ubiquity. To make matters worse, Mr Xi’s draconian zero-covid policy infected Chinese consumers with a bad bout of thrift. In the third quarter of 2022 Tencent’s revenues declined by 2% year on year, its worst performance on record. By October its market capitalisation had collapsed to less than $250bn. These days things are looking up for China’s internet firms. Shoppers are “revenge spending” their way out of zero-covid gloom. The government’s clampdown on tech seems to have ended: regulators are easing off the companies’ old businesses and giving them more room to toy with possible new ones, from short-video entertainment and cloud computing to artificial-intelligence (AI) chatbots. And Tencent, whose market value has doubled to nearly $500bn in the past three months (see chart), is once again the embodiment of the changing mood. If you want to understand big tech’s new normal, and what it means for the future of China’s digital economy, look to its humbled champion.Tencent has no equivalent in the West, or anywhere else outside China. It is part Meta, part PayPal, part Epic Games (in which, as it happens, Tencent owns a big stake), with a bit of Amazon and SoftBank thrown in (Tencent offers e-commerce and cloud services, like the American giant, and, like the Japanese one, has made hundreds of tech investments globally). The disappointing third quarter notwithstanding, it is expected in March to report annual sales last year of more than $80bn. Roughly a third each comes from gaming, business services (which include payments, e-commerce and cloud computing), and social media and advertising. Its pre-tax profit is expected handily to exceed $30bn. If you exclude banks and energy companies, which had a bumper 2022, only a handful of firms in the world did better.The linchpin of Tencent’s riches is its WeChat super-app. Companies around the world have for years attempted to ape its astute marriage of pay (the transaction economy) and play (the attention economy). Few have succeeded in doing so as seamlessly as Tencent—and none on anything like the same scale. Last month’s lunar-new-year celebrations are a case in point. During the weeklong festivities WeChat users sent loved ones 4bn digital hongbao (red envelopes that in the real world come stuffed with cash), and more people tuned in to the annual new-year gala on WeChat’s newish Channels video platform (190m) than on Douyin, TikTok’s popular Chinese sister video app (130m).The new-year blowout hints at where the company is headed. The rapid rise of Douyin has, like that of TikTok in the West, pushed digital life towards short-video sharing. In the past year the average Chinese spent more hours on such platforms than anywhere else online. Those platforms overtook instant messaging in 2020. Short-video apps are becoming the centre of China’s attention economy—and of its digital-ads business, which generated $35bn in sales in the third quarter of 2022, according to Bernstein, a broker. Between July and September short-video platforms claimed about a quarter of those ad dollars; their ad sales grew by a brisk 34%, compared with a year earlier. Tencent has a shot at capturing a slug of that growth. The ranks of Channels users trebled last year, the company says. Although it declines to give a total figure, its new-year-gala streaming tally suggests they now number in the hundreds of millions. The company could bring in another 30bn yuan ($4.4bn) in ad revenues within a few years, reckons Robin Zhu of Bernstein, mainly at the expense of Kuaishou (which Tencent part-owns but may consider offloading) and Bilibili, another similar service. Although like Douyin it occasionally hires big names to draw in new viewers—for example the Backstreet Boys, an American pop group who entertained 44m fans at a Channels concert last June—Tencent has adopted a more ecumenical approach to talent. Content creators with as few as ten followers can get a slice of the platform’s ad revenues. On Douyin, they need 10,000 fans to start earning money this way. Tencent hopes that its strategy will attract more up-and-coming creators, more viewers—and more advertisers. The company is reorienting other parts of the WeChat economy around Channels, too. Most notably, it is equipping the platform to enable “social commerce”. This peculiarly Chinese form of consumerism, which combines live-streamed entertainment with shopping, is expected to generate some $720bn-worth of transactions this year. Here, too, short-video apps are taking market share from incumbents, such as JD.com and China’s biggest e-emporium, Alibaba. Tencent used to steer clear of this business, perhaps worried that its entry would destroy the value of its lucrative stake in JD.com. With that stake no longer on its balance-sheet, Tencent has appeared much more willing to try its luck in e-commerce. It will not disclose how much money changes hands on its e-commerce platform. But, it says, the figure ballooned nine-fold, year on year, in 2022. WeChat Pay takes its usual 0.6% cut from each transaction. And despite the government’s edict on letting in rival payments systems, most transactions on WeChat involve WeChat Pay: both Tencent and Alibaba, which operates the other popular service, have made cross-platform payments possible but cumbersome. The shift to Channels is especially crucial for Tencent. The government’s anti-gaming stance has made it urgent to look elsewhere for growth. Pony Ma, Tencent’s founder, recently described Channels as “the hope of the company”. Its recent success suggests that this hope might not be forlorn, and Tencent’s share of revenues from its non-gaming businesses has been edging up. But to thrive in the new normal, where the government has put limits on some digital activities, and stands all too ready to regulate further, Tencent will have to deal with three challenges—as indeed will China’s other digital giants. The first of these has to do with ensuring a company culture that is nimble enough to adjust to the new reality. As tech founders go, Mr Ma is low-key and laid-back. This has empowered subordinates, such as WeChat’s creator, Allen Zhang, and led directly to many of Tencent’s successful businesses. But it also introduces friction when those subordinates have different ideas. Mr Zhang, for instance, has long resisted the app’s encroaching commercialisation, fearing that it will spoil the user experience. As a result, WeChat’s home screen has remained unchanged for a decade and accessing videos on Channels requires two taps—not a chore, exactly, but a drag compared with Douyin, which starts streaming clips as soon as a user opens the app. The same resistance to change explains why the e-commerce operations, too, will be rolled out only gradually, notes Clifford Kurz of S&P Global, a research firm.Any foot-dragging could prove a problem, considering that tech firms will find themselves competing with each other more—the second challenge. The authorities’ tech crackdown has bulldozed the playing field in swathes of the digital economy. This forceful levelling is creating new rivalries. Meituan is pushing from its original patch of food delivery into ride-hailing and e-thrift-stores, which have hitherto been the preserve of rivals such as Pinduoduo. Douyin’s owner, ByteDance, will soon launch a food-delivery service of its own and is experimenting with a messaging app that looks strikingly similar to WeChat. Alibaba, Tencent and Baidu, China’s biggest search engine, are all developing AI chatbots similar to ChatGPT, whose humanlike conversational powers have beguiled Western internet users of late.The last thing that could trip up Tencent, or its rivals, is politics. Although regulators have declared the tech crackdown over, the party remains a spectral presence. The state is taking small stakes in subsidiaries of the biggest tech titans, including Alibaba and, reportedly, Tencent. As Sino-Western tensions mount, closeness with the state could jeopardise foreign earnings, such as Tencent’s profitable international gaming business. At home, meanwhile, cyberspace, media and antitrust agencies have gained new powers—and, notes Angela Zhang of University of Hong Kong, are willing to wield them. Censorship, always part of the Chinese online experience, is intensifying as Mr Xi’s strongman rule becomes entrenched, which could mean more delays to Tencent’s games launches. And the danger of the party paralysing a company’s growth is ever present. On February 9th share prices of Chinese AI firms fell after state media warned that “some new concepts” (like chatbots) were getting too much attention. Short videos have so far been spared the party’s rod. Critically for Tencent, they face fewer restrictions than games. But this could change if Mr Xi concludes that being glued to Douyin or Channels instead, which is how young erstwhile gamers spend two-thirds of their time, is not conducive to moulding good communists. In his public statements Mr Ma has repeatedly stressed how Tencent’s universe of apps “served society” and “assisted the real economy”. Such words should be catnip to Mr Xi and his cadres. Investors, too, are once again purring. But greater competition and fickle government is likely to constrain Tencent’s prospects for years to come. In today’s China there is no room for consumer-tech winners—only survivors. ■ More

Back in the dim and distant past, job candidates had interests or hobbies. Those interests could be introspective: reading a book was a perfectly acceptable way of spending your spare time. No longer. Today you will probably be asked if you have a “personal passion project”, and the more exhausting your answer sounds, the better. Go white-water rafting, preferably with orphans. Help build motorway crossings for endangered animals. If you must read, at least do so in the original. Listen to this story. Enjoy more audio and podcasts on More

There is an inconvenient truth about Joseph Schumpeter, patron saint of this column. As an economist, his biggest contribution was to single out entrepreneurs as core to the business cycle. Early in his career he made champions of them, describing them as swashbuckling iconoclasts who overthrow the existing order motivated by sheer chutzpah. Yet later in life, when he coined his famous term “creative destruction”, he applied it not to such individuals but to industrial behemoths, even monopolies. They were compelled to innovate in order to “keep on their feet, on ground that is slipping away from under them”, he wrote. A far cry from the entrepreneurial heroes of his youth. Listen to this story. Enjoy more audio and podcasts on More

Brazilian businesspeople are not easily shocked. In the past decade they have seen two business empires collapse in ignominy. Eike Batista, for a time Brazil’s richest man, lost his ports-to-mines group amid charges of bribery and market manipulation (for which he was briefly jailed). Marcelo Odebrecht, the scion of a construction dynasty, went to prison over the “Big Oily” graft scheme centred on Petrobras, the state oil giant. Listen to this story. Enjoy more audio and podcasts on More

Near the bay in Mountain View, California, sits one of biggest profit pools in business history. The site is the home of Google, whose search engine has for the past two decades been humanity’s preferred front door to the internet—and advertisers’ preferred front door to humanity. Every second of every day, Google processes perhaps 100,000 web searches around the world—and, thanks to its “PageRank” algorithm, serves up uncannily relevant answers. That has conferred onto Google verb status. It also adds up to billions of daily opportunities to sell ads that the searchers see alongside the results of their queries. The results’ accuracy keeps users coming back, and rivals at bay: all other search engines combined account for barely a tenth of daily searchers (see chart 1). Advertisers pay handsomely for access to Google’s users, not least because they are typically only charged when someone actually visits their website. The revenue of Google’s parent company, now called Alphabet, has grown at an average annual rate of over 20% since 2011. In that period it has generated more than $300bn in cash after operating expenses (see chart 2), the bulk of it from search. Its market value has more than trebled, to $1.4trn, making it the world’s fourth-most-valuable public company. Unlike Apple and Microsoft, its bigger middle-aged tech rivals, it has not felt the need to reinvent itself. Until now.The reason for the soul-searching in Mountain View is ChatGPT, an artificially intelligent chatbot designed by a startup called OpenAI. Besides being able to have a human-like conversation, ChatGPt and others like it More

TOWARDS THE end of the second world war Franklin D. Roosevelt attended a fateful gathering of world leaders that helped determine the course of geopolitics for decades. No, not the Yalta summit. Immediately after FDR, Churchill and Stalin had carved up the world into spheres of influence, the American president slipped away onto an US Navy vessel to meet quietly with Abdel Aziz ibn Saud, king of Saudi Arabia. In return for protection of the Sauds’ sovereignty in the Holy Land, the monarch agreed to grant American oil firms access to his country’s petroleum. Building on the long-standing exploitation of Persian reserves by the Anglo-Persian Oil Company (now BP), the Saudi-American alliance formed the axis of oil that led Western majors to look longingly first to the Persian Gulf, then to other distant longitudes. For decades the world’s five biggest private-sector oil companies—America’s ExxonMobil and Chevron, Britain’s BP and Shell, and France’s TotalEnergies—have drilled from South America to Siberia. Now a swirl of geopolitical, economic and environmental factors is leading these “supermajors” to increasingly look not east and west but north and south.This realignment comes as big oil’s coffers are overflowing after two years of sky-high energy prices (see chart). On February 2nd Shell unveiled annual net profits for 2022 of $42bn, more than double the figure a year earlier and its highest in over a century as a public company. That came on the heels of ExxonMobil’s announcement of a record annual net profit of $56bn. Its main domestic rival, Chevron, reported that its own net profit more than doubled, to $37bn. BP and TotalEnergies added to the haul on February 7th and 8th, respectively. All told, those five supermajors raked in around $150bn in profits last year and could make as much again in 2023. A slug of this bounty will flow to shareholders; in January ExxonMobil said it would fork over a cool $35bn in total to its owners this year and next. Some of the proceeds will go to paying down debt. Much of the rest will, though, be reinvested.After several years of repressed investment in oil and gas, the result of pandemic-induced demand destruction and climate-related policy hostility, big oil is once again spending to find oil and dig it out of the ground. S&P Global, a research firm, estimates that worldwide upstream capital expenditure for the industry as a whole, including private-sector majors and national oil companies, was around $450bn last year, up from a 15-year low of $350bn or so in 2020. This year it may be higher still. Latitude shiftAll this new money is not flowing to the same old places. The West’s oil titans are experiencing “a fundamental shift in thinking”, says Edward Morse of Citigroup, a bank. American companies are beating a retreat from faraway “frontier” areas that are rich in political risk, lack the infrastructure to get hydrocarbons to market as cleanly as possible, or both. Their less risk-averse European rivals are shunning some of their own American projects in favour of Africa, with potential for climate-friendlier new developments. In both cases, the upshot is a realignment of the oil business along lines of longitude.For the American supermajors, this means less interest outside the Americas. ExxonMobil has, like most Western firms, left Russia after its invasion of Ukraine. It has also offloaded—or wants to offload—assets in countries such as Cameroon, Chad, Equatorial Guinea and Nigeria. Chevron has sold projects in Britain and Denmark (as well as Brazil) and has not renewed expiring concessions in Indonesia and Thailand. James West of Evercore, an investment bank, sees Chevron and ExxonMobil shifting a huge amount of capital spending to South America and the United States itself. ExxonMobil is investing heavily in newfound fields in Guyana. Chevron intends to funnel more than a third of its capital expenditure this year to American shale, and another 20% to the Gulf of Mexico. Last month it also, with President Joe Biden’s blessing, restarted trading some crude from Venezuela, a dictatorship that had long been on America’s naughty list.The European oil giants are also reducing their eastern and western exposure. BP and Shell are, like ExxonMobil, quitting Russia, leading to write-downs of as much as $25bn and $5bn, respectively. Shell has also got rid of its shale assets in Texas and reportedly put a few in the Gulf of Mexico up for sale. BP is divesting its Mexican oil assets, and is expected to get out of Angola, Azerbaijan, Iraq, Oman and the United Arab Emirates. TotalEnergies is pulling out of Canada’s oil sands.Instead, the Europeans’ gaze is, as with their American rivals, turning south. In January Claudio Descalzi, boss of Eni, an Italian non-super major, called for Europe to look to Africa as it seeks to replace Russian energy. Such a “south-north axis”, he argued, would boost Europe’s access to traditional fossil fuels, as well as to cleaner alternatives like renewable energy and hydrogen (which could be shipped or piped north). On January 28th Eni announced it had signed an $8bn natural-gas deal with Libya’s state-owned National Oil Corporation (which includes a bit of money for carbon capture and storage). Shell and Equinor, Norway’s state oil firm, signed an agreement with Tanzania to build a $30bn liquefied natural gas (LNG) terminal in the east African country. TotalEnergies is investing in gas projects in Mozambique and South Africa.There are two main reasons for this realignment. The first, a chief preoccupation of the Americans, has to do with risks and returns. In previous eras of high oil prices oil bosses spent, in the words of one, “like drunken sailors”. Too much investment and not enough cost control in the go-go years led to huge waste and overproduction. In the years before the covid-19 pandemic, oil projects from the Caspian Sea to the Permian basin lost billions of dollars. Tens of billions more in shareholder value went up in smoke. These days investors are demanding much greater capital discipline from oil bosses. And the bosses are listening. The industry’s combined capital spending, though up from its recent trough, is still down from a peak of nearly $800bn in 2014. As for the money that the supermajors are spending, it is being deployed more judiciously. Most of it is going into “short-cycle” investments, which generate a return within five years rather than ten or more. “I’ve been in this industry since the 1990s and I’ve never seen this much focus on efficiency,” marvels Julie Wilson of Wood Mackenzie, a consultancy. This quest for efficiency means fewer risky bets in inhospitable places like the Arctic or the deep ocean floor and more projects in familiar jurisdictions with less daunting politics and geology. For the American firms, of course, nowhere is more familiar than the United States. They also understand South America. And parts of their backyard they know less well, like Guyana, whose long-rumoured oil riches were only confirmed in 2015, may also be, counter-intuitively, less politically risky in important ways. Unlike their peers in many resource-cursed autocracies, who cannot imagine a future without oil, politicians in places with newly discovered resources are more cautious about their prospects. As a result, they tend to offer more favourable terms to oil companies in order to get hydrocarbons to market faster; in Guyana, ExxonMobil moved from first deepwater oil discovery to production in just a couple of years. For the Europeans, African countries, which often maintain reasonable relations with their former colonial powers, look appealing for a similar reason. As for their retreat from America, European firms are becoming uneasy about their association with America’s oil industry, with its unapologetically brown reputation. In 2021 TotalEnergies withdrew from the American Petroleum Institute because of the lobby group’s opposition to electric-vehicle subsidies, carbon pricing and tougher rules on emissions of methane, a potent greenhouse gas.In doing so, the European firms are responding to growing pressure from consumers, policymakers and investors to start decarbonising their portfolios—the Europeans’ big reason for the geographical sorting. They are looking for new places to invest because such investments, which use the latest technology, tend to be more efficient and less carbon-intensive than legacy assets that rely on leakier, ageing infrastructure. Moreover, oil companies, especially in Europe, are looking beyond fossil fuels. James Thompson of JPMorgan Chase, a bank, has found that the historical correlation between high oil prices and high capital spending on oil and gas has broken down for 11 big private-sector energy giants—a phenomenon he puts down in part to the majors pouring more money into low-carbon projects. Such projects are indeed mushrooming, particularly among the European firms—and in many of the same places as their new hydrocarbon ventures. Last May Eni struck a deal with Sonatrach, Algeria’s state oil firm, to develop green hydrogen from renewable sources. BP is doing the same in Mauritania and TotalEnergies has backed renewable-energy production in South Africa. Looking north, last year Shell paid nearly $2bn for Nature Energy, a Danish producer of “renewable” natural gas (RNG) made from things like agricultural waste. Oswald Clint of Bernstein, a broker, predicts “an era of giga-mergers” in green energy led by the European giants. Last year alone the oil majors signed 22 renewables deals, the five biggest of which added up to $12bn. Mr Clint reckons that in 2030 the European majors could, all told, be spending roughly half their capital expenditure on low-carbon initiatives. Vertical integrationThe supermajors’ north-south realignment is far from complete. bp is still making some investments in the Gulf of Mexico and in December completed its $4.1bn purchase of Archaea, an American maker of RNG. Shell and TotalEnergies are betting on Qatari LNG. ExxonMobil is doubling down on a gas project in Mozambique. Chevron is expanding an oil project in Kazakhstan and, reportedly, reviving talks with Algeria’s government about the country’s vast shale reserves. But these ventures increasingly look like exceptions rather than the rule. The future of energy exploration looks much leaner, a bit greener—and a lot more longitudinal. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More