Last week’s earnings reports from Chinese technology companies should be a wake-up call for Beijing.

Alibaba Group Holding Ltd. and JD.com Inc. pulled out all the stops to get customers to spend during their 618 shopping festival, a Black Friday-like extravaganza held in the quarter ended June. They offered deeper discounts than ever on everything from iPhones to loungewear, hired A-list celebrities like Rihanna to promote products and even experimented with using a digital avatar of an executive to hawk goods via livestream. But Alibaba’s revenue from its main e-commerce platforms fell about 1.4 percent, and retail sales at JD.com, which offered some of the most merciless discounts, rose 1.5 percent.

Despite drastic price cuts and aggressive campaigns, it hasn’t been enough to get Chinese consumers to dig deeper into their pockets. This is perhaps not a big surprise, as the country is still grappling with a difficult economic environment marked by a persistent housing slump and high youth unemployment.

Tencent Holdings Ltd., meanwhile, reported strong earnings growth that beat analysts’ expectations, but that was due to the release of the hit game Dungeons & Fighter Mobile in May. The fact that China’s most valuable technology company’s revenue was boosted by its gaming division is another warning sign for the wider economy. Spending on digital entertainment has historically been countercyclical, meaning consumers will continue to spend on it even as they save on major purchases. Unemployed people may also spend more time gaming. And it’s unclear whether Tencent can translate the one-off release of DnF Mobile into sustainable business growth.

In this environment, these companies may have limited ability to try to attract cautious consumers. Given the difficulties of e-commerce and looming macroeconomic headwinds, they should focus more on innovation and alternative revenue streams.

Chinese tech companies could invest heavily in artificial intelligence despite unique challenges. Tencent and Alibaba have made significant investments in AI, but it’s not yet clear whether those are paying off yet. Tencent executives were conspicuously light on AI during their conference call with analysts after the earnings release, saying the company would use the technology where it sees “tangible commercial results.” One area where AI holds promise for Tencent is helping with content recommendations that engage users on its video and social platforms. The company is also using the technology to improve targeted advertising. Tencent appears to be playing the long game on AI and would be wise to focus on how it can use it to boost profits rather than trying to follow the hype.

Alibaba’s revenue growth in AI-related products was in triple digits, and revenue from its cloud division rose about 6%, but that was partly boosted by Olympic contracts. Cloud growth “may not be sustainable given the increasing business uncertainty and ongoing price wars” in China’s cloud and AI sectors, noted analysts at Bloomberg Intelligence. However, Alibaba executives said during the analyst conference that they do not expect corporate demand for AI products to be affected by macroeconomic conditions and that any company that relies on digitalization “must invest in AI.”

Chinese tech companies are already struggling with AI, as Washington has imposed restrictions on sophisticated chips and devices. And investors worldwide are wondering whether the massive investments in AI will ultimately pay off. In summary, it doesn’t look like AI will be an immediate lifeline for China’s beleaguered tech companies, but these investments are at least a step in the right direction, as they rely primarily on enterprise customers rather than just individual consumer spending.

Given the domestic problems, another option for Chinese e-commerce companies is to look for revenue sources abroad. This has paid off for Alibaba and JD.com rival PDD Holdings Inc., Temu’s parent company. PDD’s expansion recently made founder Colin Huang the richest man in China. At the same time, competition is getting tougher, and even U.S. giant Amazon.com Inc. plans to open a discount web store that ships goods directly from China. It will be very difficult for Alibaba and JD.com to compete here, and their price cuts are limited.

Ultimately, it will be very difficult for these big tech companies to grow unless there are conditions at home that restore consumer confidence. The Chinese government has made great strides in reducing regulatory uncertainty in recent years by easing its clampdown on the tech sector. But if Beijing wants to support a real recovery for its pioneering e-commerce companies and the economy as a whole, it must start implementing policies that boost consumer spending.

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This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.

Catherine Thorbecke is a Bloomberg Opinion columnist covering Asian technology. She was previously a technology reporter at CNN and ABC News.

This article was generated from an automated news agency feed without any modifications.