China’s AI companies are rushing to win over OpenAI users in the country as the ChatGPT creator takes measures to block API traffic from countries and regions that it does not officially support. Affected regions include mainland China, Hong Kong, Russia, and Iran.

Why it matters: OpenAI’s latest announcement on API restrictions has been widely interpreted as targeting China, where  local enterprises and developers have been using OpenAI’s API to build products or services. On the other hand, the move is being regarded as an excellent opportunity for Chinese AI companies to woo these users.

Details: Developers in China have posted screenshots of a notice from OpenAI to various online communities that states, “Our data shows that your organization has API traffic from a region that OpenAI does not currently support.” The notice adds that OpenAI will block such access starting on July 9.

• API is an abbreviation for Application Programming Interface. Although Chinese IP addresses are not allowed to use OpenAI’s artificial intelligence software directly, local developers and companies have been able to create applications through OpenAI’s API platform, while individuals can change their IP address in order to get ChatGPT services. 
• Search giant Baidu, one of China’s leading AI companies, on Tuesday launched a program called Cloud in Hometown that grants additional tokens that equal the scale of their OpenAI usage to users who migrate from OpenAI to the company’s own ERNIE series model. 
• Baidu is also touting a zero-cost solution for developers to migrate from OpenAI, although it does charge a fee for further training, fine-tuning of prompts, and custom development services.
• Alibaba Cloud has also joined the fray with an alternative solution that it claims is “the most cost-effective” with 22 million free tokens for Chinese developers.
• Local AI startups, Zhipu AI, 01.AI, and Baichuan, have also launched exclusive offers for OpenAI users, with Tsinghua University-backed Zhipu being the most generous at time of writing with an offer of 150 million tokens for free.

Context: China has over one hundred AI models with parameters beyond 1 billion, according to data disclosed by the National Bureau of Statistics in March. Commercialization has become a key priority for the companies behind these models in recent months with a price war over tokens breaking out as the firms vie for potential clients.

Baidu’s PR head, Qu Jing, has left the search engine giant after her controversial remarks on work culture exploded on Chinese social media. The surfacing of a series of videos made by Qu has led to the public casting doubt on the company’s corporate values.

“I’m not even obligated to find out if you cried or had a quarrel [with your boyfriend or husband], which does not serve my concern as a supervisor. I’m not your mother-in-law, also not your mum,” Qu commented in one of a series of short videos posted on Douyin, China’s TikTok sibling. 

All four of Qu’s controversial videos on the platform have since been deleted, but clips can still be found on Chinese social platforms and her comments have sparked a firestorm of attention and debate. 

Why it matters: The incident has escalated into Baidu’s biggest PR crisis in years. The company, which is facing a declining search engine share and is seeking an AI-centric transformation, has looked to calm public outrage in the wake of Qu’s comments.

Details: News of Qu Jing’s departure was reported on Thursday night, just hours after she apologized in a post on WeChat Moments from her personal account.

• That apology letter did not mention Qu’s impending exit from the company, but saw her clarify that the videos “do not represent Baidu’s stance.” It stated that Qu did not obtain consent from the company before making the videos public.
• Qu Jing became the vice president and chief of communications at Baidu in 2021, after leading public and government affairs at Huawei and her previous work as a reporter for China’s state-backed Xinhua news agency, according to her  Wikipedia page. 
• In one video, Qu criticized a Baidu employee who refused to take a 50-day business trip during the height of the Covid-19 pandemic, when China imposed strict travel restrictions across the country. “How dare you tell me that your husband can’t stand it and needs you back [home]? I’m 10 or 20 years older than you and have two kids, [but] I feel neither bitter nor tired,” she said.
• Another video that went viral late Wednesday added fuel to the fire of public opinion, and bringing into question Qu’s ability as a PR chief. In the short video, Qu was recorded smacking a small paper figure with the letters SCMP written on it, widely regarded as referring to the South China Morning Post. The incident is suspected to be Qu venting her anger over a January report published by the newspaper linking Baidu’s ChatGPT rival ERNIE Bot with China’s military. However, TechNode has not been able to independently verify when the video was taken.

Context: Baidu, along with other major tech companies in China, has faced repeated scrutiny and criticism over its so-called wolf work culture in recent years. In one of the most notable examples, in 2019, Alibaba founder Jack Ma came under fire after he referred to the practice of “996”, working from 9 a.m. to 9 p.m. six days a week, as a “huge blessing”.

China’s search engine operator Baidu said Tuesday the number of users of its AI-driven ERNIE Bot has doubled to over 200 million in four months, declaring itself a leader in artificial intelligence, as competitors rush into the sector. The company also added that ERNIE now handles 200 million daily queries.

Why it matters: Baidu’s chatbot has revived confidence in the company’s monetization of AI, with its 200 million users offering new potential avenues for growth. 

Details: Co-founder and CEO of Baidu Robin Li expressed confidence that natural language will emerge as the new programming language in the future in his speech titled “Everyone is a Developer” at the company’s AI Create conference on Tuesday.

• Baidu released three AI development tools during the event – AgentBuilder, AppBuilder, and ModelBuilder, underpinning Li’s view that developing apps should become “as straightforward as making a short video.” According to video demos showcased during the talk, these tools can even help users without any coding skills build apps.
• More than 190,000 AI apps were created through Baidu’s Qianfan cloud platform by over 85,000 businesses, the company claimed in the latest figure.
• In the speech, Li explained the “fine-tuning and post-pre-train methods” based on ERNIE 4.0, the firm’s current most advanced foundation model, enable the creation of models with better results at a lower cost compared to models tuned directly from open source models, which is why Li said he thought open-source models would become “more and more outdated.” His earlier comment that open source models “make little sense,”  recently sparked contention on social media among Baidu’s counterparts. 
• Rival Alibaba developed an open source large language model last August, becoming the first Chinese tech major to do so. Others, including startup 01.AI, founded by Kai-Fu Lee and Baichuan built by Sogou’s founder, both chose to make their billions-parameter models open source soon after.

Context: China’s regulator approved 117 large language models for generative AI services on March 25, according to the Cyberspace Administration of China (CAC). The scope of approvals signals stiff competition among tech companies scrambling to create potential from the technology’s commercial application.

• A recent chart finds Baidu, which was amongst the first batch to open its ChatGPT-like bot to the market last August, is being chased by rival company Moonshot AI-trained Kimi, which specializes in analyzing long text, in terms of total traffic. ERNIE Bot recorded 14.9 million clicks in March, while Kimi’s combined traffic surged by 321.58% to 12.6 million.

Baidu has reportedly won a deal to power iPhones and other Apple devices in China using its generative artificial intelligence, domestic media outlet China Star Market reported on Monday, citing unnamed sources familiar with the matter. The Apple tie-up is a potentially major boost to the Chinese search engine giant’s vision of extra AI-generated revenue. 

Why it matters: China’s regulations have pushed Western tech companies to fully comply with the country’s rules if they want to lure the Chinese market, and that benefits Baidu, which serves many of the functions that Google does in the US and Europe. Following the Beijing headquartered firm’s rapid rise to prominence in the early 2000s, it appears poised to gain a major advantage from restrictions on Google once more.

Details: Apple previously engaged in discussions with Alibaba and another unnamed Chinese AI company, according to the China Star Market report, before finally tapping Baidu as its partner for AI services for its upcoming iPhone 16.

• Spurred by the news, Baidu’s Hong Kong-traded stock quickly rose over 6% ahead of the lunch break on Monday, although these gains were erased by more than half by the market close.
• On Weibo, China’s X-like microblogging platform, opinion was divided regarding Baidu’s AI tech being integrated into Apple devices. While some said the news meant that their interest in purchasing a new iPhone was lost instantly, others claimed it showed how good Baidu’s technology is.
• Baidu didn’t immediately respond to a request for comment from TechNode.
• The Chinese launch of Samsung’s Galaxy S24 series integrated Baidu’s AI chatbot Ernie to power its AI features such as content summaries and translations, but the collaboration has drawn scorn on social media. The device’s “Circle to Search” function, which is supposed to give detailed information about a certain part of an image or video that users long-press and circle, has been the subject of repeated complaints from users.
• In one viral example, a user on the Instagram-like social platform Xiaohongshu shared a video where they take a landscape picture and circles a reef in the center of the photo.  Baidu’s Ernie-driven AI provides a shopping link from an e-commerce platform, while Samsung’s Hong Kong version – powered by Google – displays the exact location of the image.

Context: Beijing-based Baidu, seen as China’s AI leader, is among the companies hoping to turn the much-hyped technology into a fresh revenue engine. Its chief executive Robin Li has said that  generative AI could add several billion yuan in incremental revenue for the firm in 2024. In the fourth quarter, Baidu’s AI-related revenue stood at RMB 656 million ($91.0 million).

Baidu co-founder Robin Li has used the example of a Tang dynasty poetry meter to demonstrate what he says is ERNIE 4.0’s superiority to OpenAI’s GPT-4 on Chinese language tasks. In an interview broadcast by Chinese state television last week, the Baidu chief executive said the company’s latest AI chatbot had shown higher aptitude when tasked with creating poetry in the form of a complex Tang dynasty scheme known as Qinyuanchun.

“If I asked GPT to compose a poem following the Qinyuanchun scheme, the tool would become totally confused,” Li said, “because it lacks the understanding of whether the first sentence should consist of four words or five.”

Why it matters: Li’s attempt to emphasize ERNIE’s competitive advantage in certain areas follows a raft of Chinese AI ventures receiving outside capital injections from Baidu’s rivals. His comments also come as OpenAI’s text-to-video model Sora kicks off a new round of AI mania worldwide.

Details: In the same interview, the CEO did acknowledge that ERNIE lags “a little bit behind” GPT in understanding English, as it hasn’t been trained on as much English language data.

• However, comparison is inevitable, and Chinese companies focusing on AI products have always benchmarked their products against OpenAI’s models. Such comparisons have often drawn scorn on Chinese social media, with Baidu itself often suffering in comparison to ChatGPT’s innovative progress. But Li told the CCTV show that he is “not angry” about the stark differences between ChatGPT and his firm’s self-built chatbot, adding that he hopes to change people’s perceptions within a year.
• Li also stated that, in his opinion, the profession of “programmer” will essentially cease to exist in the future as “everyone will possess programming abilities as long as one can speak.” English and Chinese will be the only two programming languages, Li predicted.
• Li also advised companies and entrepreneurs in the market to avoid engaging in the constant launch of large language models, which he regards as “repetitive labor.” He emphasized that “only applications truly create direct value.”

Context: Baidu’s investment in AI has yielded results in its financial reports, with its AI models and ERNIE chatbot contributing RMB 656 million ($91.5 million) to the firm’s revenue in the fourth quarter last year. However,  such contributions amounted to just 1.9% of the company’s total earnings.

• Li was speaking ahead of the one year anniversary of Baidu’s ERNIEbot, which launched on March 16 2023.

A 48% drop in net profit from a year earlier overshadowed Baidu’s record revenue in the fourth quarter of 2023, which was led by advertising income, but also featured a minor contribution from earnings related to artificial intelligence. Baidu’s Hong Kong-traded stocks have plunged nearly 30% since last July.

Why it matters: A 6% year-on-year increase in advertising revenue is the main driver of the search engine giant’s revenue growth, as Baidu’s hopes that AI will serve as a significant revenue stream remain unconvincing to investors, in contrast to US tech firms that saw a share uptick based on an AI boom last year. 

Details: Baidu’s AI model and ERNIE chatbot added RMB 656 million ($91.2 million) to revenue in the fourth quarter of 2023, CEO Robin Li told investors on the firm’s earnings call, with incremental revenue expected to jump to several billion yuan in 2024.

• Li revealed that inference costs for the basic free-to-use ERNIE Bot 3.5, used to analyze how much computing is needed to generate output based on prompts,  are down 99% compared to last March. 
• ERNIE Bot 4.0, the paid version rolled out in October, remains Baidu’s most advanced generative AI bot. The chips Baidu has on hand are expected to advance the flagship bot to the “next level,” said Li.
• Baidu’s increased investment in and commitment to AI is also reflected in the fact that its R&D costs climbed 11% to RMB 6.3 billion last quarter. The company released data showing that its homegrown AI service has attracted a sizable number of business customers, reaching 26,000 as of December.

Context: Baidu’s ChatGPT-style service has recorded more than 100 million users given its first-mover advantage and integration with China’s largest search engine,. But competition has increased, as Baidu’s tech counterparts in the country have also bet strongly on generative AI and there are an increasing number of AI startups that have received large amounts of funding from its rivals, such as Moonshot AI.

Baidu said on Tuesday it has “comprehensively reshaped” its product portfolios thanks to its AI foundation model ERNIE, resulting in increased operational efficiency, after the Chinese search giant company reported 6% year-on-year revenue growth to RMB 34.4 billion in the third quarter. However, the company’s cloud unit reported its first decline in revenue in almost three years.

Why it matters: Baidu pointed to artificial intelligence bringing about positive changes in key performance indicators across all of its businesses in its latest earnings report. The firm also highlighted that its ChatGPT-like service ERNIE Bot has already amassed 70 million users.

Details: Although the company’s overall growth was up, Baidu’s AI cloud revenue decreased by 2% in the three months to September. Robin Li, CEO of the firm, said this was due to weak demand in smart transportation projects, despite strong demand for generative AI. The figures marked the first decline in Baidu’s cloud business since it started announcing its earnings separately in the last quarter of 2020.

• Online advertising business, which accounts for over half of Baidu’s total earnings, experienced 5% year-on-year revenue growth during the period. This growth rate was slower than the preceding two quarters and lags behind some of its internet-focused peers.
• During the related earnings call, Li expressed confidence that Baidu’s current chip reserves could “keep improving ERNIE Bot for up to two years” amid the US’s tightening of curbs on advanced chip exports to China. He did, however, add that Baidu will still seek alternatives due to the pace of AI development in China being “inevitably” impacted by difficulties in acquiring the most advanced chips.
• The chief executive of Baidu warned a week ago that China’s rush to develop multiple large language models had led to a “wasting of resources,” and he again told investors on the call that “the best option on the market” is companies developing AI-native apps based on Baidu’s foundation model rather than training models themselves.
• Baidu also named JD CEO Sandy Xu as an independent director of its board effective from the beginning of 2024.

Context: Baidu’s large language model, ERNIE, was made available to the public at the end of August after receiving government approval. Last month, Baidu launched the latest version of its AI model, ERNIE 4.0, seven months after the release of its first version.

Chinese automaker Geely on Oct. 27 unveiled its biggest bet ever on intelligent vehicles with the launch of the first Jiyue-branded model, which the company says is capable of driving itself on busy urban streets in partnership with search engine Baidu. 

The automaker stated its vehicle relies heavily on a camera-based approach to capture detailed visual information and then respond appropriately, removing expensive laser sensors from its hardware suite to keep costs down. Tesla is reportedly a rare advocate for using the so-called vision-only approach, while most other brands opt for multiple sensors to mitigate safety concerns of their self-driving technologies. 

“I believe we provide users a better self-driving experience [than existing players] in most major Chinese cities,” Luo Gang, Jiyue’s chief operating officer, told reporters during an interview, adding that the Jiyue 01 outperforms Tesla’s offerings in digital services such as its AI assistant (our translation). Tesla’s full self-driving (FSD) function is currently unavailable in China. 

The Jiyue 01, a battery sports utility vehicle, comes in two versions with a price range between RMB 249,900 and RMB 339,900 ($34,148-$46,446), slightly lower than its pre-sale price and differing based on acceleration, driving range, and number of electric motors, among other specifications. Customers are also encouraged to pay RMB 19,900, a 60% cut from its sticker price, for all the premium functions of its self-driving software. 

Here are some of the news and highlights from the launch event held in Shanghai by Jiyue, formerly known as Jidu before Geely and Baidu set up a new venture in August. 

Self-driving tech: Jiyue said its advanced driver-assistance system, the Robo Drive Max, is already available to drivers in Shanghai, Hangzhou, and Shenzhen, meaning the cars can navigate complex urban streets in the three big cities with autonomous features such as overtaking, lane changing, and on-ramp/off-ramp driving. The firm is targeting nationwide availability for the software by 2024, which would mean it matched rival Xpeng. 

• Chief executive Joe Xia claimed the car could drive itself from point to point without many user interventions by using less costly high-definition maps and training multiple neural networks such as occupancy networks in big data sets, rather than relying on lidar. Rival Xpeng is also removing two radar sensors for its upcoming MPV model but retaining lidar technology for enhanced safety, TechNode has reported.
• The five-seater Jiyue 01 is equipped with 11 cameras and 17 ultrasonic sensors and radars. The company believes it is building public confidence in autonomous car safety, as Baidu has tested its autonomous car fleets without accidents for more than 70 million kilometers (43.5 million miles). Baidu has been handling various corner cases over the past decade, which greatly improves the safety of the system, said Luo. 

Smart cabin: The Jiyue 01 also boasts the most advanced voice recognition software on the market for in-car services, which can respond intelligently in milliseconds without losing its connection, as the company deploys artificial intelligence models and moves data analytics from cloud computers to the vehicle. The system is also set to evolve and become more alert to the needs of its owners, powered by Baidu’s ChatGPT-like chatbot, Ernie Bot. 

• Notably, the automaker is bringing voice activation outside the car, saying it is the world’s first model that allows autonomous valet parking via just a spoken command without the driver sitting in the car, from as far as two kilometers away, according to an announcement. A company employee demonstrated the feature with several reporters joined by TechNode in an indoor parking lot on the sidelines of the event. 
• Xia added that the vehicle’s in-car system is powered by Qualcomm’s most advanced smart cockpit computing platform, the SA8295, which provides a processing power of over 60 trillion operations per second (TOPS), compatible with that of flagship smartphones available on the market. This would allow users to play the hit racing game Asphalt with a 35.6-inch display across the dashboard, as would NIO owners do with their handsets and a smaller screen. 

READ MORE: Baidu’s EV firm Jidu aims to take on Tesla

Baidu released the latest version of its AI foundation model ERNIE on Tuesday at the Baidu World 2023 conference, a mere four months after the previous release. At the launch, the tech giant claimed the capabilities of ERNIE 4.0 were as advanced as OpenAI’s GPT-4 model.

Why it matters: Baidu has emerged as one of China’s fastest companies in leveraging AI models to transform existing products, ensuring its prominence in the competitive space.

Details: Co-founder and CEO Robin Li showed off ERNIE 4.0 during a one-hour presentation, showcasing the model’s ability to generate advertising posters and marketing videos in real time. Li also asked it to write a martial arts novel based on prompts, underscoring the enhanced memory capabilities of the iterated model.

• Baidu did not disclose the number of parameters used to train the updated model at the event, merely saying that ERNIE 4.0 saw “similar improvements” in understanding and prompting capabilities, but without specifying whether this was compared to the previous iteration or to some other standard. The company said that enhancements in memory and reasoning are twice and three times that of understanding, respectively, but again didn’t clarify to what they were comparing the new model.
• The search giant has embedded AI capabilities into its flagship products including search and maps, introducing new upgrades in recent months. Li laid out his vision for Baidu, aiming to leverage AI-driven thinking to create native apps tailored for the AI era. He singled out Baidu Wenku, an online interactive document-sharing platform, as a product that has undergone radical transformation, evolving into a “productivity tool” that assists users in content creation.
• Baidu failed to launch new official plug-ins for its chatbot service ERNIE Bot this time, but the company mentioned that around 27,000 developers have applied to join the firm’s plug-in ecosystem platform since it was unveiled last month. The company first incorporated plug-in functionality into the ChatGPT-like service when it upgraded ERNIE to version 3.5 in June, and then added three more plug-ins two months later. 

Context: Rebuilding applications with large language models has been embraced by tech giants from Microsoft to Baidu and Alibaba. Robin Li sees the AI model as an opportunity to overhaul all of Baidu’s products, aligning with the vision of Daniel Zhang, former chairman and chief executive of Alibaba, who also stated that all Alibaba products would undergo a comprehensive upgrade through integration into its AI model.

• ERNIE Bot, powered by Baidu’s foundation model, was made fully accessible to the public on August 31, and has amassed a user base of 45 million, according to the company’s announcements on Tuesday.

Baidu on Saturday appointed its chief information officer Li Ying to lead the company’s AI speaker subsidiary, Xiaodu Technology, after the sudden resignation of former chief executive Jing Kun.

Why it matters: As the Vice President of Baidu, Li’s taking over as the top executive of Xiaodu may signify the strengthening of the company’s ERNIE Bot support for various artificial intelligence product lines under Xiaodu, with the tech giant betting big on its subsidiary’s potential for transformation in the AI field.

Details: Officially launched in 2015 as a smart life business group under Baidu, Xiaodu was spun off from the search giant in 2020.

• Xiaodu’s former CEO Jing Kun recently resigned for personal reasons, according to local media outlet Caixin. The report also noted that Jing was originally scheduled to give a speech entitled “The era of large models, Xiaodu reshaping smartliving” at Baidu’s annual event, Baidu World 2023, on Oct. 17.
• His successor, Li Ying, joined Baidu in 2004. The long-term Baidu employee has been involved in various businesses within the company, including natural language processing, complex search, and Baidu Maps, publicly available information shows. Li will report directly to Baidu’s chairman Robin Li.
• Before her new appointment, Li also led the rebuild of Baidu-developed instant messaging software product Infoflow based on the firm’s ChatGPT-like AI model, according to tech outlet 36Kr. The software is capable of performing AI-driven tasks such as meeting summary generation and intelligent coding after integrating Baidu’s ERNIE Bot.

Context: In May, Xiaodu teased its first smartphone, Qinghe, which is intended as a child-focused smartphone and features English-speaking and location tracking functions. Although the independent Baidu subsidiary stated on its official WeChat public account in February that Xiaodu-created devices would integrate all the capabilities of ERNIE Bot, Qinghe ultimately utilized “a large AI model for studying” developed by the company itself.

• In January, Xiaodu completed a Series B+ financing round participated in by the Chinese state-backed enterprise restructuring fund, with the company’s valuation reaching RMB 35.5 billion ($4.9 billion).
• More than 40 million households already use Xiaodu’s products, including speakers, televisions, as well as other smart home appliances, according to the company.

Chinese search giant Baidu launched its ChatGPT-like service ERNIE Bot for public use on Thursday, as one of the first batches of companies given permission to allow regular access to generative AI bots, having filed details of its algorithms with the government. The move signals a softening of Beijing’s regulatory stance towards artificial intelligence.

Why it matters: The approval comes two weeks after China’s new AI rules took effect, paving the way for an initial eight companies to cater their generative AI services to over 1 billion Chinese internet users.

• For China’s dozens of homegrown AI large language models, being among the first to launch could potentially bring early player advantages, given the relatively small distinctions between each consumer-facing service.

Details: The first tranche of approvals has been granted to tech companies and research institutes headquartered in Beijing or Shanghai, from Baidu, ByteDance, and SenseTime to the state-backed Chinese Academy of Sciences and Shanghai Artificial Intelligence Laboratory.

• Local media outlet Beijing News reported on Thursday that, in addition to the first eight entities given approval, Shenzhen-based tech giants Huawei and Tencent, as well as Hefei-founded iFlytek, are readying to unveil their artificial intelligence bots to the general public.
• Alibaba, located in Hangzhou, is not listed on the approved entities, but a source from the company’s cloud unit revealed that its chatbot service, known as Tongyi Qianwen, has completed its filing process and is ready for rollout, according to tech outlet China Star Market.
• Baidu’s ERNIE Bot topped the free app download chart of Apple’s App Store 12 hours after its public availability announcement. The company is gearing up to introduce an array of fresh AI-native apps.

Context: China implemented detailed regulations for generative AI services on Aug. 15, making it clear that government approval of algorithms is a threshold that tech companies must cross before offering AI products to the public, as a way to better control content.

• In an earnings call last week, Baidu CEO Robin Li noted that the government “has increasingly recognized” ERNIE and ERNIE Bot, believing that this endorsement stands the company in good stead for a large-scale release.

Chinese search giant Baidu said on Tuesday that ERNIE Bot, its competitor to ChatGPT, has achieved a 10-fold improvement in inference efficiency just one month after its release, while reducing the cost of large language model (LLM) inference to one-tenth of its original level. Inference, which refers to the process of running LLMs, mostly takes place on graphics processors or GPUs.

Why it matters: Baidu isn’t alone in looking to offer lower-cost AI products. Other tech majors in China such as Tencent and Alibaba have announced recently that they are introducing lower-priced AI products due to efficiency gains in the field.

Details: This development enables more small and medium companies to access large model technologies at reduced prices through tech firms’ cloud services. Meanwhile, the efficiency gains allow the tech giants to grab cloud market share at a low cost.

• Baidu plans to “significantly lower” the threshold for enterprises deploying large models through three services, the company said in a Wednesday statement sent to TechNode. These services include using the inference capability of ERNIE Bot directly, training industry-specific large models via high-quality and accurate business data, or unveiling models in Baidu’s cloud service for more stable and efficient operation.
• E-commerce giant Alibaba is also looking to boost revenue from its newly unveiled model Tongyi Qianwen, with the firm announcing on Wednesday that it will launch an AI co-development program for customers covering the transportation, petrochemical, and telecommunications industries.
• On the same day, Alibaba’s cloud unit also announced its largest price cut amid the expansion of China’s cloud computing market. The prices of its core products are set to be reduced by 15% to 50%.
• Tencent, another tech heavyweight in the country, has rolled out a digital human-production platform that it says can reduce production costs from millions to thousands of yuan within 24 hours.

Context: Since OpenAI’s ChatGPT gained worldwide popularity, numerous Chinese tech companies have declared an intention to enter the field of generative AI based on large models. However, training such models can be pretty expensive. According to a report by state-owned financial services company Guosheng Securities, training GPT-3 costs about $1.4 million per session, while over $2 million is needed when training larger LLMs.

As China’s car industry quickly embraces new energy vehicles, the country’s tech giants and startups are competing head-on with established global auto parts manufacturers to help automakers develop unique in-car software experiences and assistant driving features.  

Tech majors like Huawei and Baidu are positioning themselves as automotive suppliers by providing comprehensive software systems along with a full range of electronic components for the smart, connected, and electric vehicles of the future. Meanwhile, global tier-1 suppliers Bosch and Continental are localizing more of their tech capabilities to adapt to the fast-changing Chinese market.

Here’s a roundup of some of the upcoming automotive tech that debuted at this year’s auto show in Shanghai.

Baidu: Seeking long-term ties with carmakers

Two years after setting up a dedicated unit to develop self-driving tech for consumer cars, Baidu made a strong commitment to automakers by declaring itself their “best partner” in smart, electric vehicles in China in a statement made on April 16 ahead of this year’s show.

Low-cost deployment is one of its major selling points. The search engine giant launched the Apollo City Driving Max on April 16, claiming it is by far its most powerful advanced driver-assistance system (ADAS). The AI giant also claims that the new system is the only pure vision-based approach for automated driving on Chinese urban roads, meaning it operates without the use of pricier lidar sensors.

Baidu also introduced its new high-definition mapping technology at a relatively lower cost than rivals, adopting a crowdsourced approach to compile map data to help EVs get around by themselves. “This is unique to Baidu,” said corporate vice president Rob Chu. The company expects such efforts to pay off in the long run, allowing it to form consistent and reliable partnerships with auto manufacturers.

Huawei: Competing against Tesla’s software offerings 

Huawei has had a bumpy ride after making a splash at Auto Shanghai 2021 with the public debut of its assisted driving technology, as two of its major manufacturing partners – BAIC’s Arcfox and lesser-known Seres – have both found themselves facing lackluster sales.

On April 16, the technology giant unveiled the second generation of its Advanced Driving System, which was designed to let vehicles navigate not only on highways but also around complex city streets like Tesla’s full self-driving beta software. Huawei’s consumer business head Richard Yu made the announcement in Shanghai, claiming that the Chinese telecom firm has surpassed Tesla in handling on- and off-ramps among other traffic scenarios, according to its testing results.

The system will be released to users in at least 45 Chinese cities by the end of this year, where high-definition mapping services are currently unavailable to them.The system was built upon multiple sensors and cameras to reduce the reliance on mapping. A high-end version of the Aito M5 electric crossover is the first model to adopt the technology, while the Avatr 11, co-developed by Huawei and its partners Changan and CATL, and the Arcfox Alpha S will also adopt the system. 

Bosch: Chinese OEMs a major growth driver

German auto supplier Bosch debuted its fourth-generation computing platform for in-car entertainment at the Shanghai auto show, highlighting the ongoing trend of cars relying on software to differentiate themselves in a crowded marketplace.

Entirely developed by its Chinese team, the information domain computer has undergone four upgrades over the past two years, facilitating automakers’ fast and customized development of in-car applications, according to Dr. Markus Heyn, chairman of Bosch’s mobility solutions business sector. This also enables vehicle owners a seamless and smart cockpit experience both in the vehicle and on the cloud.

Heyn said he was personally impressed by the wide range of new brands and electric vehicles that are on display at this year’s Auto Shanghai. “I am extremely proud that Bosch is a part of this rapidly growing and evolving industry and serves as a global partner for our customers in China,” added Heyn. Chinese original equipment manufacturers (OEM) accounted for nearly 60% of the mobility solutions business sector of the engineering group’s total sales in China last year.

Continental: Keeping up with China’s fast transition to EVs

Continental on Wednesday showcased for the first time a high-performance computer that is capable of assisted driving and body control, giving carmakers a more agile process of software development. More than 30 new vehicle models will be using Continental’s supercomputing solution by 2024, the company said, with GAC’s EV unit Aion becoming one of its early adopters.

The German auto parts maker sees standardization as a strength in keeping up with China’s fast transition towards smart EVs. The company set up a joint venture with local startup Horizon Robotics back in late 2021.

“A lot of the cost in ADAS is coming from developing specific software. We figure out what is a common part and roll out standard components in a fast and cost-competitive way, and then we add some specific functions to make a difference,” said Frank Petznick, head of the autonomous mobility business area at Continental. “I think this is the key [to success] in China and many Western companies have not understood that yet.”

Horizon Robotics: Landing BYD as a major client

This year’s Auto Shanghai also reflected the rise of domestic suppliers. Horizon Robotics is one of the Chinese suppliers helping auto companies to secure their supply chain and reduce costs. Horizon said on Tuesday that it will team up with Chinese EV leader BYD to develop software and hardware systems for automated driving to use in the latter’s cars.

Multiple BYD cars will be manufactured later this year based on Horizon’s Journey 5, which is made specifically for computing in connected and intelligent vehicles. The move marks “a significant achievement” in the two companies’ strategic collaboration since 2021, according to Dr. Yu Kai, founder and CEO of Horizon Robotics.

Backed by a list of auto majors including Volkswagen, Horizon already supplies tech to automakers including Geely and Li Auto. The company also announced a partnership with EV maker Hozon Auto on Tuesday to build assisted driving platforms set to hit the market as early as 2024.

AI-powered chatbot ChatGPT has upped its game in the months since it was launched. As the runaway success develops, three recent key announcements indicate that rapid commercialization of the technology is likely to commence. On Mar.14, OpenAI launched a GPT-4 model which supports multi-modal output and surpasses the GPT-3.5 model ChatGPT in complex reasoning and performance. Upon its release, GPT-4 attracted widespread attention and dissemination. Then, on Mar.16, Baidu released its ERNIE Bot, a chatbot rival to ChatGPT. Prior to this, on Mar.1, OpenAI announced the opening of ChatGPT’s API (Application Programming Interface) and reduced usage costs by 90%.

As AI technology develops, large-scale AI models such as GPT are seeing falling costs. So why are AI models becoming more affordable?

John Zhang, founder of StarBitech, discussed this issue with TechNode in a Q&A format. StarBitech is a digital content asset technology company founded in 2015, jointly invested in by the Shanghai Tree-Graph Blockchain Research Institute and digital display company Fengyuzhu. The company recently received support from Microsoft and OpenAI and will leverage its strengths in Chinese natural language processing and local compliance to develop AIGC (AI-generated content) services in visual content creation and marketing content creation. These services will be supported by GPT, DALL-E, and reinforcement learning, providing AI capabilities geared towards marketing, gaming, animation, culture and tourism, and government.

Why are large AI models like GPT becoming increasingly affordable, and will other mainstream models follow the trend?

The decreasing cost of large AI models is mainly due to the continuous advancement of technology and intensification of competition. According to OpenAI, the cost of using the GPT-3.5-turbo model, which is used by ChatGPT, is only $0.002 for 1000 tokens (approximately 750 words), reducing the cost of using GPT-3.5 by 90%. The “turbo” in the GPT model refers to an optimized version of GPT-3.5 that has faster response times.

The significant reduction in OpenAI’s costs may have come from various optimizations, including adjustments to the model architecture, algorithm efficiency and GPU, at business-level, model-level, quantization, kernel-level, and compiler-level.

Adjustments to the model architecture mainly refer to techniques such as pruning, quantization, and fine-tuning to reduce the size of the model. Those measures help to improve its performance and accuracy while reducing computational and parameter costs, and lowering inference time and cost.

Using efficient algorithms and GPU parallel computing, companies can speed up calculations and improve computing efficiency, gaining algorithm efficiency and GPU optimization in the process. Business-level optimization refers to optimizing the performance and efficiency of the entire system, by using caching and prediction techniques to reduce latency and repeated calls. Model-level optimization can be achieved by streamlining the network structure. Quantization optimization can be achieved by reducing computational and parameter costs by using low-precision calculations. Compiler-level optimization uses efficient compilers to optimize code execution and computing efficiency.

In addition, as more and more companies and research institutions enter the field of large AI models, such as Google’s LaMDA (137B) and PaLM (540B), DeepMind’s Gopher (280B), BigScience’s BLOOM (175B), Meta’s OPT (175B), NVIDIA’s TNLG v2 (530B), and Tsinghua University’s GLM-130B (130B), market competition has become intense, and price competition has also begun. This factor has led to a continuous decrease in the prices of AI models. (The numbers in parentheses represent the parameters of these AI models.)

Whether other mainstream models will follow this trend of decreasing prices or not depends on their scale and performance, as well as their level of demand. If these models are comparable in scale and performance to the GPT-3 model and there is strong market demand, they may also see price reductions. However, if these models are smaller in scale, lower in performance, or demand weakens, prices may not drop significantly. 

In the long run, with the continuous development of technology and the progress of software and hardware technology, the cost of processing large amounts of data and training models will gradually decrease, and the prices of large language models will follow. In addition, as more and more companies and organizations turn to large language models, market competition will push prices down. Of course, the specific extent and timing of such price reductions cannot be predetermined because they depend on the supply relationship and quality of models on the market. Of course, for some high-end models, the price may remain buoyant as high-quality, high-performance, high-value-added models may require more computing resources and professional knowledge.

Did these large AI models become more powerful and intelligent while they become more affordable? Do you agree with OpenAI CEO Sam Altman’s statement about the new AI Moore’s Law, which states that the total amount of AI intelligence doubles every 18 months?

I agree with the new AI Moore’s Law — the decrease in costs and increase in applications will also increase the amount of language data and corpus that can be learned by AI, thereby enhancing its capabilities. Starting in 2022, the global internet environment has entered a new era of large-scale AI intelligence, where there is constant “Turing testing”. Unlike the image-based AI of recent years, language-based AI is more like the human brain, with a broader and deeper range of influences. However, the current level of AI’s capabilities still largely depends on hardware, especially the GPU’s high-performance capabilities, and supply. Therefore, AI’s development is strongly positively correlated with Moore’s law of chips.

What are some key factors driving cost reductions in large AI models?

1. Algorithmic improvements: New technologies are constantly being iterated and developed. These are more efficient at using computational resources and data, which reduces the costs of training and inference.

2. Hardware improvements: With advancements in hardware technology, such as the emergence of specialized chips like GPUs and TPUs, more efficient computing power is available to accelerate training and inference processes, thus lowering costs.

3. Dataset size: This is critical to AI training. Larger and higher quality datasets provide more information, leading to improved accuracy and generalization of models. Additionally, more efficient data processing and storage techniques can help reduce data costs.

4. Reusable pre-trained models: Pre-trained models have become an important way to train large models. Models such as BERT and GPT have already demonstrated their capabilities. These models can serve as base models to train other models, reducing training time and costs.

5. Distributed computing: Breaking down the training process into multiple tasks and running them on multiple computers can greatly shorten training time and costs.

Chinese search giant Baidu on Thursday introduced its artificial intelligent chatbot ERNIE Bot, with the company’s founder Robin Li demonstrating the capabilities of the chatbot in several pre-recorded clips.

“ERNIE Bot is not a tool for China-US confrontation,” Li said at the launch event, claiming instead that it was the result of Baidu’s years of effort in the field of artificial intelligence.

The chatbot service is currently available by invitation only, but Baidu announced that its cloud computing unit will immediately begin offering application programming interfaces (API) to enterprise clients. The company said that 30,000 corporate users applied for the ERNIE Bot Enterprise Edition API testing within an hour of the launch event, however investors appeared disappointed at the lack of a live demonstration, with Baidu’s stock price dipping slightly before the end of Thursday trading. 

Baidu did not specify when its ERNIE Bot service will be publicly available.

Why it matters: Baidu has become the first major Chinese tech company to unveil a comprehensive AI chatbot service that has the potential to rival ChatGPT, with the launch event taking place just a day after OpenAI released its new AI model GPT-4. 

• Li highlighted the commercial potential of the chatbot with Baidu’s cloud service saying that ERNIE Bot will “fundamentally change the rules of the game in the cloud computing industry.” He also predicted that Model as a Service (MaaS) would eventually replace Infrastructure as a Service.
• In 2022, Baidu AI Cloud generated RMB 17.7 billion ($2.57 billion) in revenue, representing a 23% increase compared to the previous year. The figure accounts for 14.3% of Baidu’s full-year revenue.

Details: Li showcased the capabilities of the ERNIE Bot via a series of pre-recorded videos where it was able to perform various tasks including coming up with a name for a newly established company, writing a poem, and generating images as well as videos based on prompts.

• Li noted that Baidu’s chatbot is good at processing Chinese rather than English. During an earnings call in February, he also mentioned that ERNIE 3.0, the underlying technology of its chatbot, is a “very localized” AI foundation model for the Chinese market.
• ERNIE Bot is built on Baidu’s deep-learning model ERNIE, which was released in 2019. It currently has 650 companies signed up as ecosystem business partners who will have priority access to it.
• The absence of a live review during the launch event seemingly disappointed investors, causing Baidu’s Hong Kong shares to decline by 6.36% at the end of Thursday’s session. Despite this setback, the firm’s Hong Kong-listed stock is up nearly 24% so far in 2023.

Context: ERNIE Bot’s launch day landed between two significant events involving other tech giants. US startup OpenAI unveiled its newest and most advanced AI model, GPT-4, without any prior announcement on Wednesday, and Microsoft launched Copilot, an Office suite that utilizes the power of GPT-4, just hours after Baidu’s ERNIE unveiling.

• ERNIE Bot can be applied to a variety of scenarios and applications, including search, AI cloud, and autonomous driving, Li said in his speech on Thursday.
• Baidu reportedly prioritized the development of the ERNIE system and diverted all of its “scarce resources” towards it before the rollout. On Friday, local media outlet 36Kr cited several sources as stating that the Beijing-based company was continuing to train the chatbot right up to the press conference, and has yet to finalize discussions over how the service will be monetized.

READ MORE: Alibaba, Baidu, NetEase, iFlytek…Chinese companies rushing to prove they have tech similar to ChatGPT

Baidu is weighing whether to embed its ChatGPT-like service Ernie Bot into its main search platform, similar to Microsoft’s Bing, or launch it as an independent service, local media outlet 36Kr has reported, citing multiple Baidu employees.

Why it matters: Baidu’s reported indecision on Ernie Bot reflects the unpredictability surrounding the launch of artificial intelligence-powered chatbots, as the search giant looks to avoid some of the missteps seen with Bing and Google’s recent projects.

Details: Baidu, which has increasingly put AI capabilities at the heart of its strategy in recent years, announced in early February that its Ernie Bot tool would go live in March.

• Led by Baidu’s chief technology officer Wang Haifeng, the Ernie Bot team includes Wu Tian, supervisor of the company’s deep learning platform PaddlePaddle, as well as Wu Hua, technical leader of Baidu’s natural-language processing department.
• Ernie Bot is currently Baidu’s highest-priority project, according to 36Kr. The report cited Baidu employees as saying that all of the “scarce resources” being used to train deep learning models have now been diverted to its large-scale machine-learning Ernie system, which will power Baidu’s version of ChatGPT.
• The company is reportedly also seeking to combine AI-generated content with its blog-style platform Baijiahao as well as with short video content.
• Nearly 300 leading companies from sectors spanning internet, media, insurance, and auto have announced their inclusion in Baidu’s ChatGPT-style Ernie Bot ecosystem.

Context:  Baidu is part of a crowded field of Chinese companies to have announced their own AI chatbot projects in the wake of the huge popularity of ChatGPT.

• The search giant has also announced that its first electric vehicle model will launch using its new conversational artificial intelligence technology, with the intention of providing a ChatGPT-like experience that enables natural conversation between owners and their vehicles.
• AI-powered chatbot services rely on large and diverse data sources to train. Based on PaddlePaddle and the Pengcheng Cloud Brain II computing power system, Baidu launched the largest single model in the Chinese language at the end of 2021 with 260 billion parameters, a parameter figure that has exceeded GPT-3’s total by 50%, Baidu said.
• Meanwhile, Baidu has built a knowledge database of over 5 billion entities and 550 billion facts in recent years as the company’s largest business – search – has generated a huge pool of resources.

READ MORE: Alibaba, Baidu, NetEase, iFlytek…Chinese companies rushing to prove they have tech similar to ChatGPT

Baidu will launch its first electric vehicle model using its new conversational artificial intelligence (AI) technology, with the intention of providing a ChatGPT-like experience that enables natural conversation between owners and their vehicles, an executive from the company said on Tuesday.

Why it matters: This is the latest move by the Chinese technology giant to improve its core search engine business and drive widespread adoption of AI for a range of uses.

Details: Jidu Auto, the electric vehicle arm of Baidu, will be the first company to adopt AI technology at this level of sophistication for smart EVs, chief executive Xia Yiping told reporters at a corporate event in Beijing on Tuesday.

• Xia reaffirmed the company’s plan to deliver its first production model, the Robo-01 sports utility vehicle (SUV), in the third quarter of 2023 with a “very competitive” price tag (our translation).
• Launched in October, the crossover can travel around 600 kilometers (373 miles) on a single charge, as TechNode previously reported. Pricing details have so far only been revealed for a special edition version of the vehicle, which will start from RMB 399,800 ($55,245).
• Xia said he was optimistic about the company’s sales growth in light of Tesla’s significant price cuts, adding that the sudden move reflected the US automaker’s waning competitiveness in the Chinese market.

READ MORE: Baidu’s EV firm Jidu aims to take on Tesla

Context: Baidu said on Feb. 7 that it has been pushing internal testing of its ChatGPT-like chatbot tool called ERNIE Bot, or Wenxin Yiyan, and intends for it to make a public debut next month.

• OpenAI’s ChatGPT bot has sparked a craze in the Chinese internet space, prompting dozens of Chinese tech companies, including Alibaba, NetEase, and JD.com, to announce their own AI chatbots over the past month.
• Media outlets and traditional businesses are also lining up to incorporate the latest AI technology into their services. Trip.com Group, China’s biggest travel services provider, announced today it is among the first batch of partners listed to integrate Baidu’s chatbot technology into its service platform.

READ MORE: Alibaba, Baidu, NetEase, iFlytek…Chinese companies rushing to prove they have tech similar to ChatGPT

ChatGPT has become the talk in China’s tech and business communities these days, with major Chinese tech companies racing to prove they have a similar capability or are developing similar services. TechNode talked to John Zhang, CEO of StarBitech, a digital asset startup based in Shanghai and supported by Microsoft for Startups, on why Chinese tech majors are rushing to push out their own versions of ChatGPT. Below is an edited version of the conversation.

1. Why are Chinese tech companies developing their own AI chatbots like ChatGPT? For example, Baidu announced last week that its look-a-like product, ERNIE Bot, or Wenxin Yiyan in Chinese, will be launched in March. 

There are three reasons for this. First, from a market perspective, ChatGPT is currently not available to Chinese users. They can’t use it as easily as overseas users. So it’s inevitable that there will be a local ChatGPT-like service to satisfy demand. 

Second, from a technological perspective, most large language models (LLMs) currently available on the market, like ChatGPT, are trained on English as the primary language. Their natural language processing (NLP) performance in Chinese is still inferior to that of English. So a model trained with Chinese as the primary language will further improve user effectiveness.

The third reason is data security. AI generates content after going through a large amount of data training. And OpenAI seems to gradually shift from being a non-profit project to a market-oriented one, so there could be uncertainty in the future. Additionally, mainland China requires all data to be locally stored, but OpenAI does not have a team in the country, making it difficult to meet regulatory requirements for local data storage and maintenance.

2. Can China’s AI chatbot compete with ChatGPT and its peers? 

In the short term, it’s still difficult for Chinese AI chatbots to compete. OpenAI entered the stage of large-scale GPU cluster training after getting investment from Microsoft. It’s said that OpenAI owns thousands of Nvidia A100 chips, and Microsoft’s billion-dollar investment was mostly in Microsoft’s Azure cloud resources. Microsoft and OpenAI have just begun the next round of financing and collaboration, which means that in three years, they have burned billions of dollars in cloud resources on training. Such a large-scale investment is very rare in China’s internet circle, especially in underlying infrastructure technology. Most of the big investments in China are more focused on the application side. 

But in the long run, China’s AI chatbot will become more powerful in the future. The country has superior algorithm engineers, a unified large market, abundant application scenarios, and data sources, and cost advantages over Microsoft Azure compared to Alibaba Cloud and Tencent Cloud. 

3. Do you think China is ready in terms of big data and language models?

In terms of big data, China is ahead of the game. It’s highly digitized, so has access to abundant data and a complete industrial chain. However, when it comes to language models, there’s still room for improvement. Currently, models like GPT-3.5 used in chatGPT are large models that require significant investment and are slower in seeing returns, which isn’t an attractive option for many Chinese investors. As a result, only a few major internet companies have participated, with limited investment, slowing China’s progress in language models. But the popularity of ChatGPT offers a good warning for both Chinese investors and internet companies. I expect to see larger investments in the future.

4. How would Chinese AI chatbots differ from others, regarding application and regulations? 

Currently, in China, large-scale chatbots are applied in NLP tasks such as machine translation, intelligent customer service, and Q&A platforms. As the development of LLM progresses, China will also popularize AI chatbots based on LLM. 

AI chatbots developed in China should be: first, eloquent in Chinese expressions. That is, they need to be able to understand Chinese commands. In addition, for a better communication experience, the chatbot must have knowledge of Chinese culture and history, and communicate in a way that fits the Chinese language style and expression. For example, the same word may have different meanings and emotions in different contexts. Furthermore, the chatbot will provide more personalized services based on Chinese users’ habits and needs, such as different payment methods or ethnic customs unique to China.

Chinese-developed chatbots also need to comply with Chinese laws and regulations, including its Data Security Law, Cybersecurity Law, Personal Information Protection Law, and Administrative Measures for Internet Information Services. These laws aim to protect personal information (prevent its illegal acquisition, use, and dissemination), prevent information leaks and misuse, safeguard network security, prevent network attacks and fraudulent activities, and regulate internet information services. With the increasing popularity of chatbots and the continuous improvement of Chinese laws and policies, it is expected that more comprehensive and targeted regulations will be developed in the future to regulate chatbots.

5. Has your team used GPT (Generative Pretrained Transformer, OpenAI’s language model upon which ChatGPT is developed)? What challenges and limitations do you see with this tool?

• Biases. The model is trained on a large amount of text data. If trained data contains biases, the model will also exhibit them. For example, if there is a lack of Chinese language data, particularly in Chinese history, culture, and society, the model may output biased information.
• The model lacks a broad, bird-eye view perspective. Although GPT can maintain a sense of coherence in context, it lacks the ability to think more broadly. 
• Lack of language diversity. GPT is trained mostly based on English material, limiting its compatibility and understanding of other languages.
• High computation cost. GPT is a very large neural network model, with parameter counts ranging from millions to tens of millions. The model size ranges from tens of megabytes to several gigabytes, going up to hundreds of gigabytes. Training such a model costs a significant amount of computing resources and time.

6. Has your team used any China-developed AI language models? How do they compare to GPT?

Currently, with self-developed Chinese AI language models: 

• Some can support different voice responses, which are not currently supported by GPT.
• Regarding language support, there is a greater focus on Chinese-language communication, while GPT has a deeper understanding of English.
• In the application field, Chinese models are more narrowly focused on dialogue generation. To compare, GPT is a language generation model that can be used in text generation, code writing, and more.
• In terms of communication, Chinese models tend to deliver short-sentence communication, while GPT has a strong understanding of long sentences.

7. What are some features or functions that your team would like to achieve using AI language models, but have yet to do?

Current AI-powered chatbots may have achieved impressive results, but there is still room for improvement. One area is the understanding of context and emotions. Chatbots have a limited understanding of things such as one word having different meanings based on the context. 

Another issue is that chatbots can lack coherence in continuous communication on the same topic. Moreover, they lack creativity, as they primarily integrate and sort existing knowledge. This means they do not meet the requirement for independent thinking and creating new ideas.

8. Could you give us an introduction to your company?

StarBitech is a digital content asset technology company founded in 2015. It is jointly invested in by the Shanghai Tree-Graph Blockchain Research Institute and Fengyuzhu and is located at the Microsoft Accelerator in the Caohejing Development Zone in Shanghai. The company focuses on providing individuals and businesses with algorithm-driven digital asset creation and publishing services. StarBitech has worked with companies such as China Merchants Bank, Huawei, LVMH, Shanghai Public Security Jing’an Branch, and the Shanghai Technology Exchange.

The company has recently received support from Microsoft and OpenAI and will leverage its strengths in Chinese natural language processing and local compliance to develop AIGC (AI-generated content) services in fields such as chatbots, visual content creation, and marketing content creation. These services will be supported by GPT, DALL-E, and reinforcement learning, providing AI capabilities for industries such as marketing, gaming, animation, culture and tourism, and government.

Despite not being officially available in China, the AI chatbot service ChatGPT has dominated headlines in the country. This week, days after search engine giant Baidu announced it will launch its own ChatGPT-like service in March, at least five other major Chinese tech firms revealed plans to tool up with the powerful AI technology. 

Starting with Alibaba, the e-commerce giant Alibaba said it is developing its own AI chatbot. NetEase’s online learning unit Youdao said it will launch a similar AI service focused on the education industry, and JD, another e-commerce major, boasted that its rich experience in AI means it can soon incorporate these technologies into its services. 

Developed by OpenAI, ChatGPT is an AI chatbot that can answer natural language questions with human-like responses. It is built on GPT-3, the third iteration of a language model trained on a large amount of data. 

The feverish popularity of ChatGPT has sent investors chasing related stocks on China’s stock market. The market is already experiencing a boost in so-called “ChatGPT concept stocks.” 

On Chinese social and search platforms, ChatGPT has also become the top search keyword. On Feb. 4, daily searches for “ChatGPT” on WeChat increased 515.7% to nearly 38 million, and the search volume kept growing rapidly in the following days,  seeing 2.5 times the number or 95 million searches only five days later. 

As advanced AI technology gains momentum to disrupt the status quo, Chinese tech companies are not the only ones racing to prove their ChatGPT-like abilities. Google introduced on Tuesday its AI chatbot Bard,  while ChatGPT’s main investor Microsoft launched a new version of its search engine Bing on Tuesday with ChatGPT built in. 

Baidu: Baidu said on Tuesday that it will launch its own AI chatbot tool called “ERNIE bot” or Wenxin Yiyan in Chinese. The bot will be built based on the company’s large language model ERNIE, which was launched in 2019. Some see Baidu’s service as the most likely one to come close to ChatGPT. 

NetEase: NetEase’s online education team Youdao said it has been working on applying AIGC (AI-generated content) technology to teaching scenarios such as AI oral English teaching and Chinese essay revision. The company expects to launch a relevant demo version of the product soon, which will mark the first landing of AIGC technology and a ChatGPT-like model in China’s online education scene.

iFlytek: Responding to investors’ questions, the company that specializes in speech recognition and natural language processing technologies said it has a solid accumulation of relevant AI technology. For example, in 2022, iFlytek won first place in the authoritative evaluation of several cognitive intelligence fields such as CommonsenseQA 2.0 and OpenBookQA. Meanwhile, iFlytek has developed a series of pre-training language models which include 40 general fields of cognitive intelligence.

Alibaba: The online retail major said on Wednesday that it’s conducting internal testing on a ChatGPT-like service, and the tool is likely to be used in combination with the group’s workplace communication and collaboration tool DingTalk.

JD: Beijing-based e-commerce platform JD said it sees ChatGPT as an “exciting and cutting-edge exploration,” adding it will incorporate the related methods and technology into its products, especially in customer service.

Chinese search engine giant Baidu is working on a ChatGPT-like bot service to embed in its search engine. Baidu’s CEO Robin Li believes that artificial intelligence tech has reached a tipping point and will produce “a generational revolution in the search experience,” China Star Market reported Monday, citing unnamed sources. 

Why it matters: With its own deep-learning platform (PaddlePaddle) and large-scale pre-trained model (Wenxin or Ernie in English), Baidu is one of the few Chinese tech companies investing heavily in generative AI as the technology becomes more mainstream. 

• Led by Baidu’s mobile eco-business group as well as the technology platform group, the development of an AI-powered chatbot tool project started last December, but the gap between its current performance and ChatGPT is still obvious, a staff member from Baidu told local media outlet Caijing.

Details: ChatGPT, an artificial intelligence chatbot service debuted by OpenAI last November, is built on OpenAI’s large-language model GPT-3, and can output human-like responses in seconds. The aim is for Baidu’s version, which is using its large-scale model Ernie as a foundation, to do the same. Baidu’s upcoming chatbot is being trained with both Chinese and English sources, according to the Wall Street Journal.

• Robin Li is confident that Baidu will be able to embed ChatGPT-like technology into its search engine, admitting that integration is more complicated than the chatbot technology itself, China Star Market wrote, citing a speech by Li given at an internal talk.
• The implementation of a ChatGPT-style service embedded in search services still depends on Baidu’s subsequent research and development investments, a source close to the firm told the outlet.
• For years, Baidu’s research expenses as a percentage of total revenue have remained at around 20%. The company also saw its new AI businesses account for an increasing share of its revenue in the last three years.
• Baidu declined to comment on the chatbot service when reached by TechNode on Tuesday.

Context: Since launching in late 2022, ChatGPT quickly sparked wide discussion, attracting 1 million users in just five days, and pushing many tech companies to prepare for the revolutionary potential of artificial intelligence technology.

• On Jan. 23, Microsoft announced it would offer a multi-year, multi-billion dollar investment in OpenAI, and plans to integrate ChatGPT into its own search engine, Bing.

Chinese tech giant Baidu recently showed off its AI capabilities with the unveiling of a newly “completed” ink painting by Chinese painter Lu Xiaoman (1903 – 1965), which was finished by the firm’s deep learning-based art generation platform. 

As part of the presentation of the artwork, Baidu held a roundtable discussion with local auction house Duo Yun Xuan on Nov. 16 in Shanghai. The two partnered on the completion of Lu’s work, which the beloved 20th-century cultural figure had left unfinished.

This discussion presented two attempts to complete Lu’s original unfinished work: one is from famous Chinese artist Le Zhenwen, and the other is from Baidu Wenxin Yige, an art generation platform developed on Baidu’s deep-learning framework PaddlePaddle. The intention is to offer a comparison between the AI interpretation of the work and that of a human artist.

According to Baidu, its version of the work went through four phases: AI learning, AI painting, AI coloring, and theme poem composition. During the process, Baidu partnered with Duo Yun Xuan to collect public ink paintings to train models and reach a better outcome.

The twin artworks will be sold on Dec. 8 at Duo Yun Xuan’s 30th-anniversary auction event.

Below are comments on the project from Xiao Xinyan, chief architect of Baidu Wenxin Yige. His words have been translated, edited, and condensed for clarity. 

How does AI generate such artwork?

In short, AI will shuffle and compose the concepts and datasets it has learned previously, which is somewhat of a knowledge presentation.

From a technical point of view, AI learns before it paints, just as human beings do. It is trained from a vast amount of data in image-text matches. Every painting has a text description. Al can learn the association between languages and images, as well as multiple corresponding concepts related to the images. 

For instance, the concept of mountains could have a wide variety of image styles. So then how do people use AI to paint? They need to provide it with a text description, such as “a pine tree on a mountain.” AI will call on its learned experience and knowledge to generate a vague initial version randomly and then modify and perfect it continuously. There could be hundreds of rounds in the modification process, with the overall outline becoming clearer and clearer during the process, enriching the details. The work will be finally completed when it meets people’s esthetic requirements.

How is Baidu exploring art generation tech?

We [Baidu] adopt self-developed technology. There are two main points to our AI painting tech. Firstly, the image quality is high and looks delicate. We utilize a powerful diffusion model, which is a major technical innovation. Via multimodality of text and image, we can [give AI] a deep understanding, enabling it to create delicate artworks. 

Also, we have a better understanding of Chinese culture, and we will build a relevant dataset to feed it for generations in such a style. For the training datasets, we also developed algorithms to evaluate the aesthetics to ensure they meet the criteria. 

And considering users’ descriptions can be inaccurate, we enhanced the inputs system via a knowledge graph to provide related keywords for a better user experience.

So far, the feedback from users is quite positive; the platform has greatly improved their efficiency. For most casual users, they find the AI generator quite helpful. Looking ahead, we plan to explore a wider range of usage scenarios, for example using AI to assist children to practice painting. 

What is the position of human beings in AI art generation?

The human being is of great importance in AI-driven paintings. In my opinion, human is the mentor of AI. We need to develop the neural network of the AI painting model: there are different models with various effects [and we need to choose ideal ones from them].

The human also has to feed AI some material to learn and determine how the AI should be trained. For example, Baidu Wenxin Yige was fed with traditional Chinese elements and cultural data to have a better understanding of this genre. 

[The platform] can generate an image within minutes. On the first version of the piece drafted by Lu Xiaoman, the Baidu team consulted artist Le for advice. He then provided more training samples for a better outcome.

At the very beginning, AI needs people to teach it to generate the image: what content should appear in the picture and what styles should be presented.

Humans are also the ones to make a final decision despite the machine having an automatic algorithm to tell if the generated work is good enough because AI is not as accurate as human beings in this case.

Jidu Auto, the electric vehicle arm of Chinese search engine giant Baidu, is joining a long list of Chinese companies to take on Tesla by positioning the brand in the premium segment and highlighting its strength in autonomous driving tech.

In recent media appearances, Xia Yiping, chief executive of Jidu, stated that the new automaker can compete with Tesla by leveraging the data and algorithm prowess from its parent company.

A former tech lead of in-car connectivity at Fiat Chrysler, Xia noted that he believes the race among automakers to build intelligent vehicles has only just begun in China.

On Oct. 27, Jidu showcased a special version of its first consumer car Robo-01 that it made in partnership with Chinese automaker Geely. The company plans to launch the standard version next April, which Xia told TechNode could be “very competitive” on price (our translation). He also noted a short-term target of selling at least 10,000 vehicles monthly.

Below is the highlights from a group interview at the car launch event, which have been translated, condensed, and edited for clarity:

Is it too late for Jidu to enter the Chinese EV game as a new competitor?

The EV offerings from our competitors are far less diversified, especially regarding the intelligent and connected capabilities they can offer. The competition has just begun, which I believe will be more about the deployment of semiconductors, algorithms, and computing power rather than vehicle manufacturing, as time goes on, and that’s where our capabilities lie.

We are looking to be a serious player in the medium-to-high-end EV segment, especially in the price range of RMB 250,000 ($34,370) and above, and where in-car intelligent technology has been a major selling point. Our core users are young, educated, tech-savvy, and upper-middle class, and in that sense, there is a big competitive overlap between Jidu and Tesla.

If you compare Jidu’s Robo-01 with Tesla’s Model Y, I would say our vehicle provides a roomier and more luxurious interior, as well as a longer driving range. 

Several competitors have already begun releasing advanced driver assistance systems (ADAS) for city environments. What is your advantage and how do you ensure the reliability of vehicle software?

(Note: Rival Xpeng Motors on Sept. 19 released its so-called City Navigation Guided Pilot, a feature similar to Tesla’s Full Self-Driving that allows vehicles to navigate on both highways and city streets. Huawei’s partner Arcfox closely followed with the release of its Navigation Cruise Assist (NCA) software a week later.)

Jidu’s advanced driver assistance capabilities, including those for highways and urban streets, will be fully ready once we begin vehicle delivery to customers later next year. All the variants of Robo-01 will be equipped with lidar sensors and applicable to all Jidu’s intelligent functionality.

We are developing the most advanced electrical and electronic architecture, where we must ensure the complexity of future vehicle systems and fulfill the higher demand for network bandwidth and functional safety. We run algorithms on Baidu’s supercomputers, and I think that’s one of our advantages.

Auto intelligence is not just about software engineering. You need to fully understand when it comes to where the semiconductor industry is headed and how sensors can better enable autonomous driving, among other fields. Not everyone can do that, but that’s in our DNA.

Jidu will begin delivery of Robo-01 later next year. Can you share insights on production plans, retail networks, and charging infrastructure?

Robo-01 is built based on Geely’s SEA (Sustainable Experience Architecture) platform. In early October, we aligned the production plan of Robo-01 for next year with our manufacturing partner and made reservations for many key components ahead of time.

(Note: In September 2020, Geely launched a modular, open-source vehicle platform for EVs called the Sustainable Experience Architecture (SEA), which has been used to build its own EV sub-brands like Lynk & Co, Zeekr, and Polestar.)

We plan to sell our cars via a direct sales model in the early stages so that we can maintain control over our brand image. Jidu’s first flagship store is about to open in Shanghai and we plan to enter 46 domestic cities by 2023.

When it comes to charging networks, we are building a number of charging points along with our showrooms and service centers, but we will also collaborate with public EV charge point providers to expand our footprint.

On Thursday, the annual World Artificial Intelligence Conference (WAIC) officially opened in Shanghai. This year’s conference places a heavy focus on the trendy topic of the metaverse, aiming to demonstrate the integration of artificial intelligence with the metaverse and to look at what the future holds for these technologies.

Ken Hu, rotating chairman of Huawei, said at the opening ceremony that AI can only realize its greatest value when it is deeply integrated into operation scenarios across all industries. He also called for building a computing power network, connecting different data and computing centers across the nation. Meanwhile, he pointed out that because powerful machine learning models are costly to develop and time-consuming, industries and academic researchers should team up and collaborate to cut down “duplicated investment and development.”

Robin Li, co-founder and CEO of Baidu, discussed various AI implementations the search engine company adopts, such as autonomous driving and content generation. He said some of the video content on Baidu are generated by AI based on published articles. Those AIGC (AI-generated content) costs only a tenth of the cost of human-created content and a fraction of the speed.

“AI is critical in the metaverse due to the metaverse’s needs to adapt to changing environments and user preferences,” Qualcomm president and CEO Cristiano Amon said at the ceremony, adding that the processing of massive data in the metaverse will push the expansion of AI processing capability to edge computing, which will result in more large-scale deployment of AI applications.

One of the highlights of WAIC 2022 on the ground is the “Metaverse Core Exhibition,” which focuses on the AI+Metaverse industry ecosystem, and in particular, examines the two dimensions of virtual experience and reality display. Some of the key technology displayed include various chips for AI models and servers, large-scale machine learning models, autonomous vehicles, and surgical robots, among others. Here are some of the highlighted products from our visits to the event:

1. Baidu’s machine learning model Wenxin 

Artificial intelligence has entered the era of developing large-scale machine learning models since 2018, integrating smaller and dispersed models into a powerful one. 

In 2020, OpenAI’s NLP model GPT-3 kickstarted the AI large-scale model arms race. Google, Microsoft, Meta (formerly Facebook), Huawei, Alibaba, Huawei, and other tech giants have all become involved in it. 

Baidu’s large-scale model “PCL-BAIDU Wenxin” is a generalized model developed by Baidu for various general scenarios and combined with the capabilities of the Baidu Knowledge Graph. It is widely used in the energy, finance, and aerospace sectors. Baidu also uses the model to offer AI painting to consumers. 

Taking the creative service platform “Yige” as an example, it can generate paintings based on the user’s text inputs. Two minutes after TechNode’s reporter entered “Godzilla in the Moonlight,” the system created seven different styles of paintings and labeled corresponding use cases.

This application is currently at the internal testing stage and is expected to be open to users for payment in the future, according to the official introduction. Compared with foreign AI painting products such as Google’s Imagen, Baidu’s “Yige” has a strong ability to generate images for different styles, and it also understands Chinese semantics better. 

2. Ant Group’s privacy computing technology  “SecretFlow”

As data become a key resource in society, many industries are facing new challenges in ensuring cybersecurity and data security. Against this backdrop, privacy-preserving computing can be a key technology to balance data security and data circulation, involving numerous professional technology stacks.

In July, Chinese fintech giant Ant Group officially made its privacy-preserving computation framework “SecretFlow” open source for global developers.

According to Ant Group’s on-site staff at WAIC, SecretFlow is an integrated work of privacy-preserving computation technology and application that the Chinese tech giant has precipitated for six years, incorporating more than a thousand patents and covering all mainstream privacy computing technologies. SecretFlow has made a major breakthrough in Trusted-Environment-based Cryptographic Computing (TECC), which can achieve modeling and analysis of one billion dense samples per hour. 

3. Biren BR100 GPU chip 

Shanghai-based Biren Technology, a domestic high-end GPU chip unicorn revealed its first general-purpose GPU chip series, the BR100 at this year’s WAIC.

The BR100 is based on the original chip architecture developed by Biren Technology, with a 7nm process that can accommodate 77 billion transistors, and this product is the first to adopt chiplet technology and PCIe 5.0 PCI Express, as well as supporting CXL protocols in China. 

A representative from the firm told TechNode that the BR100 will be major a rival to the forthcoming Nvidia H100, which will be affected by a new US ban on exports of high-end GPU chips to China, though Biren is yet to confirm when its new chip will go into mass production. 

This chip will be mainly deployed in data servers to provide computing power for large-scale AI training scenarios, smart cities, and the metaverse.

4. Westwell’s driverless vehicle Q-Truck

As a company that’s gone global from Shanghai, Westwell Technology uses artificial intelligence and driverless technology to explore developments in autonomous logistics.

The company’s Q-Truck, the world’s first intelligent battery-swap driverless commercial vehicle, can fully recharge in as little as 6 minutes without the need for a human to intervene in the process.

According to Westwell, the Q-Truck has a load capacity of 80 tons and a battery life of 200 kilometers. What’s more, the fleet system is able to manage multiple unmanned trucks at the same time, achieving mixed operation between driverless and manned vehicles due to the integration of digital systems.

5. HiScene’s industrial AR glasses and software 

As one of the leading industrial AR companies in China, HiScene presented its AR glasses HiAR H100, AR remote communication and collaboration platform HiLeia, and AR real-time spatial editor PinNotes at WAIC this year.

The majority of HiScene’s user cases are in factories and various manufacturing industries. Helping technicians to do more accurate remote inspections and other remote duties. 

With PinNotes, users can directly add associated virtual content to reference objects in the physical world via AR glasses or cellphones, which will then be saved to the AR platform and can be read out for re-editing and viewing, bringing users an experience of spatial interconnection, virtual-real integration and intelligent interaction.

Large-scale commercial operation of highly autonomous vehicles (AVs) could become a reality “sooner than expected” in China, Baidu’s CEO Robin Li said on Thursday at the 2022 World Artificial Intelligence Conference in Shanghai.

“I think it would take a longer time to commercialize Level 3 autonomous vehicles, because there remain questions about who is liable in the case of accidents involving these vehicles,” Li said (our translation).

Level 4 vehicles, however, make it clear that the manufacturer or the owner, rather than the driver, is responsible in a crash, Li added.

Level 4 refers to a fully autonomous system where vehicles travel from point A to point B without requiring any human intervention. In Level 3, also called the semi-autonomous level, the driver is still required to take over the vehicle in emergencies, according to definitions set by the Society of Automotive Engineers (SAE).

After operating Apollo Go (Luobo Kuaipao, in Chinese), its autonomous ride-hailing service, for the last two years, Baidu said on Tuesday that it has offered more than 1 million public robotaxi rides in a dozen of major Chinese cities as of July. The search engine giant currently operates around 500 self-driving cars in China, with plans to expand that fleet to 3,000 vehicles in 30 cities by 2023.

Baidu may be a pioneer in autonomous cars, but rivals are catching up. Chinese automaker GAC Group plans to begin piloting autonomous ride-hailing vehicles along with human-operated taxis via its mobility platform OnTime in Guangzhou later this year, General Manager Feng Xingya told investors on Tuesday. The carmaker, which produces vehicles in tie-ups with Toyota and Honda in China, has been testing robotaxis with self-driving upstarts WeRide and Pony.ai.

Although excitement over self-driving vehicles has been wearing somewhat thin globally since last year as the technology gets stuck in the slow lane, China is ramping up efforts to support the sector. In August, the central government released its first national rules for commercial autonomous ride-hailing services, while Shenzhen became the first Chinese city to establish a defined legal landscape where legislators can impose a degree of liability for car crashes involving AVs.

Li called for more uniform policies with regards to driverless cars, such as a universal standard that allows companies to remove human safety drivers in more driving scenarios, as the industry continues to face multiple regulatory hurdles to mass deployment. “The window of opportunity is fleeting,” Li added. “More efforts need to be made to push forward legal reform and open the bottleneck on AVs.”   

DeepWay, a Chinese autonomous driving startup backed by Baidu, said on Tuesday that it has raised RMB 460 million (around $67.2 million) in a Series A led by Qiming Venture Partners and joined by multiple veteran investment firms.

Why it matters: DeepWay brands itself as China’s first electric vehicle startup that designs autonomous trucks from scratch for freight delivery, rather than something based on an existing truck model with minor changes, which the company claims leads to more integrated self-driving tech and reduces production costs. 

• DeepWay is also the first startup with authorization from Baidu to conduct “white-box testing,” which means it has working knowledge of the latter’s self-driving technology. By comparison, a tester rarely knows much about the internal design and implementation of an autonomous driving system during black-box testing.

Details: Jointly founded by logistics service provider Shiqiao Group and tech giant Baidu in late 2020, the two-year-old firm is now valued at RMB 3 billion by the latest fundraising round, which was led by Qiming, Chinese tech media outlet QbitAI reported, citing company insiders.

• Other investors include Lenovo Capital, an investment arm of the namesake tech titan, and Vlight Capital, an early backer of EV maker Nio, according to an announcement (in Chinese) on DeepWay’s public WeChat account.
• DeepWay said that the “body-in-white,” as automakers call a car’s basic skeleton, of its first truck model, had rolled off the assembly line at its factory in the eastern city of Yancheng in July.
• Small-scale delivery is scheduled for December. The company is targeting sales of 1,000 roborigs next year, when the vehicles will be capable of driving themselves on Chinese highways with a safety driver behind the wheel.

Context: Several autonomous truck companies have gotten off the starting grid early in the self-driving race in China, but the progress towards fully autonomous freight driving has been slow.

• Nasdaq-listed TuSimple reported a $732.7 million annual loss and $6.3 million in revenue in 2021 with the departure of a longtime executive and delayed production of commercial trucks at full driverless Level 4 operation from 2024 to 2025. The firm is reportedly in talks with Geely to sell its China division.
• JD and Meituan-backed Inceptio said in March that it raised $188 million in a Series B+ co-led by Sequoia Capital China and Legend Capital, another of Lenovo’s venture capital arms. The company claimed its self-driving trucks with a human operator traveled 2 million kilometers (1.24 million miles) on public roads in 18 months as of April.

On Monday, Chinese officials published a set of draft rules that will allow self-driving companies to offer rides and charge fees for fully autonomous vehicles (AVs). The move is part of the country’s ongoing efforts to become a global leader in artificial intelligence. The same day, Baidu announced it was to launch a fully driverless robotaxi service in two major Chinese cities.

Why it matters: The release of China’s first guidelines for commercial robotaxi services could establish a state framework for the rollout of self-driving technology and increase the number of AVs on Chinese roads.

Details: Published by the Ministry of Transport on Monday, the draft regulation said that authorities would “encourage the deployment of autonomous buses on limited access highways, as well as allow paid taxi-hailing services using self-driving cars for low-traffic, controllable scenarios” (our translation).

• The government did not outline detailed criteria for the environmental conditions under which an automated vehicle is designed to operate but said that driving routes must be selected to avoid highly populated sites such as schools and supermarkets.
• Also, the rules emphasized that robotaxi companies must deploy their automated vehicles with drivers based on different levels of vehicle automation. The rules stipulated L3 and L4 level cars need a human operator, while L5 (fully automated cars) cars need either a remote driver or an in-car safety driver. The rules also asked all cars to suspend operations in adverse weather conditions.
• In addition, the companies are obliged to record and share with the government the data logs generated by cars and drivers at least 90 seconds before and 30 seconds after any self-driving malfunctions. These logs must include in-car video footage and pictures of the surrounding environment.
• The draft will be open to public feedback until Sep. 7.

Context: China first began allowing autonomous driving road tests on designated streets in April 2018 and then expanded the testing scope to general highways in early 2021. 

• Several major cities, including Beijing, Shanghai, and Guangzhou have greenlighted self-driving car tests for passenger transport services over the past several years.
• Earlier this month, the city government of Shenzhen also passed new legislation that addresses the liability issues in accidents involving cars with self-driving capabilities.
• The central city of Wuhan and the southwestern municipality of Chongqing are the latest Chinese megacities to take a significant step towards the driverless car era, recently allowing Baidu to charge fees for rides using its driverless vehicles.

Cloud services have become a rare growth point for Chinese tech majors Alibaba, Baidu, and Tencent in this earning season. The tech majors have seen overall growth plateau and profit drop as they navigate an economic downturn made worse by the pandemic resurgence and geopolitical uncertainty.

Why it matters: Over the years, Chinese tech majors Alibaba, Baidu, and Tencent have built up sizable operations in cloud solutions for businesses. Those cloud units have now grown strong enough to offer sustainable business returns. 

• Cloud services have become the bedrock of almost all tech firms, as it offers fundamental support for online services and the implementation of algorithms. 

Details: Cloud services have become a rare growth point in the lackluster earnings reports of Alibaba, Baidu, and Tencent, as the majors’ businesses were hit by China’s strict Covid-19 control measures, slowing consumption, and external geopolitical challenges. 

• On Thursday, Alibaba reported the slowest quarterly growth rate since it went public in 2014. However, Alibaba Cloud reported a net profit in a financial year for the first time since its establishment in 2009, the company’s earnings report shows. The cloud business brought in RMB 100.2 billion ($15.8 billion) for the fiscal year ending in March, a 21% yearly increase and accounting for about 12% of the firm’s overall revenue. The company’s revenue increased 19% year-on-year to RMB 853 billion ($134.6 billion) in the same period. 
• Similarly, Baidu’s cloud services outperformed the company. In the first quarter, the cloud service unit saw revenue grow by 45% to RMB 3.9 billion from the same period last year, while the company’s revenue grew by only 1%. 
• Tencent’s FinTech and Business Services group, which includes its cloud services, reported a nearly 10% yearly growth for the first quarter. The company reported flat revenue growth of only 0.1% for the same period.
   

Context: According to Canalys, China’s cloud infrastructure services market grew by 45% to $27.4 billion in 2021.

• Alibaba, Huawei, Tencent, and Baidu are the top four cloud service providers in China, accounting for 80% of the market share in 2021, with Alibaba Cloud leading at 37%.

READ MORE: Why does China want to build a national data center system by 2025?

Top automakers such as Tesla and SAIC (Volkswagen’s partner in China) are slowly rolling towards a restart after weeks of shutdowns of their plants in Shanghai, China’s worst coronavirus outbreak site, in two years. Baidu and self-driving unicorn Pony.ai received permits to offer fully autonomous rides to the Beijing public in late April, the first service of its kind in the country. Domestic battery suppliers saw profits plunge in the first quarter amid rising raw material costs, thanks to a strong demand for electric vehicles (EVs) that utterly outstrips supply.

Shanghai’s Covid outbreak continues to weigh on auto production through May

As Tesla and Volkswagen’s plants in Shanghai slowly resume production, China’s auto industry is struggling to regain the momentum lost during a citywide lockdown that has dealt a significant blow to local businesses over the past two months. Government officials said on May 13 that employees from 95% of the companies on a whitelist of 666 firms prioritized for business resumption are now getting back to work, with automakers and suppliers accounting for more than a third of the total.

China’s biggest automaker SAIC said on May 13 that its joint facilities with Volkswagen and General Motors have restarted production in mid-April in a single shift rather than their usual two shifts, with each plant assembling at least 2,000 vehicles every day. As a result, Tesla shipped out another 4,000 locally-made vehicles to Europe on May 15, four days after its first shipment of 4,767 cars set sail from the Port of Shanghai – the first to do so since the start of the sweeping lockdowns in the city, Chinese media reported.

Supply chain hurdles: Disruption related to labor and supply chains continues to impact auto firms, as many workers can’t return to their workplaces due to inflexible Covid-19 control restrictions in many parts of the city. Tesla’s Shanghai facility reportedly idled most of its production lines for a few days earlier this month due to insufficient supplies, when Aptiv, one of its key parts suppliers, halted shipments of some parts due to new Covid cases at its local plant.

Auto supplier giant Bosch has only experienced a partial recovery with output at around 30%-75% of its pre-pandemic levels at several manufacturing sites, a result of worker shortage and supply chain crunch, its China president Chen Yudong said at a May 11 press conference, while also calling for the easing of Covid restrictions. 

The auto firms that have resumed operations represent only a fraction of the 20,000 parts suppliers, big and small, located in Shanghai and nearby regions, state-owned media outlet China Newsweek reported on May 11, citing several experts.

Weak Q2 guidance: Analysts expect output to slightly recover in May but believe a full recovery is still some way off, as the industry struggles with massive uncertainty caused by Covid lockdowns. Li Auto, which has a production base in the eastern city of Changzhou, was among the automakers hit hard by the lockdown, releasing poor second-quarter revenue guidance on May 11 due to a likely disruption to parts supplies.

And yet, there is still a chance to make up for lost sales in China during the rest of the year if automakers can ramp up car output, given that a growing number of consumers feel safer traveling alone than taking public transport, experts say. In April, Tesla maintained its forecast of at least 50% annual growth for vehicle deliveries this year, despite saying that production volume could take a hit of 8% in the second quarter due to a month-long production halt at its Shanghai facility. The China Passenger Car Association predicted that total passenger vehicle sales may face zero growth to remain at 20.1 million units this year, compared with 2021’s growth rate of 4.4%.

Driverless cars get a push from China’s capital

In a rare step, Beijing authorities announced on April 28 that Baidu and Pony.ai have been authorized to participate in the country’s first pilot program to provide driverless rides to the public in test vehicles. Following the move, Baidu and Pony.ai began by operating 10 and four autonomous vehicles, respectively. The vehicles operate without safety drivers on public roads in an area of 23 square miles in the city’s southeast Yizhuang district. However, each vehicle has a company employee overseeing the journey in a passenger seat, and the firms are not allowed to charge a fee for now.

Chinese self-driving car companies have faced a long and arduous reality check since a wave of early hype and hopes of scaling the technology. Now, regulators are giving the industry a boost by permitting the offering of autonomous services to the public in the country’s capital city – with no human safety driver at the wheel. Concurrently, the race to prove robotaxis are a viable business is intensifying among the top contenders.

AVs undergo reality check: Despite the milestone in Beijing, few of China’s self-driving car startups are making any money, and venture capitalists have been cooling on the companies over the past year, particularly those with little to show commercial prospects. Total investment activity for robotaxi companies fell by 22% annually to $8.4 billion in much of 2021, data compiled by startup data platform PitchBook and obtained by Reuters showed.

Major players are working hard to live up to their promises. WeRide became China’s first self-driving company by testing completely driverless cars in the southern Chinese city of Guangzhou in July 2020. In January of this year, its fleet of 300 autonomous vehicles had logged 10 million kilometers after four years of testing. For Baidu, that number is more than double, and the tech giant said that it provided more than 320,000 autonomous rides in eight domestic cities as of last year, with plans to expand the service to 65 cities by 2025. 

Chinese battery makers’ profits slump amid supply chain issues

Drops in Q1 profit: Despite being buoyed by strong demand for electric vehicles in the country, Chinese battery makers are facing a profit squeeze as the global supply chain continues to buckle under the pressure of rising costs, limited raw materials, and manufacturing disruption. On April 29, CATL reported a year-on-year profit tumble of 41% to RMB 977 million for the three months that ended in March, which came in far below expectations of a RMB 5 billion profit from multiple analysts. It was CATL’s first quarterly decline in net profit since 2020. Meanwhile, profits of the Volkswagen-backed Gotion declined 33%, while Sunwoda, a lesser-known supplier invested in by EV maker Li Auto, also saw a 26% decline in profits despite double-digit revenue growth.

Q2 easing expected: Margins for battery makers have been dragged down by surging raw material costs made worse by the Russia-Ukraine conflict and a global pandemic. An index for battery-grade lithium prices increased by 127% in the first quarter of this year, after a 280% surge in 2021, according to data provider Benchmark Mineral Intelligence. The costs of nickel and cobalt also exploded during the first three months of this year, which hit battery suppliers hard since many of them had negotiated quarterly price terms with automakers for the period up to last December.

Analysts estimate that the supply shortage of raw materials will slightly ease starting in the second quarter of 2022 as battery suppliers step up efforts to secure minerals and expand production capacity. Margins are also expected to improve as most battery makers increased the prices of their products in March by at least 15% for the second quarter, China Securities Journal reported on April 28, citing company sources. This rally in material costs has been reflected in the recent price increases for EVs, ranging from RMB 2,000 to RMB 30,000, although analysts expect that EV sales will maintain their growth momentum this year, boosted by inflated oil prices.

On Tuesday, China’s top political advisory body held a consultation session to discuss digital economy development with leaders from the country’s private sector firms. Baidu CEO Robin Li and NetEase CEO Ding Lei attended the meeting and made proposals. Vice Premier Liu He emphasized support for a healthy platform economy, the country’s private sector, and overseas listings. 

Why it matters: Industry observers believe the anticipated meeting is a barometer for whether the country will loosen the crackdown on the tech sector that began in late 2020 and accelerated last summer. Despite the lack of an apparent reference to the crackdown, the meeting supported a healthy platform economy and the private sector, which can be read as a sign that the crackdown will ease. 

Details: The meeting re-emphasized many of the goals previously put forth in long-term economic plans, including optimizing data management and the trade of data, the facilitation of a national data center system, the continued construction of an industrial internet to help with smart manufacturing and more. Baidu’s Robin Li proposed that the government should consider loosening restrictions for companies to test autonomous cars, while NetEase’s Ding Lei proposed a wider adoption of China’s digital yuan. 

• Wang Yang, China’s top political advisor and chairman of the Chinese People’s Political Consultative Conference (CPPCC), hosted the meeting. 
• Vice Premier Liu He also attended and addressed the meeting. According to state news agency Xinhua, Liu said “the country should support the sustained and healthy development of the platform economy and private sector” and encouraged platform companies to participate in major national science and technology projects. Liu also stressed support for “the listing of digital companies in the capital markets at home and abroad,” for which he first showed support in a March 16 high-level government meeting. 
• Robin Li, CEO of Baidu and a member of the CPPCC, proposed that government should speed up the digitization of China’s infrastructure and relax policies to allow companies to better test autonomous driving. For example, Li said artificial intelligence could help cut down costs on the country’s flood control system. 
• Ding Lei, CEO of NetEase and a member of the CPPCC, suggested more comprehensive promotion and adoption of the digital yuan, such as using it to pay for utilities, buy stocks, and pay for daily deliveries. 
• More than 100 delegates attended the meeting, of which 29 experts and CPPCC members addressed the meeting directly. Delegates attended the meeting virtually as well as in-person. 

Context: In February, the CPPCC held a videoconference meeting with firms in Hangzhou to discuss how to grow digital economies. That meeting was held in preparation for the meeting this week. 

• China’s tech sector has seen its market value tumble since late last year, as the Chinese regulator tightened regulation on monopolistic behaviors and overseas listings. In two years, the top five Chinese tech firms combined have lost nearly half of their market value. 

On Monday, China resumed issuing new gaming licenses (in Chinese) after pausing it for eight months when the country began a broad crackdown on content, gaming, and the education sector last summer. 

Why it matters: The halt on new gaming licenses led to an 8-month-long winter for the gaming industry in China, forcing many game makers to downsize, cutting down on development projects, and laying off staff. 

• Small studios took the heaviest hit during the license freeze. About 14,000 small gaming companies and gaming-related firms reportedly went out of business by the end of 2021, according to the South China Morning Post.

Details: On Monday, China’s National Press and Publication Administration (NPPA)  released a list of licensed games for April, made up of 45 Chinese games. It’s the first list of licensed games released by the administration since last July, with new licenses put on hold since August.

• Major Chinese gaming companies like 37 Interactive, Lilith, and Baidu were all granted new licenses this month. However, the country’s two largest gaming companies, Tencent and NetEase, were absent from the list.
• 89% of the approved games are made for mobile platforms, while 9% are for desktop devices. The list of newly licensed games also includes one indie title for the Nintendo Switch, called “Clocker.” The game was initially released on the desktop gaming platform Steam and received a favorable rating of 84%.
• The list of newly licensed games does not include any overseas games, which have become increasingly attractive for Chinese players as they face tighter regulations at home.

Context: China has strict rules for publications, which apply to video games. Companies must apply to NPPA for gaming licenses to publish new games. In the seven months of 2021, before the freeze, China issued 675 gaming licenses, averaging 96 per month. 

• Chinese authorities had initiated long periods of gaming license freeze in the past. In late 2018, the gaming industry saw 80 new licenses approved after a 9-month hiatus. 

• In addition, stricter rules for Chinese gaming companies at home pushed NetEase, Tencent, and others to focus more on developing games for the overseas market.

On Wednesday, the US Securities and Exchange Commission (SEC) added five more Chinese companies, including search giant Baidu and video streaming site iQiyi, to a growing list of companies that may face delisting from the US stock market. Market analysts expect the list to grow.

Why it matters: The US regulator’s possible delisting push targeting Chinese companies brings further uncertainty to volatile Chinese tech shares, which have experienced a turbulent year due to regulatory crackdowns in their home country.

• The SEC’s delisting moves may expand. Paul Gillis, an accounting professor at Peking University, wrote in a March 24 tweet that he believes all 271 Chinese companies listed in the US will eventually be added to the delisting list after they file annual reports with an opinion from a Chinese auditor, which is due May 2. Bill Bishop, the author of the China commentary newsletter Sinocism, echoed a similar view in the Thursday newsletter. 
• On March 16, Vice Premier Liu He held a high-level meeting. He signaled China’s willingness to discuss with US authorities to keep the country’s companies investible in the US, saying that a concrete cooperation plan is underway while officials of the two countries are “maintaining good communications.”

Details: In a Wednesday statement, the SEC named five Chinese companies – Baidu, iQiyi, online brokerage platform Futu Holdings, aquaculture equipment provider Nocera, and biopharmaceutical company CASI Pharmaceuticals Inc. – to its provisional list for possible delisting.

• The US regulator gives these companies 15 business days to submit evidence to oppose the commission’s charge, meaning a deadline of April 20.
• On Wednesday, Baidu closed down 2.6% on the Nasdaq market. iQiyi closed up 0.4% but dropped 3.8% in after-market trading. Futu slid 2.9%. 
• Baidu said in a Thursday response that it has been “actively exploring possible solutions.” The company pledged to comply with applicable laws and regulations in China and the US and strive to maintain its listing status on Nasdaq and the Hong Kong stock exchange.
• The market reaction was calmer compared to the SEC’s first round of delisting announcement of Chinese companies on March 10. Share prices of included companies tumbled as much as 25% back then. A more expected move from the SEC and Chinese regulators’ previous proactive stance may help explain the market reaction.

Context: In December 2020, the Holding Foreign Companies Accountability Act (HFCAA) became law in the US. The statute bars the trading of non-US companies on the US stock market if it can’t provide accounting access to US regulators for three consecutive years. Chinese laws have long prohibited foreign regulators from accessing Chinese capital market documents, putting US-listed Chinese companies in the crosshairs of HFCAA. The aforementioned Chinese companies are among the first batches to be identified for being in alleged breach of the act.

• Wednesday’s announcement brought the total number of companies on the SEC’s delisting watchlist to 11 after naming six firms earlier this month. On March 10, the SEC put five Chinese companies on potential delistings for the first time. They are fast-food chain Yum China Holdings, biotech groups BeiGene, HutchMed Limited, Zai Lab Limited, and technology firm ACM Research. It added Weibo to the list on March 23.

The article has been updated with Baidu’s statement. 

China’s IT regulator urged tech companies to stop forcing users visiting web versions of their services to download apps in a Thursday meeting.

Why it matters: The suggestion could cut profits from major internet companies as they might see app users and data decrease. Chinese internet companies often use their web applications to attract new users to mobile apps, from which they can collect users’ information and promote products more easily, especially after browsers start to set a stricter countermeasure to protect users’ privacy.

• Chinese tech companies such as Baidu, Weibo, Zhihu, and Sohu, often require users who visit the mobile web version of the services to download their apps, or else, limiting their access to the mobile web services or trick them into clicking an adjacent button to download the apps.
• Compared to Chinese social media companies, global service providers like Facebook, Twitter, and Reddit have focused on building more app-like features into their websites, making the web experience more pleasant.

Details:  The regulators made the urge following a public complaint. On Feb. 11, a user complained that many tech companies forced people to visit a mobile web version of their services to download apps, according to a complaint posted on state media People’s Daily’s leadership message board. The board allows users to post suggestions for leaders of relevant ministries in China. The Ministry of Industry and Information Technology (MIIT), China’s administration for the IT industry, responded to the complaint, promising they would conduct in-depth research on forced app installation.

• MIIT asked service providers to stop forcing users to download apps without their approval and add a prominent option to cancel downloads. 
• MIIT also asked service providers to provide better mobile web users’ experience, avoiding using techniques such as folding web pages, pop-up windows encouraging app downloads, and frequent alerts. 
• At the time of the publication, Zhihu and Sohu have gotten rid of their app install walls, while Baidu Tieba still requires users to download apps to read full threads.

China’s gaming companies are cutting off projects and staff as the industry still lacks permission to release new games, Chinese media outlet Hongxing News reported on Tuesday. 

Why it matters: China’s gaming industry has achieved steady growth despite increased regulation, with the actual sale revenue of self-developed games in the domestic market reaching RMB 255.8 billion ($40.4 billion) last year. However, the growth rate dropped sharply from 26.7% to 6.5% since 2020, according to a China Audio-video and Digital Publishing Association report.

• China’s National Press and Publication Administration (NPPA), the state’s regulator for news, prints and publications, stopped issuing new game licenses since July last year, without which new games cannot be released legally.
• Gaming companies have been forced to cut projects and lay off staff. About 14,000 small studios and gaming-related firms went out of business in 2021, South China Morning Post reported late last year. 

Details: News about Shanghai gaming industry leaders laying off workers and cutting projects began to circulate on the Chinese internet in the past few days. Companies like Netease, Baidu, Lilith, IGG, and Perfect World have made cuts, Hongxing reported. 

• Insiders from Lilith, one of China’s largest gaming companies by revenue, said that it has canceled the game Apocalypse Eden due to licensing problems. Members of the project team had been transferred internally.
• Another insider from Netease told Hongxing that the company had begun pausing developing projects as early as August last year and reassigned employees internally. Some staff have chosen to leave.
• An unnamed internal employee at IGG, a Chinese gaming company focused more on the foreign market, confirmed that it has cut staff in its Shanghai and Fuzhou offices, while continue to keep the lights on international gaming projects.
• Perfect World, the official operator of Dota 2 in mainland China, had already streamlined hundreds of employees in the fourth quarter of 2021.

Context: The last batch of games approved by the NPPA were granted licenses last July, seven months ago. The Chinese gaming industry was hit with a similar freeze in 2018, when new game approvals were stopped for nine months.

• Companies like Tencent and Netease were summoned to talk with regulators last year about “profit-making practices” as new regulations restricting playtime for minors were implemented. 
• Last September, new rules restrict minors playing video games to just one hour on Fridays, Saturdays, and Sundays, as well as on holidays.

As Beijing prepares to close the 2022 Winter Olympics, TechNode selects five notable pieces of technology built by Chinese companies that left an impression during the two-week games.

Two Chinese display manufacturers, Leyard and BOE, supplied the floor display screen for the opening ceremony. BOE also provided power-saving athlete nametags. Baidu Cloud and other startups developed a virtual host to translate sign language. Alibaba Cloud provided high-definition panoramic footage for selected games. Remote-controlled beds built by Chinese company Keeson became a social media hit during the game, while iFlytek provided live translation services with a 95% accuracy rate. 

8K floor display

For the Feb. 4 opening ceremony, Chinese display maker Leyard and BOE supplied most of the screens used in the 100-minute program. Leyard, which was also the supplier for Beijing Olympics in 2008, provided most of the displays used in the ceremony. On the other hand, BOE designed the giant snowflake and the rest of the floor display.

The two companies together supplied a ground screen system with 8K resolution. The ground display covered 10,393 square meters (largest in the world) with 8K resolution, 100,000:1 ultra-high contrast (100 times the average display), and a 3840Hz refresh rate (30 times the average).

BOE also built a power-saving nametag that could charge via phone. The tag is an E-ink screen, which consumes little power for its feature. E-ink requires power only when users need to change the display content, and it tends to have a longer battery life than traditional smartphone screens. The tag does not contain a battery. Instead, it charges wirelessly through phones, using near-field communication tech, which comes with most smartphones.

Another unique part of this name tag is that the screen could display red color, while the traditional E-ink screen displays only black and white colors. In addition, the tag could display more vivid content with three colors.

Virtual host

China’s state broadcaster CCTV developed a virtual host named “Ling Yu” to translate sign language with Chinese tech companies Baidu Cloud, Zhipu AI, and Luster. Zhipu and Luster are artificial intelligence startups. Zhipu mainly develops virtual humans and enhances them with AI and data, while Luster focuses on computer vision and imaging, giving the virtual host a presentable look. The sign-language translator has an elegant look, appearing on all CCTV broadcasts.

Virtual humans have gained great popularity in the investing circle and are seen by some companies as an essential part of the metaverse.

Cloud-backed live broadcast and panoramic game views 

Alibaba Cloud, the cloud service unit of the Chinese e-commerce giant, supplied live game footage for the Olympic games. The 2022 Beijing Winter Olympics chose to store and transfer live footage through cloud services rather than traditional transmission methods, the second Olympics to do so, after the 2021 Tokyo summer games. The cloud system eliminated the need for media outlets to bring in satellite news trucks and customized networks. 

The cloud unit also provided special panoramic views in curling and speed-skating games. The view allowed users to adjust the point of view in a 360-degree panoramic video. Called the bullet time, the visual impression is named after the science fiction cult movie “The Matrix” and gives viewers an immersive experience. 

Alibaba Cloud delivered more than 6,000 hours of live footage via its cloud system to media outlets worldwide. The cloud subsidiary became the International Olympic Committee’s exclusive cloud network provider in 2017. 

Remote-controlled smart beds

Chinese company Keeson supplied 7,000 smart beds for the Olympic Village. These beds come with a foam mattress and a remote controller with eight functions, allowing athletes to easily change sleeping positions and mattress support levels.

US luge athlete Summer Britcher helped create an online discussion about the bed when she uploaded a TikTok video comparing the bed’s comfort level with the cardboard bed used in the 2021 Tokyo Olympic Village. Britcher called the smart bed’s Zero-G mode “phenomenal.” The bed-maker Keeson said the Zero-G mode adjusts the level of the head area a little lower than the foot area, minimizing heart pressure and helping people to relax. 

Keeson delivers more than 90% of its products to overseas, including North America and Europe. 

Highly-accurate live translation

Chinese voice recognition company iFlytek provided full translation services for the games, with portable translation terminals, recording pens, remote meeting systems, and more.

The company’s service can translate more than 60 languages in verbal communication, including voice recognition and synthesis, according to the company’s announcement. The system can imitate a human-like voice when translating verbally using voice synthesis technology while using voice recognition to help the machines to understand human language. The company said it can achieve up to 95% accuracy when translating between Chinese and other major languages. For context, Google translation has an average accuracy of 81.7% when translating between Chinese and other languages in medical situations, according to a study conducted by the UCLA Medical Center and the Memorial Sloan Kettering Cancer Center in New York.

Baidu’s electric vehicle (EV) project Jidu Auto announced on Wednesday that it has raised nearly $400 million in Series A as the Chinese search engine giant accelerates the development of EVs with self-driving capabilities.

Why it matters: Jidu will use the proceeds on research and development as the company aims to unveil a concept car in April later this year and release its first production model in 2023, according to the announcement.

Details: Baidu and its manufacturing partner Geely both raised their stakes in Jidu by jointly investing almost $400 million in the venture. The two companies didn’t reveal the sharing ratio. 

Context: Baidu and Geely linked up last January with a deal that would allow the tech giant to make its own consumer EVs with autonomous driving capabilities.

• The result was the establishment of the RMB 2 billion ($316 million) joint venture Jidu Auto two months later, with Baidu and Geely holding 55% and 45% of the total shares, respectively, according to business research platform Tianyancha (in Chinese).
• Baidu has operated an autonomous driving unit testing its vehicles in China and the US since 2015. It began commercial autonomous ride-hailing services for passengers in Beijing in November last year, and plans to expand the service to 65 domestic cities by 2025.  
• Early last year, Geely also launched its own premium EV brand Zeekr, which raised $500 million a few months later from a group of investors, including China’s biggest battery maker CATL and streaming giant Bilibili.
• Geely reportedly plans to acquire Alibaba-backed smartphone maker Meizu as part of its long-term electric mobility vision.

Youzan, one of China’s largest e-commerce service companies, is reportedly planning to lay off 1,500 people, or nearly 30% of its employees. The company is the latest Chinese tech firm to cut workers as Beijing enters the second year of tightening regulations. 

Why it matters: Youzan, which develops software helping merchants to sell products on various Chinese online platforms, has faced substantial challenges as one of its major clients, social video giant Kuaishou, is developing its own software services as it aims to rake more profit from the booming livestream retail sector.

• The contribution from marketers on Kuaishou has fallen by half from its highest level when it accounted for 20% of Youzan’s gross merchandise volume (GMV) in the first half of 2021, according to its interim financial report released in August.

Details: Earlier this month, Hong Kong-listed Youzan kicked off a wave of layoffs in departments involving research and development (R&D), Chinese media Sina Tech reported Thursday, citing people with knowledge of the matter.

• More job cuts will be conducted among various departments this year, as the people estimated that more than 1,500 employees would be forced to leave the company. Hangzhou-headquartered Youzan had 4,358 employees as of Sept. 30.
• The company recently parted ways with Chen Jinhui, a former executive at Baidu’s takeaway service who joined the company as a vice president of sales channels in mid-2017.
• Youzan did not immediately respond to TechNode’s request for comment.

Context: Multiple Chinese big tech companies, including Bytedance, Baidu, and Kuaishou, have been carrying out layoffs and lowering their growth targets amid a slowing economy and a tightened regulatory environment.

• Youzan reported a 10% year-on-year decrease in revenue to RMB 1.17 billion (around $185 million) for the first three quarters of 2021, while its losses nearly doubled from RMB 340 million in the same period of 2020.

Read more: INSIGHTS│The TechNode community reviews China tech 2021

On Tuesday, China’s search giant Baidu opened internal testing of a major update for Xirang, the company’s virtual reality app. The app will host the company’s AI developer conference next week, kick-starting Baidu’s effort to become an infrastructure platform in the metaverse. 

Why it matters: Baidu hopes the upgraded app and the conference will showcase the company’s AI capabilities and draw in developers to create content and help build a virtual world. 

• In the past decade, Baidu has been transitioning from a search company to an AI company. The tech giant sees the metaverse as an opportunity to further commercialize its AI capabilities, such as cloud computing, voice and visual intelligence, natural language processing, and knowledge graphs. 

Details: The Xirang upgrade will allow the app to host a three-dimensional virtual conference that can accommodate 100,000 concurrent online attendees. Initially, the pandemic pushed the company to develop the app as a virtual alternative to hosting large in-person tech conferences, but Baidu has further developed the app amid the rise of the metaverse this year. 

• Baidu started working on Xirang in December 2020. It released the first version at the hackers’ conference Def Con in March 2021, and an upgrade at Baidu’s World Conference in August. 
• Baidu plans to roll out at least one major upgrade every year, Baidu’s Vice President and manager of Xirang Ma Jie told a Beijing press conference on Tuesday. Baidu is calling the about-to-be-released version a “-6.0”, saying the app needs at least six more years to be fully ready, but it wants to work to that point openly. 
• Ma added that Baidu “doesn’t plan to do everything ourselves… We have left many unsolved issues in this version and want to invite everyone to help us fill in the imperfections.”
• Baidu will release the upgrade on Dec. 27. It will also host a conference and a developer contest at the same time. Winners will get to display their work in one of the app’s spaces. 

READ MORE: Metaverse in China: Investors and tech leaders say they are prepared

Context: Baidu is on track to become the first major Chinese tech company to release a metaverse-focused application. Tencent, Alibaba, and ByteDance have also expanded and invested in the metaverse this year. 

• Xirang is named after a concept in the Chinese mythical story collection called Classic of Mountains and Seas (Shan Hai Jing in Chinese), thought to have been first written some 2,400 years ago. In the book, xirang was a small piece of land used by the mother of a goddess (Nüwa in Chinese) to repair a pillar of heaven. The land could grow infinitely.

Baidu announced on Dec. 10 that it will update its virtual reality app Xirang (meaning “land of hope” in Chinese) at the end of December and use it to host a virtual event that can accommodate more than 100,000 online attendees. 

Why it matters: China’s search giant has been looking for ways to leverage its AI capabilities in the burgeoning metaverse field. This update is a sign of Baidu’s ambitions in the three-dimensional online space. 

READ MORE: Metaverse in China: Investors and tech leaders say they are prepared

Details: The company called the app “the first Chinese-made metaverse product” in a Dec. 10 press release. Baidu said the upgrade will offer an immersive virtual planet with experiences such as touring China’s Shaolin Temple and the Sanxingdui Museum, an important archeological site in Sichuan. 

• Baidu will host its annual AI developer conference “Create 2021” on the Xirang app this year, the first time the conference will take place virtually since it launched four years ago. The company said the app will allow up to 100,000 attendees to experience immersive and interactive sound and visual effects simultaneously.
• In the press release, Ma Jie, Baidu’s Vice President and Xirang’s manager, said the metaverse industry is in its very early exploratory phase. “We need a community and a long time to build it,” he added.
• After the upgrade, people will be able to log in on Xirang via various devices, including computers, phones, and wearables, to attend virtual conferences, shop, meet new people, and tour exhibitions. 

Context: Baidu has been developing the Xirang app for months, even before the metaverse concept became popular in the Chinese market this summer. The popularity of the metaverse has partly motivated Baidu to upgrade the app. 

• In early November, Baidu’s Vice President Ma Jie said at a Baidu AI event (in Chinese) that the company plans to develop VR content platforms and VR interactive platforms for content creators in the metaverse. 
• Baidu is not the only Chinese tech giant making moves in the metaverse. ByteDance has invested in several metaverse-related companies, including VR headset maker Pico. Alibaba Cloud, a subsidiary of the e-commerce giant, announced a “metaverse” solution in November to provide cloud and other technical support for metaverse-related applications. 

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this earnings episode, the guys welcome back Michael Norris to discuss September quarter earnings for Baidu, Tencent, and Alibaba. They also answer some listener questions towards the end about which company will benefit the most from opening walled gardens as China ramps up antitrust regulations.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• Bilibili
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Kuaishou

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Guest:             

• Michael Norris – @briefnorris

Editor:

• Peter Isachenko

Podcast information:

• iTunes
• Spotify
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

China’s tech giant Baidu officially launched an autonomous ride-share service in the capital city Beijing, after receiving the country’s first permit for commercial robotaxi services.

Why it matters: This is the first time that the Chinese government has allowed companies to legally charge Uber-like fees to the public for their robotaxi services, a major milestone for Chinese self-driving car development. 

Details: The service, known as Apollo Go (or Luobo Kuaipao in Chinese), ferries passengers around a 60 square kilometer (around 23 square miles) area in the Beijing Economic and Technological Development Zone in the south of the city, Baidu said on Thursday.

• A 55-year-old female resident surnamed Yuan took the first commercial trip on the platform and paid RMB 1.34 ($0.2) for her 3km ride (with a 95% discount), according to an announcement released Thursday (in Chinese).
• Qualified users can locate one of 67 autonomous cars in the vicinity and hail a ride by themselves by using the Apollo Go App. Baidu is currently operating the fleet from 7 a.m. to 10 p.m. each day in the area.

Context: Baidu, as well as self-driving unicorn Pony.ai, obtained approval from the head office of the Beijing High-level Automated Driving Demonstration Area to start charging for rides using autonomous vehicles (AVs) in the zone, China Daily reported on Thursday.

• Pony.ai said in an announcement (in Chinese) that it will gradually transition its free trial service, which began in April, into a commercial one in the future, without revealing further details.
• Baidu in May launched a fully driverless, paid robotaxi pilot project using 10 AVs in the Shougang Industrial Park on the outskirts of Beijing, and plans to expand the fleet to more than 100 vehicles during the Beijing Winter Olympics next February.
• The search engine firm claimed its robotaxi project offered 115,000 rides during the third quarter of this year, and its testing vehicles had logged 10 million miles as of September. Google’s self-driving unit Waymo announced in January 2020 that its vehicles had driven 20 million miles on public roads, Quartz reported.

Baidu announced on Tuesday that its highway driver-assistance system will be available to customers for the first time via electric vehicle maker WM Motor. The search engine giant is rushing to lead the race in popularizing partially automated features on consumer cars in China.

Why it matters: Advanced driver assistance systems (ADAS) technology is increasingly considered a major stepping stone to fully autonomous vehicles. Major Chinese auto and tech companies are looking to seize the growing market potential.

Details: The new WM Motor W6 sports utility model will have 29 autonomous driving sensors and Baidu’s Apollo Navigation Pilot (ANP) software. The vehicle will have semi-autonomous driving capabilities, such as automated lane changes on highways, according to an announcement sent to TechNode on Tuesday.

• Backed by Baidu since 2017, WM Motor announced it began delivering an earlier version of the W6 fitted with Baidu’s robotic valet parking feature at this year’s Auto Shanghai show.
• Baidu has also been working with automakers, including Geely and GAC, aiming to supply its Apollo autonomous driving system to 1 million vehicles within five years, Reuters reported in April, citing Li Zhenyu, a senior vice president at Baidu.
• No official release date for the updated WM Motor W6 was announced.

Context: Market research firm BlueWeave Consulting estimated that the global ADAS industry recorded $25 billion in revenue in 2020, and that number is expected to nearly triple by 2027, according to a Financial Times report.

• In April, Huawei and its manufacturing partner BAIC co-launched the first consumer EV equipped with Huawei’s autonomous driving technology and are on track to begin delivery in the fourth quarter of this year.
• Shanghai-based WM Motor delivered 13,378 vehicles in the third quarter of this year, representing a 137.5% increase from the same period last year, according to a statement (in Chinese).

JD.com and Baidu have jointly invested $400 million in elevator advertising firm Xinchao Media Group.

Why it matters: The two Chinese tech giants are returning investors in the Chengdu-based media company. The deal is a major external investment for JD following a management reshuffle. In May, Hu Zhengwei, the former executive board of investment firm Warburg Pincus, became JD’s investment unit head, replacing JD’s vice president Hu Ningfeng. 

Details: The deal makes JD the largest shareholder of Xinchao, according to a report by China STAR Market. Xu Lei, president of JD, is now a board member of Xinchao.

• JD confirmed the investment with TechNode but declined to disclose the specific amount it invested.
• Xinchao’s corporate website says the company is valued at more than $2 billion. 

Context: Xinchao operates more than 650,000 digital advertising panels in elevators across 105 Chinese cities, reaching 200 million middle-class consumers and serving more than 23,000 clients, according to the company website.

• JD led a RMB 1 billion investment in Xinchao in 2019, while Baidu led a RMB 2.1 billion fund in the elevator-ad company in November 2018. Other investors include home furnishing chain store Red Star Macalline, classified ad site 58.com, and edtech platform TAL Education.
• The company plans to invest RMB 10 billion in the next five years, aiming to operate 2 million digital ad panels and reach 300 million to 500 million middle-class Chinese residents.
• JD.com’s e-commerce rival Alibaba has made similar investment moves, holding a 6.6% stake in Focus Media, another elevator ad company, after investing $15 billion in July 2018.

Baidu practically owns search in China, controlling nearly 80% of the sector. Its closest competitor, Sogou, holds just 11%. There’s just one problem: web search isn’t the cash cow it used to be, and Chinese internet users now spend more time in apps.

Advertising revenue is the primary source of income for search companies, and Baidu’s ad business has seen growth slow to a crawl over the past few years, with a few quarterly exceptions. The AI giant has been hamstrung by the decline of web search, rising competition from rivals like ByteDance and Alibaba, and accusations of bad behavior like prioritizing its own search results and allowing ads for questionable medical treatments. 

The company is trying a full-blown pivot, even telling people it’s no longer a search company. The story it’s telling now is about AI.

“As we enter 2021, Baidu is well positioned as a leading AI company with a strong internet foundation to seize the huge market opportunities in cloud services, autonomous driving, smart transportation, and other AI opportunities,” Baidu CEO Robin Li said in the company’s fourth-quarter earnings report. 

And it could be working. Baidu’s new businesses have grown and the company’s investments in new technologies are starting to mature. In 2018, non-ad revenue made up just 17% of its sales. Now, more than a third of the company’s revenue comes from its other businesses, including enterprise services like AI cloud and its consumer-facing smart speaker business.

Bottom line: Baidu really is changing. It still gets most of its revenue from search and advertising, but cloud services are driving growth and now account for a substantial part of revenue. The company’s long-term plays on AI and autos could pay off in a few years. 

Search in decline

Beginnings in search: Founded in 2000 as a search engine, Baidu quickly became a household name, growing alongside China’s ballooning internet population. At the time, there were just 22 million internet users. 

Ten years later, that number was nearly 460 million—and Baidu’s search business was booming. Between 2009 and 2010, the company’s ad sales increased by nearly 75% to reach RMB 7.9 billion.

Along with Alibaba and Tencent, Baidu was synonymous with big tech in China: the three companies were collectively known as BAT, much like FAANG—Facebook, Amazon, Apple, Netflix, and Google—in the US.

A staggering giant: But in the last few years growth has mostly slowed. In 2020, Tencent overtook Baidu in digital ad revenue for the first time, according to market research firm eMarketer. Analysts now typically count Baidu out of the tech major leagues in China, even proposing that ByteDance replace the company in the BAT triumvirate. 

• “Baidu has had trouble attracting search ad dollars,” eMarketer forecasting writer Ethan Cramer-Flood, wrote last year. “Advertisers are showing that they increasingly prefer the reliability of Alibaba’s platforms for their search spend,” he said, referring to the ads Alibaba serves directly on its e-commerce platforms.
• The company has faced a slew of challenges, including issues of trust, decreasing dividends as the number of new people using the internet slows, and increased competition from rivals. 

Slowing search: Web search in general has declined, and information is often confined within apps. Internet users now engage more with content in WeChat, Xiaohongshu, and Douyin.

• Instead of using search engines to find information on the internet, users spend more time looking for information in WeChat, browsing products on social networks and livestreaming platforms like Douyin and Xiaohongshu, and services on Meituan. There’s just not a lot of profitable search left. 

In the first quarter of 2019, Baidu reported a quarterly net loss for the first time since it went public in 2005.

• “Given the current macro conditions, tighter government scrutiny on content, cutbacks from the VC community and so forth, we are taking a cautious view that online marketing in the near term will face a more challenging environment,” Li said during the company’s Q1 2019 earnings call. 
•  In the second quarter of the same year, the company’s revenue growth flatlined. Since then, with the exception of the first quarter of 2021, the company’s revenue growth has stagnated or declined.
• Baidu, like many others in China, was hit by the Covid-19 outbreak at the beginning of 2020. 

Advertising’s not out: While the proportion of revenue that comes from advertising has shrunk, it still currently makes up the majority of Baidu’s total—and search encompasses a large part of that. 

The company currently makes money by selling ads that get displayed with search results or on other platforms like newsfeed and search app Baidu App and Reddit-like community platform Baidu Post.

The company’s mobile ecosystem, which includes Baidu App, user-generated, medium length video platform Haokan, and Baidu Post, is a large driver of its growth, Baidu said in its Hong Kong IPO prospectus.

• “We generate revenue primarily from providing search, feed, and other marketing services, which account for a majority of our total revenues,” Baidu said in the prospectus. 
• Baidu App had 544 million monthly active users in December. The app aggregates content and services from third-party apps and websites.

Seeking new growth

Baidu is betting on two new areas to secure growth: cloud services; and “other” initiatives, including intelligent driving, mapping, smart devices, and AI chips.

Li said that non-ad businesses, including cloud and its other growth initiatives, could become its primary source of income over the next three years during Baidu’s May earnings call. 

Baidu, the cloud company? Cloud services drive a major portion of Baidu’s current growth. The company restructured in 2018 to place greater emphasis on cloud computing and artificial intelligence. In an internal note at the time, Baidu’s Li wrote that the company sees these businesses as the cradle of “new growth engines.”

• The company provides several cloud products, including storage space, computing power and cloud-based software services, as well as several AI and big data products for speech recognition and synthesis, facial recognition, and image recognition.
• Collectively, these platforms allow developers and companies to access computing and power and storage that can process information that they might not be able to handle on their own computers or servers.
• Baidu’s AI cloud services also give users access to AI tools and components and pre-trained machine learning models.
• At the end of 2020, Baidu was China’s fourth largest public cloud provider, according to market research firm Canalys, driven by growth in government, enterprise, transportation, and healthcare sectors.
• The company has attributed much of its non-ad business growth to its cloud business. In the first quarter, revenue from its non-ad businesses was up 70% year on year, driven primarily by “cloud and other services,” Baidu said. 
• Revenue from AI cloud reached RMB 2.8 billion, up more than 50% year on year, equivalent to half of the company’s non-ad revenue for the quarter.

What’s next for Baidu?

Push for AI: Baidu has invested heavily in AI since 2010, hoping that it will propel future initiatives like intelligent and autonomous driving. The technology is currently used in the majority of the company’s products, including its cloud and search businesses. 

• Baidu has more AI patents than any other company in China, according to a report by the China Industrial Control Systems Cyber Emergency Response Team and the Electronic Intellectual Property Center, two units under the Ministry of Industry and Information Technology.
• The company released an open source deep learning platform called PaddlePaddle in 2016, a framework to rival Google’s Tensorflow and Facebook’s PyTorch. In April, it released PaddlePaddle 2, an updated version of the framework. Paddle Paddle has been forked 4,000 times on Github, while PyTorch has been forked 13,500 times. 
• Baidu has also released natural language processing framework Ernie, a technology that helps computers understand and process speech. 

Taking on chips: AI is only as effective as the hardware it runs on. In 2018, Baidu announced that it was developing its own AI chip. 

• By 2019, Baidu’s first chip, dubbed Kunlun, was being used in its cloud servers to optimize “visual, speech, natural language processing, and other AI capabilities.”
• The company has since been developing the Kunlun 2, and spun off its chip unit. 
• In April the unit completed its first round of financing, valued at $2 billion. 
• Baidu’s AI chips are also used in its automotive businesses, including intelligent and autonomous driving. 

Future mobility: Projects related to autonomous vehicles and robotaxis make up a significant portion of Baidu’s bet on future revenue. The company hasn’t yet made its own cars. Instead, it’s been focusing on a self-driving package called Apollo it hopes other automakers will license and put in their own vehicles.

• Baidu has been testing Apollo on China’s streets for years. The company has accumulated 4.3 million test miles and been granted 199 autonomous driving licenses, as of December 2020. 
• The company has signed agreements with 10 Chinese automakers to deploy its Apollo self-driving services in their cars.
• These services currently include high definition mapping, automated valet parking, and semi-autonomous driving. As the technology matures, Baidu hopes to extend Apollo to include fully autonomous capabilities. 
• Apart from partnering with companies, Baidu has also teamed up with several local governments to provide robotaxi services, including southern China’s Guangzhou, Beijing and nearby Cangzhou, as well as Changsha in central Hunan province, and the southwestern municipality of Chongqing. 
• The company hopes that its early lead in autonomous driving in China will help it become a frontrunner in commercializing the technology. 

Bets on electric: Baidu is also making moves into China’s crowded electric vehicle industry. In April, the company partnered with automaker Geely to produce smart EVs. 

• The joint venture, dubbed Jidu, plans to spend RMB 50 billion over the next five years to develop smart car tech. 
• The two companies plan to launch their first vehicle in the next three years, Bloomberg reported. 
• “Partnering with China’s largest homegrown auto brand might help Baidu expand its ecosystem as it competes with other internet giants like Tencent and Alibaba,” Bloomberg Intelligence analysts Steve Man and Joanna Chen wrote. 

Is the pivot working?

So far, so good: Since the company has decided to go all-in on AI, its year-on-year growth has increased dramatically, but this may also be as a result of China’s Covid-19 recovery. 

• First quarter revenue reached RMB 28.1 billion, up 25% year on year. Nevertheless, the company’s revenue from the first quarter of last year was down significantly as a result of the fallout from the Covid outbreak in China. 
• At the same time, Alibaba saw its revenue grow by 22% and Tencent grew 25%. 
• Baidu CFO Herman Yu attributed the growth to “non-advertising revenue growing 70% year over year.” 
• On an earnings call, Yu said that the company’s AI businesses have started to mature and generate revenue. “You’re seeing us really starting with our firing power for our non-advertising AI businesses that we have incubated over the last decade,” he said.

Baidu on Thursday unveiled a new robotaxi model, called Apollo Moon, with a manufacturing cost significantly lower than competitors. The Chinese search engine giant hopes to expand its business and commercialize an autonomous ride-hailing service.

Why it matters: The robocar is not being sold, but manufacturing costs are now comparable to the price of a high-end consumer car.

• High cost is one of the main barriers for robotaxi to see wider use. French market intelligence company Yole Développement estimated in 2018 that a robocar cost at least $200,000 on average. 

Details: Baidu’s Apollo Moon will cost the company RMB 480,000 (around $75,000) to manufacture. It costs the company less to manufacture than its rivals, but it’s hard to compare with since these are internal costs making. 

• Ride-hailing giant Didi’s autonomous vehicle costs the company about RMB 1 million (around $155,000), about two times Apollo’s, according to a Chinese media report last June. Baidu said at a Thursday press event in Beijing that the robocar is at a third of the cost of competitors’.
• Co-developed with Chinese automaker BAIC Group, the electric test vehicle runs on Baidu’s driverless software and has a suite of cameras and sensors, including two lidar sensors that provide the car surrounding visuals.
• The company also announced plans to add more than 1,000 of these vehicles to a ride-hailing test fleet while aiming to commercialize a nationwide robotaxi pilot service over the next three years.
• According to Baidu’s announcement, the company currently has a testing fleet with more than 500 vehicles and logged over 12 million kilometers (around 7.5 million miles), since its founding in 2013. The travel distance is about a third of Waymo’s, Google’s self-driving unit.

Context: In mid-2019, Baidu began testing a public ride-hailing service in a downtown area of Changsha, the capital city of central Hunan province, after road testing in suburban areas and closed test sites for six years. 

• The company has since expanded the robotaxi service to more Chinese cities, including Beijing and Chongqing, but only in limited areas. It began charging passengers with 10 selected testing vehicles on the outskirts of Beijing last month, becoming the first company allowed to do so by the Chinese government.
• BAIC Group also partnered with Chinese telecommunication giant Huawei to deliver a consumer-facing car model called Alpha S by the end of this year. Huawei will provide software for a self-driving mode. Drivers still need to stay attentive in the self-driving mode.

As Chinese automakers pour money into autonomous vehicles (AVs), they’re relying on another emerging technology to be the eyes of self-driving cars: lidar. Chinese carmakers are promising that models with lidar will hit the road in the next six months, likely marking the first time the tech sees widespread commercial deployment.

What is lidar? Well, it’s a lot like radar, but it uses lasers. It can pick out details and see small things better—a small dog crossing the road, a pothole. It can see things other systems, such as cameras and radar, might miss. 

But established lidar systems are bulky contraptions that are proving hard to integrate into consumer cars. They’re expensive, too, driving up the price of cars that use them for self-driving functions. For now, it’s mostly seen on prototype robo-cars.

Despite the challenges, most Chinese AV contenders are counting on lidar.

Five Chinese lidar startups say that they’re close to making it work. It’s a tough act: the device has to be small enough to fit in a sedan, reliable enough to trust on the road, and cheap enough to fit into the price of a consumer car. While they won’t be the first to deliver road-ready systems, Chinese companies could be the first to do it at a practical price. 

In this week’s issue, we’ll meet China’s leading lidar players and see how they’re trying to make the emerging technology work.

Robo ski-racks

Most lidar systems on the road today are mechanical spinning lidar on AV prototype vehicles. You’ve probably seen one—they’re the ones that look like half a jetski, or three portly Alexas strapped to a ski rack. If you saw it in China, it was probably made by Hesai, the Baidu-backed startup that’s the dean of the field.

Hesai has dominated the experimental generation in China, making the systems used on most Chinese and some international prototypes. At least 10 out of the top 15 robotaxi startups worldwide are reportedly (in Chinese) among its clients, including Baidu, Didi, and Pony.ai. 

But to address size and durability, lidar makers are now turning to “solid state” sensors that eliminate most moving parts. These can fit the system into a small box, around the size of a lunch box, which fits easily into the grill or tucks under the roof of a car. But miniaturization creates new problems with range, price, and reliability.

In early 2019, Hesai unveiled its latest solid-state device, called Pandar GT and boasting a detection distance of 300 meters, but it is still validating the product and negotiating with auto clients, according to a prospectus filed by the company in January. 

So far, Hesai hasn’t found a customer to put its solid state technology into a production vehicle. Baidu, a leader in China AV tech, has skipped lidar for its self-driving package, known as Autonomous Navigation Pilot, despite years of collaboration with Hesai in mechanical lidars for its test fleets. Speaking to Chinese media during this year’s Auto Shanghai expo, Baidu’s vice president Wang Yunpeng said the company is developing a “reliable and affordable” lidar sensor for production cars with partners, without giving further details.

The key challenges

Five Chinese companies have made real progress on consumer-ready lidar, using a variety of approaches that strike different balances between range, price, and reliability, and reaching deals with major automakers to put their sensors into cars. But they each have difficult technical problems to solve. 

Huawei and Robosense, a Chinese lidar upstart backed by Alibaba, are betting on a technology called micro-electro-mechanical systems (MEMS), which uses a tiny mirror (1 mm to 7 mm in diameter) to steer light. With only this piece of glass moving, the whole unit can be smaller than one that has to rotate as a whole. Robosense is currently making lidar s¯ensors for US electric vehicle startup Lucid Motors.

Both MEMS players are struggling with range: the latest offerings from the two companies only work at distances up to 150 meters.

Experts believe self-driving systems will need to spot objects at least 200 meters away to have enough time to react. 

The MEMS solution has proven to be superior in terms of size, speed, and cost over other types of lidar sensors, according to an article published by three University of Florida engineers last year. However, a short detection distance due to the small mirror is a key flaw and, to deal with it, systems will likely need a larger detector, complicating assembly, the paper said.

With its latest offering boasting an impressive distance of 250 meters, Sunnyvale and Suzhou-based Innovusion seem to have solved the range issue. Their solution uses lasers at a wavelength of 1,550 nanometers, rather than more common 905-nm lasers. Considered a “sweet spot” by lidar developers, 1,550-nm light allows longer-range measurement and poses less danger to human eyesight. When using 905-nm lasers, power is usually restricted to avoid blinding people.

But Innovusion has faced challenges with production, for a physical reason: traditional silicon chips can’t detect 1,550-nm light, and therefore developers have to make custom sensors with an exotic material called indium gallium arsenide (InGaAs), which is more costly and more complex to manufacture. Setting up a production line for this less common technology is no easy feat, and the product may not be cheap.

Speaking at an online conference in March, Innovusion technology chief Li Yimin said getting lidars to work well on production cars had turned out to be more difficult than he expected. Nonetheless, he said his staff have been working “day and night” to meet the early 2022 timeline target set by partner Nio. The Chinese EV maker has promised to deliver its first sedan model enabled with its lidar sensors, the ET7, early next year.

“We have to pull ahead the production schedule of many advanced technologies including lidar … This has posed a lot of pressure on our teams and the partners. We are fully focused on achieving this goal and pushing ahead despite all those challenges,” Nio’s chief executive William Li said during an April earnings call.

Xpeng Motors, with partner Livox, claims it will be the first Chinese automaker to deploy lidar on production cars this October. But it is facing other problems. Livox’s sensors boast a unique method of scanning objects in a spiral or flower pattern, rather than in traditional horizontal linear scanning patterns. This helps its sensors create a higher-definition map of the world and could enable more reliable autonomous driving capabilities, the DJI-backed lidar maker has claimed.

However, the unusual scanning style requires the sensor’s motor driver to operate at a high rotation speed of over 6,000 revolutions per minute, more than five times that of sensors made by major French lidar marker Valeo. These speeds pose a big technical challenge for the five-year-old startup to meet reliability requirements for autos, since high rotational speeds usually come along with high abrasion and reduced lifetime for motors.

Livox recently said that it has resolved the issue with manufacturing improvements, based in part on DJI’s expertise in mechanical engineering from making drones, according to a Chinese media report published last week. However, Xpeng CEO He Xiaopeng last month during an earnings call acknowledged that the company is still testing lidars from multiple suppliers and is “very open” to other choices for new models scheduled for launch over the next two years.

“With an all-round sensing performance on our cars and our production capabilities, we’re very confident that we can be complementary to some of the disadvantages of lidar technology,” He added.

Some Chinese automakers and lidar startups are also seeking overseas partners. In addition to the Robosense-Lucid hookup, Chinese legacy automaker Great Wall Motors, a manufacturing partner of BMW, has teamed up with Germany’s Ibeo as its source for lidar sensors on production cars.

The price is right

After technical barriers, lidar-enable cars will have to leap another hurdle: cost. The sensors don’t come cheap.

China’s low-cost manufacturing advantage appears to apply to lidar, with the offerings of local suppliers usually costing 80% less than international competitors, or below $1,000, French market intelligence firm Yole Développement wrote in a report published last August.

However, lidar cars don’t look cheap. The latest premium electric sedan announced by Huawei and BAIC in April, equipped with three lidar sensors, has a starting price of RMB 388,900 ($60,785), more than 50% higher than that of Tesla’s locally-built Model 3. 

R&D and onboard computing could be driving the cost. The Chinese telecom giant in April announced that it will double its annual auto R&D budget for self-driving cars to $1 billion this year, without giving a breakdown of its investments. Apart from three lidar sensors, the hardware stack of the BAIC-Huawei sedan also includes five more cameras, and five more radars than a Tesla Model 3’s. Although cameras usually take significant computing power in the vehicle, the task of combining data from multiple sensors also requires much computing power and a more complex vehicle architecture. 

Mixed opinions

Not everyone agrees that AVs will need lidar. Tesla has been heavily relying on a cheaper, camera-based approach. Nissan and Baidu, are also skipping lidar, relying on cameras, radar, and ultrasonic sensors for AVs. 

Most other major players, including Google’s Waymo and General Motor’s Cruise, consider lidar an essential part of developing safe autonomous cars. “Lidar sensors contribute to the redundancy and overlapping capabilities needed to build a car that operates without a driver, even in the most challenging environments,” wrote Cruise CTO Kyle Vogt in a post in 2017.

Chinese EV makers are betting on the lidar-based approach in competing against Tesla, and have gained chances to validate the technology. “At the current stage our top priority is not to secure as many contracts as possible, but to fine-tune our products and hit volume production,” (our translation) a Livox spokesperson told TechNode last month.

But lidar prices are falling. As the sensors get cheaper, the case for them looks more and more tempting. “Lidar guarantees high reliability for self-driving cars when vehicle autonomy is still in its early stage. Such redundancy is worth taking in the name of safety,” (our translation) Paul Gong, a China auto analyst at UBS, told TechNode last month.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

It’s another earnings episode, so the guys welcome Michael Norris back to the show. They discuss the quarterly earnings of Baidu, Tencent, and JD, while also answering questions from listeners. Key topics include what a new era in tech regulation means for stocks.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• Bilibili
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Kuaishou

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Guest:

• Michael Norris – @briefnorris

Editor:

• Peter Isachenko

Podcast information:

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• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

Traditionally a time for automakers to flex their muscles, the Auto Shanghai expo this year held a surprise: It was China’s big tech firms that took the spotlight, outshining some of the country’s leading EV makers. 

Huawei made a big splash, unveiling its complete self-driving car technologies as it gears up to compete as a central player in China’s autonomous vehicle (AV) industry. Baidu, China’s biggest internet search firm, was not to be outdone, proclaiming itself the undisputed AV industry leader. The company said it expected to equip 1 million new cars in five years with its software.

Some of the biggest startup unicorns such as chipmaker Horizon Robotics were also busy, forging alliances with a list of automakers during the event as they work to establish themselves in the booming industry.

Highlight 1: Chinese tech giants bet on smart EVs

Overshadowing traditional carmakers displaying flashy concept models and production-ready cars, Chinese tech giants generated big buzz at Auto Shanghai this year. 

Tech giants unveiled advanced connected and autonomous driving solutions along with ambitious growth strategies, generating headlines and lending cachet to lesser-known auto partners. In particular, deep-pocketed Huawei and Baidu showed how they are ramping up aggressive pushes into the industry.

Huawei was one of the biggest draws at the show. Crowds swarmed the Arcfox-branded Alpha S electric sedans on display at its booth, equipped with the telecom giant’s hardware and software and made by automaker BAIC. 

After three years of co-development, the two companies said that they are on track to deliver the Alpha S by year-end. According to Huawei and BAIC, the vehicle features “best-in-class” self-driving capabilities for highways and busy streets to customers in China’s four biggest cities. Its other customers that hail from outside of the four cities will get the function via over-the-air software updates within the next two years as Huawei continues to work on its AV mapping.

To reach this target, Huawei has been plowing resources into its new auto business. Its Automotive Solutions unit will beef up headcount 25% to 5,000 employees this year, Wang Jun, president of Huawei’s intelligent Automotive Solution business unit, told Chinese media during the show.

Hands-free driving on busy city streets is widely considered a key milestone for mass AV adoption, one that Tesla has offered in its full self-driving (FSD) package since March. Eager to offset its flagging smartphone sales Huawei has been chasing this capability as it ranks auto among its top-priority businesses, though it is years behind industry leaders. At the company’s global analyst conference a week before Auto Shanghai, deputy chairman Eric Xu announced that Huawei will nearly double its annual auto R&D budget to $1 billion this year.

Lingering questions among industry analysts TechNode spoke with include understanding what progress Huawei has made on the self-driving front so far—a question it has not yet addressed—and how much safer its self-driving cars will be compared with traditional autos. The tech heavyweight faces a significant uphill climb. Many automakers remain skeptical that the “wounded tiger” will manage to make cars itself, these analysts said.

Huawei’s moves into the auto industry present a significant threat to Baidu. Wang Yunpeng, a vice president at the search firm, recently went on the counter-attack in a talk with Chinese media during the auto show, insinuating that even by throwing money at the challenge, competitors stood little chance of quickly catching up. 

Baidu, Wang said, is in the same camp as Google’s AV unit Waymo—it’s on the verge of commercializing its technologies. To compare, “companies like Huawei and Didi are probably still at the stage of testing their vehicles on fixed routes,” Wang said (our translation).

Baidu’s robocars have logged 10 million kilometers (6.21 million miles) on public roads, around a third of Waymo’s. During the event, Baidu launched what it boasted was China’s most advanced driver-assist system. Called Autonomous Navigation Pilot (ANP), the technology enables autonomous driving capabilities for vehicles made by Baidu’s automaker partners. The system will be first available to owners of these vehicles in 20 cities by year-end and then over 100 cities by 2023, the company said. Baidu said its self-driving tech will power at least one new model per month beginning in July and equip more than 1 million cars with its software over the next five years.

With blurred lines between vehicles and technology, how much tech is in a Baidu- or Huawei-enabled smart car? Using as an example WM Motor’s W6, the latest crossover from the Baidu-backed EV maker, the tech giant is responsible for most of the digital technology in the car, from the voice assistant to the map navigation in the operating system. WM Motor also sources Baidu’s self-driving software and hardware suite including 12 cameras, 12 ultrasonic sensors, a radar system, and a computing platform, while it independently develops the car’s mechanics, such as the powertrain system.

Chinese carmaker Chery is also clamoring to join Baidu’s friend circle, while BAIC is one of Huawei’s oldest allies in the automotive industry. However, some of the bigger names in auto want full control in developing the next-generation of vehicle architecture. For that reason, China’s biggest automakers, SAIC and Dongfeng Motor, displayed their latest offerings with software developed in-house or by Chinese AV unicorns they have backed.

During the expo, SAIC began to take orders for its first sedan, the L7, under its new premium EV brand IM. Short for “Intelligence in Motion,” SAIC co-launched the brand with Alibaba in November to compete against Tesla. The Volkswagen partner recently raised its holdings in Chinese AV upstart Momenta, aiming to offer urban self-driving capabilities early next year. Meanwhile, Dongfeng announced (in Chinese) that it aims to sell a total of 1 million EVs and master fully driverless technologies within the next five years.

Experts TechNode spoke with were optimistic about Chinese automakers’ moves into smart, electrified cars, thanks in part to local tech giants. Domestic players could account for 70% of auto sales from the current 40% within the next 10 years, Liu Guanghao, an investment director at Shanghai-based venture capital firm BeFor Capital told TechNode. “These driver assistance features are industry-leading, and the car interiors, such as the digital dashboards, appeared forward-thinking. This could help traditional automakers reposition their brands to be more premium,” (our translation) Liu said.

Highlight 2: EV Big Three momentum slows

Amid the hubbub from big tech and traditional auto companies, Chinese EV contenders were comparatively quiet, with no mention of new models at Auto Shanghai.

Well-funded Nio, Xpeng, and Li Auto are considered emerging EV leaders and the most promising of China’s Tesla challengers. Now, as competition heats up, they are collaborating with smaller tech unicorns—such as Li Auto’s partnership with Chinese chipmaker Horizon and Xpeng’s partnership with DJI’s Lidar unit, Livox—in an effort to maintain their leadership positions in the sector. 

But their outlook may be clouding over after internet giants overshadowed them during the expo.

On the first day of the show Nio kicked off a massive expansion of its charging infrastructure, announcing that it would open 100 battery swap stations and 500 supercharging stations in an area spanning eight northern provinces during the next three years. Meanwhile, Nio president Qin Lihong acknowledged to Chinese media on April 19 that big tech’s push into EVs was a challenge for the company considering Huawei’s established retail network, and reaffirmed its goal to expand its sales network by 60% to 366 stores nationwide by year-end.

There has been growing concern over EV upstarts lagging larger players in new product and technology development going forward. Nio CEO William Li last month expressed confidence that it would release the ET7, its next-generation electric sedan, on time, slated for delivery early next year. It would happen, he confirmed, despite steep challenges in advanced technology adoption. The company said it is doubling its R&D budget to RMB 5 billion ($774 million) this year. “Auto intelligence is where this game may be decided,” Li told Chinese media during the auto show.

Li Auto is seen as falling behind its peers in the AV race, having not yet delivered highway self-driving functionalities to its customers. Feeling the heat at the auto show, CEO Li Xiang said April 20 on Chinese social media platform Weibo that its self-developed AV system will be able to compete head-to-head against those by Huawei and Tesla next year. The EV startup in September announced plans to adopt Nvidia’s advanced supercomputer Orin for its second model, scheduled to launch in 2022.

The six-year-old automaker also turned to Chinese AI unicorn Horizon Robotics for help, and the two companies during the show deepened their partnership to an “in-depth cooperation in building upgradable smart and electric vehicles” (our translation). Despite its best efforts, Li Auto may be too late to catch up and gain a competitive advantage, as tech heavyweights venture into EVs, an analyst told TechNode at the show. 

Li Auto in February assured investors that it will triple its R&D spending to RMB 3 billion ($464 million) this year. Since December it has raised around $2 billion from a new share offering and bond sales to ramp up in-house R&D capabilities.

Xpeng Motors is ahead of its peers in driverless technologies, but also failed to wow the crowd during the show, despite unveiling its second sedan, the P5, which it displayed at a press event in Guangzhou a week earlier. Touted as China’s first production model equipped with two Lidar sensors, an expensive and essential component for 3D perception, the P5 is expected in the first half of 2022 to self-navigate driving scenarios such as being cut off on busy streets.

However, Xpeng did not release the P5’s pricing information as planned, spurring concern from industry insiders that the company’s best days are behind it. Several insiders and analysts that TechNode spoke with said that the P5 launch fell short of expectations while the cost of the vehicle’s hardware suite has remained high, pressuring Xpeng in pricing the new product, people close to the company told TechNode during the show.

Xpeng fired back on April 22, saying on its Weibo account that it had secured more than 10,000 orders of the P5 in 53 hours after opening orders (with refundable RMB 99 deposits). “The market feedback was beyond our expectation,” (our translation) a company spokeswoman said to TechNode on Wednesday. 

Big tech disruption

Chinese tech giants at the Auto Shanghai 2021 disrupted the already-breathtaking pace of China’s new energy and autonomous driving world by doing what they were there to do: build consumer brand awareness and deliver advanced car technology solutions. The disruption is boosting the perception of Chinese-built vehicles—no longer synonymous with cheap, low quality cars—up the industry value chain.

This disruption is pressuring Chinese EV upstarts’ lead in the industry. These EV firms will have to convince investors that, after notching early wins, they can maintain their momentum in an increasingly crowded playing field. 

“Big tech’s entry into the market would inevitably erode the influence young EV makers have in the industry. This has created an alternative regarding the competitive landscape in the next five to 10 years,” (our translation) Paul Gong, China auto analyst at UBS, told TechNode on April 21.

Regulation and fines

• Regulators on Monday slapped Chinese edtech rising stars Zuoyebang and Yuanfudao with RMB 2.5 million ($389,000) penalties each for unfair competition. The startups were found to use misleading marketing tactics, offer nonexistent discounts, and making false claims to lure consumers. Other edtech sector companies were previously dealt smaller penalties. Zuoyebang is considering a US IPO. (TechNode)
• Apps by Alibaba, Baidu, and Tencent were among 84 mobile security and online lending platforms singled out by China’s top internet regulatory body for invasion of privacy and unwarranted collection of user data. Companies mentioned have 15 days to change their practices before further action will be taken. Regulators named in March an earlier batch of 33 apps found to infringe on consumer privacy. (SCMP)

Meituan troubles

• Food delivery giant Meituan’s shares fell by 9.8% in Hong Kong on Monday before closing 7.1% down, wiping $16 billion from its market cap. The sudden drop occurred after Meituan co-founder Wang Xing posted a Tang dynasty poem on the Fanfou social media platform criticizing book burning. The since-deleted post comes at a politically sensitive time, after Chinese regulators opened an investigation into Meituan on April 26 for antitrust violations and torpedoed fintech firm Ant Group’s dual IPO in November following public criticism of the “over-regulated” fintech industry by founder Jack Ma. (Bloomberg)
• Shanghai’s Consumer Council met with Meituan on Monday, criticizing the lifestyle platform for misleading content, refund issues, and its delivery process for perishable foods. According to the Council’s statement, Meituan said that the company will conduct a self-evaluation and promptly submit a rectification report. (Shanghai Consumer Council, in Chinese)

IPOs and funding

• Chengxin Youxuan, the grocery division of ride-hailing leader Didi, intends to spin off and file for an IPO as soon as next year, according to company executives. The platform is one of many recent initiatives by China’s tech giants to claim a share of the rapidly expanding community group-buying market. (TechNode)
• JD Logistics’ latest Hong Kong prospectus showed that its losses in 2020 widened to $620 million from $340 million in 2019. The JD.com affiliate received approval on April 29 from the Hong Kong stock exchange for a public offering, through which it aims to raise $4 billion. (KrAsia)
• Online grocery delivery platform Dingdong Maicai has secured $330 million in a “D-plus round” led by SoftBank Vision Fund, according to its advisor Cygnus Equity. Dingdong Maicai has raised more than $1 billion this year including a $700 million D round it received in April. (TechNode)
• Cloud storage and data analytics platform Qiniu has filed for an IPO on the Nasdaq exchange. Alibaba, by way of Taobao China, is the largest stakeholder with a 17.7% stake. The company is trending towards profitability, showing a 30% increase in revenue since last year. It’s the leader by market share among companies following the platform-as-a-service model, and a key player in China’s flourishing cloud services economy. (Nikkei Asia)

Suning Group

• Chinese retailer Suning Group announced on May 6 that the company had signed an agreement for the creation of a New Retail Development Fund with the state-owned Assets Supervision and Administration Commissions of Jiangsu Province and Nanjing City. According to the statement, the RMB 20 billion public-private fund will be used to invest in Suning’s businesses and assets in new retail. (Suning Blog)

Amazon pulls Chinese products

• At least 11 top Chinese sellers, including gadget brands Aukey and Mpow, have disappeared from the Amazon platform for questionable marketing tactics such as manipulating user reviews, according to e-commerce research film Marketplace Pulse. The suspended accounts contributed over $1 billion to Amazon’s GMV. Chinese merchants account for 75% of new sellers on Amazon in January, seeing it as an opportunity to expand overseas amid domestic competition. (TechCrunch)

Chinese search firm Baidu is launching a fully driverless, paid ride-hailing service in the outskirts of Beijing beginning on May 2, the company confirmed on Thursday.

Details: Baidu will begin charging passengers for rides with its fleet of 10 driverless vehicles in western Beijing’s Shougang Industrial Park beginning on Sunday.

• All rides will be offered without a human driver behind the wheel, though a driver will sit in the passenger seat to ensure safety, a spokeswoman told TechNode on Thursday.
• The launch follows Baidu’s fully driverless tests within geo-fenced areas in several domestic cities including Beijing and the northern city of Cangzhou during the second half of 2020.
• Shougang Park is more than 20 kilometers (12.4 miles) away from downtown Beijing, and is formerly the site of a plant belonging to state-owned steel company Shougang Group. The Beijing 2022 Olympic Games Organizing Committee is located at the industrial park.
• A Shougang Park representative told Beijing Daily (in Chinese) last week that a fleet of more than 100 self-driving vehicles will be in service during the 2022 Winter Olympics in February. The fleet will include robotaxis, robobuses, and delivery robots offered by Baidu, JD.com, and other companies.  

Context: Baidu in March became the first Chinese company granted permission to offer robotaxi rides to paying customers in Cangzhou, a city near Beijing in northern Hebei province.

As China’s government lays out goals to hit carbon neutrality by 2060, Chinese tech companies are pledging to follow Beijing’s lead by drastically reducing their own emissions. 

In the leadup to and aftermath of the annual meeting of China’s national legislature in early March, China’s biggest companies have been making big promises. Alibaba-affiliate Ant Group has vowed to hit carbon net zero by 2030. JD Logistics has pledged to go completely renewable by the same year. Tencent has announced that it has a plan for eventual carbon neutrality, without a timeline. None have laid out exactly how they’ll reach their goals. 

Wind and solar energy sources have reached parity with coal in parts of the country, but China’s companies have so far been slow to increase the share of electricity they get from renewable sources. Tech firms’ growth in carbon emission is eclipsing their growth of renewable energy use. 

Similarly, social media and gaming firm Tencent’s carbon emissions from its offices and data centers increased to 857 million tons in 2019, up 20% on the year, according to the company’s 2019 annual report. It did not disclose what percentage of electricity it sources from renewables. 

Previous top-down initiatives, including the government’s poverty alleviation initiative, have led to new opportunities for the country’s tech firms. Opportunities mean money, but cutting emissions means scaling back or potentially costly new investments.

The carbon pledges

Since September, when Chinese President Xi Jinping announced that China would reach carbon neutrality by 2060, several companies have laid out plans to control their emissions. These press releases typically lack detail on how the companies will reach their carbon goals. 

Net zero doesn’t mean that companies won’t produce carbon but they’ll offset their emissions by investing in carbon capture technologies or by planting trees, among others. 

JD

In a November press release, e-commerce giant JD said its delivery arm JD Logistics would reduce its carbon emissions by half of its 2019 levels in 2030, and only use renewable energy sources from the same year. JD Logistics is one of six branches of JD’s empire, and has filed for a Hong Kong IPO. The unit is the largest polluter of all JD companies, according to a company spokesperson.. 

JD.com, the JD brand’s flagship e-commerce platform, has yet to outline a plan to cut emissions. 

We’ve heard nothing about how e-commerce marketplaces plan to tackle carbon neutrality. That’s likely because the task is particularly difficult for these companies. They’d have to decide whether to make emissions standards for the millions of merchants who use their platforms. 

Tencent

On Jan. 12, Tencent, the company behind popular messaging app WeChat, unveiled its own plan to reach net zero emissions in a 2,500 character WeChat post. The document, which focused primarily on reducing emissions from its buildings and data centers, detailed methods it could use to do this, including reusing heat generated by its data centers and using novel liquid technology to lighten its electricity usage. The company placed heavy emphasis on using AI to cut emissions, but did not set a timeline to reach carbon net zero. 

“In the future, I expect the biggest part will be powering data centers with clean energy. It will be difficult, but we will work hard at it,” Pony Ma, CEO of Tencent, said in a WeChat post commenting on Tencent’s plan and shared by Chinese media. 

Alibaba and Ant

Alibaba-affiliate Ant Group, the world’s largest fintech company, has been the most explicit and ambitious. It plans to hit carbon net zero by 2030, according to a press release dated March 12. The company said it had created a roadmap to eliminate emissions from its electricity usage this year, and that it would completely cut emissions from its supply chain, which includes data centers and infrastructure, by 2030.

Alibaba also hasn’t released a plan aimed at cutting emissions, but ranked highest in a recent Greenpeace study focused on renewable energy use among Chinese tech companies.

Baidu

Baidu detailed its work on lowering its carbon emissions in its report on low carbon development, which came as a response to Beijing’s latest carbon goals. It also laid out the ways it is greening its data centers, but has not made public any emissions targets. At this year’s Two Sessions in Beijing, CEO Robin Li made a number of proposals for cutting emissions in transportation, including policies to promote rolling out autonomous vehicles, and increasing the efficiency of transportation systems using AI, big data, and 5G.

Big data, big challenges

Key to these plans will be how companies deal with data centers. Explosive energy use from these facilities are not a uniquely Chinese problem. Tech giants from the US have also been working on making their storage and computing facilities more efficient and eco-friendly. 

For tech companies, data is money, and the billions of WeChat messages, emails, photos, and videos uploaded by internet users everyday need to be stored somewhere. But more storage means more pollution. 

In 2018, data centers in China used 161 terawatt-hours (TWh) of electricity, according to 2019 research by Greenpeace and the North China Electric Power University. That’s enough to power a mid-sized nation, and is four times higher than New Zealand’s total energy consumption in 2018. 

During the same year, around 73% of all the electricity data centers in China used was generated by coal and bought from the grid, according to Greenpeace’s report. 

Total energy demand from data centers is expected to reach 267 TWh by 2023, around 4% of China’s total energy consumption in 2019. Should China’s energy mix not change, its tech industry will be responsible for generating 163 million tons of carbon dioxide, more than that generated by the entire population of Venezuela. 

Data centers in China have seen some improvements, with the efficiency of tech companies’ data centers rivalling their international counterparts. “While China’s data center industry has made significant improvements in terms of energy efficiency, the industry’s massive carbon footprint is proof that much more action is needed to increase reliance on clean energy sources,” said Greenpeace East Asia climate and energy campaigner Ye Ruiqi. 

As these companies push for growth, they’ll undoubtedly need more data centers to process and store information from their users. Last year, Alibaba said it would invest $28 billion in data centers over the following three years. Similarly, Tencent announced plans to pile $70 billion into new infrastructure, which includes data centers, cloud computing, and artificial intelligence. 

Increasingly, Chinese companies like Alibaba and Tencent have begun locating new data centres in areas that are rich in renewable energy, including northern China’s Hebei and Inner Mongolia, as well as Guizhou and Sichuan provinces in the country’s southwest. 

Nevertheless, officials in some provinces are becoming increasingly cautious of power-hungry data centers. Beijing, Shanghai, and Guizhou have mandated that new data centers meet efficiency benchmarks. Meanwhile, Inner Mongolia last month proposed controlling the growth of new data centers in the region after it was censured by Beijing for failing to meet energy consumption control targets. 

Mountains of trash

Aside from energy usage, some of China’s biggest e-commerce firms are responsible for producing mountains of waste. As firms like Alibaba, JD.com, and Pinduoduo see record-breaking sales figures, their plastic waste footprint increases. 

During last year’s Singles Day shopping festival, which ran from Nov. 1 to 11, China’s postal and express services delivered nearly 4 billion packages, according to the country’s postal regulator. There are no official figures on how much waste was produced during this time, but one estimate shows the 1.88 billion parcels delivered during the 2019 festival period produced 250,000 tons of garbage.  Around 20% of that total can’t be reused, though far more goes unrecycled because of the costs.

E-commerce platforms have attempted to deal with the issue. Last year, Alibaba’s logistics arm Cainiao said it had introduced biodegradable packing and cut down on tape usage. It also said it cut down on paper used for shipping labels. 

Long way to go

While China’s tech companies have shown increased interest in reducing their carbon emissions, there is still a long way to go. 

In a separate report from Greenpeace and North China Electric Power University at the beginning of 2020, researchers said China’s tech companies need to “dramatically scale up their procurement of clean energy.”

“Internet companies and data center operators should set targets for 100% renewable energy use,” the researchers wrote. 

To do this, companies can build or invest in renewable energy, an option used by data centers around the country by installing solar panels in their roofs. Additionally, companies can purchase renewable energy for provincial generators or buy green power certificates. 

“Buying green power certificates allows companies to claim environmental benefits associated with renewable energy generation, even if electricity from a renewable power plant does not feed directly into a data center facility,” Greenpeace said.

But the Chinese government is taking renewables more seriously, and that could spur tech companies to action. These companies often respond to policy priorities—for example, tech giants including Alibaba, Pinduoduo, and JD took Beijing’s drive to alleviate poverty seriously by narrowing in on China’s rural communities. Developing new markets in China’s hinterland was lucrative for the country’s tech firms, powering much growth seen in the past few years.

Could greening tech play out the same way? It’s not clear. The plans we’ve seen so far are promises to cut back, or install costly new systems, not develop new markets. Lasting change may rely more on companies who figure out how to get rich by going clean—and that’s the topic we’ll look at next month.

The city of Cangzhou in northern China granted search giant Baidu a permit to begin commercial robotaxi services on some of its streets, the company said on Monday.

Why it matters: Baidu is the first Chinese company with permission to offer robotaxi rides to paying customers, which requires additional permits, and is a strategic milestone for its costly, years-long quest for self-driving cars.

Details: Baidu will be allowed to operate its autonomous ride-hailing vehicles with safety drivers on public roads spanning 229 kilometers (142 miles) in areas including the city’s downtown, the company said Monday in an announcement. The company can also begin testing out trip fares with its volunteers using discounts and coupons, according to a deployment permit issued by the government on Friday.

• A total of 35 robotaxis will kick off the deployment, the company said, though a spokeswoman did not specify a timeframe when asked.
• Cangzhou also granted permits for another 10 Baidu AVs to drive without a human driver behind the wheel, state-owned media Hebei Daily reported Wednesday (in Chinese).

Context: Cangzhou, the third-biggest city in northern Hebei province, was late to the AV race, lagging Beijing and Shanghai by over a year. However, it is catching up quickly by leveraging its partnership with Baidu, which is accelerating its autonomous transportation initiative.

• Baidu began piloting its robotaxi service to public in Cangzhou in August, but was prohibited from charging fees from riders until recently.
• Cangzhou granted its first AV testing permit to Baidu for a fleet of 30 vehicles in late 2019. The city has the country’s third-largest self-driving testing road network, following Beijing with 700 kilometers and Shanghai’s 560 kilometers.
• Guangzhou, China’s southern gateway, and Changsha, the capital city of the central Hunan province, have both opened around 160 kilometers of public roads for AV tests.
• Baidu has not yet received a green light from Changsha authorities to charge fees for robotaxi services. Neither has WeRide, a Guangzhou-based AV upstart.

China’s top antitrust regulator said Friday it has issued fines to companies including social media giant Tencent, ride-hailing platform Didi Chuxing, and search engine Baidu over 10 investment deals in the internet sector that were in violation of the Anti-Monopoly Law.

Why it matters: China has in recent months stepped up scrutiny of tech firms over antitrust regulations. Friday’s disciplinary action involves the largest number of companies so far and the fines issued were the maximum amount allowed by China’s existing legal framework.

• A proposed overhaul to China’s Anti-Monopoly Law will allow regulators to issue fines up to 10% of the offending company’s annual revenue.

Details: The State Administration for Market Regulation (SAMR) said in a statement (in Chinese) on Friday that the deals include Tencent’s 2018 investment in edtech firm Yuanfudao, Baidu’s 2014 acquisition of smart home equipment maker Ainemo, and a joint venture set up by Didi and Japanese conglomerate SoftBank.

• Other deals include a merger deal involving a subsidiary of Alibaba, and a joint venture set up by TikTok parent ByteDance and a Shanghai newspaper group.
• Twelve companies including Tencent and Baidu were each fined RMB 500,000 (around $77,000) for their involvement in the deals. The penalty is the maximum for unreported anti-competitive deals according to China’s current antitrust law.
• China’s Anti-Monopoly Law requires companies to report investment or acquisition and merger deals that could create a “market dominant player,” or one that will hold more than 50% share of its relevant market. 

Context: In December, SAMR issued fines to Alibaba and affiliates of Tencent and logistics giant SF Express over three separate acquisition deals, a move that legal experts said was the country’s first batch of antitrust enforcements against tech firms.

• In February, China put into effect new antitrust guidelines targeting internet platforms, which bans internet platforms from forcing merchants into exclusivity deals, offering different prices based on user data, and using algorithms to manipulate the market.

Chinese smartphone maker Xiaomi is planning to make electric vehicles, according to a Chinese media report. This move could make it the latest entrant into the country’s exploding electric vehicle market, with founder and CEO Lei Jun reportedly leading the project.

Why it matters: The reported entry of Xiaomi, often dubbed “the Apple of China,” could shake up the entire auto industry. Its success in the consumer electronics market has given it high brand awareness among domestic consumers.

Details: After years of indecision, Xiaomi is about to give its electric car project the go-ahead, Chinese media LatePost reported Friday, citing “people familiar with the matter.” Sources cautioned that the company’s plans are still at an early stage and subject to change.

• LatePost’s sources said that Xiaomi began a project code-named “Micar” in 2018 to explore own-brand cars. The project was launched after founder Lei Jun’s visited Elon Musk in the US back in 2013.
• A Xiaomi spokesperson did not respond to TechNode’s request for comment.

Context: Xiaomi has made investments in home-grown EV brands before, leading the $400 million Series C of Xpeng Motors as a strategic investor in late 2019. Prior to that, Shunwei Capital, a venture capital firm founded by Lei, backed Nio’s Series A in 2015.

• The smartphone maker also boasts an advanced voice recognition technology, reaching partnerships first with state-owned FAW Group in 2018, later with Geely and Mercedes Benz in 2019 for the adoption of its voice-activated virtual assistant. It is still a small player, with iFlytek currently leading with 40% of the in-car voice assistant segment.
• Xiaomi has been looking for approaches to expand its presence in car connectivity, including partnerships with automakers in contract manufacturing, Jin Di, consulting director at market research firm Ipsos, told TechNode on Friday.
• Chinese new energy vehicle market reported strong sales of 1.37 million units in 2020, representing a 11% year-on-year growth despite business disruptions associated with the global pandemic, according to figures from the China Association of Automobile Manufacturers.
• Last month, search engine company Baidu revealed plans to make EVs in partnership with Volvo’s parent Geely.

Baidu announced Monday that it will partner with automaker Geely to manufacture smart electric vehicles for the Chinese market, expanding from autonomous-driving software to making the cars themselves. 

Why it matters: Baidu’s partnership with Geely will deepen the company’s foray into the trillion-dollar EV industry. With internet giants domestic and abroad scrambling for a piece of the burgeoning market, Baidu will be the first Chinese tech giant to manufacture EVs itself rather than merely investing in existing companies—unlike peers such as Meituan, Tencent, and JD.com.

Details: Baidu will provide key autonomous-driving technologies and software while Geely will contribute its expertise in automobile manufacturing. The search giant will hold the controlling share of the joint venture and Geely is currently its sole partner.

• The new company, which will operate as an independent subsidiary of Baidu, will oversee the entire industrial chain, from vehicle design to research and development, as well as manufacturing, sales, and service.
• Baidu will support the company’s strategic development with its full portfolio of core technologies, including the Apollo autonomous driving unit, DuerOS for Apollo, and Baidu Maps.
• The partnership will leverage Geely’s Sustainable Experience Architecture, an EV manufacturing platform the company spent four years and RMB 1.8 billion perfecting. The platform is compatible with automobiles of all sizes and models, according to the company. 
• Earlier rumors of Baidu’s strategic partnership with a Chinese automaker had already sparked investor interest. Baidu’s share prices jumped 67% in the past month and market value reached $800 million. Share prices for Geely also rose more than 20% on Jan. 8. 
• “At Baidu, we have long believed in the future of intelligent driving and have over the past decade invested heavily in AI to build a portfolio of world-class self-driving services,” said Robin Li, co-founder and CEO of Baidu. “China has become the world’s largest market for EVs, and we are seeing EV consumers demanding next generation vehicles to be more intelligent.” 
• Xpeng’s CEO Xiaopeng He said on Weibo that to his knowledge, more tech companies will join the race and begin making cars themselves this year. 

READ MORE: Baidu’s AI bet is more than it can afford

Context: Baidu kicked off its autonomous driving project in 2013 but it wasn’t until 2017 that it became a strategic focus for the company, which has seen its search ad revenues decline from competition from short video platforms.

• In 2017, the search giant established autonomous driving unit Apollo. It operates Go Robotaxi, its autonomous taxi service launched in August, in Beijing, Changsha in central Hunan province, and Cangzhou in northern Hebei province. 
• The tech giant’s entry into the EV market could help drive adoption of its existing smart driving products and services. The vehicles close the company’s autonomous-driving ecosystem, implementing the data and information about consumer behavior and trends that Baidu has aggregated through its software and services. 
• Such partnerships won’t become mainstream, according to Cui Dongshu, secretary general of China’s Passenger Car Association. Manufacturing capacity and technology remain the core, strategic partnerships between internet giants and automakers alone can’t hit the bull’s-eye, he added.
• Baidu has made a number of missteps in new technology vehicles over the past years, missing out on investing in NIO, Xpeng, and Li Auto.

With contributions from Jill Shen.

Shares of Baidu rose nearly 14% on Tuesday on the news that the Chinese search engine company is planning to build its own electric vehicles.

Why it matters: The search engine leader’s interest in jumping into EV manufacturing is the latest sign that investment in the sector is picking up tempo, as Chinese tech companies are seeking to get in on enthusiasm for EVs amid a sales rebound in their home market.  

• Baidu is not the only tech giant buying in to the sector. Alibaba has partnered with China’s biggest automaker SAIC and a Shanghai government-backed entity in an RMB 7.2 billion ($1.1 billion) project to develop premium EVs, according to an announcement released Nov. 27 (in Chinese).

Details: Baidu has been in discussion with car companies including China’s biggest private automaker Geely, Toyota manufacturing partner GAC, and the state-owned FAW Group for a possible majority-owned venture to build EVs, according to a Reuters report.

• A Baidu spokesperson responded that it has no comment on market rumors. GAC said it recently signed a framework agreement with Baidu, but has no further details regarding the partnership. The two companies last Tuesday announced a collaboration to jointly develop self-driving and connected vehicles.
• A Geely spokesman said it was “not familiar with the matter.” Baidu is also deepening its alliance with Geely, in October leading the RMB 1.3 billion Series A in Ecarx, a Geely-backed in-car software company. Geely’s infotainment system has been enabled with Baidu’s voice recognition technology and embedded with Baidu’s mobile apps since late 2019.
• “It wouldn’t be a wise move if Baidu decides to build its own EVs,” said industry watcher Yu Linglin, a former reporter at Chinese financial media 21st Century Business Herald (our translation). The tech company would have to put large amounts of capital into the business, but is not likely to get signs of commitment such as exclusivity or cownership of each other’s stocks in return, Yu added.

Context: Chinese tech giants have backed leading young EV makers aiming for control over the companies and a foothold in the booming segment, and are doubling down as the country’s EV sales started to recover since March.

• Baidu has been a major backer of Shanghai-based EV startup WM Motor since late 2017, and led its RMB 3 billion Series C two years later. WM Motor in September secured another RMB 10 billion war chest mainly from a group of capital funds backed by the Shanghai local government.
• Alibaba is the biggest external shareholder in EV maker Xpeng, while food delivery platform Meituan and its founder Wang Xing are the largest shareholders in Li Auto after founder Li Xiang.
• Baidu is also accelerating efforts to get its voice-enabled operating system and content offerings into vehicles’ dashboards amid a rising user demand for in-car information and entertainment services. Progress has been slower than expected, as leading carmakers are reluctant to cede over their control to tech giants.

Read more: DRIVE I/O | The battle for leadership in car software

Search giant Baidu is reportedly nearing a deal to acquire US-listed Chinese video-streaming social platform Joyy’s China operations in an attempt to boost its livestream business.

Why it matters: Baidu’s expansion to the red-hot livestream sector is a move to diversify its revenue streams as its core advertising business loses ground to rivals like Bytedance.

• Baidu, along with Alibaba and Tencent, was known as “BAT,” the three biggest tech companies in China. But the company has seen the gap between its market valuation and those of its two peers widen as tech upstarts like Bytedance and Meituan catch up.
• Baidu’s current $46 billion market capitalization has fallen far short of Alibaba’s $860 billion and Tencent’s $734 billion valuations.

Details: Baidu is nearing a deal to acquire Joyy’s Chinese operations for a deal worth $3 billion to $4 billion, local media Jiemian reported citing people with knowledge of the matter.

• Baidu will take over Yy, the entertainment show livestream app targeting Chinese audiences, the app’s content operations, technology, and team after the deal, according to the report.
• China operations play a much lesser role for Joyy, which is increasingly focused on the global market. Overseas users represent 91% of the company’s 457.1 million monthly active users, according to the company’s second quarter earnings report.
• The deal could be a win-win cooperation for both companies. Joyy’s livestream business provides Baidu the necessary technologies and user base to start with and Joyy can narrow its focus on global expansion.

Context:  Baidu began testing out the livestream space this year. In April, it began recruiting livestream hosts and merchants in preparation for the launch of an live-stream e-commerce platform. At the same time, it added live-stream features to its main search app, its video-streaming app Haokan, and communication platform Baidu Tieba.

• Baidu’s ad revenue shrank 8% in the second quarter of this year compared with the same quarter a year earlier.
• Joyy sold its controlling interest in game-streaming platform Huya to Tencent in August. Tencent merged Huya with its rival Douyu to form a single dominating player in the e-sports market.

China’s biggest search engine Baidu has transported more than 100,000 passengers in autonomous vehicles as part of a robotaxi pilot program, and the number will “soon surge to” more than 1 million, CEO Robin Li said.

Why it matters: Accelerating passenger numbers for Baidu’s self-driving pilot underscore China’s growing efforts to win the global autonomous vehicle (AV) race. It also signals that the Chinese government is lifting restrictions on driverless vehicle tests across the country.

• China’s top industry regulator on Tuesday revealed plans to release revised national guidelines for AVs to provide more public roads for passenger transport and logistics testing in self-driving cars, reported Shanghai Securities News (in Chinese).

Details: More than 100,000 riders have tried out Baidu’s autonomous ride-hailing service in cities such as Beijing and nearby Cangzhou, as well as Changsha in central Hunan province, and southwestern municipality Chongqing, Li said on Tuesday during the annual Baidu World 2020 technology conference.

• Li estimated that the robotaxi passenger number will soon surpass 1 million. In the future, with AVs and supporting roadside infrastructure deployed at scale in 2025, he added, more efficient public transport would contribute up to 4.8% to the GDP.
• Authorities granted the company permission on Tuesday to test two fully driverless vehicles in Changsha, meaning that a human safety driver is no longer required behind the wheel.
• Still, Chinese regulators require a human driver stay alert in the passenger seat, as well as a safety operator for remote takeover, according to a local media report (in Chinese).
• Changsha currently allows driverless testing on a public road 15 kilometers (around nine miles) in length and a closed testing facility, but has allowed Baidu’s AV fleet to test passenger transport in 130-square kilometer area in downtown since April.
• The internet giant expects to expand its testing scope significantly as more regional governments ease restrictions. Last month, Beijing local authorities issued licenses for the company to offer rides to the public on 700 kilometers of roads in the city outskirts.
• Baidu is operating a fleet of 500 AVs in a total of 27 cities worldwide. It is ranked in the top spot within China with 6 million kilometers test driven as of August, followed by Toyota-backed AV startup Pony AI, which has logged 2.5 million kilometers.

Context: Baidu is not the only company in China testing AVs without a trained driver behind the wheel. Weride, a self-driving startup backed by Nissan, Renault, and Mitsubishi, has been testing 10 AVs without a human driver present in the southern city of Guangzhou for two months. Weride earlier this month announced its robotaxi pilot has completed upwards of 90,000 rides.

• Home to Weride and Pony AI, Guangzhou currently leads the market from a legal perspective. In July, it allowed Weride to test fully driverless vehicles on public roads across an area of nearly 100 kilometers, making it the first company to do so in China.

Work hazards for delivery drivers

• In response to public condemnation revived by a viral post about food delivery driver hardships, Eleme and Meituan rolled out an option for users to grant couriers five- or 10-minute buffers on delivery times. However, the option elicited criticism of the platforms from state media and industry experts. They believe the companies, rather than the consumers, should shoulder the burden for pushing couriers to take dangerous risks to meet stringent deadlines set by platform algorithms. (TechNode)

Online winners and losers

• Meituan Dianping, the Chinese local lifestyle service giant created through a 2015 merger between two arch rivals, will simplify its name to Meituan, according to a filing on Sept. 11. Merged as equals five years ago, the Dianping review app still widely used, but is minimized in strategic decisions. As market consolidation continues, China has witnessed many mergers between leading verticals. Similarly, Baidu Waimai, once China’s third-largest food delivery business, lost its brand after merging with Alibaba-backed Eleme, and later rebranded as Star Ele. (HKSE)
• Tencent Weibo, once a close competitor of Sina Weibo, is going to suspend its services and operations starting Sept. 28. The platform is one of the Wechat and QQ parent company Tencent’s few stumbles in social networking. (Tencent News, in Chinese)

Investors overlooking e-commerce

• In August, China’s e-commerce sector drew a total of RMB 11.7 billion ($1.72 billion) in funding, down 45.3% from RMB 21.38 billion in the same period last year, according to data from E-commerce Research Center. The funds went to 33 companies, including JD Health and fresh grocery sites Yipin Shengxian and Xiaotu Maicai. Local lifestyle e-commerce was the most popular sub-category, accounting for RMB 8.58 billion in investment during the month. The drop in China’s e-commerce venture capital aligns with the global market, where e-commerce investment in 2020 is also languishing. (Jiemian, in Chinese)

Leadership departures at Alibaba affiliates

• Chen Lei, manager of Alibaba’s second-hand shopping app Idle Fish, or Xianyu, has left Alibaba, the company confirmed to local media on Sept. 10. No details about the reason for departure were provided, but it was reportedly due to an extramarital affair. Formerly a central figure in the development of Taobao’s virtual coin system and Taobao Live, Chen was appointed as head of Idle Fish in July 2019, reporting directly to Tmall president Jiang Fan. Jiang himself was demoted in April due to alleged affair with a Chinese social media influencer. Second-hand goods selling has been picking up momentum in China. (Hupu, in Chinese)
• Eleme chief technology officer Zhang Xuefeng stepped down from his position after five years with the food delivery platform. Zhang, who told local media he would be spending more time with his family and on hobbies, is one of the executives from Eleme’s founding team before it was fully acquired by Alibaba in 2018. Zhang’s leave comes as Alibaba is drumming up its push in local lifestyle services against Meituan. (Sina News, in Chinese)

India on Wednesday banned another 118 Chinese-made apps, including Tencent’s popular video game PlayerUnknown’s Battlegrounds, as border tensions between the two nations continue to escalate.

Details: The Indian Ministry of Electronics and Information Technology announced it had decided to block 118 apps that it said were prejudicial to India’s sovereignty, integrity, and national security, the ministry said Wednesday in a statement.

• The newly banned apps include Chinese search engine giant Baidu’s two mobile search apps, smartphone maker Xiaomi’s Sharesave, Ant Group’s mobile payment apps Alipay and Alipay HK, as well as Tencent’s cloud-storage app Weiyuan and Wechat Work. Tencent’s Wechat was banned in a similar crackdown on Chinese apps in June.
• Tencent’s PlayerUnknown’s Battlegrounds had more than 50 million players in India as of April 2019, local media reported.
• The ministry said it had received many complaints about these apps for “stealing and surreptitiously transmitting users’ data in an unauthorized manner to servers which have locations outside India.”
• “This move will safeguard the interests of [tens of millions] of Indian mobile and internet users. This decision is a targeted move to ensure safety, security and sovereignty of Indian cyberspace,” the ministry said in the statement.

Context: The ban follows a standoff between Indian and Chinese troops earlier this week and media reports that a Chinese land mine killed an Indian soldier during the confrontation.

• In June, India banned 59 Chinese apps on national security concerns following a deadly border clash with China.

Revenue for Chinese search giant Baidu contracted 1% in the second quarter compared with the same year-ago period, with the company warning that the downward trend could continue in the second half of 2020.

Why it matters: Baidu narrowed a revenue decline from the first quarter, showing some signs of recovery after the Covid-19 outbreak in China.

• Nevertheless, the company’s ad sales, a major contributor to overall revenue, took a significant hit as companies in China have tightened their belts in the aftermath of Covid-19.

Details: Baidu’s revenue reached RMB 26.03 billion ($3.69 billion) in the quarter ended June 30, down 1% from the RMB 26.33 billion it earned during the same period in 2019, the company announced on Thursday. Baidu previously forecasted sales of between RMB 25 billion and RMB 27.3 billion in Q2.

• Revenue from online marketing was RMB 17.7 billion, falling 8% year on year, as Chinese companies weather the fallout from the Covid-19 outbreak and competition from rivals including Bytedance and Tencent increases.
• Baidu managed to narrow a decline in its revenue in the first quarter, which fell 7% year on year to RMB 22.55 billion.
• Net income reached RMB 3.6 billion, up 48% year on year, slowing from 62% annual growth it saw in Q2 2019.
• The company warned that a decline in overall sales could continue in the second half of the year. During the third quarter of 2020, Baidu expects revenues fall between RMB 26.3 billion and RMB 28.7 billion, representing a 6% year-on-year decline or 2% growth as a result of the “very limited” business visibility in China as a result of the Covid-19 pandemic.

Context: Baidu has plowed billions into diversifying its offerings in search of additional revenue streams. It has focused this spending on artificial intelligence and cloud computing, while the company is exploring enterprise services for growth.

• Nevertheless, a number of these investments, most notably its bet on autonomous driving, have yet to pay off. It’s unlikely the company’s self-driving car project will see significant returns in the next decade, putting additional pressure on its other businesses.

Chinese video-streaming platform Iqiyi said Thursday that it is under investigation by US authorities over a short report released in April which accused the company of inflating 2019 revenue by up to 40%.

Why it matters: US regulators are more actively investigating allegations against Chinese companies for financial fraud after beverage chain Luckin Coffee admitted in April it had fabricated transactions in 2019 totaling around RMB 2.2 billion (around $317 million).

• The US is increasingly scrutinizing Chinese companies as lawmakers call for stricter audit requirements. US President Donald Trump has also recently threatened to delist from American stock exchanges Chinese companies that do not comply with US accounting standards.

Details: Baidu-backed Iqiyi said in a statement announcing its second-quarter earnings on Thursday that it is cooperating with the Securities and Exchange Commission (SEC) probe, which is seeking financial and operating records dating from January 2018.

• The top US financial market regulator is also seeking “documents related to certain acquisitions and investments that were identified in a report issued by short-seller firm Wolfpack Research in April 2020,” the company said.
• Iqiyi said it had hired advisers to conduct an internal review of the key allegations in the Wolfpack report “shortly” after it was released.
• Shares of the company tumbled as much as 19% on Thursday on the disclosure.

READ MORE: INSIGHTS | Short seller huffs and puffs, but it doesn’t blow Iqiyi down

Context: In April, Muddy Waters Research tweeted a link to a Wolfpack Research report, alleging that Iqiyi had inflated its 2019 revenue by 27% to 44% and overstated user numbers by 42% to 60%.

• At the time, Iqiyi said in a statement that the report “contains numerous errors, unsubstantiated statements and misleading conclusions and interpretations.”
• On May 20, CNBC reported that the US Senate unanimously passed legislation prohibiting foreign companies which do not adhere to the country’s regulatory and audit standards from listing on its exchanges or raising money from American investors.
• Earlier this month, the Trump administration issued its recommendations to ban Chinese companies from US stock exchanges if they don’t comply with American accounting standards, according to the Financial Times.

It wasn’t so long ago that China tech investment loved US startups. Now, the two tech markets feel like they’re on different planets.

So far, the American offensive specifically targets two companies, but ripple effects are creating uncertainty over just how wide-ranging the ban could be—especially for Wechat’s owner Tencent, which holds a formidable portfolio of US investments.

So how do geopolitical tensions affect Chinese tech’s overseas investments? Pretty significantly, it turns out. In fact, the story of American measures to stifle Chinese influence in its home market starts long before July.

I scraped and analyzed public funding data to pinpoint deals by Chinese tech majors in the US. The numbers highlight a turning point in 2018, when the US sharpened its focus on companies like telecommunications giants Huawei and ZTE. Since then, Chinese investments in US startups have fallen off a cliff. 

Tech giants like Alibaba, Tencent, and Baidu appear to have reversed their US investment strategies amid rising tensions between China and the US, as two superpowers tussle over the future of the companies that dominate the internet. 

Key takeaways:

• Chinese tech giants invested heavily in the US between 2010 and 2018, but quickly scaled back investments in US startups beginning in 2019. 
• The drop-off is partly explained by increased scrutiny in 2018, when the Committee on Foreign Investments in the United States (CFIUS) was given more power to review investments in US companies. 
• Since then, new Chinese investments in American startups have fallen dramatically. Contributions in the first quarter of 2020 dropped to $400 million, down by more than a third compared to the same period in 2019, according to the US-China Investment Project.
• The drop in funding occurred only among Chinese investors—overall investment flows into US startups largely remained the same in 2019.

Investment explosion

It started with a boom. After gaining a solid foothold in their home markets, Chinese tech giants started looking abroad for the next big thing. 

In 2008, Tencent became the first Chinese tech giant to set its sights on the US, investing in big-ticket companies like electric vehicle maker Tesla and social media giant Snap. 

The company has participated in 81 funding rounds for US startups since 2008. Its US investments peaked between 2014 and 2017, a period when it made three-quarters of its deals—62 in all. 

In 2010, the same year that Google bowed out of China over concerns of censorship and cyber threats, e-commerce giant Alibaba made its first move into the US. The e-commerce giant has since taken part in 27 funding rounds for US companies. These rounds totaled more than $5.4 billion. Given how companies guard information about their investments, the data presents only the total value of each funding round rather than Alibaba’s individual contributions.

Meanwhile, Baidu made its first US investment in 2013. Though it has taken part in significantly fewer funding rounds than either Alibaba or Tencent, Baidu’s investment peak came in 2016, when it participated in rounds for lidar-maker Velodyne, as well as fintech companies Circle and Zestfinance. 

Overall, Chinese venture funding in the US amounted to around $14 billion between 2013 and 2018, according to figures from the US-China Investment Project. Total investment spiked in 2018 at $4.7 billion, but otherwise plateaued between 2015 and 2019 at around $2.5 billion. 

The bust

Everything changed after 2018. In 2016, Baidu, Alibaba, and Tencent were involved in 22 deals in the US. In 2019, they took part in a paltry three investments.

The reason was almost certainly politics. As trade tensions between the world’s two largest economies flared, the US and Chinese tech sectors took most of the heat. Hostility grew and investments shrank.

Chinese investors that focused on US startups in previous years have sought distance from the sector. Tightening US regulations drove them away, while the prospect of bigger returns lured them to developing markets. New rules that give CFIUS extra power added another important reason for the decline.

In 2019, Tencent took part in just two funding rounds—one for social media news aggregator Reddit, and another for contacts manager Contacts+—a 90% decrease from its height of 23 deals in 2015, and a 70% year-on-year decline from 2018. 

While Alibaba’s US portfolio isn’t as expansive as Tencent’s, the company participated in 26 deals between 2010 and 2017, including high-profile investments into companies like mobility platform Lyft and Snap. Since 2018, it has taken part in only one US funding round.

Alibaba’s pullback from the US preceded Tencent’s. Business concerns may have also played a role, as the company pivoted to Asia’s lucrative developing markets when growth began to stagnate in its home market of China. Still, US scrutiny of Chinese firms was already intensifying, and rising tensions undoubtedly played a role in Alibaba shifting away. 

Even Baidu, which has far less at stake in the US given its smaller investment footprint, has pulled back from American investments. Just one of its 11 investments took place after 2018. 

As the number of Chinese funding rounds in the US declines, so does the amount of investment coming from China. The US-China Investment Project estimates that Chinese venture funding in the US totaled $400 million in the first quarter, down from $640 million during the same period in 2019 and $1 billion in 2018. Of course, a global pandemic beginning in China also contributed to this fall.

This dropoff was “distinctively Chinese,” according to the US-China Investment Project’s report. Despite the decrease in Chinese investment, overall funding in US startups largely remained the same. 

China’s tech giants have turned their eye to the developing markets. Firms including Alibaba and Tencent have increased their investments in the emerging markets of South and Southeast Asia. The two companies have divided up India’s tech scene without any overlap in their investments, while also making some big bets on promising tech companies in Southeast Asia. 

Tougher reviews

A significant factor contributing to the dropoff in China tech investment is the increasingly strict regulatory environment. In late 2018, the US introduced new measures that increase scrutiny of foreign investments in American companies. 

Dubbed the Foreign Investment Risk Review Modernization Act (FIRRMA), the changes gave CFIUS, an inter-agency body tasked with identifying risks from foreign investments, more power to scrutinize investments into American firms. 

FIRRMA came into effect amid fears that Chinese acquisitions of and investments into US companies were abetting technology transfers from the US to China, and having adverse effects on American companies and internet users.

Before the new rules, CFIUS typically reviewed deals only when a foreign investor took a controlling stake in a US company, focusing on deals involving sensitive technologies.

In early 2018, fintech giant Ant Financial found itself locking horns with CFIUS. The Alibaba-affiliated company had wanted to acquire American money transfer firm Moneygram, but was forced to withdraw from the deal after the regulatory committee rejected it over national security concerns. 

The proposed $1.2 billion deal would have made 2018 an even bigger year for China-US investment flows, increasing total investment that year to nearly $6 billion, based on figures from the US-China Investment Project. That figure would have more than doubled the previous year’s total. 

CFIUS has also blocked Chinese ownership of the LGBTQ dating app Grindr. The committee required Beijing Kunlun Technology, the app’s previous owner, to sell the app, citing national security concerns. Kunlun agreed to sell the app to San Vincente Acquisition in March. 

FIRRMA gave CFIUS a mandate to review non-controlling investments in US companies that produce critical technology, critical infrastructure, or that collect US citizens’ personal data. Critical technologies can include anything from semiconductors to batteries. 

Crucially, it also authorized the committee to target investors based on the country they are from. 

“While specific countries are not singled out, FIRRMA allows CFIUS to potentially discriminate among foreign investors by country of origin in reviewing certain investment transactions,” the Congressional Research Service, a US Congress-affiliated think tank, wrote in a February report.

According to CFIUS’ annual report, only three potential investments in critical technology originated from China in 2019. But even if CFIUS is not rejecting deals, the dramatic drop in Chinese investment shows that Chinese tech companies don’t think it’s worth trying.

“The broad impacts suggest systemic headwinds to Chinese venture activity, reflecting tighter investment screening and a deterioration in investor sentiment as US-China tensions increase,” said the report by the US-China Investment Project. 

Given the Trump administration’s latest move to shed Chinese technology from America’s digital networks, Chinese companies and investors will likely continue to be driven away by US politics.

The US State Department is ramping up efforts to rid American digital networks of made-in-China technology, including apps, cloud services, and telecoms operators, the US State Department said late on Wednesday.

Why it’s important: The program, outlined by the US State Department, signifies a monumental shift in US internet policy, moving away from a free web towards a China-like walled garden.

• It is unclear when and how the plan will be implemented, and whether the State Department has the authority to pressure private companies to enforce the measures.

Escalating techwar: US Secretary of State Mike Pompeo said in a statement that the program, dubbed Clean Network, is the Trump Administration’s “comprehensive approach” to protecting US citizens’ privacy and American companies’ data from “aggressive intrusions by malign actors, such as the Chinese Communist Party.”

• Apps like Tiktok and Wechat are “significant threats” to US interests, Pompeo said during a press conference announcing the initiative on Wednesday.

• In response, China’s Foreign Minister Wang Yin said the US is trying to draw an “iron curtain,” between the two countries and accused the US of “bullying.”

The five fronts: “Untrusted” Chinese technology will be removed from five key areas, Pompeo said.

• The US wants to make sure that Chinese telecom carriers are not connected to US telecommunications networks, or providing services between the US and other countries.
• Pompeo urged US regulator the Federal Communications Commission to “revoke the authorization of China Telecom and three other companies” to provide telecom services to and from the US.
• The plan also seeks to remove untrusted Chinese apps from US app stores. The move is aimed at keeping US data out of the hands of Chinese companies, as well as preventing Chinese censors from influencing content available to US users, according to the statement.
• The State Department said it will prevent Huawei and other Chinese smartphone manufacturers from pre-installing “popular” US apps on their devices. It will also prevent Huawei, “an arm of the PRC surveillance state,” from making such apps available in its app store.
• The US will work to stop Chinese cloud providers like China Mobile, China Telecom, Alibaba, Tencent, and Baidu from storing and processing vast amounts of data from US citizens and companies. The State Department aims to keep sensitive personal information and key intellectual property, such as Covid-19 vaccine research, away from Chinese companies, Pompeo said.
• Undersea cables, the infrastructure that transfers data to and from the US and other countries, will be scrutinized to ensure it is free of Chinese espionage. The US will work with other nations to “secure” underwater cables around the world, according to Pompeo.

Context: Over the past few months, the Trump administration has signaled increasing protectionism against China.

• Following the US’ moves against telecommunications giant Huawei, Tiktok owner Bytedance is now bearing the brunt of the US offensive against Chinese tech companies.
• Amid growing threats of a potential US ban on Tiktok, Bytedance is reportedly attempting to sell the US operations of its short video app to Microsoft. US President Donald Trump said the government is entitled to a “cut” from the deal.
• Meanwhile, risks for Huawei in US-allied countries is growing. The UK announced in early July it would ban the Chinese telecom giant from its 5G networks. France is reportedly making similar moves.
• The Clean Network is an expansion of the Clean Path initiative launched in April, an effort to keep Huawei out of US and allied countries’ 5G networks.

Chinese search engine Baidu Search and social media platform Weibo were blocked by internet service providers and removed from Google and Apple app stores in India on Tuesday, the latest of the total 106 total Chinese apps shut down in the country in recent weeks.

Why it matters: High-profile tech bans are escalating political tensions between India and China. Though Baidu Search and Weibo aren’t very popular in India, they are a symbol of the country’s rejection of Chinese tech. The US and Japan are also considering bans against various Chinese apps, most prominently Bytedance-owned Tiktok. 

Read more: Does India need China tech?

Details: The latest app bans followed a similar playbook to an earlier round: With little warning, Indian users are cut off from the platforms. 

• The Indian government publicly released a list of 59 banned Chinese apps on June 29, and announced a second list of 47 Chinese apps on July 27. Wechat and Weibo were on the first list, along with Baidu Map and Baidu Translate. 
• Though the July list has not been made public, the Times of India reported that it contains “clones and different versions of some of the original apps,” including Baidu Search. 
• The ban has yet to be evenly applied. TechNode contributor Hamsini Hariharan was still able to see the Baidu app in the Indian Android app store and use the search engine, but the Weibo app was no longer listed. 
• Baidu once had high hopes for its Indian market. CEO Robin Li visited the Indian Institute of Technology in January 2020 to discuss his desire to “partner with local institutions for innovation.”
• Launched in 2009 by Sina Corporation, Weibo has 500 million global registered users. Indian Prime Minister Narenda Modi joined the social media site in 2015. His account, with over 244,000 followers, was deleted on July 1. 
• Baidu, founded in Beijing in 2000, launched its India office in New Delhi in 2015. Baidu said it had 45 million monthly active users in India across all its products in September that year. 
• Baidu Search hasn’t made the same headway in India as in China where it claimed 68.7% share of the Chinese search engine market as of February 2020. In India, Google is dominant with nearly 100% of the search engine market.

Context: India’s nearly 700 million internet users were once seen as the next frontier for Chinese tech but sentiment from the government towards China’s biggest tech companies has cooled as political tensions heat up.

• Tencent’s Wechat was blocked in India on July 27, stranding both Chinese expat and Indian users. TechNode previously reported that even virtual private networks (VPNs) could not guarantee access to the app. 
• Tiktok was removed from Android and Apple app stores in India, its second-largest market, on June 30. Despite Tiktok’s popularity in India, the ban of Chinese apps followed rising nationalist sentiment in India. 

How tech giants build ecosystems

On July 21, scooter maker Ninebot, a company backed by Chinese smartphone maker Xiaomi, won final approval from the Shanghai Stock Exchange to register on its Nasdaq-style STAR Market tech board. If the registration is approved by the China Securities Regulatory Commission, the country’s top securities watchdog, Ninebot will become the fourth company within the so-called “Xiaomi ecosystem” to go public.

The Xiaomi ecosystem is a group of startups the smartphone maker has invested in, who are allowed to leverage its sales channels to distribute their products. Joining the group also means startups, which are often makers of smartphone accessories such as headphones, power banks, and cameras, can utilize Xiaomi resources like brands, supply chain management, and design.

The clique has incubated three publicly traded companies, including smart home appliance maker Yunmi, cleaning robot maker Roborock, and smart wearable devices maker Huami. Meanwhile, three more companies are in the pipeline to go public on the high-tech STAR board. 

The Xiaomi ecosystem is one example of how big Chinese tech companies expand their empires through investments. During the past decade, corporate venture capital has thrived under the wings of big tech firms like Xiaomi, Tencent, Alibaba, as well as rising stars like Bytedance and Didi Chuxing. 

While, like all VCs, corporate VCs hope to invest in promising startups that generate returns for their parent companies, they’re also pursuing strategic objectives for their companies that shape their priorities.

In the first six months of this year, corporate VCs participated in 15% of venture capital investments in China, according to Chinese venture market research firm Jingdata.

Big deals

• In July, grocery delivery startup Missfresh raised $485 million from investors including Tencent and China Capital Investment Group.
• In May, Tencent participated in Chinese social fitness app Keep’s $80 million Series E led by Jeneration Capital Management. 
• In April, Tencent injected $17 million into a unit of Chinese navigation software provider Navinfo that specializes in high-precision positioning technology development and services.
• In June, BYD Semiconductors, the semiconductor unit of electric car giant BYD, raised $114 million from investors including South Korean conglomerate SK Group and Xiaomi.
• In March, Chinese podcast platform Qingting FM raised several hundred million RMB from Xiaomi.
• In April, Bytedance co-led a Series B of nearly $14 million into Chinese cleaning robot maker Narwal Robotics.
• In March, Chinese big data company Mingninglamp raised $300 million in a funding round backed by Singapore’s state investor Temasek Holdings and Tencent.

Big tech investment strategies

Like Xiaomi, all Chinese tech giants use their investments as a way to build their ecosystems, and they are usually incompatible with those of their rivals’. For example, users of Tencent-backed JD.com cannot pay with Alibaba’s Alipay on the e-commerce platform.

Tencent

Social media and online gaming giant Tencent is one of the most active corporate VCs in China. The company has invested in 741 companies around the world as of July 24, according to venture capital data provider Itjuzi (in Chinese).

• Tencent’s investment arm favors companies in the gaming, entertainment, e-commerce, and fintech sectors. The company has invested in some 165 companies that fall into the culture and media category, accounting for 22% of its total portfolio companies. It has also started investing into enterprise service and artificial intelligence (AI) companies in recent years.
• Some of the company’s biggest investment successes are social e-commerce platform Pinduoduo, electric vehicle maker Nio, ride-hailing app Didi Chuxing, and online literature platform China Literature.

Alibaba

Apart from online market place Taobao and Tmall, the e-commerce titan also operates cloud computing platform Aliyun Cloud and Cainiao, a logistics platform. Alibaba’s investments also focus on these areas: e-commerce, enterprise services, and logistics.

• Alibaba has invested in 528 companies as of July 24 with 87 companies belonging to the enterprise service category, according to Itjuzi. 
• The company has stakes in food delivery platform Eleme, video-streaming platform Youku, Didi Chuxing, and Southeast Asian e-commerce company Lazada.

Bytedance

Bytedance was founded in 2013, but it started to make investments in 2014. The owner of short video app Tiktok and news aggregator Jinri Toutiao started its VC activity by investing in a series of blogs and media companies such as AI-focused blog Xinzhiyuan, and Caixin Globus, an international news site founded by Chinese finance news outlet Caixin.

Bytedance started to expand its investment portfolio outside of China in 2017 as overseas markets became more and more important to the company, but it tended to make acquisitions rather than simply investing. 

One of the most successful examples of Bytedance’s global expansion was the acquisition of lip-syncing app Musical.ly in 2017, which was later rebranded to Tiktok and became a global hit.

In recent years, Bytedance pivoted to invest in enterprise services and online education companies such as edtech company Fclassroom in 2019 and online word processor Shimo in 2018.

Few intersections

Chinese tech giants’ investment strategies show a strong tendency toward exclusiveness, as they deploy capital to build out ecosystems. This means that when a startup gets money from Tencent, Alibaba’s door slams shut.

• Most startups have to choose a side when they raise money from tech giants. Deciding on one tech giant’s ecosystem means that, besides cash, a startup will likely gain access to its backer’s existing user base, data, and tools, while being blocked from rival companies’ networks.
• Zhu Xiaohu, managing director of venture capital firm GSR Ventures, which focuses on early-stage technology companies, said in May 2019 that it was “extremely difficult” (in Chinese) for startups to avoid choosing a camp among tech giants when raising funds because the combined market value of BAT (Baidu, Alibaba, and Tencent), and companies they invested in “account for more than 90% of the market cap of all Chinese internet companies.”
• One of the exceptions is ride-hailing platform Didi Chuxing, which is a result of a merger between Tencent-backed Didi Dache and Alibaba-backed Kuaidi Dache in 2015. Didi appears to have avoided taking a side, accepting both Alipay and Wechat.

Pick a side

Even though Chinese unicorns only accounted for 15% of deals in the first half of the year, nearly all startups have to align with a tech giant as they scale.

There are a few unicorns, such as drone maker DJI and Tiktok owner Bytedance, that have managed to succeed without joining any of the BAT camps. But 80% of Chinese tech startups have taken a form of investment from BAT by the time they reach $5 billion in valuation, according to a report by The Economist.

And sometimes, trying to please more than one giant can be dangerous. One example is failed bike-sharing platform Ofo, another intersection of Tencent and Alibaba’s investments.

The company received money both from Tencent, via Didi Chuxing, and Alibaba. A 2019 article by Chinese magazine GQ Report argued that the resulting clashes between the two giants in the startup’s boardroom ultimately led to Ofo’s failure.

“Experienced entrepreneurs know: Under normal circumstances, do not accept investments from two (or more) of Tencent, Alibaba, or Baidu at the same time,” GQ Reports wrote. “It is dangerous to violate common sense.”

Chinese online travel company Ctrip is considering delisting from Nasdaq and is in talks with potential investors to fund the plan, Reuters reported on Tuesday citing unnamed sources.

Why it matters: China’s largest online travel firm is the fourth Chinese tech company in the past month to consider delisting from the US financial markets. Intensifying tensions between the world’s two largest economies are scaring Chinese tech companies from New York exchanges, once a sought-after market to raise funds.

• The move follows increasing scrutiny of Chinese companies in the US and calls from lawmakers for stricter audit requirements following Chinese beverage chain Luckin’s admission of financial fraud in April.

Details: The management of Baidu-backed Ctrip has asked several financial and strategic investors including venture capital firms and tech companies to fund its privatization plans, according to the Reuters report, citing four people familiar with the matter.

• The company has held preliminary talks with banks about a potential secondary listing in Hong Kong, Reuters reported in January. The company later decided to delist as the coronavirus outbreak has badly hit its travel business and weighed heavily on its market cap, said the Tuesday report.
• A Ctrip representative declined to comment when reached by TechNode on Tuesday.

Context: Ctrip, founded in 1999, went public on Nasdaq in 2003. The company acquired British flight search engine Skyscanner in 2016 and US online travel agency Trip.com in 2017.

• The company’s net revenue dropped 42% year on year to RMB 4.7 billion (around $670 million) in the first quarter. It also booked a net loss of RMB 5.4 billion in the same time period.
• In May, the company forecasted its net revenue would decrease around 67% to 77% year on year in the second quarter, citing “the continued negative impact due to Covid-19.”
• On Monday, Chinese search engine Sogou said it received a buyout offer from Tencent that could lead to the company’s delisting from the New York Stock Exchange (NYSE).
• On July 6, Chinese online news and social media company Sina said it had received an acquisition proposal which would take the company private after 20 years of trading on the Nasdaq.
• Chinese online classifieds marketplace 58.com entered a deal to delist from the NYSE in June.

Since late February, China has relied on “health code” apps to control re-opening. A green code in your city mini-app gets you into markets, office buildings, and public transport. Yellow or red? You could be barred from your train, or even sent into self-isolation. 

These apps follow the ebb and flow of the virus. Though both may occasionally disappear, whenever China sees a new local outbreak, health code checkpoints are never far behind.

Like most Chinese initiatives, it’s a diverse patchwork of local solutions, improvised to manage a crisis. Cities and districts have their own health codes, sometimes creating contradictions: one Financial Times reporter was told on returning to Beijing to ditch the municipal-level app and use their district’s own. 

So what are all these codes based on? What data are they collecting? How long will they be around? 

The system’s extremely opaque—and it keeps changing—so answering these questions is hard; there isn’t exactly a CEO of Health Code to help out. But just for you, TechNode dug into the most detailed technical information available—standards issued on April 29 for the national health code system. 

They include information that helps us understand what information the system collects—and links it to a national system that could stick around long after the pandemic is done. We’ve put together a FAQ to walk you through how we’ve gotten here, and what comes next.

Keeping score

First things first: for this article, we’ll use “health code” to refer to individual city-level apps and frameworks, and “health code system” to refer to their collective China-wide use (which, remember, is decentralized). 

What data’s in the health code?

The standards outline a surprisingly modest list: 

• Travel history (up to the district/county, or qu/xian, level)
• Directly related health information (e.g., temperature, symptoms)
• Overall medical test results
• Overall risk assessment

Personally identifiable information like residence community (shequ) is also required. Beijing’s most recent outbreak used shequ-level risk assessment, as TechNode editor David Cohen experienced, with some shequs deemed medium- and high-risk while others remained low. 

Huh, seems reasonable. But wait—where’s this data come from, then?

According to the standards? Just about anywhere. Potential sources include: 

• Diagnosed cases
• Close contact history
• Nucleic acid tests
• Antibody tests
• Self-reported data
• Temperature data at checkpoints
• Data from phones remaining in at-risk areas for too long

…and, you know, a couple of others.

This isn’t new. The health code system already cross-checks government data on train and plane tickets, according to a GovInsider interview with Yong Lu, vice president at the Shanghai Data Exchange Corporation. He also says it uses location-based data from telcos.

That seems like an awful lot of data. Is it actually all being used?

Great question. The standards don’t advise on that, and given how complex and varied these data sources are, that decision will probably be handled locally. 

Data from private companies is especially touchy, as these companies are reluctant to hand over customers’ personal data. During the recent Beijing outbreak, Alibaba and Tencent jointly denied a rumor that they were doing so.

It’s also not clear how detailed the location-based data is, and TechNode contributor Dev Lewis notes an absence of high-precision location-based data such as mobile payments (supplemental reading: Lewis has also gone deep on the standards docs). That doesn’t guarantee individual apps aren’t using such data, but Beijing’s recent struggle to trace contacts from the Xinfadi market outbreak suggests that at least some apps aren’t capturing that.

So are health codes permanent?

The standards aren’t definitive, but their foreword references taking a “long-term” perspective, so it sure sounds like they’re thinking about it. As we’ll discuss in a second, China’s trying to centralize government services and medical information, so the system’s likely to stick around.

Post-pandemic, the standards say health codes could even turn into a general-purpose “medical history code,” used in medical treatment, elderly care, and so on. When Hangzhou tried expanding health code use recently, it got quite a bit of flak. 

Going national

So then this “national health code system”… if so much is kept local, what’s left to do?

According to the standards, the “national platform” sitting above local apps would be more like a directory or catalog emphasizing interoperability, rather than a national-level database.

Seemingly, individual regions would operate their own databases, but the national platform would provide a “table of contents” where, for example, one province could look up another province’s information. 

Think about a library system. If you were searching for a book, it’d be really neat to know its location and some basic details. Right now, every “shelf” in China is using a different organization system, so book hunting takes forever. And China’s “library” has grown pretty fast: by March, over 200 cities were using health codes, with limited discussion of compatibility.

But…?

But to our knowledge, that “library catalog” doesn’t fully exist yet. According to Wang Zhong, associate professor at the Beijing Academy of Social Sciences (BASS), China’s current healthcare information sharing platforms are at the prefectural or provincial level and not nationally managed. 

By themselves, the standards can’t create that sort of catalog. What they can do is make sure provinces are collecting the same data, so making that catalog is easier. But we’ll talk more about that later. 

So, just to be clear, this national platform isn’t going to be, like, a single mega-database of all the health information on every Chinese citizen ever?

All of it? Ever? Uh, probably not. It would be hard to unite diverse health information data types, like images and scans, plus there’d be significant privacy and cybersecurity concerns. 

That said, increased national-level data sharing still carries some risks. For example, earlier in May, someone leaked a 640,000-row dataset documenting case updates in over 230 cities to Foreign Policy.

Plus, in the longer run, the standards talk about connecting all local health code systems to an integrated (Yitihua) platform for government services, as Dev Lewis has noted about Yitihua’s health-related dimension. Yitihua isn’t the same as our “national platform” for health data—it’s much bigger.

No, really going national

In full, Yitihua (in Chinese) is the “nationally integrated online government affairs service platform” (quanguo yitihua zaixian zhengwu fuwu pingtai). It’s been around since well before the pandemic. The State Council (in Chinese) has been pushing its development since 2018 (in Chinese), and it actually went up in November 2019, but with relatively little fanfare—it’s still in beta mode. 

In other words, it’s not just for healthcare: the aim is to have a one-stop shop for all government business. That’s not an ambition unique to China—other (smaller) countries like Estonia and Singapore have done it.

The health code system could be a jumping-off point for Yitihua in the health department because standardizing it is easy. Wang from BASS told Technode the limited range of medical data required for the health code system is easier to collect, and that provinces are already collecting this information in relatively standardized formats.

So how do Yitihua and the health code system fit together?

There actually aren’t many specifics. As early as February, news articles (in Chinese) talked up the importance of Yitihua in epidemic control, but other than the creation of a national health code app (in Chinese), details are scarce about how it might integrate information. That app is far from universally used, and even the standards say it does not replace (in Chinese) existing regional apps.

This diagram from the standards shows how health information in Yitihua relates to the health code system, for example, but the floating boxes don’t much clarify how data sources are plugged in.

Still, Yitihua matters because it’s a long-term commitment to national-level data integration, particularly across government departments. In that light, it’s worth seeing the standards not as definitive, but as one step in a long (but determined) journey toward greater integration.

One standard to rule them all

So looks like we’re back to the standards. What’s their role?

To have Yitihua and the health code system, you need uniform data types and interoperable databases: hence, the standards. 

Just to be clear, interoperability doesn’t mean identical implementation. Per the standards, implementation is still very much decentralized: regions get to decide risk levels and how to use them. Conveniently, they’re also in charge of dealing with any complaints.

Where did the standards come from?

China’s main standards body, the Standardization Administration of China, released them on April 29. They’re technical papers intended to allow different actors to create compatible systems.

They consist of three documents: a description of how different databases should interact, the basic requirements for an application interface, and data formats to ensure compatibility.

Who put them together?

A mix of private companies and government agencies. Companies involved included Baidu, Alibaba, Tencent, and China Electronics Technology Group, while government agencies included central agencies like the General Office of the State Council, as well as provincial ones from Zhejiang, Guangdong, Shanghai, Hebei, Guizhou, and others.

It took them fourteen days from press release to create, which is unusually fast. An engineer familiar with national standards (guobiao) told TechNode it normally takes about two years of negotiation to create a draft standard.

So what now from here?

We wait and see. The standards might be out, but that’s no guarantee of how they’ll be applied. 

But more than that, the standards can’t instruct provincial or central organizations to actually build data-sharing frameworks. After all, according to a 2019 paper by Wang, China has talked about central platforms for medical records since 2016, but has been stalled by the diversity of local medical systems. 

If there ever were a reason to get a move on with that project though, what better one than a pandemic? One day, we may well look back at that January in Wuhan and see it as the moment that injected new urgency into the national platform’s veins.

Bytedance’s mega app Tiktok has been removed from Android and Apple app stores in India, its second-largest market, following a Monday ban on 59 Chinese apps on national security concerns. The ban comes two weeks after a border clash with China left 20 Indian soldiers dead. 

Among those blacklisted are popular Chinese apps like Tiktok, Wechat, Baidu Maps, Baidu Translate, Sina Corp’s microblogging platform Weibo, as well as mobile games Mobile Legends Bang Bang and Clash of Kings. Other banned apps popular in India include Chinese-owned e-commerce platforms Shein and Club Factory, Bytedance’s social media app Helo, and Alibaba’s UC Browser. 

A door slammed shut: Losing access to India’s market is a blow for Chinese companies like Bytedance, which aim to ride India’s rapid growth in mobile internet penetration.

• India’s mobile app market is still developing, and rapidly. Smartphone users in India are projected to double to 1.25 billion by 2024 from 610 million in 2018, according to India-based think tank Gateway House. Between 2016 and 2018, the number of app downloads increased by 165%.
• Some companies have made big bets on the Indian market: Alibaba’s fintech arm Ant Financial has invested close to $2.7 billion in seven companies, while Tencent has spread $2 billion across 15 firms.
• A big loser from this decision will be Bytedance, the owner of Tiktok. According to Sensor Tower, 30% of Tiktok’s more than 2 billion global downloads come from India.

The companies react: Bytedance told TechNode that its team of 2,000 employees in India “is committed to working with the government to demonstrate our dedication to user security and our commitment to the country overall.”

• Club Factory, which has more than 100 million monthly active users in the country, told TechNode that it was compliant with privacy practices and had “provided direct employment to hundreds of people in India.”
• “We have always been willing and continue to remain committed to working with the Government to resolve any concerns,” the company added.
• Spokespersons from Tencent, Xiaomi, and Baidu declined to comment. Alibaba had not responded to requests for comment as of publication.

Collateral damage: Many analysts see this decision as a direct reaction to the border clash, bolstered by other factors like protectionism.

• “I would say that it’s more of a nationalist response,” said Hamsini Hariharan, host of the States of Anarchy podcast, which focuses on global affairs and Indian foreign policy.
• She continued, “I think the government wanted to just send a message that they weren’t taking the border lying down, and they figured the Chinese apps were a good way to do it.”
• Deep K. Datta-Ray, visiting senior fellow at the Singapore-based S. Rajaratnam School of International Studies, concurred that the ban was “in the first instance a tit-for-tat response to Chinese actions along the border.”

Protecting our own: However, Datta-Ray added that “these actions are in keeping with a generally isolationist and nativist approach” on India’s part, as seen in moves such as its withdrawal from the mega free trade agreement known as the Regional Comprehensive Economic Partnership in late 2019.

Nationalist tide: The app ban follows a China-India border clash in the Himalayas that left 20 Indian soldiers dead, the first time in nearly 50 years that Indian soldiers had been killed on the border.

• That clash stoked anti-China sentiment in India, with a former Indian ambassador to China calling it a “turning point,” although not a “breaking point,” in Sino-Indian relations.
• In May, an app called “Remove China Apps” rose to the top of India’s Android store amid growing China-India tensions. That app was itself removed from the Google Play store on June 3.
• On June 17, national intelligence agencies in India asked the government to block 52 mobile apps by Chinese developers, informing the current ban.
• People in India “have already been talking about boycotting goods from China,” Hariharan told TechNode, and so “this current ban of the apps is just part of that nationalist wave.”

Swing state, swung: In the context of US-China tech tensions, some analysts have interpreted this ban as a loss for China.

• For China, India “was almost a tech ‘swing state,’” Rush Doshi, director of the China Strategy Initiative at the Brookings Institution, said on Twitter. “But with bans on these apps and new restrictions on Huawei, that strategy is seriously imperiled.”
• In April 2020, Chicago-based think tank Macro Polo compared the top 10 apps from different countries in 2015 and 2019, and concluded that “Chinese apps have taken the lead in by far the largest emerging market: India.”
• In 2015, three of the top 10 apps in India were from China. By 2019, that had risen to six: Tiktok, video-based social media platform Likee, Bytedance’s Helo, file sharing app Shareit, and Alibaba’s UC Browser and video sharing app Vmate.
• Though some of those names may not be familiar, they totaled 982 million downloads combined during the year.
• However, India has swung back and forth on China, and this may not be the closing act. In April 2019, Tiktok was banned in India for two weeks for allegedly spreading pornography, but made a swift comeback upon its return to the app store.

Firewall goes up: It isn’t entirely clear how the ban will be implemented. Some apps have already been taken down from app stores, but actively restricting their use would require additional steps.

• Tiktok appears to have been removed from the Apple and Google stores in India, TechNode sources in India have confirmed.
• However, that won’t stop people who have already downloaded the apps from continuing to use them. Some reports say to expect restrictions from internet service providers that will require virtual private networks (VPNs) to get around. 
• The Indian Express states that this notice “is expected to be followed by instructions to Internet service providers to block these apps,” but it’s unclear when that will be implemented. 
• As of now, TechNode sources in India are able to use apps like Wechat and Cam Scanner without a VPN, and can still access e-commerce websites like Shein from desktop browsers.
• According to Datta-Ray, “India has chosen a low-denomination item, apps, and a masked response… because China is by far, in a stronger position.” At the end of the day, that means despite an intensification “in name,” “business might very well continue as usual.”

Search giant Baidu has released a toolkit for machine learning that allowing researchers to build and train quantum neural networks.

Why it matters: Tech giants around the globe have increased their focus on quantum computing. Baidu set up its Institute for Quantum Computing in March 2018.

• Meanwhile, Google released its quantum machine learning framework, Tensorflow Quantum, in April this year.
• Microsoft has also pushed to provide quantum computing solutions to the public. In November, the company released a private preview of Azure Quantum, a quantum cloud computing service, with plans for wider rollout in the future.

Details: Baidu’s Paddle Quantum, built on top of the company’s deep learning platform Paddlepaddle, consists of a set of machine learning toolkits, including quantum development tools, a quantum chemistry library, and a set of features for optimization.

• Baidu claims that the toolkit is the first deep learning framework in China to support quantum machine learning.
• The platform allows develops to build simple quantum neural networks or develop their own models from the ground up, Baidu said.
• Paddle Quantum is “more flexible” than similar systems by other companies, according to Baidu. The company claims that it has been able to simplify the implementation of a promising quantum algorithm by 50%.
• Dubbed the Quantum Approximate Optimization Algorithm, researchers believe it could outperform classical algorithms in the next few years.

“From now on, researchers in the quantum field can use Paddle Quantum to develop quantum artificial intelligence, and our deep learning enthusiasts have a shortcut to learning quantum computing.”

—Duan Runyao, director of Baidu’s Quantum Computing Institute

Context: As development of traditional computers reaches its peak, researchers are looking to quantum computing to drive the next wave of artificial intelligence. The technology is based on quantum mechanics and is still in its infancy.

• Nevertheless, Google scientists last year said they have made a major breakthrough in quantum computing. The company claimed that they had developed a quantum processor that could complete in just seconds a computation that would take a traditional computer thousands of years.
• Chinese companies including Alibaba, Tencent, and Huawei have also set up quantum computing research labs.

Search giant Baidu has accused a former executive of corruption and handed the case over to the police, the company said on Tuesday.

Why it matters: An increasing number of Chinese firms have launched anti-graft initiatives that mimic the Chinese state’s approach to dealing with misconduct.

• Since 2013, Chinese president Xi Jinping has led a far-reaching campaign against corruption, targeting members of the government and corporate figures.
• Apart from Baidu, companies including lifestyle services giant Meituan, dronemaker DJI, e-commerce company JD, and ride-hailing firm Didi have sought to weed out corruption.

Read more: Even global tech darling DJI is not immune to culture of corruption

Details: Baidu’s Professional Ethics Committee said Fang Wei, a former vice-president at the company, is suspected of corruption following an internal investigation and has been handed over to the police.

• Wei served as a director of finance at the company until he was promoted to vice president of finance in 2018. He has also held supervisory roles at more than a dozen Baidu companies.
• Baidu’s ethics committee did provide details about Wei’s alleged offenses.
• The company said it will crack down on any behavior that violates the law or infringes upon professional ethics.
• Baidu dismissed 14 employees in August that were allegedly involved in 12 cases of internal corruption. The company accused those involved of bribery, infringing on trade secrets, fabricating expenses for reimbursements.
• Like most companies, Baidu has stepped up its anti-graft campaign in recent years. The search giant set up its ethics committee in 2011 and has since investigated more than 100 employees.

Context: Anti-corruption campaigns are common among China’s tech companies but some take more drastic steps than others.

• E-commerce giant JD.com sent some of its employees on prison tours to view firsthand the cost of corruption. These tours are common in state-owned enterprises or financial institutions, not tech companies.
• Meanwhile, drone-maker DJI said last year that it was investigating 45 employees for graft, adding that the company could lose up to $150 million as a result of internal fraud.
• E-commerce giant Alibaba, smartphone maker Xiaomi, gaming and social media giant Tencent, and telecommunications firm Huawei have all launched similar campaigns.

Baidu has officially expanded its autonomous early rider program to citizens in the central Chinese city of Changsha as rivals accelerate their plans to carry passengers for dominance in the self-driving arena.

Why it matters: Baidu is doing more road tests in a bid to win more favor from Chinese local governments. Beijing has called for local governments to spend more on upgrading their transportation infrastructures.

• Baidu has secured several contracts for building data centers for vehicle communication networks from local governments this year.
• An official from the National Development and Reform Commission (NDRC) on Monday said “smart transportation” and “smart energy infrastructure” will be among the top priorities of the “new infrastructure” initiative to boost the economy.

Read more: China’s ‘new infrastructure’ projects, explained

Details: Citizens ranging from 18 to 65 can hail a self-driving Hongqi, a luxury sedan model from state-owned automaker FAW, with just “one-click” on Baidu’s navigation and search apps, according to our investigation.

• Free of charge for passengers, the rides are currently restricted in a geo-fenced area with limited numbers of pick-up and drop-off locations. Residential blocks, shopping centers and office parks are covered in a downtown area of around 130 square kilometers.
• China’s biggest search engine began piloting their robotaxi program with a fleet of 45 cars in late September in partnership with Changsha municipality.
• A safety driver is required behind the wheel and testing during rush hours is not allowed.
• The company has served around 700 riders with its fleet logging 150,000 kilometers (in Chinese) in the program.

Context: Baidu is not the first self-driving company allowing public to hail a robotaxi on Chinese public roads.

• Nvidia-backed WeRide completed nearly 8,400 rides with its fleet of 20 Nissan self-driving cars in a 145 square kilometer area on the outskirt of the southern Guangzhou city in a month period since late November.
• Pony.ai joined the force with Hyundai in the battle by taking 150 rides per day in Irvine, California since late last year. The Toyota-backed AV startup has been operating its robotaxi program to a limited pool of seed users in the southern Guangzhou city since December 2018.
• Ride-hailing giant Didi is catching up, as well as Alibaba-backed AutoX, with plans to roll out their autonomous ride-hailing platforms separately in Shanghai next month, persons familiar with the matter told TechNode.

Bytedance has revamped a 15-year-old online encyclopedia site under its own brand, expanding the functionalities of its new search engine as it pushes further into the search market.

Why it matters: Bytedance’s launch of its own answer to Baidu’s online encyclopedia, Baidu Baike, escalates the rivalry between the rising star and the established search engine giant.

• Baidu Baike and Hudong Baike, or Baike.com, are the two most popular online encyclopedia services in China. Baidu’s offering attracts around 130 million page views per day, and the smaller Baike.com notches around 8.6 million daily page views, according to domain analytics website Alexa.cn.

Details: Bytedance has rebranded Baike.com into a site named Toutiao Baike, the online encyclopedia arm of Toutiao Search, the search engine it rolled out in August.

• Toutiao Baike shows on Baike.com’s mobile version, but the desktop version remains the Hudong Baike interface.
• Toutiao Search is a mobile search engine that used to serve as the in-app search function of Bytedance’s news aggregator Jinri Toutiao.

Context: Founded in 2005, Hudong Baike is a for-profit online encyclopedia that focuses on Chinese content.

• The company was listed on China’s National Equities Exchange and Quotations OTC market in February 2016 but soon had to pause transactions in March 2017 due to low quality and even fake entries. The company eventually decided to delist in August 2018.
• The company submitted a complaint to China’s State Administration for Industry and Commerce against Baidu in 2011, accusing it of manipulating search results and hiding entries on Baike.com.
• Bytedance owns 22.2% of Baike.com after an RMB 8.1 million (around $1.1 million) investment into the company in August. The company launched Toutiao Search in the same month.
• All non-Chinese versions of Wikipedia have been blocked in China since April 2019, and the Chinese language edition has been blocked since 2016.

A short seller firm has accused Chinese video-streaming platform Iqiyi of reporting inflated revenue figures and user numbers in 2019, following just days after US-listed Luckin Coffee’s explosive revenue fraud disclosure on Thursday.

Why it matters: The Beijing-based company often referred to as the “Netflix of China” is another high-profile target for short sellers following beverage chain Luckin Coffee’s spectacular downfall, as US-listed Chinese companies find themselves under increasing scrutiny.

Details: Muddy Waters Research tweeted a link to a Wolfpack Research report on Tuesday, alleging that Iqiyi had inflated its 2019 revenue by 27% to 44% and overstated user numbers by 42% to 60%.

• The Wolfpack report claimed Iqiyi had also blown up its expenses, the prices it pays for content, other assets, and acquisitions “in order to burn off fake cash to hide the fraud from its auditor and investors.”
• The research, which Muddy Waters assisted with, included a survey of 1,563 people in Iqiyi’s target demographic which found that VIP users of the video streaming site often scored free memberships through package deals with its partners, including Xiaomi TV and JD.com.
• The company records the membership revenue in full and lists its partner’s share as expenses, inflating both revenue and expenditures, according to the report.
• Iqiyi said in a statement Wednesday that a report by short seller Wolfpack Research “contains numerous errors, unsubstantiated statements and misleading conclusions and interpretations.”
• Nasdaq-listed Iqiyi did not provide details backing its claims about the report, but said that it has always been committed to maintaining “high standards of corporate governance and internal control” in compliance with US securities regulations.
• Iqiyi could not be immediately reached for comment.

What’s next: Dan David, the founder of Wolfpack Research, said in an interview with Bloomberg TV Wednesday that the downside of the report to Iqiyi would be “unlimited” if there was a “truly independent investigation” into the company’s alleged fraud.

• Meanwhile, Holzer & Holzer, a US-based law firm, announced Wednesday it is investigating whether Iqiyi violated federal securities laws.

“In the last 10 years, we’ve been responsible for delisting over a dozen China-based companies for fraud, [but] nobody has gone to jail, nobody has paid a fine. It is not illegal in China to steal from US investors.”

— Dan David, the founder of Wolfpack Research, on Bloomberg TV

Context: Iqiyi’s share prices fell 11.2% Tuesday morning before bouncing back to gain 3.2% by market close. 

• Shares of Chinese search engine Baidu, Iqiyi’s parent company, also tumbled nearly 5% Tuesday morning on the allegations.
• Luckin Coffee has seen its shares plunge nearly 80% in the past days after it announced last week one of its top executives and several employees fabricated transactions in 2019 totaling around RMB 2.2 billion (around $310 million). 
• The announcement came two months after short seller Muddy Waters Research publicized on social media an anonymous report which claimed the company had been inflating operational, sales, and revenue numbers.

Baidu’s Apollo autonomous driving program has thrust the search giant into the spotlight. Named after NASA’s moon missions, the self-driving program recently enjoyed a series of wins when Baidu came out on top in annual self-driving reports released by authorities in California and Beijing.

Waymo has said the reports do not provide “relevant insights” or distinguish their company’s “performance from others in the self-driving space.” Kyle Vogt, the CTO of General Motors-backed Cruise, shared similar sentiments. “The idea that disengagements give a meaningful signal about whether an AV is ready for commercial deployment is a myth,” he wrote in a blog post.

Still, much is expected of Baidu’s self-driving efforts. The company has launched autonomous ride-hailing services in Changsha, the capital of Hunan province, as well as in Cangzhou, in north China’s Hebei province, with a fleet of 30 cars. Baidu’s autonomous driving tests have covered more than 3 million kilometers on public roads across 23 Chinese cities.

Where are Baidu’s self-driving cars headed in 2020? What is the outlook for Baidu in autonomous ride-hailing? We will start with our recent experience in a Baidu robotaxi in Changsha and move on from there.

A ride in a Baidu robotaxi

Robotaxis are all the rage. Around the world, startup and tech giants alike are fighting the war for self-driving supremacy, and autonomous taxis have become the new battleground.

Companies including Baidu, Pony.ai, and WeRide have launched robotaxi pilots across China. Baidu, the country’s designated self-driving champion, began offering its robotaxi service in Changsha last September.

Three months later, TechNode arrived in downtown Changsha. Standing outside a well-known culture and arts center on a sun-washed December afternoon, we waited for a Baidu self-driving taxi to pull up.

The trip showed us how companies are taking vastly different approaches to developing their self-driving technologies, and just how difficult it is to create global benchmarks detailing how these vehicles should perform.

Baidu runs its autonomous taxis in and around Changsha’s downtown Xiangjiang New Area. The trial operation is more of a geo-fenced test on public roads; passengers can pick one of three fixed five-kilometer routes, all starting from the city’s grand theater.

The tech giant has partnered with Chinese state-owned automaker FAW Group, which provides the vehicle for its autonomous system. As the luxury Hongqi model arrived to pick us up on that balmy December afternoon, we quickly took one photo before we were told that pictures were not allowed.

Shortly after we got into the car and entered Changsha traffic, Baidu’s approach to its self-driving program became evident. It was like going for a ride with a nervous student driver.

Companies that develop self-driving technology need to consider not only the safety of their passengers but also the comfort of the ride. Baidu places more emphasis on safety than we had expected, resulting in a trip that was less smooth than AV rides we’d experienced from companies that squeeze more efforts to the comfort of their passengers.

“Our top priority is zero accidents on the road,” our vehicle’s safety driver said while we waited at a traffic light. He offered a glimpse into how the company’s safety precautions are meant to protect the trial project from any sort of controversy. “All of us are required to take a 10-minute break for each hour of work,” the driver told us.

During our trip, Baidu’s robotaxi traveled at speeds of around 30 kilometers per hour and stopped by itself every now and then to yield to pedestrians. Traffic was heavy, with cars filling the six-lane Meixi Lake Road, downtown Changsha’s main avenue.

When the vehicle stopped at a red light in the middle of an intersection, we got to see firsthand the safety precautions that our driver had described: After a few minutes of waiting, the human driver had to take over. Situations like these are typically evaluated as “too risky” for the autonomous system to navigate. Baidu says it has reported “zero accidents” in the past few years because of its “safety-first” approach.

The company has requested that its fleet of dozens of vehicles in Changsha log a certain amount of mileage each day, our safety driver told TechNode, without revealing any further details. Meanwhile, working hours are very limited since the company has not been allowed to test during rush hour. Therefore, overtime work during weekends has become common.

A conservative driving strategy

Baidu is taking a more conservative approach to its AV road testing, emphasizing safety over comfort, a self-driving car engineer said, commenting on TechNode’s observations of our robotaxi ride.

Slower driving speeds, hesitation when turning or changing lanes, and constant stops when facing dangerous scenarios are among the passive driving strategies that result, the engineer said, who asked not to be named because he was not permitted to speak to the media.

A focus on safety, alongside a goal of fewer human interventions, can be achieved by developing a cautious algorithm, helped by some of the high-performance hardware that acts as the eyes of self-driving vehicles.

For years, safety and comfort have been among the top priorities for robotaxi companies offering driverless experiences. “No doubt safety is the key to getting autonomous cars on the roads,” but a better solution could be a wider range of driving styles with safety guarantees to ensure more comfort for passengers, the engineer said. There should have been some “more decisive driving policies” he said, referring to how the vehicle could have taken proactive measures to avoid dangerous situations, such as changing lanes.

Key metrics on AV testing

Baidu’s prudence could be part of the reason the company came out on top in the recent self-driving report released by California’s Department of Motor Vehicles.

Baidu beat Google’s self-driving unit Waymo by reporting the least number of disengagements among all companies operating such vehicles in the state. A disengagement is defined as any time a human driver is required to take over from an autonomous system during self-driving tests.

But within the industry, questions over the relevance of such metrics are on the rise, with experts saying that the measure has limits when trying to gauge whether a company’s technologies are ready to be deployed commercially.

AV companies themselves have also highlighted the report’s limited usefulness. In an announcement, Baidu said disengagement is more of an internal reflection of the speed of technical iterations, and therefore comparison between companies is “not that meaningful.”

However, if disengagement rates offer few relevant insights into the technology, what are the measurable metrics that could indicate progress? Two experts that TechNode spoke with gave the same answer: the variety and complexity of testing scenarios in which a robocar can operate.

Keeping within a lane in urban traffic, recognizing traffic signals, or turning left at an intersection without a “green arrow” traffic signal are some of the most typical and frequently seen scenarios identified and tested by AV players.

However, the real difficulty is to get autonomous cars to operate under “edge cases,” or unusual circumstances, such as a nearby vehicle changing lanes abruptly, a motorcycle coming out of nowhere, or drunk driving behavior from other road users.

These scenarios could be used to create a benchmark dataset that enables companies to train and evaluate their algorithms and compare accuracy rates to effectively evaluate their technologies, much like ImageNet, a renowned computer vision dataset of more than 14 million photographs widely used to evaluate the performance of AI systems.

“The more driving scenarios your cars can handle, the more you can prove the safety of the technology,” said one of the experts. Nevertheless, problems persist because the industry has not reached a consensus on standards.

The self-driving industry has now evolved from being driven by research and development of AV technologies to being mostly pushed forward by testing efforts. The development of key technologies, such as environment perception and car control, have mostly been completed; the priority now is to gain experience in as many driving cases as possible and learn how to deal with them, the experts added.

Every new experience helps a self-driving car to learn, and that’s where some of the world’s AV leaders are ramping up their efforts. Last year, Cruise almost doubled its testing and validation miles from the year prior, and “every mile Cruise tested in California was driven in the very complex urban environment of San Francisco,” it said in its individual filing.

The company, which is mainly backed by General Motors, operates a fleet of 228 vehicles that drove more than 831,000 miles last year, nearly eight times that of Baidu. As of last December, the Chinese search giant claimed its vehicles had traveled a total of more than 3 million kilometers (1.86 million miles).

But wider tests in China are coming as more local governments join in the race to open their roads to robotaxi companies, allowing them to collect more data and develop better evaluation methods. We’ll have to wait and see who comes out in pole position.

Chinese search firm Baidu is planning a $1 billion note offering to repay existing debts and fund general operations, the company said on Wednesday.

Why it matters: Baidu had a rough 2019 and expects flagging revenue in the first quarter of this year after the fallout from Covid-19, which has infected more than 940,000 people around the world.

• The company is reportedly eyeing a secondary listing in Hong Kong after completing an internal assessment earlier this year. Listings in the city during the first few months of 2020 dropped off dramatically compared to the same time last year.

Details: The offering consists of $600 million of 3.075% notes due in 2025 and $400 million of 3.425% notes due in 2030. They are expected to be listed on the Singapore stock exchange, Baidu said.

• The proceeds should reach $990 million, after deducting underwriting discounts and commissions, as well as offering expenses, according to the company.
• Goldman Sachs Asia and Bank of America Securities are joint bookrunners for the offering.
• Baidu has had a difficult first quarter and expects revenues to drop by up to 13% year on year after the novel coronavirus outbreak.
• “The Coronavirus situation in China is evolving, and business visibility is very limited,” the company said of its guidance in its fourth-quarter financial report.

Context: China is attempting to reach a semblance of normalcy after the country’s took unprecedented measures to control the spread of Covid-19.

• Companies around the country are now suffering from the fallout. Several of China’s biggest tech firms were reportedly seeking loans to soften the impact of the virus.
• Lifestyle services giant Meituan Dianping, ride-hailing platform Didi, smartphone maker Xiaomi, and cybersecurity firm Qihoo 360 are just some of the more than 300 companies seeking loans, Reuters reported.
• These companies were looking for between RMB 50 million ($7 million) and RMB 5 billion to deal with the effects of the virus.

For the first time in history, a Chinese company has taken the top spot among firms testing autonomous vehicles on California public roads.

In 2019, Baidu drove 108,300 miles and reported six disengagements across its four vehicles, making for the lowest disengagement rate of all the companies listed in California’s annual report: 0.055 per 1,000 self-driven miles.

Baidu had drastically improved its performance over last year’s report, In 2018, the company reported one disengagement every 205 miles. This year, that number fell to one for every 18,050 miles. In doing so, the company managed to knock Waymo out of its top-ranked position. Baidu attributed the drop to rapid expansion in testing fields over the past three years. 

But as the industry matures, disengagements are increasingly being seen as a poor measure of performance, since road and weather conditions, which play a huge role in report results, are not included in the data. Meanwhile, Baidu’s reports contain significantly less information about disengagements than its peers, causing industry insiders to raise questions about the quality of the company’s tests.

Baidu’s human intervention

According to Baidu’s report, the company’s vehicles required human intervention in certain situations: when surrounding objects were not detected or were misclassified, when a decision made by the autonomous system was not appropriate to the scenario, or when there was a problem with the hardware.

However, Baidu does not provide any additional information about the situation under which these disengagements occurred, only broad categories. Meanwhile, several of its rivals’ reports provide more detail about each incident that resulted in a disengagement.

For example, where Chinese counterpart Pony.ai said of one disengagement: “Driver precautionarily intervened for a reckless neighboring vehicle cutting into vehicle’s lane,” Baidu would simply say “perception discrepancy,” making it difficult to gauge just how well the company’s AV system functions.

To be fair, self-driving startup WeRide also lacked detailed descriptions in its reports. These companies are not required to include comprehensive accounts of every disengagement. However, many well-established players do, including Cruise, Didi, and Zoox.

Other aspects of the company’s testing regime are also absent. The company does not mention in its report where the tests took place. Most other companies’ reports indicate where they are testing and whether they have expanded their operations in California.

Baidu is predominantly running its AVs in Sunnyvale in very simple traffic scenarios, two industry insiders told TechNode, who asked not to be named due to their proximity to the matter.

By contrast, General Motors-owned Cruise conducted all of its tests on urban roads in San Francisco, the third-most congested city in the US, according to Tomtom’s 2019 Traffic Index. Cruise reported a disengagement rate of 0.082 per 1000 miles.

A Baidu spokesperson told TechNode that the company tests in “diverse conditions,” including urban roads and scenarios involving pedestrian avoidance, left and right turns, lane changes, and traffic light recognition.

Road conditions can have a profound effect on disengagements, with more complex urban roads leading to more disengagements. Conversely, highway driving is typically seen as easy for AVs.

“If I wanted to look even better, I’d do a ton of easy freeway miles in California and do my real testing anywhere else,” Bryant Walker Smith, a self-driving car expert, told The Verge.

China’s major players

While Baidu took the top spot in the tests, four Chinese AV startups also made it into the Top 10. AutoX and Pony.ai came in fourth and fifth—right behind GM’s Cruise—with one disengagement every 10,684 and 6,475 miles, respectively.

Meanwhile, Didi Chuxing took the eighth position, reporting 1,535 miles per disengagement, a good result for a relative newcomer. Didi, China’s biggest ride-hailing platform, started testing in California in June 2018.

In addition, China- and California-based WeRide recorded 151.7 miles driven per disengagement, performing much worse than its Chinese peers but ranking higher than companies such as Apple, Mercedes Benz, and Toyota.

Most Chinese companies conducting tests in California revealed no further details about their operations when contacted by TechNode. However, their individual reports reveal a blurred glimpse into their performance.

Pony.ai, AutoX, and WeRide all claimed to have covered a big pool of testing scenarios in various traffic and weather conditions—either sunny days or heavy rain. However, none of them detailed when and where exactly a driver has to disengage the system. These companies gave no indication of whether these incidents occurred in downtown traffic during commutes or on empty highways at night.

In terms of test areas, all the four companies have vehicles being tested in the South Bay, while Pony.ai further expanded to Fremont, where it launched a pilot robotaxi program providing transport services from a train station to two government offices.

However, most of the areas have modest population density, around one-quarter of that of San Francisco, where GM Cruise tested its vehicles in the city’s “very complex urban environment.”

Among the four Chinese companies, Pony.ai reported that its vehicles covered the greatest distance. Its fleet of 22 vehicles logged 174,845 miles in California, the third-largest number in the ranking, although nearly a fifth of that of Cruise.

The Toyota-backed AV startup also detailed their disengagements in more detail than its Chinese counterparts. In the 27 disengagements recorded over the 12 months ending in November 2019, Pony.ai attributed eight of them to reckless driving by other vehicles, and 11 to suboptimal routes planned by software for the car to maneuver. The situations its vehicles encountered vary from insufficient yielding to reckless driving on the part of other road users.

A flawed system?

Other AV companies reported disengagements resulting from poor detection of road objects or mapping flaws in different traffic scenarios. Although such details were presented in Didi’s reports, the ride-hailing giant revealed few reasons for disengagements, not categorizing them as planning, mapping or control issues.

Alibaba-backed AutoX referred very generally to the company’s three human intervention cases as localization and planning problems. The low number of disengagements may result from fewer miles driven than other companies. Meanwhile, Nvidia-backed WeRide reduced its miles driven by nearly two-thirds in 2019 from the year before, making little progress compared to last year.

The furor over the reports has led an increasing number of experts in the field to call into question the effectiveness of using disengagements as a metric to gauge how a vehicle is able to drive autonomously.

Disengagement reports provide an opportunity to compare AV performance between companies but discrepancies in reporting make the metric insufficient to measure performance, experts say.

In a series of tweets last month, Waymo asked whether disengagement metrics lead to meaningful insights. The company added that most of its real-world driving experience comes from outside California.

Meanwhile, Cruise Co-founder Kyle Vogt shared similar views, saying in a blog post that the reports are “woefully inadequate” to judge whether an AV is ready to be deployed commercially.

An earlier version of this article quoted a TechNode source as saying that Baidu tests AVs on Bay Area interstate highways. In fact, the company denies that its vehicles have been tested on interstate highways, and a review of interview recordings suggested that we may have misunderstood our sources’ comments.

China’s biggest internet search company Baidu has won a bid to build public road infrastructure for self-driving cars in southwestern Chongqing municipality, a deal worth $7.5 million.

Why it matters: Baidu is expanding from developing autonomous vehicle technology to offering cloud-based transport infrastructure for car connectivity amid rising 5G adoption in China.

• China in 2011 began researching vehicle-to-everything (V2X) technology that links cars, transport facilities, and other road agents through a carrier network. It ramped up efforts with the launch of what it said was the world’s largest V2X city network in the eastern city of Wuxi in late 2017.
• Baidu open-sourced its V2X solutions a year later. It then set up a standalone V2X department late last year in response to Beijing’s call to close the gap with world leaders in the self-driving race.

Details: Yongchuan district in Chongqing has offered a RMB 52.8 million ($7.5 million) contract to Baidu to develop cloud data centers for self-driving car testing on city roads, the government said in an announcement released Tuesday (in Chinese).

• Baidu will provide a package of solutions including cloud data centers for vehicle-infrastructure communication and car management, enabling Level 4 autonomous vehicles to test on a 20 square kilometer (around 7.7 square mile) area of public roads.
• The contract also covers deployment of edge servers and signal control systems on roads for detecting objects and transmitting data. The deal was part of a larger RMB 1 billion framework deal struck between Baidu and the district government for an AV test infrastructure project last March.
• In an announcement released on Friday, Baidu said a fleet of more than 100 self-driving cars could drive on the roads to validate concepts of operations and technologies after construction.
• In April, the Chinese tech giant became one of the first seven companies to win permits for AV tests by Chongqing’s government, alongside state-owned automakers including Changan and Dongfeng.

Context: Baidu has reached partnerships with more than a dozen Chinese governments over the past few years. Some of the biggest deals were those with Beijing and Changsha, to monetize its futuristic AV technologies.

• The company inked a framework agreement with Yinchuan, the capital of western Ningxia province, in late December to enable self-driving rigs tested with V2X solutions following a similar deal with the government of the northern Cangzhou city two months ago.
• “It is important for us to gain operational experience as well as derive commercial value from areas, such as smart transportation to ensure that we are meeting market needs with our technology,” Baidu CEO Robin Li said during the fourth quarter earnings call.

A Baidu engineer has been sentenced to three years in prison after using the company’s servers to mine cryptocurrency, making a profit of RMB 100,000 ($14,300).

Why it matters: Mining, the process of verifying transactions on a blockchain for reward, is computationally and power-intensive, resulting in high electricity usage.

• While cryptocurrency trading is illegal in China, mining is not. The country accounts for around 66% of all mining operations globally, with southwestern Sichuan province taking the lion’s share.

Details: An Bang, a 31-year-old from northeast China, installed software on 200 of Baidu’s servers between April and July 2018, allowing him to use the computing power to mine Monero.

• An made the equivalent of RMB 100,000 from the mining operation, a court document showed.
• Baidu said the company noticed unusual activity on its servers and contacted the police after investigating the issue.
• The additional resource use cost Baidu around RMB 27,000, according to the document.
• An was charged for illegally taking control of a computer system, and sentenced to three years in prison and fined RMB 11,000.
• The engineer joined Baidu in 2016, where he worked in the company’s search operations and maintenance department.

Context: China last year decided not to ban crypto-mining, removing the activity from a list of those set to be eliminated by the end of 2020.

• The move came shortly after Chinese President Xi Jinping endorsed China’s use of blockchain while cracking down further on cryptocurrency trading and initial coin offerings.
• The majority of the world’s cryptocurrency mining takes place in China because of its wealth of cheap electricity. Sichuan and Yunnan provinces are popular because of the abundance of hydroelectric power, particularly during rainy seasons, and Inner Mongolia for its wealth of coal.

The result? Bytedance is making money hand over fist. Based on a combination of corporate updates and internal leaks, it’s already estimated to have made large inroads on Baidu’s ad revenue, as illustrated below, well and truly staking its claim to be the BAT’s new “B.” This year, Bytedance is expected to bank $25 billion in revenue. If the company achieves this, it will have broken the $25 billion-dollar threshold three years faster than Facebook did.

The coronavirus outbreak has wiped billions in market capitalization from China’s digital giants. Those plugged into China’s physical economy, like Alibaba and Meituan, have been hit hard. Alibaba, for instance, shed $26 billion in market capitalization from Jan. 21 to Feb. 24.

Yet for social media and entertainment headline acts, like Tencent and Bilibili, the momentum’s gone the other way. Since the outbreak, Tencent’s added $18 billion in market capitalization, fueled by news of eye-popping gaming expenditure and overwhelmed servers (in Chinese).

Bytedance, as a strict digital economy player with little exposure to physical goods and services, is riding the same wave.

This flurry of activity has made a few players very, very uncomfortable.

Six of the company’s apps made it onto App Annie’s most downloaded in January. And, since the coronavirus outbreak, Bytedance has:

• Scooped up exclusive rights to stream holiday movies
• Revealed plans to make gaming a more prominent force in its entertainment empire
• Tested e-commerce integration with TikTok
• Promoted a popular coronavirus-themed game; and
• Extended from in-app search to a standalone search engine. 

Sources tell me this flurry of activity has made a few players very, very uncomfortable. In particular, the folks responsible for ad revenue at Baidu and Tencent are shitting kittens.

Here’s why.

First, the obvious. Bytedance is capturing eyeballs. Douyin’s latest daily active user figures suggest that a tick under half of China’s internet users open the app each day. And, as early as June last year, Bytedance’s news and boredom-busting entertainment properties commanded a total 1.5 billion monthly active users. That scale has Baidu eating Bytedance’s dust.

Second, something less obvious: Bytedance is nabbing chunks of the digital advertising pie under adverse conditions. China’s digital advertising industry is essentially a zero-sum game, where the top four players command 85% of the money pile.

While the pie’s slowly growing, economic headwinds are making brands look for efficiencies. The net effect is a slowdown in advertising revenue growth across the back end of last year, which bruised Baidu and Tencent.

As ad growth gets harder, Bytedance is one of the few digital advertisers that’s growing advertising revenue at scale and speed. It more than doubled its advertising revenue in the past year. That means price and result-conscious advertisers are reallocating their spend, taking dollars away from other platforms and handing them over to Bytedance.

Why are they doing that? This brings us to the least obvious but most important point—at present, Bytedance’s advertising platform is probably better than Baidu’s or Tencent’s.

Much about Bytedance’s recommendation algorithm is unknown. However, its ability to capture, parse, and stitch together data about news articles, short videos, and games users are interested in is incredibly valuable. This creates all sorts of targeting and retargeting potential for savvy advertisers. Industry chatter (in Chinese) and interviews with a handful of local companies suggest that advertisers believe Bytedance is more cost-effective than Baidu or Tencent.

As Bytedance itself has shown, there’s huge upside running advertising campaigns across its ecosystem. One of the company’s secrets in quickly making inroads into hyper-casual games is how it used Jinri Toutiao and Douyin to run hype-building ads and drive game downloads (in Chinese). Those are the kind of results advertisers are looking for as brands navigate China’s economic contraction.

All this is giving ad teams at Baidu and Tencent cold sweats. Economic contraction and coronavirus dislocated digital advertising growth, yet Bytedance is still hoovering up advertising dollars. If it wasn’t apparent before, it should be now: Bytedance is eating incumbents’ lunch.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

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In this episode, the guys welcome back guest co-host Michael Norris from Agency China. The three of them discuss markets’ sudden and dramatic correction and strategies for coping with such dramatically negative market sentiment. They also go over the recently-reported Q4 earnings reports from Alibaba, Baidu, and iQiyi.

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A total of 77 self-driving cars have driven more than 1 million kilometers on public roads in Beijing and search giant Baidu accounts for the lion’s share, regulators of the China’s capital city said in a report released on Monday.

Why it matters: Beijing’s self-driving report is the only one of its kind made public and recognized by the Chinese authorities, although self-driving tests are conducted in a number of cities including Shanghai and Guangzhou.

• Meanwhile, after two years of testing, Beijing provided in the report the number of “disengagements” or human intervention events during self-driving car tests.

Details: Baidu’s autonomous vehicles have traveled more than 893,900 kilometers (555,500 miles) in the city over a two-year period as of December, Beijing’s Innovation Center for Mobility Intelligent (BICMI), the city’s official service agency for AV tests, said Monday in a report (in Chinese).

• Baidu’s 45 cars drove around 140,000 kilometers in 2018. The company expanded the fleet size to 52 self-driving cars with more than 754,000 kilometers logged last year.
• Guangzhou-based Pony.ai came second with around 121,300 kilometers of tests as of last year. The number of miles driven by its five vehicles in 2019 increased more than tenfold from just over 10,000 kilometers a year earlier.
• In total, 77 vehicles from 13 companies drove more than 1.04 million kilometers (around 646,400 miles) on Beijing’s public roads as of last year. Japan’s biggest automaker Toyota jumped to the third place with its four cars travelling 11,129 kilometers in 2019. It conducted no tests the prior year.
• Chinese auto and tech companies including Tencent, Didi Chuxing, and Nio were among the top 10, as well as Audi and Daimler. None of the companies beyond the top three exceeded 10,000 kilometers.
• This year’s report revealed details about disengagements: only 14% were attributed to mechanical system or algorithm shortcomings in events such as broken traffic lights or reckless driving by other cars.
• All other disengagements were for reasons such as replacing data-recording equipment, changes in planned routes, or for human break times, the report said.
• A BICMI representative declined to reveal further disengagement details when contacted by TechNode on Tuesday.

Context: The Beijing government released China’s first municipal-level regulations for AV road tests in December 2017. It has opened a total of 503.7 kilometers of roads in four districts in the outskirts of the city as of 2019, more than triple the size a year earlier.

• City officials in December began to allow passenger transport in self-driving cars, and Beijing-based Baidu was the first to receive permission from the city for its 40 licensed AVs. The actual size of the company’s self-driving car fleet is unknown, but it has driven 3 million kilometers in 23 Chinese cities as of December, according to Baidu’s Q4 earnings results.
• However, Baidu is only piloting passenger transport in the central Chinese city of Changsha, and has not disclosed user base or daily rides details.
• Meanwhile Toyota-backed Pony.ai said its fleet of 100 vehicles has traveled more than 1.5 million kilometers in four cities. Its ride-hailing pilot project surpassed 70,000 orders as of the end of last year.

Chinese search engine giant Baidu reported the lowest rate of human driver intervention among companies testing autonomous vehicles (AVs) on California public roads, according to the latest batch of disengagement reports released by the state’s Department of Motor Vehicles.

Why it matters: This marks the first time in the report’s history that a Chinese company unseated Waymo, Google’s self-driving arm and an accepted industry leader, for the top spot.

• California has required data reporting from companies for testing AVs on its public roads, including the number of miles driven autonomously and the number of times human drivers are required to take control of the vehicle, known as a disengagement.

Details: Baidu reported driving 108,300 miles and six disengagements with four vehicles last year, making for the lowest disengagement rate of all the companies listed in the California’s annual self-driving record: 0.055 per 1,000 self-driven miles.

• Baidu’s number dropped significantly from a year ago when it rated 4.86 per 1,000 self-driven miles, which the company attributed to rapid expansion in testing fields over the past three years.
• Waymo again reported the greatest number of miles driven by its 153 robocars, covering 1.45 million miles in California last year. It had one disengagement every 13,219 miles, versus Baidu’s one every 18,050 miles.
• In unusually strident language, Waymo posted a series of tweets on Wednesday questioning if the disengagement metric leads to meaningful insights, adding that its real-world driving experience takes place mostly outside of California.
• The AV leader said in December that it has more than 1,500 monthly active riders for its robotaxi pilot project Waymo One in Phoenix, Ariz. and surrounding areas.
• Doubts about the credibility of the metric are increasingly being voiced, as it is not mandatory for companies to report testing environments, which can vary from downtown traffic to empty highways.
• Executives from companies including General Motors-backed Cruise have expressed views that the metric has little value when there is no clear definition of what constitutes a disengagement.
• Disengagement data has been accepted as a barometer to compare AV companies and assess the commercial readiness of self-driving cars, and is often cited as evidence of Waymo’s leadership.
• In a statement sent to TechNode on Friday, Baidu said disengagement rate is an internal reflection of the speed of technical iterations, but comparison between companies is “not that meaningful.”

Context: Apart from Baidu, four Chinese companies were among the top 10 on the report in terms of disengagement frequency.

• Alibaba-backed AutoX reported one disengagement every 10,684 miles, ranking fourth, followed by Guangzhou-based Pony.ai with one disengagement every 6,475 miles.
• Didi broke into the top 10 for the first time with one disengagement every 1,535 miles, as did PlusAI, a self-driving truck developer which had one disengagement every 940 miles.
• Guangzhou-based WeRide drove 5,917 miles with one disengagement every 152 miles. COO Zhang Li said it has shifted road testing to China, where its fleet of more than 100 robocars drove more than 1.1 million kilometers (around 683,000 miles) and offered more than 8,300 rides within a ride-hailing pilot project as of last year.

Bytedance has launched a standalone search engine app, further challenging Baidu’s dominance in China’s online search market.

Why it matters: Bytedance, which owns video-sharing apps TikTok and Douyin, is increasingly positioning itself as a direct rival to Baidu.

• Beijing-based Bytedance is expanding beyond its core businesses in news aggregation and short video into e-commerce, gaming, and search.
• Toutiao Search, previously just the search function contained within Bytedance’s news aggregator Jinri Toutiao, is now a standalone app which yields results from the company’s short video apps Douyin and Xigua, as well as general content from around the internet.
• China’s internet users are becoming increasingly accustomed to in-app search engines. Tencent launched a search function for its mega instant messaging app WeChat, allowing users to search for official account articles and content from the wider internet.

Details: Bytedance has released the Toutiao Search app on major Chinese Android app stores including Wandoujia, the Xiaomi App Store, and Huawei’s App Gallery.

• The app is not presently available on Apple’s App Store in China.
• The product was first released on Feb. 20, based on information from the Android app stores.
• Users can search for items in categories such as articles, news, short videos, and pictures. Its results include mini programs that address simple user inquiries such as trash-sorting guidance and currency exchange calculations.

Context: Bytedance in August introduced the in-app search function for Jinri Toutiao. The product was not seen at the time as a direct rival to Baidu’s offering because it was not a dedicated search engine.

• The company has been using the in-app search as a shortcut to building a Baidu rival as its apps have already amassed 1.5 billion monthly active users as of July.
• The eight-year-old company is reported to have been taking increasing ad revenue share from China’s top tech firms including Baidu, Tencent, and Alibaba.

Search giant Baidu’s profits ballooned in the fourth quarter but the company warned of flagging revenue during the first three months of 2020 as a result of economic uncertainty from the novel coronavirus outbreak.

Why it matters: Baidu has seen mounting competition from companies like Bytedance and Tencent which have been enticing advertisers and Chinese consumers with their short video and social apps.

• Baidu reported its first quarterly loss since listing in 2005 during the first quarter of last year.
• The company’s share price plunged by nearly 30% last year. Gaming and internet giant Netease and lifestyle services company Meituan have surpassed Baidu in market value.

Details: Baidu’s Q4 revenue reached RMB 28.9 billion, up 6% year on year, the company said in a statement on Thursday, beating analysts’ expectations of RMB 28.4 billion.

• However, the search giant forecast a 5% to 13% year-on-year decline in its top-line figures to between RMB 21 billion and RMB 22.9 billion in the first quarter of this year, below the midpoint of analyst estimates.
• “The Coronavirus situation in China is evolving, and business visibility is very limited,” the company said of its guidance.
• The expected plunge casts a shadow on Baidu’s better-than-expected Q4 results. The company’s profits soared to RMB 6.35 billion in the December quarter, up more than 200% year on year.
• Baidu attributed the positive results to growth in its cloud unit, smart devices, and video-streaming business, iQiyi.
• The company continues to face stiff competition, as companies like Bytedance, which runs content aggregator Jinri Toutiao and short video platform Douyin, eat away at the company’s advertising revenue, which fell 2% year on year to RMB 20.8 billion.
• While the short-term impact of the coronavirus on Baidu’s businesses has been negative, a side effect is that people are staying at home more and getting to know the company’s products, Baidu CEO Robin Li said during an earnings call on Friday morning.

Context: A deadly new coronavirus, dubbed Covid-19, has had a profound impact on most businesses in China, as the government prolonged the Lunar New year holiday to prevent the spread of the disease and consumers slash spending.

• Baidu is the latest company to warn the Covid-19 outbreak will affect its business.
• The outbreak doesn’t only affect firms from China. Companies around the world have brought up the possible fallout from the coronavirus during recent earnings calls.

China’s media regulator moved to increase its oversight on TV shows, placing limits on the number of episodes per drama and calling for quality improvements, which could drive significant shifts in the industry.

Why it matters: Video platforms run by tech majors purchase streaming rights for TV shows per episode, which, as a result, have elongated story lines in pursuit of bigger payouts. As a result of the new rules, “Producers will make less money, and will need to improve story lines; audience will see better content, and platforms will need to buy more shows for their audiences,” an entertainment industry insider at Harper’s Bazaar China told TechNode.

• Many of China’s hit shows, which users watch avidly on platforms like Baidu’s iQiyi, Alibaba’s Youku, and Tencent Video, play out over 60 episodes, with some going over 90. Celebrities net sky-high fees for appearing in dramas which adds to pressure on budgets. 
• While China’s entertainment industry is both large and profitable, President Xi Jinping has emphasized the need to increase cultural soft power.
• Those working in the arts, he said, should put social (rather than economic) benefits first, and resist the “vulgar and kitsch.”

Details:  The National Radio and Television Administration set hard limits for length and more rules for how producers spend budgets. The notice publicized Thursday is critical of producers that “rush to shoot without sufficient preparation” and turn out low-quality shows.

• To promote a “serious and rigorous creative style,” regulators set a limit of 40 episodes for show length, though producers are encouraged to keep within 30 episodes.
• Producers must submit costs for review, in which actors’ salaries must not exceed 40% of total production cost, and the lead actor’s pay cannot total more than 70% of actors’ salaries.
• The notice comes into effect from Feb. 6.

Context: Since the outbreak of Covid-19, viewing of online dramas quadrupled compared with the last Spring Festival holiday, with medical dramas becoming more popular.

• iQiyi reported a user growth rate of 21.4% during the month and Youku announced that daily active user count set historical records.
• Once streaming platforms began competing for hit shows, copyright fees exploded, said a media commentator on QQ.com. Hit palace drama “Ruyizhuan,” for instance, netted RMB 15 million from online platforms. Pay structures, where TV stations pay per episode, motivated producers to draw out shows.
• The media regulator had announced in September that it was investigating whether a limit on show length could stop the “drama deluge.”
• The Xi leadership marks a return to a primacy on politics and ideology, in which media is expected to play its part.

Search giant Baidu has released an open-source tool to detect whether individuals in crowds are wearing face masks, as cities around the country impose rules requiring use of such protection in public spaces.

Why it matters: Authorities in China have taken drastic measures to curb the spread of Covid-19, a new flu-like virus that first appeared in the central Chinese city of Wuhan late last year.

• In Hubei, the province at the center of the outbreak, whole cities have been cut off from the outside as China attempts to contain the virus.
• Several cities including Guangzhou and Beijing are enforcing the use of masks in public areas, including restaurants, shopping malls, and public transport.
• Mask inspections have largely been manual, making identifying non-mask wearers in crowds difficult.

Details: The face-scanning model uses artificial intelligence to identify people in real-time who are not wearing masks or those who are wearing them incorrectly, Baidu said on Thursday.

• The system can identify non-mask wearers with 96.5% accuracy, which meets the needs of routine inspections, according to the company. Developers then only need a small amount of data to train the tool for their own use.
• The model was trained on a dataset of 100,000 faces, Baidu said.
• The system, which Baidu claimed is the first of its kind, can help businesses check if their employees are wearing masks, and also help authorities speed up mask checks in public places.

Context: Face masks have become a necessity in China, where nearly 1,400 people have died as a result of the infection.

• Experts around the world say that hand-washing is more important than wearing masks. Nevertheless, masks are seen as mandatory in China.
• People around the country have opted to isolate themselves in their homes and businesses have implemented work-from-home policies to counter the spread of the disease.
• Baidu recently released another tool allowing people to determine risk levels for Covid-19 infection using the Chinese government’s diagnosis and treatment plan for the virus as well as records from millions of online medical consultations.

Bytedance, creator of viral short video apps Douyin and TikTok as well as news aggregation app Toutiao, is continuing to take ad revenue share from China’s top tech firms Baidu, Alibaba, and Tencent, according to a report from Chinese social media agency Totem Media.

Why it matters: Chinese tech giants hold a significant chunk of online traffic in China as well as its marketing landscape, which has become increasingly digital in recent years, particularly social media. The shift in user attention to short videos is reflected in the migration of ad budgets from brands, a major source of revenue for tech firms.

• Digital ad spending in China is expected to rise 22% year on year in 2019 to $79.82 billion and continue to expand at a double digit growth rate until 2022, according to data from eMarketer.
• China is overwhelmingly biased toward digital ad spending. Depending on the source and structure of calculations, eMarketer estimates digital represents 60% to 70% of all advertising spend in China, as of 2019 to 2020. The global average was around 50% in 2019.

Details: Baidu, Alibaba, Tencent, and Bytedance (BATB) are among China’s most valuable tech companies and account for a combined 86% of all digital advertising revenue in the country, according to Totem Media.

• The wide range of assets means that BATB’s dominance in China’s online marketing industry to continue for some time. “There is [no] next big player looming on the horizon to unseat these big four players,” the report said.
• Alibaba, with its dominance in e-commerce in China, remains a clear leader in overall share of advertising spend for China, but its hold continues to narrow.
• Bytedance has seen phenomenal growth with its share of ad spend nearly doubling from 2018 to 2019 (estimated) after more than doubling from 2017 to 2018. It is taking share from all of its BATB peers.
• Alibaba and Tencent are targeting e-commerce revenues as the primary long-term goal. By contrast, Bytedance is much more focused on ad revenue and holding audience interest with entertainment, news, and content.
• Tencent’s ubiquitous messaging app, WeChat, may be hitting a ceiling as some data show a decline in user base and user time spent statistics. Official brand accounts are making little headway in gaining users and attention, cannibalized by WeChat’s own mini app offerings and short video platforms.
• Concentrated traffic is pushing costs up. Brands looking to reduce costs and improve audience targeting are increasingly “defecting” to smaller, more niche, vertical channels such as entertainment platform Bilibili and audio streaming platform Ximalaya FM. This dynamic opens up opportunities for services on these platforms.

Context: Tech giants like Tencent and Alibaba have been launching new products and features in an effort to fend off competition from Bytedance.

• ByteDance has overtaken search giant Baidu to hold the second-largest share of China’s digital ad market during the first half of 2019, according to CNBC.
• Tencent invested $1.5 billion to Douyin rival Kuaishou in August 2019.
• Tencent’s low-profile CEO and chairman, Pony Ma, was involved in a spat with Bytedance founder Zhang Yiming in 2018 after Zhang posted news that Douyin topped the most-downloaded chat app rankings.

Bytedance overtakes Baidu, Tencent in H1 digital ad revenue

Baidu Wenku, the company’s document and ebook sharing platform, published an announcement via its public WeChat account on Feb 4th, 2020. The company said that it is giving free access to teachers and students in primary and secondary schools nationwide. Starting from February 5th, Baidu Wenku all primary and secondary education resources, including premium teacher courses, premium school test papers, lesson plans, and epidemic prevention knowledge are free for the majority of teachers and students to conduct online lesson preparation and learning.

Previously, Baidu Wenku had announced that it had provided RMB 200 million worth of resources for free to all teachers and students in 11 Wuhan universities including Huazhong University of Science and Technology, Wuhan University, China University of Geosciences, and Hubei University. The open resources cover 12 first-tier disciplines, 92 second-tier disciplines, 504 majors, and 7,590 courses.

This time, Baidu Wenku has further expanded the synchronized curriculum resources for primary and secondary schools. For the first time, Baidu Wenku is providing a series of synchronous video courses shared by key teachers from well-known schools in Beijing and 210 million copies of basic education document resources based on Baidu Wenku. In addition, Baidu Wenku also selects the educational materials of mainstream textbooks for primary, elementary, and advanced subjects. It is free for download for teachers and students in primary and secondary schools nationwide. At the same time, it has organized daily lessons and daily exercises by certified teaching and research teachers to support teaching resources.

Editor’s note: This is part of our ongoing Tech for Good series, highlighting how Chinese tech companies are helping fight the impact of the coronavirus. This was originally written by Steven Lee, a writer for our sister site, TechNode Chinese. Read the Chinese version here. 

Search giant Baidu has released a tool allowing people to determine risk levels for infection by Covid-19, a new flu-like virus that has swept China over the past month.

Why it matters: The number of deaths from the disease reached 1,100 on Wednesday, with nearly 44,000 people infected.

• The virus has caused panic and distrust around the country, with entire gated communities blocking entry to visitors.
• Meanwhile, many are avoiding going outdoors to lower their risk of infection. Companies around the country have permitted their employees to work remotely.

DingTalk, WeChat Work overburdened as hundreds of millions work remotely

Details: The Covid-19 Intelligent Self-Test Tool (our translation) uses the Chinese government’s diagnosis and treatment plan for the virus as well as records from millions of online medical consultations to assess whether a user is at low, moderate, or high risk of having caught the bug.

• Available within Baidu App, the system uses questions relating to an individual’s age, gender, symptoms, and whether they have traveled to or been around people from Hubei, the province at the center of the outbreak, in order to assess their medical status.
• The platform functions much like a messaging service, allowing users to input answers to mostly multiple-choice questions.
• Users are also required to provide information about possible risk factors, including pulmonary diseases, hypertension, and liver and kidney disorders.
• After analyzing a user’s data, the platform then provides recommendations depending on their risk levels. Those at low risk are advised to take precautions to avoid infection while others at high risk are told to seek medical attention.
• The platform aims to help users “reduce psychological panic” around the epidemic by allowing them to make preliminary judgments about their medical conditions, according to Baidu.

Context: China’s tech sector has mobilized against the virus, with numerous companies launching tools to help the public stay informed and safe during the epidemic.

• Tencent’s mobile payment platform WeChat Pay and online insurance platform WeSure are offering eligible merchants hospitalized with Covid-19 up to RMB 1,000 ($143.5) for 30 days, while not requiring the funds to be repaid.
• Baidu has also previously launched a service that provides free online Covid-19 consultation with real doctors.
• China has also released a platform allowing the public to check if they have been in close contact with someone that may be infected with the virus while traveling via rail or air.

China’s largest technology companies are contributing to efforts to battle the deadly coronavirus which has immobilized the country, donating millions in the form of cash, relief supplies, logistical support, and medical research.

Why it matters: Corporate social responsibility (CSR) is a relatively recent concept in China, where the country’s corporate law first included mention of social responsibility in 2006. As Chinese tech giants like Alibaba, Tencent, and Baidu look to compete globally, they are embracing social and environmental practices in alignment with international CSR standards.

Chinese tech firms brace for impact from coronavirus

Details: As of Feb. 1, nearly 150 Chinese tech firms have donated a combined total of more than RMB 4 billion ($570 million) for efforts to treat those affected by the outbreak, according to Chinese media reports. The funds were raised in addition to other forms of support from medical goods to telecommunications and logistics.

• Alibaba established an RMB 1 billion public health fund to purchase medical products and ensure hospital food supplies. Baidu and Tencent set up RMB 300 million funds each, while Meituan and Bytedance offered RMB 200 million each in aid.
• Alibaba-backed Cainiao Logistics announced on Sunday that it will provide free logistical support to relief materials delivered from more than 38 countries and regions.
• Starting Feb. 2, Ant Financial’s online commercial lender Mybank reduced interest rates for business loans by 10% for 1.8 million small business owners in Hubei, where the outbreak was first reported, including 1.5 million mom-and-pop-type store owners and 300,000 medical supply dealers.
• As of Jan. 28, JD Logistics had transported nearly 70 tons of medical supplies from cities including Shanghai and Guangzhou to Wuhan via rail.
• Pinduoduo, which set up a RMB 100 million fund on Jan. 29, shipped on Jan. 31 100 tons of fruits and vegetables to Wuhan hospitals.
• Bytedance has offered for all the features on its enterprise messaging and productivity app Lark for free to support efforts to work remotely.

Context: The current novel coronavirus has infected 14,557 people as of Feb. 2 , according to the World Health Organization. Infections have been identified in more than 20 countries.

• The catastrophic Sichuan earthquake of 2008, which claimed 70,000 lives, appeared to be a turning point for Chinese CSR efforts. Donation to the victims of the earthquake reached an unprecedented $1.5 billion.
• A growing number of Chinese tech billionaires are doubling their philanthropic efforts, similar to their western counterparts such as Bill Gates and Mark Zuckerberg, the Facebook founder who committed 99% of his company shares to charity initiatives.
• Alibaba’s Jack Ma pledged RMB 100 million to “support the development of a coronavirus vaccine.” Pony Ma, the founder and CEO of Tencent, donated 100 million of Tencent’s shares to the firm’s charity foundation in 2016.

Two Chinese films that were set to open during the week-long Spring Festival holiday instead premiered online on streaming platforms amid an outbreak of a deadly coronavirus in the country.

Why it matters: Chinese streaming and gaming companies have received more traction as cinemas, along with other entertainment venues, were forced to close amid government calls for the public to remain sequestered indoors in an effort to contain the spread of the virus.

Details: “Enter the Fat Dragon,” a Hong Kong remake directed by Wong Jing, debuted on video streaming platforms iQiyi and Tencent Video on Saturday, two weeks ahead of its planned opening in theaters scheduled for Feb. 16.

• Viewing the movie costs RMB 12 (around $1.70) on Tencent Video or iQiyi, or RMB 6 for Tencent Video subscribers.
• The movie attracted a total of 61 million views on Tencent Video as of Monday including free trial views.
• “Lost in Russia,” a Chinese movie scheduled to hit theaters on Jan. 25 also premiered online for free on the same day.
• The movie, which is available on Bytedance platforms Xigua Video, Douyin, and Jinri Toutiao, amassed a total of 600 million views as of Jan. 27, according to the company (in Chinese).

Context: At least seven major film releases that were expected to dominate the holiday season were canceled because of a coronavirus outbreak in China which have killed more than 300 and sickened more than 17,000 as of Monday.

• The deal to premiere Lost in Russia online has drawn ire from theater chains and studios, with some saying the decision was “trampling” and “destroying” China’s cinema industry.
• Wuhan, the epicenter of the virus outbreak, and a dozen other cities in the central Chinese province of Hubei are under a government-mandated lockdown.
• The government has also called for people to stay indoors with many cities ordering entertainment venues, shopping malls, and tourist sites to shut down.

Chinese technology majors are scrambling to prepare for a public health crisis stemming from a deadly strain of coronavirus that is beginning to spread across the country ahead of a major holiday travel season.

Why it matters: Fears about the outbreak are compounded by its timing just ahead of the Spring Festival holiday, when millions in Asia plan to travel. The impact on consumption levels is another concern, as many are expected to remain home to avoid crowded areas.

• Spread of the virus has sparked panic for items such as protective masks and hand sanitizer, and driven up prices in brick-and-mortar shops and e-commerce platforms alike.

“While we seek to ensure quality supply at speed, JD is also rigorously regulating our third party platform to forbid unfair price hikes, with penalties to third party sellers if unfair price hikes are discovered.”

—a statement from JD.com on Wednesday

Details: The new coronavirus epidemic is pressuring share prices for major Chinese tech companies including Alibaba, JD, Baidu, and Ctrip, which all traded down on Tuesday. Share prices for Ctrip fell the most sharply, declining 10.3%.

• In a Wednesday letter addressing merchants on its e-commerce marketplaces like Taobao and lifestyle services platform Ele.me, Alibaba called on vendors to maintain “stable” pricing of virus protective devices such as masks and disinfectant. The company said that it will offer subsidies for merchants in order to keep pricing down and maintain supply.
• Inventory for virus protection masks were running low on mainstream Chinese e-commerce platforms such as Taobao, JD.com, and Pinduoduo. Some masks, including those rated N95 and recommended by manufacturer 3M, were sold out and are expected to be back in stock in early February, based on a TechNode reporter’s observations on Tuesday.
• JD.com said that it is actively working to ensure adequate supply of face masks and other health protection products. Its efforts include sourcing, warehousing and delivery, and controlling sales to avoid consumer stockpiling.
• Online travel platforms may be hit the hardest. Chinese online travel platforms including Trip.com, Alibaba-backed Fliggy, Qunar, and Mafengwo are waiving cancellation fees for trips to the central Chinese city of Wuhan.
• Travel platforms are offering customers free cancellation on all hotels, car rentals, and tickets for tourist attractions in Wuhan until Jan. 31. The platforms are pledging to cover the cost if the hotels refuse to cancel.
• The government is leveraging popular social media platforms like microblogging platform Weibo and short video apps Douyin and Kuaishou to educate the public about the new virus and disclosure information.

Context: The fallout from this new virus recalls for many impact from the severe acute respiratory syndrome (SARS) epidemic which originated in Asia in 2003 and spread throughout the world. More than 5,327 of the 8,098 global infections were in China, where nearly half the 774 deaths worldwide took place. The epidemic took an economic toll of RMB 93.3 billion ($13.5 billion), according to government data.

• The current strain of coronavirus originated in the central Chinese city of Wuhan. There are more than 440 confirmed cases in China in Hubei province, Guangdong province, Beijing, Tianjin, and Shanghai, as well as abroad in Thailand, Japan and more. Nine death cases were recorded as of Wednesday early afternoon.
• Concerns about the virus reached new heights Tuesday after China confirmed that the disease can be transmitted between humans.

IPO fever has gripped China’s tech space in recent times as rumors swirl that some of the biggest names are eying listings on the Hong Kong bourse. This week, it was the turn of Alibaba’s fintech affiliate Ant Financial.

Ant Financial was quick to distance itself from concrete plans for a dual-listing plan, while previous subjects have done similar.

Local media reported on Saturday that Ant Financial harbored ambitions of floating shares in Hong Kong, beating a slew of US-listed Chinese tech firms to the punch. On Tuesday, further reports surfaced that the $150 billion Alipay operator was not only looking at a listing but also a mulling a dual-listing of both A and H-shares. A-shares refer to those listed on China mainland bourses in Shanghai and Shenzhen, while H-shares are those listed in the southern special administrative region.

Investment banks China International Capital Corp. and Credit Suisse had been working with Ant Financial on IPO preparation for some time, according to the reports. The Hangzhou-based fintech firm took to Weibo to promptly reiterate that the firm doesn’t a plan nor timetable for an IPO, with market watchers left speculating.

“They are being equivocal with their words,” Esme Pau, an analyst at China Tonghai Securities, told TechNode. “The company said there would not be a dual-listing of A and H-shares at the same time, but did not say outright that they will not list in A- OR H-shares,” he said.

Despite the denial, some see an Ant Financial IPO as an inevitability. “Ant Financial has been entertaining the label of ‘world’s most valuable unicorn’ for quite some time now,“ said Alex Sirakov, senior associate at fintech research firm Kapronasia. “Although there is no confirmation for an IPO, in my opinion, it is natural to expect one soon,” he added.

A long time coming

Talk of an Ant Financial IPO is nothing new. The buzz around a possible listing dates back to  2016 when the company hit a valuation of $60 billion. Political uncertainties reportedly led to a rethink. Reports of a Hong Kong dual-listing in April 2018 again ramped up the speculation. 

Ant Financial raised around $14 billion in a Series C round in June that year, said to be the biggest-ever single fundraising deal completed by a private company at that time.

Internal changes at Ant Financial may have fueled the most recent rumor. Alibaba gained approval last September to retake one-third equity of Ant Financial via newly issued shares, thereby concluding five years of corporate restructuring.

At the time, international media stated that the move “paves the way” for Ant Financial to go public. The move coincided with an executive reshuffle, further fueling the speculation.

“Recent changes in the capital structure and the management echelon of the firm may hint about that, along with the overall trend of various political and economic incentives in China to incite the growth and maturity of China capital markets,” Sirakov said. “This, paired with the organic need that Ant Financial needs to further validate positions beyond its home turf, may justify a decision to go public sooner and move to the next level of corporate development,” he added.

Ant Financial has been aggressively expanding into Southeast Asia and Europe. Listing in Hong Kong, rather than China’s mainland, could help with the expansions.

“Mainland markets entertain liquidity, but predominantly in RMB, which can be an issue when a company intends to use the IPO proceeds for international expansion,” said Sirakov. China’s exchanges are also more susceptible to volatility. By contrast, Hong Kong is a sophisticated and mature market and, therefore, a natural choice for Asian blue chips. 

Other factors include the US-China trade war. However, Beijing has looked to boost the quality of capital markets within its domain, Sirakov added.

Tech firms look south

Recent demonstrations have hit Hong Kong’s capital market hard, but the tide seems to be turning.

US-listed Chinese firms like Trip.com Group and NetEase reportedly held initial talks at the start of the month with the Hong Kong bourse over secondary listings. Additionally, Baidu has allegedly completed an internal assessment for a secondary floatation in the special administrative region, according to another report posted days later. 

The push for blue-chip dual-listings comes as Washington is heightening scrutiny of Chinese companies. Alibaba’s $13 billion secondary listing in Hong Kong in November also boosted confidence.

“There are a lot of tech companies hoping to list in Hong Kong,” Tonghai Securities’ Pau added. “For one, the market sentiment is more upbeat than before. Second, the level of uncertainty caused by the trade war will increase with time.”

The trade war has extended to capital markets. President Trump was reportedly considering delisting Chinese companies from US markets in September.

“My view on a second listing is it’s a smart move given the talk last year about banning Chinese companies from US capital markets, regardless of the practicality of a ban like that,” James Hull, an analyst and portfolio manager at Hullx Capital, told TechNode.

While Chinese tech firms are keeping a tight lid on any listing plans, market watchers believe going public is the logical step considering the current climate. For Ant Financial, the upside of a Hong Kong IPO is the comparatively mature market state, while listings also face less scrutiny compared with those stateside. For US-listed tech companies seeking a secondary listing, Hong Kong could help them hedge risks amid the ongoing trade tensions.

Editor’s note: This article has been updated to reflect that Ant Financial has never confirmed or denied dual listing but stated that the firm doesn’t have a plan or timetable for an IPO at present.

China’s tech industry lags behind overseas peers when it comes to renewable energy goals and measures, according to a Greenpeace report published Thursday.

Why it matters: Chinese data centers are forecasted to emit 163 million tons of CO2 in 2023, according to another Greenpeace report, accounting for 1.5% of China’s total carbon emissions, based on European Union data for 2017.

•  Beijing has set ambitious goals for the reduction of fossil fuels. The 2014 energy development plan sought to increase the proportion of electricity supplied by renewable energy to 15%. At the time, just under 10% of China’s total energy consumption was supplied from renewable sources.

Details: The report by Greenpeace and the North China Electric Power University surveyed 16 companies which make up  70% of China’s public cloud market (in Chinese) and 85% of the market for independent data centers (in Chinese).

• In the last five years, the percentage of big tech companies which disclose information about the energy consumption and greenhouse gas emissions of their data centers has increased from zero to 20%, the report said.
• Shenzhen-based Tencent has made the most progress in publicizing data on energy used by its data centers, the report said, while Alibaba, Baidu and JD.com do not disclose any similar information.
• Tencent had a low score in procuring renewable energy and using energy efficiently.
• Only one of the firms surveyed has set a target for 100% renewable energy use—ChinData, which is a Beijing-based company that builds custom data centers for its clients.
• Alibaba, China’s largest public cloud provider, was ranked second. It scored 17.14 out of 20 in the “Government & Industry Influence” category, which assesses whether a company is leveraging its power to build awareness.
• Huawei is the only company surveyed that has set a greenhouse emissions target. It scored 17.14 out of 20 in the “Energy Efficiency and Carbon Reduction” category. It had low scores for its energy use transparency, renewable energy procurement, and promoting awareness.
• JD.com had low scores overall, with a total score of 12 out of 100. It scored zero in “Renewable Energy Performance,” which means it doesn’t procure green energy for its data centers or consider the availability of green energy sources.

Context: The Chinese internet industry is forecasted to increase its consumption of electricity by two thirds in the next three years, a September 2019 Greenpeace report said. This equals Australia’s total energy consumption in 2018.

• The same report said that coal accounts for 73% of China’s data center industry energy.
• China’s cloud market is set to become the largest in the world by 2023, according to the International Data Corporation, a market research firm.
• Globally, tech companies are making efforts to reduce their carbon emissions. A 2017 Greenpeace report said that 16 of the world’s top tech firms had set targets to use 100% renewable energy.
• Google’s internal operations have been carbon neutral since 2017, achieved in large part by purchasing carbon offsets, meaning Google invests in green energy projects to counter-balance its greenhouse emissions.

US-listed Chinese search engine Baidu has reportedly completed an internal assessment for a secondary listing on the Hong Kong stock exchange, according to a Chinese media report published Monday.

Why it matters: A decision to proceed with the potential listing could expand the market capitalization for China’s largest search engine—currently $46 billion—and help shore up funds after a rough 2019.

• Baidu in the first quarter of last year posted its first loss since its 2005 US initial public offering. The company faces increased competition for advertising revenue from rivals including Bytedance and Tencent.
• Chinese online travel platform Trip.com and Netease, China’s second-biggest gaming firm, are reportedly in talks with the Hong Kong Exchange & Clearing Ltd. for secondary listings.
• An offering in Hong Kong would help Chinese tech companies hedge risks as tensions between China and US intensify.

Details: Following Alibaba’s blockbuster secondary Hong Kong listing in November, reports that Baidu is looking to follow suit are circulating widely in Chinese media.

• A spokeswoman from Baidu declined to comment on the matter when contacted by TechNode on Monday.

Context: After raising HK$315.5 billion ($40.6 billion) through 184 IPOs in 2019, the Hong Kong exchange is expected to raise a total of between HK$230 billion and HK$260 billion in 2020, according to a report by PWC.

• In 2005, Baidu raised a total of $109 million at a valuation of $117 million on Nasdaq.
• Companies with at least two years of listing status on the New York Stock Exchange, Nasdaq, or as a premium listing on the London Stock Exchange are qualified for a secondary listing in Hong Kong, according to the bourse’s listing regime.
• Companies are required to have a minimum market capitalization of $10 billion and revenue of at least HK$1 billion in the most recent financial year, if market cap is less than HK$40 billion.
• Around 30 of the more than 200 US-listed Chinese companies meet the standards, including online retailer JD, dating app Momo, anime video platform Bilibili, and online recruitment site 51job, according to Chinese financial news outlet IPO Zaozhidao.

Bytedance hit back on Monday against a lawsuit brought against it by Baidu. Earlier this month, Baidu sued the content company over allegations of manipulating results in its in-house search engine.

Why it matters: Bytedance is moving aggressively to build its search engine, a potential rival to search giant Baidu. The company could easily threaten Baidu’s monopoly in China’s search market with its 1.5 billion monthly active users.

• The lawsuit joins a series of legal actions taken by Baidu against the upstart in efforts to keep its search ambitions in check. Bytedance has also responded with more lawsuits.

Details: In the lawsuit, Baidu claimes that Bytedance deliberately directs users away from Baidu products that are similar to Bytedance offerings. Bytedance’s search arm, Toutiao Search, responded in a statement, saying that the company is working to better protect brands on its platform.

• Both companies are headquartered in Beijing. The suit was filed in the capital’s Haidian District.
• According to a notice (in Chinese) published on the Haidian court’s website, Baidu accused Toutiao search of ranking Bytedance’s own products above Baidu’s, even if users specifically search for a Baidu product.
• Baidu said in lawsuit filings that Bytedance “used inappropriate means to attain competitive advantage” and sought compensation and legal expenses in a total of RMB 1 million (around $143,100).
• “Whether a brand purchases Toutiao Search’s advertising service or not, it will be protected by the principle [of brand protection],” (our translation) said the Bytedance statement.
• Bytedance launched Toutiao Search in August. The product used to be an in-app search function for its popular Jinri Toutiao newsfeed app.
• The search engine offers results from the company’s popular apps such as Jinri Toutiao, short video apps Douyin and Xigua, as well as general content from around the internet.

Context: Both tech giants have been increasingly litigious against each other this year.

• Baidu previously filed a lawsuit in Beijing on April 26, alleging that Bytedance stole a number of its search results and displayed them in the new search engine function.
• In January, Baidu sued Bytedance, along with professional networking platform Maimai, for RMB 5 million over allegations of defamation and copyright infringement. Two months later, Bytedance vice president Li Liang won a defamation suit against Baidu, after claiming the company posted slanderous material about him on its website and app.

China became the largest market globally for smart speakers earlier this year with some 10.6 million units shipped in the first quarter. In fact, three of the world’s five leading smart speaker vendors in the third quarter were Chinese, according to market research firm Canalys. 

The top Chinese players are household names: e-commerce giant Alibaba, search operator Baidu, and handset maker Xiaomi. They all rely on a little-known startup called SoundAI for critical voice interaction technology.

The backstory: The Beijing-based startup makes voice recognition and artificial intelligence (AI) software, helping smart speakers from leading manufacturers to listen to and process users’ requests.

• The company’s products include Azero, a voice interaction kit that runs on smart speakers, connected cars, and wearables; Babel, a voice recognition software; and Cimon, an audio processing tool.
• SoundAI raised RMB 200 million ($28.6 million) in its most recent funding round (Series B) in December 2018. It valued the company at RMB 1 billion (around $143 million).
• Chen Xiaoliang, a researcher at the Institute of Acoustics under the Chinese Academy of Sciences, founded the firm in May 2016.

Unique selling point: SoundAI’s technology is found in more than 20 million products, ranging from smart speakers and conference systems to robots and connected cars. It also runs a strong research and development (R&D) arm with more than 1,000 patents secured so far, according to its website.

“Voice is the most natural way of communication, and smart speakers will see great demand in the near future. Our voice technology has been used in the smart speaker offerings from top players including Baidu, Alibaba, Tencent, Huawei, and Xiaomi. Our cooperation with these firms is not easy to replace.”

—Chen Xiaoliang, founder and CEO of SoundAI, in an interview with TechNode

The investors: The company has closed four rounds of investment to date, bringing in investors such as Baidu, FreesFund, Qihoo 360, Aplus Capital, and the Bank of Beijing.

• Qihoo 360, better known as a cybersecurity firm, and Baidu both make smart speakers. Baidu was the third-largest smart speaker vendor globally in the third quarter.

Present condition: The company has a team of around 200 employees, mainly from top Chinese universities such as Tsinghua and Peking University, as well as tech companies including Google, Broadcom, Tencent, and Baidu.

• The company works with 150 companies in sectors ranging from smart home and education to healthcare and manufacturing, according to Chen.
• Current information on the company’s profitability was unavailable at the time of writing.

The landscape: Global smart speaker shipments grew by more than half year on year to hit 34.9 million units in the third quarter, according to market research firm Strategy Analytics. China accounted for 36% of global shipments.

• In the two years since their emergence in the Chinese market, smart speakers have evolved from niche gadgets into one of the most sought after devices in Chinese households.
• Smart speakers are a key item for controlling intelligent home platforms, a booming sector.
• The device’s popularity in China is partly due to a price war waged between the country’s tech heavyweights, with average prices slashed to under $20 from about $100 in 2017.
• Another Strategy Analytics report predicts global consumer spending on smart home-related hardware, services, and installations to reach $103 billion in 2019 and $157 billion in 2023.
• As a voice recognition technology provider, SoundAI shares the market with smart home solution provider Tuya Smart and Unisound, a Qualcomm-backed voice-to-text software maker, among others.

China’s tech giants battle for smart speaker supremacy as price war rages on

Prospects: The company is likely to maintain growth as the smart speaker becomes a fixture in the “vast majority” of Chinese households. Baidu’s recent move to pull out of the price war by cutting subsidies indicates organic demand is increasing.

• SoundAI is on a list of 100 tech companies that Chinese business news platform Sina Finance expects to go public on the STAR Market, the country’s Nasdaq-style tech board on the Shanghai Stock Exchange.

Online video streaming platforms Tencent Video and iQiyi have come under fire on Chinese social media for charging premium subscribers for earlier access to episodes of a popular TV series, resulting in executives from both companies promising to change the pricing policy for the series.

Why it matters: Video streaming sites have been trying to further monetize their user bases to fund their high and continuously rising content acquisition and production costs, among the companies’ biggest expenses.

• iQiyi’s content costs for the third quarter of 2019 was RMB 6.20 billion ($870.5 million), which grew 3.0% year on year.

“Our original intention was to satisfy the different content demands of users, but we possibly didn’t do it very well this time” (our translation).

—Dai Ying, vice president of iQiyi at an event on Tuesday

Details: Premium subscribers for the two video streaming platforms were given the option to pay extra to watch in advance episodes of a popular online costume drama, “Qingyunian,” despite already paying RMB 20 (around $2.85) per month for a Tencent Video VIP subscription and RMB 19.8 per month for iQiyi.

• Without the additional fee, VIP members on both platforms had advance access to six episodes of the drama, enabling them to watch episodes a few days before the official release.
• Premium members could also pay RMB 3 per episode for early access to six more episodes each time the series is updated, or a total RMB 50 for six more episodes in advance for every upcoming update.
• Following user backlash on Weibo, who blasted for the two platforms for overly prioritizing profits, both Tencent Video and iQiyi removed the RMB 50 option, leaving the RMB 3 per advance episode option.
• According to a number of Weibo users, the remaining RMB 3 per episode option will cost users more, since there are currently 21 episodes that are viewable only through additional payment, which costs users RMB 63 to purchase in full.
• The pricing policies on the two platforms ranked second on microblogging platform Weibo’s trending topics with more than 380 million views as of noon on Wednesday. “We paid for membership to support original work, but now they are forcing me to support piracy,” a Weibo user going by the handle “a wrinkly moon” commented on a post about the two streaming sites.
• “What’s the point of a VIP if I need to spend more to watch the series? Simply for removing ads?” another user named “Kaoer’s red overcoat” posted on the platform.

Beijing to open streaming market to foreign firms that obey content rules

Context: This is not the first time that Chinese video streaming sites have faced subscriber backlash because of extra charges.

• In August, Tencent Video was criticized by Chinese netizens for charging premium users an additional RMB 30 for early access to the last six episodes of a viral TV series named “Chenqingling.”
• More than 2 million users purchased the early access, according to a 36Kr report.

Baidu announced Friday the reshuffling of its intelligent driving business, including the establishment of a V2X (Vehicle-to-Everything) department. The government is backing V2X to make China a world leader in driverless tech.

Why it matters: The announcement is the Beijing-based search giant’s latest move to kick-start the business amid serious challenges from emerging domestic rivals targetting the full-scale deployment of robotaxi pilot services.

• Baidu began looking for local volunteers to test its Level 4 driverless vehicles as part of its robotaxi pilot launch in the central city of Changsha in late September, though no further details have been given since.
• A former Baidu employee told TechNode that the company has been “rethinking its self-driving business.” He cited the less mature example of Apolong, an autonomous minibus project launched with bus maker King Long in late 2017. The vehicles ran up costs of up to RMB 3 million ($430,000) per unit.
• The source added that Baidu has been slowing its robotaxi push as the technology is still considered immature. This was later denied by the company.

Details: Baidu is expanding its presence in the mobility sector beyond self-driving cars by turning the V2X team into a standalone department to accelerate China’s push for smart mobility transportation, according to a statement on Friday.

• The newly formed intelligent transportation unit will develop V2X solutions, a 5G-based technology that allows vehicles, roadside infrastructure, and other road users to interact. 
• The firm has inked agreements with more than 10 municipal governments, including Changsha and the southwestern municipality of Chongqing, for smart transport deployment, a spokeswoman said on Monday 
• A Baidu-enabled signal control system has helped reduce traffic jams by 20 to 30% in the northern city of Baoding, the company claimed earlier last month. Optimizing signal timings is a key aspect of V2X.
• More importantly, the Chinese search engine giant is integrating its so-called intelligent vehicle team, mainly focused on L3 automation, with another unit that works on L4 highly-autonomous solutions.
• Rumors over the future of its L3 business had circulated months before, with several key personnel leaving the company, Jiemian News reported. 
• Li Zhenyu, general manager at Baidu Intelligent Driving Group (IDG) confirmed to Chinese media in July that most automakers have pulled back on plans to mass-produce L3 vehicles.
• The deployment of automated intermediary systems has long been controversial in the industry as top scientists and companies have continuously voiced safety concerns about handing control over to machines.

Context: Baidu last carried out major restructuring of its autonomous driving business with the establishment of three IDG units—L4, L3, and vehicle connectivity—in March 2017, then led by Baidu COO Lu Qi.

• This was followed by the release of the company’s open-sourced autonomous vehicle technology platform Apollo a month later.
• The search engine giant claimed its fleet of 300 self-driving cars has racked up more than 2 million kilometers of testing in 13 cities as of July this year, far exceeding its domestic fellows.

Search giant Baidu beat analyst expectations for its third quarter revenues as the company’s diversification away from its core search business showed signs of paying off.

Why it matters: Baidu has seen increased competition for advertising revenue from rivals including Bytedance and Tencent in the midst of a macroeconomic slowdown that has led advertisers to tighten their belts.

• Baidu has had a tough year—the company’s share price fell by more than 35% prior to its latest earnings release.
• The search giant this year posted its first quarterly loss since listing in 2005.
• Baidu CEO Robin Li warned in January that “winter is coming,” acknowledging the effects of China’s slowing economy and the fallout from the trade war with the US.
• The company has since implemented numerous cost-cutting measures to mitigate risks to its business.

Details: Baidu’s Q3 revenue reached RMB 28.1 billion (around $4 billion), beating analyst expectations of RMB 27.5 billion. Revenue was up 7% compared with the second quarter.

• The company posted a net loss of RMB 6.4 billion. Baidu made a profit of RMB 12.4 billion during the same period last year.
• The company, in part, attributed the losses to its investment in online travel agency Trip.com, whose share price has declined, according to Baidu. In October, Baidu reduced its holdings in Trip.com, selling $1 billion of its shares.
• Q3 revenue from Baidu’s video-streaming platform iQiyi increased 7% compared with the same quarter a year ago, reaching RMB 7.4 billion, boosted by 31% year on year growth in subscribers to nearly 106 million.
• While iQiyi’s subscription revenue increased, the platform’s advertising sales shrunk as a result of increased competition, Herman Yu, Baidu’s chief financial officer, said during the company’s earnings call.
• Meanwhile, online marketing revenue fell by 9% compared with the same period last year as competition and the slowing economy took their toll.
• Baidu expects revenues of between RMB 27.1 and RMB 28.7 billion in the fourth quarter, representing growth of -1% to 7%.
• Baidu’s share price rose 4% in after-hours trading on Wednesday.

Context: Baidu has plowed billions into diversifying its offerings, particularly on artificial intelligence and cloud computing, and is looking to enterprise services for growth.

• Nonetheless, several of these investments, most notably its bet on autonomous driving, have yet to pay off. It’s likely that the company’s focus on self-driving cars will only begin to bear fruit in the next five to 10 years, putting additional pressure on its other businesses.

Chinese regulators on Tuesday rolled out the first round of guidelines aimed at curbing game addiction among users under 18, state media Xinhua reported.

Why it matters: Chinese regulators and lawmakers have made the prevention of game and internet addiction a major priority in recent months. While attempts to limit underage users from excessive online activities has been ongoing for years, previous efforts from regulators were generally vague “notices” which included no detailed standards.

• Industry giants Tencent and NetEase launched their own anti-addiction systems several years ago and have been adding more monitoring and parental control features.

Details: The General Administration of Press and Publication announced on Tuesday new guidelines which, among others, prohibit gaming companies from providing game services to users under 18 between the hours of 10 p.m. and 8 a.m.

• Underage users are allowed to play for up to three hours per day during legal holidays such as Spring Festival but are otherwise limited to 1.5 hours of playtime per day.
• The new rules emphasize the importance of real-name registration, urging game developers and publishers to root out attempts to bypass this step, such as minors using parental IDs to register game accounts.
• Under the new guidelines, gaming companies are required to prevent users below eight years old from spending any money on games. Users between 8 and 16 can spend up to RMB 50 per in-game purchase, but cannot spend more than RMB 200 per month. For users between 16 and 18 years old, limits for both are double.
• The new rules outlined punishments for companies that do not comply, giving local regulators the authority to revoke operating licenses of repeated and severe offenders.
• The guidelines also tightened control over game content for all users, categorically prohibiting sexual, gory, violent, and gambling-related content in games.

Context: Chinese regulators have been trying to popularize anti-addiction systems beyond the video game industry to the short video and video-streaming industries beginning early this year.

• At the request of the Cyberspace Administration of China (CAC), short video app Douyin and Kuaishou in March rolled out their respective anti-addiction systems, “youth mode,” which restrict underage user access on the platform.
• The CAC in May also ordered four major video-streaming platforms, including Tencent Video and iQiyi, to implement their own anti-addiction systems for underage users.

Short video app Kuaishou launches youth control feature

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, the guys welcome The Financial Times’ Nian Liu and Christian Shepherd. They discuss Baidu’s fall from grace, Bytedance’s ascendency, and how China’s unique digital economy has shaped the roles that search and recommendation play within it.

Their recent article on the topic can be found here.

Please note, the hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping

Guests

• Christian Shepherd- @cdcshepherd
• Nian Liu- Nian.liu at ft dot com

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Editor

• Peter Isachenko

Podcast information:

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• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

China’s biggest search engine Baidu is optimistic about its investments in artificial intelligence (AI) despite the company’s recent financial troubles and increasing competition from domestic competitors.

Why it matters: Baidu has had a rollercoaster of a year, including seeing its share price fall by 36% year to date. The company posted its first quarterly loss in the second quarter since it went public in the US in 2005.

• In January, Baidu CEO Robin Li warned that “winter is coming” referring to the troubles from a slowing economy and the fallout from a prolonged US-China trade war. The company has since implemented a number of cost-cutting measures in an attempt to mitigate risks to its business.
• Nonetheless, Baidu is pushing forward with its AI ambitions, including its costly autonomous driving program after launching a robotaxi pilot in central China.

“Artificial intelligence will not destroy human beings but will give people eternal life… Everything every person has said and done, even people’s memories, emotions and consciousness can be digitally stored on network disks or the cloud. Machines can learn people’s way of thinking.”

—Li as cited in the South China Morning Post

Details: Li was speaking at the plenary session of the World Internet Conference in the eastern Chinese city of Wuzhen on Sunday. He believes that AI will bring revolutionary changes to how humans and machines interact and act as a force for good.

• The CEO said he is optimistic about AI’s effects on society, explaining that he expects the technology to improve people’s lives.
• Li said that Baidu’s robotaxi initiative in the central Chinese city of Changsha not only serves to develop the autonomous driving industry but also forces the transport infrastructure as a whole to upgrade, the SCMP reported.

Bytedance takes on Baidu with investment in Wikipedia-like Hudong Baike

Context: In 2017, the State Council, China’s cabinet, set out goals aimed at making the country a world leader in AI by 2030. Baidu was later named one of China’s “AI Champions” for its autonomous driving efforts.

• The company has made increasing efforts to pivot toward enterprise solutions, including cloud computing and AI, as competition in the consumer market increases.
• Baidu recently invested around $200 million in Neusoft Holdings in a move that could help the company scale its AI offering.
• Tencent and Bytedance pose a serious threat to Baidu in competition for revenue as advertisers tighten their belts.
• Bytedance this year launched a search engine and invested in Wikipedia clone Hudong Baike, a competitor to Baidu’s online encyclopedia, moving further onto the search giant’s turf.

There are around 35 million households with smart speakers in China, and the device’s popularity is increasing rapidly, according to a report released by market research firm Strategy Analytics on Thursday, with some 59% of respondents saying that they can’t imagine living without the gadget.

Why it matters: In the two years since its emergence in the Chinese market, smart speakers have evolved from niche gadgets into one of the most popular electronic devices in Chinese households, making the country the largest market for the product worldwide.

• The device’s popularity is partially due to a price war between Chinese tech giants including Alibaba, Baidu, and Xiaomi, slashing average prices to under $20 from about $100 in 2017.

“The Chinese market for smart speakers is growing extremely rapidly and this research shows that Chinese consumers love the convenience and entertainment value which smart speakers offer. If what Chinese people say turns out to be true, smart speakers will be in the vast majority of households within the next few years.”

⁠—David Watkins, director of smart speakers and screens at Strategy Analytics

Details: Around 63% of the individuals surveyed who do not currently use a smart speaker plan to buy one within the next year, said the report. Another 22% said they planned to purchase one later.

• Xiaomi is the most well-known brand, with 71% of consumers surveyed recognizing the smartphone maker as having a smart speaker on offer, compared with Huawei at 53%, Baidu at 47%, and Alibaba at 37%.
• More than half of the 1,044 respondents own more than one smart speaker, not unusual in the Chinese market where smart displays account for a third of smart speakers in households.

China’s tech giants battle for smart speaker supremacy as price war rages on

Context: In April, it was reported that Amazon, the world’s largest seller of smart speakers, hired thousands of workers to listen to voice commands from some of its Echo smart speaker users.

• The news sparked privacy concerns among consumers that smart speakers are eavesdropping on conversations. These fears did little to slow worldwide sales, which grew 55% year on year to 26.1 million units in the second quarter, according to research firm Canalys.
• Total shipments in China’s smart speaker market nearly doubled to 12.6 million units in the second quarter, more than twice as large as the US market which shipped 6.1 million units during the same period.
• Baidu, China’s search engine giant, replaced Google in Q2 as the world’s second-largest smart speaker vendor after sales surged 3700% year on year to 4.5 million units.

Baidu will sell $1 billion of its stake in popular Chinese online travel agent Ctrip as competition for advertising revenue intensifies amid an economic downturn.

Why it matters: Baidu is turning its focus to artificial intelligence, autonomous driving, and cloud services as part of a general trend to offer more enterprise-facing services.

• Diversification into these areas will require heavy investment, Baidu CFO Herman Yu said in an earnings call earlier this year.
• Baidu reported its first quarterly loss since listing during the first three months of the year.

Details: Nasdaq-listed Ctrip will sell 31.3 million shares that are currently owned by Baidu, the company said in a filing. The shares make up around 30% of Baidu’s holdings in Ctrip.

• The shares are worth around $1 billion and each represents 0.125 ordinary share of Ctrip.
• After the sale, Baidu will remain Ctrip’s largest shareholder.
• In 2015, Baidu took 25% of Ctrip through a share swap in which the search giant gave up shares in Ctrip-rival Qunar.

Context: Baidu has had a tough year resulting from the macroeconomic effects of the US-China trade war and increased government scrutiny of online content platforms.

• The company has faced scandals related to medical ads on its platform and claims that it promotes results from its own services in its search results.
• In July, Baidu apologized after posting a fake message in which the writer claimed to be the concerned father of a missing girl who was later found dead.
• The company is increasing its focus on AI and autonomous driving. Baidu this week launched its robotaxi service in the central Chinese city of Changsha after announcing the initiative a year ago. Nonetheless, it will be a while until the company reaps financial rewards from the project, as Baidu is not currently permitted to charge for the rides it offers.

Baidu has launched a robotaxi pilot service in the capital city of central Hunan province a year after its much-publicized alliance with Changsha municipality. The company is offering local residents free rides in an effort to gain an edge in the increasingly crowded autonomous driving industry.

Why it matters: The move may mark the start of a turnaround for Baidu, China’s biggest search engine, which has stumbled in its efforts to commercialize its self-driving business.

• The company’s semi-autonomous (Level 3) driving business unit has reportedly (in Chinese) shifted its focus from advanced driver-assistance systems for highway driving to valet parking, as commercial progress is taking longer than expected. Baidu later denied that this was the case but has not revealed further advancements.
• The company also previously announced plans to mass-produce L3 autonomous cars with Chinese automakers BAIC and JAC Motor by the end of this year, an achievement that is yet to be delivered.

Detail: Baidu is seeking local volunteers for free rides on certain urban roads west of the city to use in its fleet of 45 licensed L4 driverless electric vehicles produced in partnership with state-backed automaker FAW, which kicked off service on Thursday.

• The company did not reveal the length and specific locations of road segments currently available for tests, but expects the longest trip to be around 50 kilometers (around 31 miles) by year-end. In the first half of next year, this should extend to 135 kilometers, the company said.
• Volunteer riders are asked to leave names, phone numbers, and email addresses, according to an application on the website for Apollo, its autonomous driving project.
• Changsha has adopted a relatively loose policy for passenger transport tests in driverless cars compared with Shanghai: applicants only need to be responsible adults over 18 years of age to qualify, according to a regulation released by the Changsha municipal government in July.

Context: Chinese self-driving companies are quickly expanding fleets with new driverless cars in search of data, a critical component to commercialize the industry. Competition is intensifying as new money pours in.

• Deeproute.ai, a relative newcomer which reportedly was founded by the team from shuttered AV company Roadstar.ai, this week revealed a $50 million round of fresh funding from top Chinese investors including Fosun RZ Capital, GSR Ventures, and Yunqi Partners.
• Despite an overall economic slowdown, autonomous driving companies are still favored by Chinese investors, with a total financing more than tripling to RMB 16.2 billion ($2.27 billion) in 2018 from the previous year, according to figures from Chinese market research firm EO Intelligence.

Search giant Baidu will invest RMB 1.4 billion (around $200 million) in technology investment firm Neusoft Holdings, as the pair look to develop smart city, healthcare, and education solutions.

Why it matters: Baidu is one of the biggest artificial intelligence (AI) companies in China and could see a partnership with Neusoft as a means to better scale its products.

• Baidu has shown continued interest in Neusoft over the course of the year, signing a partnership deal with Neusoft Corporation and investing in Neusoft Medical Systems, subsidiaries of Neusoft Holdings.
• The internet giant is looking for ways to make up for slowing ad revenue as advertisers tighten their belts amid a slowing economy and regulators crack down on online content.

Details: The deal will make Baidu chief technology officer Wang Haifeng a board director at Neusoft.

• In the medical field, the companies will work together to develop services including AI medical diagnosis, hospital cloud services, medical big data, and healthcare management, our sister site TechNode Chinese reported.
• Meanwhile, in education, Baidu and Neusoft plan to develop AI-driven education services as well as online courses.
• The companies will also work on smart city, smart transport, smart government, and industry cloud applications.

Context: Baidu’s year got off to a difficult start after reporting a quarterly loss for the first time since listing in 2005.

• The company beat revenue expectations in the second quarter, but its net income fell by 60% year on year.
• Bytedance and Tencent pose a serious threat to Baidu, as both companies have short video apps that have proven to be a major draw for advertisers.
• Bytedance moved further onto Baidu’s turf after launching a search engine last month and investing in Wikipedia-like Hudong Baike, competitor to Baidu’s own online encyclopedia.

The Beijing municipal government is developing new autonomous vehicle (AV) testing facilities that will allow robotaxis to run on the outskirts of the city, said a report by The Beijing News, the latest development in a race for leadership in one of the country’s hottest tech sectors.

Why it matters: The announcement followed news from Didi Chuxing and AutoX last week detailing plans to begin testing their robotaxi services in a northwest Shanghai suburb. Competition remains intense between major cities to roll out AV initiatives in support of the central government’s aspirations to assume global leadership in core technologies.

• Didi and AutoX will launch autonomous taxi pilot programs in Shanghai’s northern Jiading district as early as the end of this year.
• Guangzhou has courted AV frontrunner Pony.ai with a customized approach, allowing it to operate dozens of driverless vehicles in the city’s Nansha district since December, while granting 20 licenses to another AV startup WeRide for road tests in June.

Detail: The government of Beijing’s Shunyi district on Tuesday unveiled plans allowing self-driving vehicle tests along public roads extending 135 kilometers in the northern suburb, reported The Beijing News.

• By 2020, about 80 kilometers of public roads within the area will be equipped with 5G networks to enable connectivity for vehicles and road sensors, according to an official from the district bureau of economy and information technology.
• The district’s industry regulator said that robocar ride services will be available for order in designated pick-up areas within a 42-square kilometer area near Beijing’s Olympic Park Aquatic Center. A timeframe was not revealed.
• Shunyi district is the capital city’s automotive center where Chinese OEM BAIC and its manufacturing partners Hyundai and Mercedes-Benz, as well as BMW’s China research and development center, are located. It covers an area of 1,021 square kilometers.

Didi to launch autonomous taxi service in Shanghai

Bottom line: Beijing was an early mover in driverless vehicle technology development with its December 2017 launch (in Chinese) of China’s first municipal-level regulations for AV road tests. The government has opened a total of 123 kilometers in the Shunyi, Haidian, and Yizhuang districts for AV tests, more than any other cities in the country as of August.

• However, all of the roads are located in suburban areas, a conservative strategy that made Beijing less appealing to AV companies, which seek data on real-life driving scenarios.
• Beijing-based Baidu in late 2018 formed a partnership with the Changsha municipal government to run 100 robotaxis in central Hunan Province’s capital at the end of this year.
• The Chinese search giant was fined by Beijing traffic police in late 2017 after CEO Robin Li tested a driverless car on public roads and streamed the ride in real-time at a company event.

Mention autonomous driving in China and the first name that comes up will typically be Baidu. After all, it was the first Chinese tech company to put serious money into researching and developing autonomous driving technologies.

In late 2017, Baidu announced a RMB 10 billion ($1.5 billion) Apollo Fund to invest in 100 self-driving projects over the course of the next three years. The fund was the largest of its kind in the global industry.

Baidu also boasts a massive ecosystem of varied partnerships with more than 150 OEMs, Tier 1 suppliers, chip makers, and mobility firms. Meanwhile, just like its counterparts in the US, the Chinese search giant remains a highly-rated prospect as it vows to launch the country’s first robotaxi service by the end of this year.

What has Baidu actually achieved in its self-driving campaign? Does it really deserve the title of China’s AV leader? If the spin-off occurs, what kind of impact will it have on the company itself as well as the industry?

Baidu: the true leader?

Baidu began working on autonomous driving in 2013. Two years later, the company established its autonomous driving unit.

The company suffered a prolonged brain drain over the next 24 months, including the departure of Andrew Ng, an experienced AI expert and Stanford University professor. It was not until early 2017 that the company established its Intelligent Driving Group (IDG).

The company suffered a prolonged brain drain over the next 24 months. Baidu’s then deputy director Yu Kai quit in mid-2015, leaving to establish AI startup Horizon Robotics. In late 2016, James Peng and Lou Tiancheng, two of Baidu US scientists resigned and together formed AV firm Pony.ai in Silicon Valley. Tong Xianqiao, Heng Liang, and Zhou Guang followed suit one years later to found Roadstar.ai.

Baidu’s talent drain culminated in early 2017 when senior vice president Wang Jin left. He had helped Baidu form the AV unit from scratch. Finally, in March 2017 AI expert and Stanford University professor Andrew Ng resigned as chief scientist to form AV startup Drive.ai.
It was not until early 2017 that the company established its Intelligent Driving Group (IDG), led by Lu Qi, then president and chief operating officer of Baidu. The executive’s role in the newly minted group highlighted its strategically important position and core competency for the company.

The company seemed to be moving at light speed, kicking off Project Apollo in April 2017. Taking its name from the NASA’s missions to the moon, the initiative aimed to build a full-stack software and hardware platform for autonomous vehicles.

Three months later, Baidu made the decision to open-source Apollo—just as Google had done with its Android smartphone operating system—as it set its sights on catching up with its international counterparts.

Since then, Baidu has continued to release major updates every few months, building all aspects of driverless capabilities such as sensing, localization, perception, planning, and control—with tools including cloud services and open-source code.

When it released Version 3.5 earlier this year, Baidu maintained that the platform could handle the challenges of urban roads, including narrow lanes, speed bumps, and crossroads.

The company further ramped up its efforts to support mass production of driverless cars with the release of Apollo 5.0 in July, as well as an updated Apollo Enterprise, a suite of tailor-made autonomous driving solutions for OEMs that focused on robotaxis, minibuses, and valet parking.

In mid-2018, along with Chinese auto manufacturer King Long, Baidu began mass production of a driverless minibus called Apolong. The company also intends to launch a fleet of 100 robocabs in Changsha by the end of this year.

Nonetheless, these production plans have been far from successful. Baidu claims to have transported 40,000 passengers on its 100 Apolongs scattered around 20 Chinese cities. However, the minibus runs 10 km/h, completing an 800-meter journey in around 10 minutes. The vehicles are mostly used on public parks and high-tech campuses.

Baidu has also been late to running a robotaxi service. For the past nine months, the Chinese AV startup Pony.ai has been testing a fleet of dozens of cars, offering over 12,000 rides in a suburban area of 800 square kilometers in the southern city of Guangzhou.

Just as most global self-driving pioneers are backing off their commercialization plans, so too is Baidu. The company has increased its focus on more realistic goals: the connected vehicle market.

DuerOS, Baidu’s proprietary voice assistant, is among the platforms giving the company a competitive edge in the battle for Chinese drivers’ attention. Given the congested nature of China’s urban roads, onboard network services are gaining popularity. In June, Baidu announced it had partnered with more than 60 OEMs to install DuerOS for Apollo (the company’s voice-enabled vehicle connectivity platform) in around 300 car models, including Ford’s Edge ST SUV and Great Wall Motors’ top-selling Haval H6.

Chinese market research firm Gasgoo estimates that Baidu has overtaken former market leader Alibaba to become the leader in China’s vehicle operating system market. The search giant’s vehicle OS will be installed in more than 1 million cars by next year, according to Gasgoo, almost double the market share of Alibaba, which has been in a rocky tie-up with SAIC since 2018.

Baidu’s business with automakers does not look much better. The company had previously planned to work with state-owned BAIC and JAC Motors to produce Level 3 autonomous vehicles this year. However, sales of its Tesla-style enhanced driver assistance system Apollo Pilot were reportedly underwhelming, and the company has since shifted its focus to automated valet parking. Baidu denied the claims, but didn’t reveal further details.

Despite the company’s claims of cooperating with an extensive network of nearly 160 OEMs and key suppliers, a substantial number of them work nominally with Baidu. Instead of adopting Baidu’s in-car OS, automakers are instead opting to build their own software based on Android or Linux.

Automakers are willing to use some of the features the search engine giant provides, such as speech recognition and even its ad service, but are reticent about sharing data with the search giant. These companies see tech giants, including Baidu and Alibaba, as a threat and aim to make their core businesses untouchable, according to Wang Yao, a director at China Association of Automobile Manufacturers (CAAM).

Baidu’s Apollo project can lay claim to having done some pioneering work to push the industry. The company has gathered over 400,000 lines of code and 12,000 Github contributors; what’s more, it holds more than half of the road-testing licenses granted by Chinese authorities nationwide.

In an updated leaderboard released by Navigant Research in March, Baidu was placed in the category of “contenders,” chasing the big three leaders—Waymo, GM Cruise, and Ford—along with Toyota and Volkswagen.

However, the company has faced questions over its leadership in terms of commercialization and technological supremacy in the industry, with its position being challenged by Pony.ai. Baidu faces a rough road ahead.

The spin-off

Once the darling of China’s nascent tech industry, search giant Baidu is now struggling to keep up with its rivals.

Facing intensifying competition for advertising revenue and stricter regulation governing content as well as a sharp decline in the public’s trust and the spectre of the US-China trade war, the company’s future is clouded by uncertainty. Investors have certainly noticed: Baidu’s share price has fallen more than a third to around $100 since the beginning of the year.

As the company’s lead in search and advertising narrows, diversification has become ever more important for Baidu, with the company putting great emphasis on its self-driving and artificial intelligence initiatives.

But the success of Baidu’s autonomous driving program comes at great cost, which may ultimately be hurting the company’s bottom line.

“The diversification of Baidu’s business from mobile internet to the smart home, smart transportation, cloud, and autonomous driving markets will require heavy investments,” Baidu CFO Herman Yu said in the company’s 2018 year-end results.

In May, Baidu reported its first loss since going public in 2005. Shortly afterwards, rumors began to proliferate about an impending spin-off of its self-driving unit.

Autonomous driving spin-offs, real and rumored, have been big news in China this year. As the effects of the country’s capital winter continue to take their toll, companies are looking to independently finance their autonomous driving units.

Baidu may not be an exception. The company took a hit in the first quarter, reporting a loss of around RMB 330 million (around $46 million)—its first since listing in 2005.

Company CEO Robin Li had previously said Baidu would spin off the unit once it was mature. However, a company spokesperson said earlier this year that it has no such plans, adding that Apollo is an important part of the company’s AI strategy.

Baidu, which has been named one of China’s five AI champions—alongside companies like Alibaba, Tencent, and Sensetime—has its self-driving cars in numerous cities in China, including 45 in Beijing and another 100 expected to be deployed in Changsha.

The costs of getting these vehicles on the road are significant, TechNode contributor and co-founder of China Money Network Nina Xiang wrote recently, with each vehicle costing up to RMB 2 million. The cars in Beijing and Changsha may cost up to RMB 300 million collectively.

The company does not break down its R&D spending by business group, but Baidu’s cost of research has increased by 40% over the past 18 months to reach RMB 4.7 billion.

Vehicles, coupled with the cost of hiring engineers, particularly those in the US, are compounding Baidu’s financial burdens. The company has repeatedly attributed rising R&D costs to personnel-related spending. Baidu has between 1,500 and 2,000 employees working on Apollo.

Meanwhile, Baidu’s profit has fallen dramatically in the past year, plummeting to around RMB 2 billion in the first half of 2019 from more than RMB 13 billion during the same period a year earlier.

A spin-off is necessary for a company like Baidu, says Tu Le, the founder of Sino Auto Insights. He added that the return on current research and development costs won’t be reflected in the company’s books for the next ten years.

While talk of spin-offs increases, investment in autonomous vehicles has stagnated, making money harder to come by. The number of investments in Chinese AV companies peaked at almost 100 last year, but saw a sharp decline in the first half of 2019, according to figures from ITJuzi.

Investors are beginning to look beyond the initial overconfidence of the AV industry, in which companies promised highly autonomous vehicles in a matter of years. Massive investments at sky-high valuations are unlikely, especially for a Baidu spin-off when there are startups with better technology and longer-running robotaxi schemes looking for cash.

Baidu unveiled on Thursday at the World Artificial Intelligence Conference (WAIC) a powerful new cloud server which runs on its self-developed high-performance Kunlun artificial intelligence (AI) chip.

Why it matters: Computing capabilities are at the center of the race between Baidu, Alibaba, and Tencent. The search giant also aims to tap opportunities brought by AI industrialization, which is expected to reshape different sectors like manufacturing and transportation.

Details: The server is an upgrade of Baidu’s cloud products and will better serve client needs in a wide range of scenarios, the company said. Baidu also announced 17 other smart computing products at the Shanghai conference.

• The Kunlun-powered server’s computing power is 30 times higher than FPGA-based AI accelerators, according to Yin Shiming, Baidu vice president. FPGAs (Field Programmable Gate Arrays) are programmable integrated circuits that can be used to accelerate the performance of AI applications.
• The new cloud server enables China’s AI to run on autonomous, controllable AI chips, said Yin. It is compatible with Baidu’s open-source deep learning framework, PaddlePaddle, he added.
• The cloud server focuses explicitly on the optimization of visual, speech, natural language processing, and other AI capabilities.

Context: Baidu released the Kunlun chip in July last year as China’s first cloud-to-edge AI chip designed to fulfill high-performance requirements from a range of applications including data centers, public cloud, and autonomous vehicles.

• Earlier this month, Baidu signed a three-year agreement with chip giant Intel to collaborate on its core businesses including AI, cloud, and 5G.
• Chinese tech giants have ramped up AI chip technology to support their essential businesses like cloud and Internet of Things. Chinese e-commerce giant Alibaba established a new dedicated chip subsidiary last year to support its rapidly growing cloud business.

DeepMind’s losses of $570 million last year laid bare the challenges facing the artificial intelligence sector. But the Alphabet-owned company is not unique in the land of AI industrialists. Baidu, the most ardent AI advocate in China, may have lost a lot more. Worse yet, its wager on AI may go the way of its failed online-to-offline push from several years ago.  

There is no question that companies must invest in AI to succeed in the future, and losses are natural in the initial stages of developing and commercializing such an emerging technology. For Alphabet, which pulled in $137 billion last year with operating income of $26 billion, sustaining over half a billion dollars in losses at DeepMind is a reasonable price to remain competitive.   

But for Baidu, with a stock price that has fallen by more than half over the past five years (Alphabet’s share price doubled in the same period), its margin for error in AI is significantly narrower. The failure or success of its AI strategy will play a more critical role in determining the future of Baidu.

The key questions are: How much has Baidu burned in its AI bet? What do potential returns on such an investment look like? NASDAQ-listed Baidu does not break down the financial performance of its AI operations in its filings. But based on estimates from public disclosures and industry sources, Baidu could be losing billions of dollars on its AI push. Worse yet, the possibility of a handsome return appears dim.  

Road to nowhere

Let’s first look at Baidu’s investments in AI. The company has directed significant funding into developing two AI projects—autonomous driving and smart speakers. 

Baidu’s Apollo autonomous driving unit is its most capital-intensive. The firm runs the largest fleet of autonomous driving test vehicles in China. According to a report from the Beijing government, Baidu has 45 registered test vehicles in the capital. The total number of test vehicles across China, registered and unregistered, could be several hundred, according to sources. The cost of setting up an autonomous vehicle is around RMB 1 to 2 million (about $140,000-$280,000). Using a conservative estimate of 200 test vehicles at mid-range per-unit cost, that amounts to Baidu’s having spent RMB 300 million on just setting up its test fleet.

Baidu’s Apolong autonomous buses, which aim to provide shuttle services in closed environments like parks at around 10km per hour, cost over RMB 2 million per unit, a figure I have confirmed with my sources. With a list price of RMB 1.5 million, Baidu loses RMB 500,000 for each bus sold. Last year, the company said it achieved “volume production” as its 100th bus rolled off the production line. That means RMB 200 million in investments, and potentially RMB 50 million in losses if Baidu sells all of those vehicles. The actual loss could be higher, as some buses are still sitting in warehouses and each of them requires maintenance and after-sales services, according to sources.

The company has also secured around 100 autonomous driving pilot licenses in China, five times that of the next industry player, according to its Q2 earnings report. Considering that obtaining such permits requires a lot more capital in China than elsewhere due to mandatory testing at expensive designated centers, this represents another major expenditure.

Then, there is the cost of expensive AI talent: between 1,500 and 2,000 for the Apollo team. As the average annual salary for AI engineers in China is around RMB 360,000, according to jobs listing company Boss Zhipin, the salary cost of the team is at least RMB 630 million a year. Actual costs could be much higher as Baidu tends to hire top-tier talent and runs a large US team, whose salaries are much higher.    

It’s impossible to estimate Baidu’s total AI losses: It’s a complex accounting effort that can be only done by its internal finance team, dependent on thousands of accounting decisions. What I listed, including both AV and speaker amounts to roughly $500m, and that’s just a very small part. 

Perhaps the most direct yardsticks for Baidu’s total losses in autonomous driving are its peers. GM Cruise is the only notable autonomous driving unit that has disclosed its financials. It suffered total losses of $1.5 billion for the three years 2016-2018. Baidu Apollo has around 1,900 staff (this number has dropped as Baidu is reportedly shrinking the team size), more than that of GM Cruise, which is over 1,000. Baidu’s testing fleet is also bigger than that of GM Cruise (less than 200 vehicles). It would be plausible to ascertain that Baidu is suffering greater losses than GM Cruise’s $1.5 billion for the same period.

Baidu has made two critical mistakes in self-driving: First, it should have spun off its self-driving unit, like Alphabet did to form Waymo in 2016 or like Didi Chuxing did two weeks ago. The industry now realizes that it will take much longer than initially anticipated to realize L4 autonomy and the robotaxi business model. Apollo once aimed to achieve full autonomy on highways and urban roads in 2021. Nobody in the industry believes that target is remotely feasible. If Baidu had spun off Apollo last year, it could have raised capital at very attractive valuations. The longer it waits, the more realistic investors will become when considering prospects for self-driving and its price tag.

Second, Baidu’s bet on the Apollo Open Platform is an idea that is going nowhere. Taking a page from Google’s Android, Baidu created the Apollo Open Platform in 2017, hoping to become the Android for self-driving. Two years later, it’s clear that nobody—from traditional carmakers and autonomous driving startups to tech providers—wants to share their data with others. It’s also questionable whether sharing data across different locations, vehicle models, and road conditions makes sense for advancing self-driving. One source said that Baidu Apollo is an open ecosystem with only one player: Baidu Apollo itself. Most of the 145 Apollo partners are participating only nominally. 

Full of sound and fury

Baidu’s second huge AI expenditure is smart speakers. According to Canalys, Baidu shipped 11.6 million smart speakers from 2018 to the second quarter this year. As Baidu prices its smart speakers below cost to grab market share, the company is losing around RMB 200 per unit sold. That equates to RMB 2.3 billion in total losses just on speaker sales alone.

Compared to its competitors, Baidu has little chance of turning around these losses: it appears to be fighting for an entry point leading not to its strengths, but to its weaknesses. Baidu’s vice president at its smart living group Jing Kun said in an interview that Baidu will first try to monetize smart speakers by providing content-based subscriptions. But content is not Baidu’s strength in light of Toutiao’s incursion onto its turf. Apple, for example, aims to profit from its speakers by bolstering Apple Music subscriptions. Tencent is the absolute leader in China’s digital music scene with a market share of over 60%. Even after taking into account users gained via investment in NetEase Cloud Music, Baidu’s share remains in single digits.

China’s tech giants battle for smart speaker supremacy as price war rages on

Besides music and other content, e-commerce, smart home, digital payments, gaming, and local lifestyle services are potential areas where smart speakers can be monetized. In all of these areas, competitors are in a much better position to leverage their smart speaker market share. Alibaba can naturally link its smart speakers with e-commerce. It also has a robust content platform with Alibaba Music and Alibaba Literature. All of these help to reinforce Alibaba’s digital payment business. Tencent also has colossal gaming, literature, music, and online payment businesses that can be bolstered by smart speakers. This is not true for Baidu, which is weak in each of these areas.

Signifying nothing

Combined, Baidu could suffer losses of several billion dollars on new AI projects. This is significant as a ratio to its $14.8 billion revenue and operating income of $2 billion for last year. When it comes to investing in AI, Baidu has followed the footsteps of Alphabet whose revenue and profit are nearly 10 times as large. But the Chinese search engine can’t afford to up the ante on this scale.

The hope, of course, is that betting big on AI will redeem the struggling giant. But the chances of Baidu succeeding in its AI strategy within the next five years is low. Investors should remain highly cautious of Baidu’s bet on AI and its potential outcome.

China’s search giant Baidu has surpassed Google as the world’s second-largest smart speaker seller during the second quarter after its sales surged 3,700% annually to 4.5 million units, according to a new report from research firm Canalys.

Why it matters: In the two years since smart speakers first debuted in the domestic market, it has evolved from a niche gadget into one of the most popular electronic devices in Chinese households.

• The popularity of the device has raised major Chinese technology companies such as Baidu, Alibaba, and Xiaomi to top-ranked spots in the global smart speaker market.
• China’s smart speaker market growth has outstripped other countries. Shipments reached 12.6 million units in the second quarter, more than twice that of the US with 6.1 million units, said the report.

Details: The global smart speaker market grew 55.4% year on year in the second quarter to reach 26.1 million shipments, said the report.

• Amazon continued to lead the market with 6.6 million units shipped in the quarter, while Google fell to third place with 4.3 million units.
• Other top players include China’s Alibaba and Xiaomi, with 4.1 million and 2.8 million units shipped during the quarter, respectively.
• Canalys attributed Baidu’s growth to the popularity of its smart displays, the smart speaker with screens that accounted for 45% of the products it shipped.

“Local network operators’ interests on the device category soared recently. This bodes well for Baidu as it faces little competition in the smart display category, allowing the company to dominate in the operator channel.”

—Cynthia Chen, Canalys research analyst

Context: The growth of the Chinese smart speaker market has been a result of a price war between these Chinese vendors that slashed the average price for the gadget to below $20.

• Baidu entered the market in November 2017 when it launched its Raven H smart speaker priced at RMB 1,699 (around $237.4), nearly 10 times more expensive than Alibaba and Xiaomi’s offerings at the time.
• The product failed to gain a foothold in the Chinese market. It was reported that Baidu only manufactured 10,000 Raven H smart speakers in sharp contrast to the several million units sold by both Xiaomi and Alibaba.
• It unveiled its Little Fish smart speaker brand in March 2018, which sold for as low as RMB 89 (around $13).

Search giant Baidu’s second-quarter net income fell more than 60% year on year despite beating revenue expectations, as the company reels from increasing competition and the effects of the US-China trade war.

Why it matters: Baidu reported its first quarterly loss since going public in 2005 during the first three months of the year.

• Advertisers are tightening their belts as they feel the effects on the ongoing tensions between China and the US.
• Baidu has seen increased competition from the like of social media and gaming giant Tencent as well as upstart Bytedance, which recently launched a rival search engine.

“Although the increase in ad inventory in the market has impacted the overall growth rate of the company’s services, it’s fair to say that a bigger part of our revenue slowdown can be attributed to self-directed healthcare initiatives and a softening of macroeconomic conditions.”

—Herman Yu, Baidu chief financial officer, said during an earnings call on Tuesday morning

Details: Baidu’s net income dropped to RMB 2.4 billion (around $340 million) in the second quarter from RMB 6.4 billion during the same period last year.

•  The company’s revenue reached RMB 26.3 billion, up more than 1% from the same time last year. Baidu beat analysts’ revenue estimates of RMB 25.8 billion, according to Bloomberg.
• The company’s share price rose by 9% in after-hours trading on Monday.
• Baidu’s ad revenue fell to RMB 19.2 billion, down 9% on the year. Ad sales make up the majority of the company’s total revenue.
• Traffic acquisition costs increased by more than a quarter compared to the same period last year, which Baidu attributed to an offline expansion to “digitized screens.”
• The company said its revenue could fall by up to 5% in the third quarter of the year.
• Baidu’s video streaming platform iQiyi was a large source of growth, with subscribers up 50% year on year.

Context: Baidu share price has fallen by 34% this year, which was accelerated by poor financial results in the first quarter.

• The company posted losses of RMB 327 million in the first three months of the year.
• Bytedance and Tencent pose a serious threat to Baidu, as both companies have short-video apps that have become a major drawcard for advertisers.
• Baidu has faced a series of trust issues after being accused of hosting ads for questionable medical services in its search results.
• Last month, the company apologized for posting a fake message in which the writer claimed to be the father of a missing girl who was later found dead.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode of the China Tech Investor Podcast powered by TechNode, James and Elliott take a step back and look at the broader trends of 2019 thus far. They also take a look at how each of the stocks on their watch list has performed thus far this year, and attempt to determine where credit or blame should be given for each stock’s performance.

Please note, the hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Editor

• Peter Isachenko

Podcast information:

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• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

Search giant Baidu is no longer one of China’s five most valuable companies, as the company struggles to keep up with competitors that encroach further into its primary markets, Bloomberg reports.

Why it matters: Baidu has seen increasing competition from rivals Tencent and Bytedance, which are enticing advertisers and users with their short video and social media apps.

• In May, Baidu reported its first quarterly loss since it listed in 2005.
• The company was previously knocked out of the top three in market value by e-commerce giant JD and lifestyle services company Meituan.

Details: Internet giant NetEase overtook Baidu in market value after posting its earnings last week. Baidu’s share price has fallen by 40% this year, while NetEase, China’s second-largest gaming company, gained 11%.

• Baidu has lost $66 billion in capitalization since May 2018, Bloomberg reported.
• The company is part of the BAT triumvirate, which also includes Alibaba and Tencent. However, Bytedance is quickly taking Baidu’s place in the minds and on the phones of internet users in China.

Context: Baidu has commanded the internet search market in China since Google’s departure in 2010. However, the company is now facing competition from upstart Bytedance, which launched its own search engine this month.

• Baidu has long been criticized for the quality of its search results.
• The company has been accused of promoting results from its own platforms and hosting ads for questionable healthcare services.
• Last month, the company apologized after an employee posted a fake message on its news aggregator in which they claimed to be the father of a girl who went missing and whose body was later found in mid-July.

A research team at Baidu’s video platform iQiyi has released a new facial recognition dataset named iCartoonFace, Synced Review reports. The researchers say the anime-based dataset can apply to recognition research, cartoon person modeling, and image classification.

Why it matters: For China’s competitive streaming industry, the use of innovative artificial intelligence applications can prove valuable. The new dataset demonstrates iQiyi’s efforts to push boundaries in AI research as it looks to improve its animated content offering for users.

Details: iCartoonFace comprises over 68,000 annotated images with 2,639 identities from 739 anime and cartoon albums found online and in iQiyi’s video library.

• The researchers also proposed a new “dataset fusion” method to improve performance in cartoon-based facial recognition algorithms.
• While the new technique is considered “state-of-the-art,” it is not nearly as accurate as human-based techniques.

Context: iQiyi is China’s largest streaming site after crossing the 100-million subscriber mark in June. Along with competitors like Tencent Video and Bilibili, the firm is investing in animated content including feature length movies.

• The platform already leverages AI in a variety of ways to serve recommendations, cast actors and actresses and create customized promotional content.
• The appetite for anime in China remains strong, as evidenced by the recent success of movie Nezha, which became the country’s highest-grossing animation since its premiere on July 26.
• The country’s anime market has grown substantially in recent years and is expected to reach RMB 200 billion ($28.4 billion) this year.

Consider all the possible benefits of robotaxis: increased mobility, lower costs, fewer vehicles on the roads, and more free time on daily commutes. Fleets of self-driving cabs are expected to have disruptive effects on transportation in cities around the world.

Despite all this promise, however, international trailblazers are currently scaling back their plans to deploy automated mobility services worldwide. GM’s Cruise is downsizing its plans to deploy robotaxis. Alphabet’s Waymo launched self-driving taxi services late last year, but vehicles are still only available to about 400 test families in the suburbs of Phoenix, Arizona. These cars are also required to have safety drivers behind the wheel in case a human is required to take over in a dangerous situation.

Meanwhile, Chinese self-driving companies are pushing to lead the global race to deploy self-driving taxis. AutoX is expanding its presence, with plans to offer self-driving rides in Europe by the end of 2020. Baidu has set an ambitious goal to roll out 100 self-driving taxis in Changsha by year-end. Pony.ai and WeRide have been testing driverless ride-hailing in Guangzhou for months.

Changsha, China’s Phoenix

You’d be forgiven for not having heard of Changsha. The capital of Hunan province, located in central China, has not been called the famed “metropolis of the future,” as Shenzhen has. Nor is it an important political hub akin to Beijing or a commercial center like Shanghai. However, the future of automated driving could be playing out in this city.

Changsha wasn’t the first city to allow AV tests in China. In fact, it didn’t open its first pilot zone for AVs until June 2018, two years later than Shanghai, and also lagging behind Beijing and six other cities in China.

But Changsha strode into the spotlight in late 2018, when the municipal government announced its plan to become the first Chinese city to roll out robotaxis in 2019, and unveiled a partnership with Baidu, the online search and artificial intelligence giant that has been named one of China’s “AI champions.” Baidu declared that Changsha would be second only to Beijing in its goals to put autonomous vehicles on the road.

For a long time, AV companies were only allowed to test self-driving cars in Changsha’s closed pilot zone, located west of the Xiangjiang River, which divides the city in two. The testing zone originally incorporated just 12 kilometers of road networks. But the city has dramatically accelerated its efforts to deploy self-driving cars.

In June of this year, the city government issued nearly 50 permits for road testing, the vast majority of which were granted to Baidu. Officials are also revamping around 200 kilometers of public roads, aiming to add connectivity features for self driving cars. The roads are expected to be put into use in September.

The overhaul will allow safety drivers to oversee autonomous vehicles on 36 urban streets, including highways in several areas around the city. Qiu Jixing, the deputy mayor, claimed at a June press event that Changsha would be home to the largest open-road networks for autonomous tests in the country.

The city now hopes to take the lead in AV deployment, with plans to run 100 of Baidu’s robotaxis on its motorways. Chinese media reported last month that recruitment of volunteers for Baidu’s early rider program will begin in September.

In June, Changsha authorities took deliberate steps towards deployment by stipulating explicit rules for transporting passengers in robotaxis. The regulations state that only AV companies whose vehicles have traveled more than 20,000 kilometers in the city without traffic violations are eligible. First-time applicants must run a maximum of 30 cars for at least half a year before applying to put more vehicles on the road.

Changsha is often referred to as “China’s Phoenix,” drawing comparisons to the Arizona metropolis—neither city was the most prosperous in their respective countries nor were they pioneers when the competition for next-generation smart vehicles started up.

Like Phoenix, now a global hub for the evolution of the driverless vehicle industry, Changsha is expected to play a pivotal role in AV development and deployment, especially given its relatively docile traffic environment, government support, and drive to become China’s AV trailblazer.

Guangzhou, home to China’s AV pioneers

Guangzhou was also late to allow AV testing on its streets. The capital of Guangdong province was the last of China’s four first-tier cities—which also include Beijing, Shenzhen, and Shanghai—to issue testing licenses. But that hasn’t dampened the southern city’s ambitions to lead the nationwide AV race.

Guangzhou has gone even further than Changsha. For months, the city has allowed self-driving companies Pony.ai and WeRide to test autonomous ride-hailing platforms. The two startups are also testing their vehicles in the US. Last year, the company ranked fifth out of all autonomous driving companies testing vehicles in California when measuring disengagements, the number of times a human driver is required to take over from the vehicles autonomous system.

Pony.ai reported just one disengagement for every 1,645 kilometers traveled, according to the state’s motor vehicle department.

In December, Pony.ai began testing its autonomous ride-hailing service Pony Pilot in Guangzhou’s urban Nansha District. The test area now covers 60 square kilometers. Pony.ai claims that trips can be made between any two points within the test area, rather than just trips based on fixed routes. The company said the longest possible journey lasts two hours.
Xie Xiaohui, chief of the Commerce Bureau of Nansha District, told state broadcaster China Central Television (CCTV): “Pony.ai can test their vehicles on all the roads with 24-hour access in Nansha.” Thus far, only employees and a limited pool of volunteers have access to the service via an invite-only app. Pony.ai has said it will expand its ride-hailing fleet to 100 vehicles by the end of 2019.

Despite its current limitations, the company has set ambitious goals, hoping to catch up with Waymo. “It would be a great mission for us to challenge the best technology in the world in the next several years,” said Zhang Ning, head of Pony.ai’s Guangzhou research and development center, during a recent interview with CCTV.

For rival WeRide, second only to Baidu in the number of road testing licenses it has secured in China, robotaxis are of the utmost importance. “In Guangzhou, we can apply to offer transport services to the public after driving safely for 10,000 kilometers. This means more to us than California’s robotaxi permit,” the company told TechNode. The company received 20 of the 24 test permits issued by Guangzhou’s government in June.

WeRide is indeed also testing its vehicles in California, reporting 280 kilometers per disengagement, though it hasn’t received a robotaxi license in the US, unlike rivals Pony.ai and AutoX.

Nonetheless, the company has been testing its robotaxi service for eight months on a small suburban island in Guangzhou. They plan to launch the service with taxi operator Baiyun in 2020.

Guangzhou allows companies to test vehicles on 33 public roads totaling 46 kilometers in length, although more than half of the roads have little traffic volume. It is also unclear how many residents the companies could target in these areas and when they will be able to charge for their services.

Still, Guangzhou has grand ambitions of being the global center of the automotive industry in the era of shared mobility. The city aims to take the top spot in terms of auto production in China, planning to produce 5 million vehicles by 2025. Of these, the city hopes 80% will be equipped with semi-automated driving systems, much higher than the 30% target set by the central government.

Formerly known as home to Japanese automakers in China and already the country’s second-largest city in car production volume, Guangzhou is now pushing to pave the road in the smart mobility revolution. 

Credit: Jill, Chris

China’s largest search engine Baidu and ride-hailing platform Didi have beefed up their anti-graft campaigns, dismissing more than 40 employees and reporting wrongdoings to the police.

Why it matters: Increasing numbers of Chinese tech firms have launched anti-corruption campaigns as they seek to mimic the Chinese state’s approach to misconduct.

• Since 2013, Chinese president Xi Jinping has led an extensive crackdown on corruption that has targeted everyone from members of the government to corporate figures.
• Apart from Didi, companies including lifestyle services giant Meituan, dronemaker DJI, e-commerce company JD, and used-car trading platform Guazi have sought to weed out graft from within their ranks.

“Any employee who violates the law will not be tolerated. Serious cases will be sent to the public security department.” —Baidu wrote in a leaked email last week. The company confirmed the authenticity of the email to TechNode on Monday.

Details: Baidu dismissed 14 employees that were allegedly involved in 12 cases of internal corruption, the company said in its email. Allegations include bribery and infringing on trade secrets, among others.

• Meanwhile, Didi laid off 30 members of staff for their alleged involvement in bribery and collusion during the first half of 2019, according to a statement on popular messaging app WeChat.
• In one case, a service consultant helped drivers that did not meet the company’s requirements register on the platform.
• Employees from both Didi and Baidu fabricated expenses for reimbursements, the companies said.

Context: To encourage honest work, JD earlier this year went as far as sending employees on a prison tour in Beijing.

• Didi employees were involved in 60 cases of corruption in 2018, the company said in January.
• Drone maker DJI made headlines this year after it announced it was investigating 45 employees for graft. The company said it could lose as much as $150 million from cases of internal fraud.
• Alibaba, Tencent, and Xiaomi have launched similar investigations.
• Chinese telecommunications giant Huawei is also not immune. In 2017, the company’s executive vice president of its consumer business group in Greater China was investigated for accepting bribes.

TikTok owner ByteDance has introduced an in-app search engine for its popular Jinri Toutiao newsfeed app, a move that challenges Baidu’s monopoly in China’s search market.

Why it matters: The two companies are fast forming a rivalry in online services. Baidu moved into Toutiao’s market when it changed its newsfeed offering and Bytedance has hit back by adding a search engine.

• Baidu was accused earlier this year of stacking its search results with pages hosted on its Baijiahao service, a Jinri Toutiao-like newsfeed platform, leading to poor quality content rising to the top of searches.
• For Bytedance, in-app search can serve as a shortcut for it to build a Baidu rival as its apps have already amassed 1.5 billion monthly active users as of July.

Details: The in-app search engine developed offers search results from the company’s popular apps such as Jinri Toutiao, and short video app Douyin and Xigua, as well as general content from around the internet, Chinese tech news outlet 36Kr reported on Thursday.

• Bytedance’s current search functionality is not a direct rival to Baidu’s offering as it is more like a tool that enhances Toutiao’s in-app navigation, rather than a dedicated search engine.
• China’s online users are becoming increasingly familiar with in-app search engines as Tencent launched such a service for instant messaging app WeChat, allowing them to search for subscription articles and content from around the web.
• Bytedance told TechNode in a statement that the search function was in line with the Toutiao’s mission of using “information to create value.”
• Baidu declined to comment.

Context: Baidu has been trying to keep Bytedance’s search ambitions in check with a series of lawsuits, and Bytedance has responded with more lawsuits.

• Baidu filed a lawsuit in Beijing on April 26, alleging that Bytedance stole a number of its search results and displayed them in the new search engine function.
• Bytedance sued Baidu the same day for “stealing” videos from its short video app Douyin.
• In January, Baidu sued Bytedance, along with professional networking platform Maimai, for RMB 5 million over allegations of defamation and copyright infringement. Two months later, Bytedance vice president Li Liang won a defamation suit against Baidu, after claiming the company posted slanderous material about him on its website and app.

Baidu is investigating how online search results for a line of political thought attributed to President Xi Jinping guided users to a video clip appearing to ridicule the Chinese leader, Bloomberg reported.

Why it matters: Baidu has long faced scrutiny for the quality of its search results. The company has been accused of promoting content from its own platforms and hosting questionable ads for healthcare services.

• The latest incident represents a major faux pas, as China’s leaders typically don’t take well to mockery.
• Baidu, like other tech companies operating in the country, is required to filter politically sensitive topics.

Baidu declined to comment when reached by TechNode on Friday.

Details: Baidu users looking for information about Xi’s “Four Greats,” a doctrine developed by the Chinese leader, were directed to results that included a video explaining the Chinese phrase for “tooting your own horn.”

• Baidu had fixed the issue by Tuesday evening, but is investigating how the two topics were linked, Bloomberg sources said.
• Some users circulated the search results privately on social media.

Context: Content platforms in China are required to censor sensitive text and images in order to escape government censure. Failure to abide by content-related laws can result in a company having to suspend its services or pay fines, or end up having its business license revoked.

• Baidu has faced increasing pushback for the content across its platforms. In 2016, a university student died of cancer after receiving ineffective treatment he had found through prominently placed ads in Baidu search results.
• More recently, the company apologized after posting a fake message in which the author claimed to be the father of a girl who went missing and whose body was later found in mid-July.

Search engine Baidu has apologized to the Chinese public after it posted a fake message on its news aggregator in which the writer claimed to be the father of a missing nine-year-old girl whose body was found over the weekend.

Why it matters: Baidu has faced public backlash over trust issues, initially stemming from the company presenting paid ads for health services as search results.

• Zhang Zixin, the deceased girl from China’s eastern Zhejiang Province, garnered nationwide attention after she went missing on July 4.
• Baidu in the first quarter this year reported a quarterly loss for the first time since listing in 2005 as the company has attempted to deal with an increasingly competitive digital environment and growing mistrust of its services.
• Netizens on microblogging platform Weibo have called for greater oversight of Baidu News, where the message was posted.
• The company has previously highlighted its newsfeeds as a major source of growth.

“No words can express our guilt. We would like to apologize to Zixin’s relatives and to netizens.”

—Baidu statement

Details: Shortly after Zhejiang police confirmed that Zhang Zixin’s body had been found, an unauthorized message about the incident appeared on her father Zhang Jun’s verified Baidu News account.

• Zhang was taken by a couple from her home outside Hangzhou. Their bodies were found last week after they allegedly took their own lives.
• Baidu said that it had received authorization to create the verified account so netizens could help the family find the missing girl.
• The message said Zhang Jun had just found out what had happened to his daughter, adding that he hoped to be Zhang Zixin’s father in his next life so that he could continue looking for her.
• The plan backfired—Baidu was met with outrage online, prompting the company to delete the post and fire the editor allegedly responsible for the message.
• Chen Lei, head of the Baidu News, took responsibility for the incident in a post on popular messaging app WeChat, adding that the core issue was with his management of the team.

Context: Baidu has long been criticized for the content across its various platforms. In 2016, a university student died of cancer following ineffective treatments from a hospital he had found through prominently placed ads in Baidu search results.

• In 2018, a Shanghai-based internet user was directed to medical treatment from a hospital she thought was from the reputable Fudan University Hospital. After undergoing an operation that cost tens of thousands of yuan at a similarly named institution, she found her condition could have been cured by RMB 200 medication.
• The company has faced backlash for promoting its own results, such as those from its content aggregator Baijiahao, over other news outlets.
• In July, Baidu and rival 360 Search were censured again for promoting fraudulent college application services in their search results.

Online retailer JD.Com ranked highest among tech firms at 17th in the latest edition of Fortune’s top 500 Chinese companies released on Wednesday. Alibaba Group came in at 24th and Tencent at 33rd. Baidu was way off the pace in 92nd. The list compares financial performance of listed companies in the country.

Why it matters: The ranking demonstrates how far JD.Com has come and how Baidu has failed to keep up with its peers. Baidu was one of three leading companies in China’s dot-com era along with Alibaba and Tencent, known collectively as BAT. The company reported a quarterly net loss this year for the first time since listing in 2005.

• Revenue at JD.Com rose over one quarter last year to hit RMB 462 billion ($67.2 billion), while that of Baidu was RMB 101 billion.

“Influenced by the economic cycle, traditional property and financial industry performed weakly in the past year. New economic sector including electronics, internet services and computer-related industries keep a high-speed growth.”
— Fortune announcement

Details: Although state-owned firms continue to dominate the list, some 37 companies from electronics, internet services and computing are also included.

• JD.Com rose one place to 17th while Alibaba and Tencent improved nine and six places respectively to 24th and 33rd. JD failed to make a profit, losing RMB 2.5 billion.
• Online retailer Suning, Xiaomi and electronics giant TCL all outperformed Baidu last year, while Meituan lost the most money among the entrants.
• Aside from commercial banks, insurers, and China mobile, Tencent and Alibaba were also among the 10 most profitable companies.
• The edition marks the first time on the list for Meituan, which posted a RMB 115.5 billion net loss.
• Bytedance and Huawei are not on the list as they are yet to go public
  

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Despite US-China trade tensions which led to Chinese stocks tumbling in May, the sector remains a good investment option, according to investment banks UBS and Credit Suisse.

Why it matters: The internet sector in China is a structural growth story following heavy sell-offs in April, signaling continuing upside, investment bankers told CNBC on Tuesday.

• Chinese stocks, including Baidu, Alibaba, and Tencent, suffered as the US and China ratcheted up tariffs on each other’s goods. The stocks did rebound at the beginning of last month, but the recovery was modest.

“Actually, the internet stocks do have an overwhelmingly domestic focus. They are not really export-oriented… They’re absolutely focused on consumption plays, services plays within the domestic economy and those are the ones we want to focus on.”

— John Woods, Credit Suisse’s chief investment officer for Asia Pacific

Details: Woods and UBS Global Wealth Management’s head of the Asia Pacific Investment Office, Tan Min Lan, both pointed out that the domestic focus of internet stocks make them a more solid bet amid uncertainties brought by the current political and economic climate.

• Chinese internet companies, such as those producing software and offering services, continue on an upward trajectory due to rising consumption in the country. They are less exposed to trade war headwinds, making them a good bet compared with companies subject to export volatility.

Context: Chinese stocks have sagged since the trade war began in March. In the first few months of 2019, Chinese stocks and their US counterparts hit the ground running amid optimism that the US and China could reach a trade deal.

• Technology has emerged as a battleground in the trade conflict as the two economic superpowers seek to advance their core technology capabilities in areas like 5G, artificial intelligence (AI), and cloud computing.

Baidu has been accused of copying Alibaba on the design of its latest smart speaker, a consumer electronics segment attracting intense competition among Chinese tech giants because it is seen as a gateway for smart home ecosystems.

Baidu’s latest smart speaker model, the Xiaodu Play, features several design details similar to those on the Tmall Genie R, which Alibaba released three months ago. Alibaba posted a comparison chart on its social media account late Wednesday displaying five points of resemblance between the two products, including pop art designs, color, gradient speaker holes, and concave buttons.

Li Jianye, design lead for the Tmall Genie, said the smart speaker has several blind holes along with the two microphone jacks for aesthetics, and an idea that was “copied exactly by Baidu.”

Baidu denied the allegations on Thursday, saying that it is leading the market due to its independent, well-grounded design philosophy, as well as research and development (R & D) strengths. “Don’t attack against us because we are now the number one,” (our translation) Jiemian reported citing a Baidu spokesperson.

Baidu did not respond to request for comment when contacted by TechNode on Friday.

Baidu unveiled three of its Xiaodu-branded smart speaker devices at the company’s annual developer conference earlier this week, all powered by DuerOS 5.0, the latest version of its voice assistant software.

Robin Li showed off the company’s recent achievements in speech recognition at the opening session, demonstrating how the artificial intelligence (AI)-based assistant interacts with users in a continuous dialogue without the need to activate the device with a wake word.

Rivalries among tech giants in the smart speaker market is rising in China, as the gadget is widely seen as an entry point into consumer smart home ecosystems. According to data from market research firm Canalys, Baidu shipped 3.3 million smart speakers in the first three months of 2019, surpassing Alibaba and ranking first in China. Alibaba had dominated the market following momentum gained from selling an excess of 1 million units during its Singles Day shopping event in November 2017.

China’s Ministry of Education and Ministry of Public Security requested a meeting with the country’s biggest and second-largest search engines about official sites for universities and university applications on search results, according to a notice posted on the education ministry’s website on Wednesday.

The warning follows a recent notice from a provincial education department to students applying for college to avoid using search engines when searching for official application websites for fear of being misdirected to unaccredited schools or sham websites.

“We received complaints that when users search for college application information like ‘gaokao zhiyuan‘ on Baidu and 360 Search’s search engines, there are promotions for apps and websites which charge students high prices shown at the top of results, which violate regulations and heighten security risks,” the notice said.

Baidu told TechNode on Thursday that it appreciated and “firmly” supported the ministry’s comments and were continually adding tips to search result pages to guide users away from fake websites.

When asked about the frequency with which such promotions appear on search results, the spokesperson did not respond.

“Gaokao zhiyuan” refers to the pool of colleges that students can apply to, the number of which varies by province. In China, the strategy behind selecting schools for their gaokao zhiyuan is crucial for students. If students apply for schools that are too far above their range, for example, based on their gaokao, or college entrance exam, scores, students lose the chance to study at a suitable college.

Based on a search using “gaokao zhiyuan” on Thursday morning, TechNode observed Baidu’s search results showed official application websites ranked at the top, but four of the 10 results on the first page were for the consulting services that the education ministry objected to in its warning. On the second and third pages, consulting services account for half of the results listed.

The same search on 360 Search yielded one consulting service result on the first page.

Consulting services for the gaokao zhiyuan has become big business in China. Consultancies offer recommendations for schools based on individual preference for type of program and the single application factor, a student’s exam score.

One such consultancy, Bai Nian Yu Cai, is a publicly listed company which earns half of its revenue by providing consulting services directly to high school students. It earned RMB 150 million (around $21.8 million) in revenue in 2018. However, the credibility of its service was cast into doubt after media reported that students paid for a big-data consulting service but received a few useless suggestions in return. Local media reported that similar services charge fees of anywhere between RMB 298 (around $44) to RMB 60,000 (around $8,700).

Business news outlet Caixin searched the same keywords in Baidu on Wednesday night, and a Baidu-owned education consulting platform, self-marketed as an “all-in-one” gaokao zhiyuan service, showed up on the first page.

Baidu’s reputation as a search service has long been criticized for its emphasis on promotions instead of results. Since going public in 2005, the search giant has reaped profit until this year. Search ads are an important source of its revenue.

Criticism for Baidu has reached a point where even state-owned Global Times reported calls for Google to return to China. Netizens attribute user dissatisfaction as the motivation for an incident at Baidu’s AI conference in Beijing on Wednesday where an attendee poured a bottle of water on Baidu CEO Robin Li’s head during his presentation.

Netizens voiced their approval of the man, identified by the police only by his surname, Cheng, by posting comments on a Weibo account associated with him.

The government began showing signs in June of intensifying scrutiny of misleading search results and ads targeted toward students.

A dousing of Baidu CEO Robin Li in water on stage Wednesday did little to damp the a raft of updates for the company’s autonomous driving business announced at the Baidu Create AI Developer Conference, including a strategic partnership with China’s largest privately held automaker, Geely.

“All kinds of unexpected things could happen on the road to [artificial intelligence],” Li said after a conference attendee walked onstage and emptied a water bottle over his head, “But it will not impact Baidu’s determination to move forward.”

The partnership will accelerate the intelligent transformation of the mobility industry, supporting China’s ascent as a leader in the age of smart mobility, Li said at the event. Li Shufu, chairman of Zhejiang Geely Holding Group was on hand to show his support for “shaping the future of smart mobility.”

Geely’s onboard vehicle solution GKUI19 is now powered by Baidu’s DuerOS for Apollo, a set of artificial intelligence (AI)-based internet of vehicle (IoV) solutions with voice assistant, which is available on Geely’s latest SUV model, the Boyue Pro. A number of connected applications are on offer, such as connection to Baidu’s smart home devices, online navigation using Baidu map, and in-vehicle entertainment.

Geely is not the first big OEM to ally with Chinese internet giants on smart mobility. Alibaba partnered with SAIC beginning in mid-2014 and its vehicle operating system AliOS has been installed in 600,000 SAIC-branded vehicles. Dongfeng Motor turned to Tencent for its technology capabilities in cloud services, data analysis, and AI.

In addition to Geely, Baidu has 156 auto partners including Chery, Great Wall, and Ford. The Apollo system is integrated in more than 300 vehicle models on the market to date, the company said.

“To enable a smart vehicle in a smart world, your vehicle needs to be able to interact with systems outside of it, and that means we need to put a connectivity system into that car,” Ryan McGee, a director of Ford China said June 25 at the Nanjing Innovation Fair. The US automaker began collaborating with Baidu in June 2018 and later developed its in-vehicle system SYNC+ based on Baidu’s IoV solutions. It plans to deliver connectivity to all of its new vehicle models this year, McGee added.

However, whether OEMs or tech companies will lead such collaborations is a challenging issue, Wang Jin, former head of Baidu’s self-driving unit said publicly in May. With more than 150 partners for its self-driving platform Apollo, not every car manufacturer is willing to share data with internet companies, and many of them are developing their own driverless technologies. Little progress has come as a result of these alliances, according to a Chinese media report citing a person with knowledge of the matter.

Baidu did not respond to request for comment when contacted by TechNode on Thursday.

Baidu so far has a fleet of 300 Level 4 driverless vehicles in testing across 13 cities in China with 2 million kilometers (around 1.24 million miles) driven. Level 4 is a high degree of automation where the vehicle is capable of driving under most conditions.

The company plans to debut its robotaxi program Apollo Go in the central Chinese city of Changsha later this year, and its production of Level 4 AV with FAW Hongqi is “underway.”

Baidu and a coalition from the automotive industry have released a set of guiding principles for autonomous vehicles (AV), promoting a system of “safety by design” as conversations about self-driving cars go mainstream.

The coalition includes Daimler, BMW, Intel, Volkswagen, Fiat Chrysler Automobiles, Audi, and automotive supplier Continental, among others.

“In addition to offering broader access to mobility, [automated driving] can also help to reduce the number of driving-related accidents and crashes. When doing so, the safety of automated driving vehicles is one of the most important factors,” the group said, explaining the motivation behind the principles.

AV proponents have pointed out that the vehicles could end up being safer than human-driven cars. However, the coalition highlights a number of topics that need to be resolved in order to meet this goal.

The nearly 150-page document covers 12 areas including cybersecurity protection, driver-vehicle handovers, data recording, coping with component failures, and awareness of an autonomous system’s limitations. According to the group, balancing safety and availability in Level 3 and Level 4 autonomous vehicles, those that require human interventions in certain scenarios, is difficult to balance.

AV safety will peak when operations are optimized but restricted to certain driving scenarios, the group says. However, if restrictions are too high, safety goals cannot be reached due to limited availability. The same is true when limitations are too liberal.

“Being too risk-averse leads to a system that is overly conservative, and the system availability becomes too low, which in turn will not provide the benefits of a safer and more comfortable customer experience,” the report said.

The principles also highlight the importance of cybersecurity. A slew of possible safety risks arise from malicious actors seeking to take advantage of the connected vehicles, which could possibly allow them to gain access to a car’s controls.

In June, cybersecurity firm Regulus Cyber was able to spoof a Tesla’s GPS system to redirect it off a highway. However, the researchers had to put an antenna on the vehicle in order to launch the attack.

Similarly, in April, Tencent’s Keen Security Lab was able to trick a Tesla into switching lanes. The researches put stickers on the road to fool the vehicle into altering its behavior. Though the attack didn’t require any hacking, it highlights how AVs could be manipulated if safety issues are not thoroughly assessed and resolved.

The principles draw attention to a reliance on data, whether gathered by sensors or provided by maps and GPS, in order for AVs to function properly. “If the integrity or authenticity of this data is compromised, the building blocks of the automated driving functions will use faulty data to maneuver the vehicle, which might result in inaccurate driving or other deviations from correct operation,” it said.

A man poured a bottle of water over Baidu’s chief executive Robin Li at the opening of the company’s annual developers’ conference on Wednesday.

During his speech at the Baidu Create AI Developer Conference in Beijing, an attendee rushed up to the stage and poured a bottle of water over the CEO’s head.

After a few moments of shocked silence, Li asked the interloper in English, “What’s your problem?”

The man, whose motive was unclear, was quickly tackled by security.

Li then continued his speech about smart transportation, noting that the road to artificial intelligence (AI) will contain unexpected happenings. “But it will not impact Baidu’s determination,” he added.

A Baidu spokesman told TechNode Wednesday that the man was taken away by the police, and that his identity was unknown.

Chinese netizens have tracked down the account allegedly used by the man on microblogging platform Weibo. A Weibo account using the handle @Zhinanshangshu posted a picture of a bottle of water at the front of the stage where Li was giving his keynote speech at 9:40 a.m. Wednesday with the message “I’m about to go [to the stage].” All posts by this account had been deleted by mid-afternoon Wednesday, TechNode observed.

The account holder’s identity could not be independently verified by TechNode.

Baidu, China’s biggest search engine site, was widely criticized last month for promoting its own results and low-quality articles on Baijiahao, the company’s news aggregation platform which publishes content from other sites, over news from other channels.

The company has struggled to regain user trust after a series of scandals over the past few years. In 2016, a 21-year-old college student died after being treated for his cancer using questionable methods at a hospital which he chose for its top ranking in Baidu’s search results.

This story has been updated to include the video, comment from Baidu, and Weibo account information.

百度委任符绩勋出任公司董事 陆奇将离任 – Tencent Tech

What happened: Baidu announced changes to its board composition late Tuesday, appointing Jixun Foo as a director following the departure of former COO Lu Qi. Foo has served as managing partner at GGV Capital since 2006 and currently serves on the boards of a number of private companies, including XPeng Motors, Hello, Boss Zhipin, Zuiyou, and Tujia. Separately, the company disclosed that the average daily active users for Baidu App, or the number of unique mobile devices that have accessed Baidu App at least once a day, reached 188 million in June 2019, up from 148 million in the same period of last year.

Why it’s important: Baidu’s appointment of Foo, an investor with experience in travel, transportation, social media, e-commerce, and enterprise services sectors, marks the final departure of AI expert Lu from the Chinese search engine. Lu resigned as chief operating officer of the company in May last year and had been serving as a board director since then. In August 2018, Y Combinator announced Lu had joined its ranks as the founding chief executive officer of YC China and the head of YC Research. Over the past two years, Baidu has lost key AI executives such as Andrew Ng, Zhang Tong, and Adam Coates.

Baidu announced Monday that it was granted T4 licenses to test self-driving cars in the capital city of Beijing in the first instance of an autonomous vehicle (AV) company qualifying to test on public roads.

Local authorities have granted more than 180 licenses to nearly 40 companies nationwide within automation levels T1 to T3. China set five levels for autonomous test permits ranging from T1 to T5, which correspond to the widely used automation levels issued by the Society of Automation Engineers (SAE). T5 refers to SAE Level 5, meaning the vehicles are completely self-driving, for example.

However, securing a T4 permit does not mean that Baidu’s robotaxis will be allowed to test its vehicles on open roads. So far, AV companies with T4 licenses are only allowed to test vehicles in a closed pilot zone in southern Yizhuang district.

Baidu declined to comment beyond its Chinese-language statement announcing the news when contacted by TechNode on Tuesday.

Still, it is a signal that large-scale AV tests on public roads are beginning. A week ago, Beijing authorities issued a file regulating road management specifically for driverless tests, including evaluating and designating road segments available for tests.

Beijing requires the local district governments to perform a “complete risk evaluation” before allowing AV tests on roads, with clear assessments regarding issues such as current traffic density in the area, possible effects rising with tests, as well as control measures. All selected roads for testing will also be marked on a map once approved. The Beijing government did not reveal specific details or a timetable, however.

China has assigned road segments totaling 600 kilometers (around 373 miles) for autonomous tests across 17 cities. Most of them are located in suburban areas with limited traffic, such as Lingang, a port area in Shanghai where Tesla’s gigafatory is being built, and Nansha, an island that is part of the southern city of Guangzhou.

Last month, Guangzhou and Changsha released new rules granting qualified companies the right to test driverless vehicles. Baidu late last year said it will roll out 100 robotaxis in Changsha, capital of the central Hunan province, by year-end, while WeRide said it was aiming to deploy a fleet of 100 driverless vehicles in Anqing, a city in eastern Anhui Province, by the end of the year.

After a state education department in northern Shanxi Province warned students to avoid using search engines when seeking the official university application website, China’s biggest search engine Baidu said a statement on Thursday that it has taken steps to ensure accurate search results for college-related queries.

“Remember not to use a search engine to find the online application website. A search engine may misdirect you to an unofficial website which leaks personal information, and applications submitted to such websites are not valid,” the Shanxi Provincial Admissions and Exam Center (our translation) said on a document assisting Shanxi high school graduates with college applications.

The notice did not name Baidu specifically. However, the search giant commands 70% of China’s search market according to data from analytics provider StatCounter.

Baidu said on Wednesday it has ensured that provincial college admission websites are shown in an “obvious position” on search result pages since 2013, and that such websites were given verification icons “for free,” in a message from its official account on microblogging site Weibo. In China, college applications are submitted on a single website dedicated to students from each province.

Baidu also said it would publish a list of unaccredited “diploma mills” on Thursday to help fresh graduates discern those from universities certified by the government.

Then on Thursday, Baidu said that it had introduced a tip feature at the top of search results for certain keywords to ensure a “smooth” application process. When searching for unaccredited schools, a tip warning users about “diploma mill” institutions appears, a TechNode reporter observed Friday, including a link to a list of unaccredited schools from business news outlet China Economic Net dated June 17.

A company spokeswoman told TechNode on Friday that Baidu did not compile its own list but have been maintaining it since 2013. “Compared with other sources, this one from the China Economic Net is complete,” the spokeswoman said.

TechNode found a list with the same entries published in People’s Daily in June 2018.

The search giant has been battling to regain user trust over the past several years, with its share of the market dropping to 64% in May from 86% in August 2015. In 2016, a college student died following failed cancer treatments at a disreputable ward within a hospital listed at the top of Baidu’s search results, a particularly bleak outcome from what netizens see as a routinely poor search service that prioritizes paid results over relevance.

On Monday, Baidu launched a new feature that allows users to filter news search results to include those from only Baijiahao or all other media outlets. Before the new function launched, users complained that most of the search results on the first page were from Baijiahao.

In May, Baidu reported a net loss for the first time of nearly RMB 330 million (around $48 million) in the first quarter of 2019. Following its worst performance since listing in 2005, Baidu’s CEO Robin Li began restructuring its management team. At least seven top executives have left Baidu this year including president of new business Zhang Yaqin and senior vice president of the search business Xiang Hailong.

This article has been updated to include comments from a Baidu spokeswoman.

Baidu Offers More News Search Options After Journalist Accuses It of Bias – Caixin Global

What happened: China’s biggest search engine Baidu updated its news search services on Monday, offering users more options in selecting sources for content they want to browse. The change allows users to choose either from all media outlets or from Baidu’s Baijiahao. Launched in September 2016, Baijiahao is a news aggregation platform which publishes content from other sites.

Why it’s important: Baidu’s adjustment is widely translated as a response to a January censure involving former journalist Fang Kechen, who accused Baidu of promoting its own results and low-quality articles on Baijiahao over news from other channels. “Baidu no longer plans on being a good search engine. It only wants to be a marketing platform,” Fang wrote in an article. Baidu responded that Baijiahao articles account for less than 10% of its total search results, but promised to improve the service. The Chinese search giant has been facing mounting credibility problems in recent years, especially after a scandal involving a 21-year-old cancer patient who died after unsuccessful treatments at a hospital which had been ranked at the top of Baidu’s search results.

视频付费迎黄金期？爱奇艺会员规模首破亿 – The Beijing News

What happened: Video-streaming platform iQiyi reached 100 million paying subscribers on June 22, according to a report from The Beijing News. According to the company, the increase in subscribers was driven primarily by growth in its over-30 segment and those living in lower-tier cities. As of the end of Q1 2019, iQiyi had nearly 97 million subscribers, 98.6% of whom were paying users, the company’s earnings results show.

Why it’s important: iQiyi’s subscription revenue surpassed online advertising revenue for the first time in 2018, reaching RMB 10.60 billion (around $1.54 billion) and accounting for 42% of the company’s total revenue. According to CEO Gong Yu, the growth in paying users was driven by its high quality, original content offerings and growing acceptance of paid services among Chinese netizens. iQiyi has now taken the lead against its biggest rival, Tencent Video, which had 89 million paying subscribers as of the end of Q1 2019.

长沙推进自动驾驶路测 一次性为5企业发49张测试牌照 – Sina Tech

What happened: Chinese authorities on Friday granted five self-driving companies with 49 licenses to allow road tests for autonomous vehicles (AV) in Changsha, the capital of central Chinese Hunan province. Baidu secured 45 of the licenses, bringing its total number of licenses for road testing to more than 100, over half of the 183 licenses total granted nationwide. Two trucks from Mercedes-Benz maker Daimler and self-driving truck startup Inceptio were also grated licenses.

Why it’s important: The Chinese government is accelerating initiatives supporting AV testing on its roads. Changsha’s move comes just a day after Guangzhou issued a total of 24 permits to a list of star AV companies including WeRide, Pony.ai, and AutoX. The cities are also the first in China to allow companies to apply for passenger transport using driverless vehicles. As part of the AV push, Changsha authorities started construction to equip 135 kilometers (around 84 miles) of roads with wireless communication capabilities, which will lay the foundation for Baidu’s large-scale testing of autonomous vehicles in the city later this year, the company said on Friday in an announcement sent to TechNode.

More than four weeks after the Trump administration placed Huawei on a trade blacklist, the stock market is still reacting. Tech companies in China and the United States alike have seen share prices fall.

Huawei’s suppliers and competitors have lost share value since the Trump administration’s ban. Chipmakers NeoPhotonics and Lumentum, and semiconductor firm Qorvo have been hit the worst. NeoPhotonics relies on Huawei for 47% of its revenue, Lumentum and Qorvo for 11%, according to Goldman Sachs data analyzed by Reuters.

Huawei’s American chip suppliers in blue and red; those which depend on Huawei for more than 10% of their revenue in red. In green, Huawei’s international competitors. The semiconductor composite index in purple. (Image credit: TechNode/Eugene Tang)

South Korean electronics giant Samsung has seen its shares increase the most, exceeding 5%. Share prices for other non-Chinese telecom equipment companies have also gained: Finland-based Nokia and Swedish telecom firm Ericsson both rose around 3%. China’s other smartphone and telecom equipment makers, Xiaomi and ZTE, have both lost share value.

Huawei’s American chip suppliers in blue and red; those which depend on Huawei for more than 10% of their revenue in red. The semiconductor composite index in purple. (Image credit: TechNode/Eugene Tang)

Nearly all American chipmakers which supply Huawei with electronic components have seen share prices fall. The composite index for the semiconductor industry declined about 5%.

(Image credit: TechNode/Eugene Tang)

Chinese phone makers have also lost share value, whereas Huawei’s international competitors have seen a steady rise.

China’s housing unicorn Danke appoints ex-Baidu executive as new COO – TechCrunch

What happened: Danke Gongyou, a Chinese housing startup valued at $2 billion, has hired Gu Guodong as its chief operating officer. TechCrunch reports that he will roll out targeted marketing and real estate acquisitions, and oversee more rigorous operational procedures. Gu was one of five top-level Baidu executives following Baidu’s disappointing quarterly earnings report. He oversaw marketing staff for search, Baidu’s highest-grossing division, helping earn annual sales of around $14.4 billion.

Why it’s important: Founded in 2015 and backed by Tiger Global and Ant Financial, Danke rents shared houses targeting young professionals. It now manages nearly 500,000 housing units in 10 major Chinese cities including Shanghai, Beijing, and Guangzhou.The industry of housing startups is increasingly competitive, with tech giants like JD.com claiming a piece, but it has had a tumultuous year. One of the largest Chinese online rental platforms, Ziroom, has hit with a series of scandals over data theft, hidden cameras, and elevated levels of formaldehyde in apartments. Danke’s aims for Gu are to leverage his extensive operational experience to help the startup set stricter operational standards and shore up long-term growth prospects.

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Liu Wenfeng, chief technology officer at Baidu-owned platform iQiyi—sometimes known as the “Netflix of China”—insists that the platform is more than just a copycat.

“Last year somebody called us Netflix Plus … but we have more than that,” Liu told TechNode. Referring to their expanding range of content formats and methods of monetizing content, he said, “We’d rather call ourselves an online Disney.”

Unlike either Netflix or Disney, however, iQiyi is still bleeding cash as it seeks to level up content as well as its paying subscriber base. While its efforts have seen success, the platform faces a long road to profit that is hemmed in on either side by competitors and new tech trends.

However, 2018 was a bright spot for growth in both original content as well as number of subscribers, which shot up 72% year-on-year to 87.4 million. iQiyi’s performance was a highlight for Baidu’s overall year-end earnings report, although the streaming site also racked up RMB 9.1 billion ($1.3 billion) in losses.

On March 31, iQiyi reported that subscribers had risen to 96.8 million, up 58% year-on-year, although net losses—RMB1.8 billion—were between four and five times the figure from the first quarter of 2018.

Shelleen Shum, forecasting director at eMarketer, told TechNode via email: “[iQiyi’s] investments in premium content have clearly helped to attract more subscribers. A growing user base will add not only to its membership revenue but also help its ad business remain competitive.”

“However, the online content market in China is very crowded and relying solely on content investment is not sustainable due to the continued high costs.”

Pathbreaking content

At iQiyi’s 2019 World Conference, held from May 9-10, executives announced new strides into the realm of interactive content.

In a sense, they’re late to the party. In December 2018, Netflix released an innovative episode of a popular series, “Black Mirror: Bandersnatch.” Mixing together gaming elements with user choice and metafictional narrative, its debut made a successful splash across English-language media.

However, with the release of their “Interactive Video Guideline (IVG) and Interactive Video Platform (IVP),” iQiyi hopes to create an entire creation and distribution ecosystem for material similar to “Bandersnatch.”

Speaking at the conference, iQiyi senior director Yang Guang explained that more personalized storylines can add color to the entertainment experience: “The more immersive, the better.”

According to an official press release, the IVG is being used to guide content development from conception through plot, as well as production and release. In the future, shows created under these guidelines could be rolled out through iQiyi’s app. The IVP brings together content producers with IP creators and broadcasters in order to publish the new forms of video, and has thus far been used to produce interactive video for iQiyi.

“iQiyi aims to standardize interactive video creation, build an efficient ecosystem for the industry, and explore the possibilities of interactive video in collaboration with our industry peers,” Liu is quoted as saying in the press release.

At the conference, Yang explained that in future iQiyi shows, audience members will be able to actively choose where they want a character to go next, as was possible with “Black Mirror: Bandersnatch.” Alternatively, audience choice might involve switching points of view throughout an episode.

Using the new IVG and IVP, iQiyi announced on May 9, the platform will release an interactive romantic drama titled “His Smile.”

Doubling down on AI

iQiyi CTO Liu Wenfeng also elaborated on another major part of the company’s tech strategy: artificial intelligence.

Starting five years ago, the company has steadily ramped up its efforts in the area. Nowadays, not only does machine learning help recommend content, a la Netflix, but it also helps cast actors and actresses, edit footage, create customized promotional content, and add to the audience’s viewing experience—for example, by allowing users to skip to scenes featuring a favorite actor.

The applications go beyond content production and post-production. “We utilize AI technology to do the content distribution,” Liu said. By better categorizing and recommending content, algorithms are helping to match viewers with the videos they want to see.

According to Liu, AI also helps determine which content is truly popular. In genres such as children’s content, for instance, the sheer number of views don’t tell the whole story—as “kids tend to watch videos multiple times.” Additional factors must be included in any assessment of a video’s impact, including amount of user interaction and number of shares.

The tastes of fans, in turn, can influence what types of shows iQiyi will make next. When asked if the company could reveal its projected hit flick for the summer of 2019, Liu demurred. He did claim, however, that iQiyi’s algorithms for predicting the popularity of a video are highly reliable, with around 88% accuracy.

That helps content producers decide which directions to explore in the future, although Liu added, “We are not going to [entirely] replace the creativity work by human[s].”

Long road to profit

It’s not hard to see how AI can help save iQiyi money in the long term by cutting down on the time required to make decisions, as well as reducing the risk involved. After all, in 2015, Netflix claimed that its technological advancements, including smarter recommendations and improved user interfaces, saved the company some $1 billion each year.

Liu told TechNode that using AI to optimize content classification and recommendation allows iQiyi to get “more value from the same library.”

In addition, Liu said that the platform’s growing user base makes it easier to profit off its increasingly extensive catalog of content. “That scale can dramatically lower our cost and improve our profitability.”

In the realm of AI, the platform has a competitive advantage because it is backed by Baidu, said Shum. “The ability to utilize AI to not only grow its revenue base by attracting and retaining more subscribers but also to realize efficiencies in content production and push down production costs will be an exciting development to watch for iQiyi in the coming quarters,” Shum added.

Interactive videos seem to promise higher overhead without immediate financial reward. But making that leap may be a requirement for iQiyi amid fierce competition from rivals such as Tencent Video or popular short-video apps Douyin and Kuaishou.

“Development of quality content and IP is the core of competitiveness in online video, so these measures are necessary for iQiyi,” iiMedia consulting analyst Li Songlin told TechNode. Even in an increasingly regulated media environment, iQiyi must keep experimenting with its repertoire of content in order to stay ahead.

“Currently, video platforms’ methods for profit are generally in advertising, paid membership business, and IP development. Among these, homegrown IP and tapping IP value are key for profit, but the period needed is relatively long,” Li wrote.

At the World Conference, at least one iQiyi executive pointed out interactive content’s moneymaking potential. In his address, senior director Yang Guang noted that interactive video binds viewers and content creators more closely together. In doing so, more opportunities for user-ad interaction also arise—for instance, by allowing audience members to click on a character’s clothing in order to purchase a similar item.

The foray into new territory could help Baidu’s streaming platform pull ahead of major rival Tencent Video. In a March ranking, research firm Aurora Video placed Tencent Video one place ahead of iQiyi in terms of “value of app traffic” (our translation).

The ranking, an Aurora representative told TechNode, was created using assessments of apps’ active user counts, quality of online traffic, and user backgrounds, as well as the products’ ability to retain user attention and strategically place ads.

In the ranking, Tencent Video’s RMB 12.6 billion value beat out iQiyi’s RMB 12.5 billion estimate. Neither, however, measures up to short-video apps Kuaishou or Douyin, valued at RMB 17.7 billion and RMB 21.9 billion, respectively.

With additional reporting by Cassidy McDonald.

Baidu announced Tuesday the appointment of Jing Kun, general manager of Baidu’s Smart Living Group (SLG), to vice president as it shores up efforts to monetize AI amid a sharp dropoff in revenue growth from its core online advertising business.

A former Microsoft R&D director responsible for creating Xiaoice, the company’s beloved Chinese social chatbot, Jing joined Baidu in 2014 as chief architect for search engine products. He has been leading the business and technology development for the voice assistant platform DuerOS, Baidu’s answer to Amazon’s Alexa, since late 2016.

According to Baidu’s first-quarter earnings release, more than 275 million devices are equipped with its voice assistant. Voice queries reached 2.37 billion in March.

The Chinese search engine giant tops the country’s smart speaker market, with shipments of its smart speaker Xiaodu reaching 3.3 million units for the first three months this year. It still lags Amazon (4.6 million) and Google (3.5 million) in the global market, said market search firm Canalys in a report.

“All those achievements set a very good example for the company at the current moment,” (our translation) Cui Shanshan, vice president and head of human resources wrote in an internal letter.

Despite the popularity of its voice assistant, AI has yet to contribute meaningfully to Baidu’s bottom line. The company reported a quarterly net loss for the first time since its IPO in 2005, with its total operating  expenses surging 53% year on year, mainly due to the investment in growth initiatives including short video, smart speakers, and self-driving cars.

Search giant Baidu is reportedly seeking to spin off its autonomous driving unit, a move that comes just days after the company reported its first quarterly net loss since listing in 2005.

The company is currently looking for external investors for the business amid increased financial pressures, Caijing reports, citing a person close to the company as saying.

A Baidu spokeswoman denied the claims when contacted by TechNode, saying that Apollo, the company’s self-driving platform, is an important part of Baidu’s artificial intelligence (AI) strategy.

The prospective spinoff comes after a tough first quarter for Baidu. The company reported a loss of nearly RMB 330 million (around $49 million) in the three-month period ended March 31. To compare, the company reported RMB 6.7 billion in net income during the same period a year earlier.

Driving these losses was a considerable increase in spending. The company’s total operating costs and expenses reached RMB 25 billion during the first quarter, up from around RMB 16 billion during the same period in 2018. Research and development costs increased by 26% year on year.

Baidu CEO Robin Li said in 2017 that the company would seek to spin off its self driving unit when it is mature enough and is in need of more funding.  “When we think [a] business is promising enough and it has reached a stage that running it independently or introducing more strategic investors would make sense, we will do that,” Li said at the time.

Baidu has been named one of China’s AI champions and is tasked with spearheading the development of autonomous vehicles in the country. The company is testing its self-driving cars on the roads in China and the US. According to California’s Department of Motor Vehicles, Baidu’s AVs required human drivers to take over every 330 kilometers, compared with Chinese rival Pony.ai’s 1,600 kilometers per “disengagement.”

Meanwhile, the company’s vehicles made up more than 90% of all mileage traveled by self-driving cars in Beijing last year. The company has also started rolling out a fleet of robotaxis in Changsha, the capital of Hunan province in central China.

Search and artificial intelligence (AI) giant Baidu has reported a quarterly net loss for the first time since listing in 2005, as the company grapples with China’s slowing economy and increased competition while spending on promotional activities skyrocketed.

Baidu lost nearly RMB 330 million (around $48 million) in the first three months of 2019. This compares to the company’s net income of RMB 6.7 billion during the first quarter of 2018. Baidu shares fell around 9% in aftermarket trading following the release of its results.

Baidu attributed its losses to increased spending on content, most notably iQiyi, as well as promotional activities in which Baidu gave away hongbao, or red packets, as part of an alliance with national broadcaster China Central Television over Chinese New Year.

The company also accelerated spending on traffic acquisition, while other costs of revenue, including depreciation and operational spending, expanded by 75% year over year, which Baidu said was “mainly due to higher depreciation expense and the growth in sales of first-party smart devices.”

In an internal memo to employees on Friday obtained by TechNode, Baidu CEO Robin Li acknowledged that the company is facing a “grim situation,” but said that 2019 holds great opportunities.

Meanwhile, Baidu said that Xiang Hailong, senior vice president of the company’s search business, resigned after joining in 2005. Shen Dou, previously head of Baidu’s mobile products, will take Xiang’s place.

Baidu is now putting increased focus on this area. Company CFO Herman Yu said during an earnings call on Friday morning that Baidu’s priority is to strengthen its mobile foundations, which includes growing its search and feed apps, and new AI businesses.

Baidu’s revenue reached RMB 24 billion, a year-on-year increase of 15%. The company saw its online marketing revenue grow by just 3% as it deals with competition from younger players like Bytedance, which operates competing video and news feed products. Baidu has attempted to keep up with its own short video apps including Haokan, which reached 22 million daily active users in March 2019. The company also said that users of its Baidu App grew by nearly 28% year on year.

Baidu expects challenges to its advertising business to continue. “Online marketing in the near term will face a more challenging environment,” Yu said on the earnings call. He attributed this to macro conditions, tighter government scrutiny of content, and investment cutbacks from the venture capital community.

To combat slowing advertising revenue, Baidu has been increasing its focus on cloud computing, artificial intelligence, and autonomous vehicles. The company has also started to recalibrate its business to focus more on enterprise customers. Amid concerns of slowing growth, Baidu this week shut down its education business unit and moved from consumer-facing education services to cloud-based business solutions.

Yu warned that Baidu’s pursuits in cloud computing, autonomous driving, among others, may result in the company sacrificing short term profits. He made similar comments in Baidu’s last earnings release, cautioning investors that Baidu’s diversification would require “heavy investments.”

Another tale of a China internet giant taking a hit in the ed-tech market, Baidu recently shut down its educational business unit amid a round of restructuring and shifted from offering consumer-facing teaching services to cloud-based business solutions.

According to reports from Chinese media, Baidu’s educational business unit, which was originally under the emerging business group (EBG), was dismantled earlier this year. Zhang Gao, former head of the unit and an ex-researcher from Microsoft China, was transferred to Baidu’s search engine business and reports to vice president Shen Dou. EBG was previously led by Baidu’s president of New Business Zhang Yaqin, who announced he would leave the position in October.

In a statement sent to TechNode on Tuesday, Baidu said the current round of restructuring seeks to better integrate resources and promote closer collaboration within the organization. The consumer-facing education services, including file-sharing platform Wenku and mobile e-book platform Reading, are now part of the company’s content ecosystem, alongside mobile search and newsfeed services.

Also, Baidu’s online education service Chuanke will reportedly be closing soon. Baidu acquired the platform in a $30 million buyout in 2014, which was rare in the nascent Chinese online education market, reported local media.

Targeting the vocational training and K-12 tutoring segments, Baidu initially expected immediate traction in the online education market by improving recommendation algorithms to boost sales from its search engine platform.

However, earning success in the online education market requires investment in content marketing and operational staff. “There was something wrong in this technology-led approach,” (our translation) an anonymous employee told local media. The company has discontinued adding new courses to its app since July.

Baidu is not the first Chinese tech giant to struggle in the online education business. Bytedance’s English-tutoring platform Gogokid reportedly laid off hundreds of employees last month due to the high cost of user acquisition and tightened regulations.

The China’s search engine giant now is shifting its focus, offering cloud-based teaching management solutions to schools and tutoring agencies. This part of the business team was combined with Baidu’s artificial intelligence and cloud group (ACG) in this most recent round of restructuring.

It has increased efforts to serve Chinese industry players piling into cloud, and expects to earn sales revenue of RMB 10 billion ($1.45 billion) this year, more than triple the RMB 3.3 billion it earned a year ago, reported Caijing citing an unnamed employee.

Baidu will set up a cloud computing center in Northwestern China’s Xi’an – KrASIA

What happened: Baidu is planning to build a large-scale data center in Xi’an, the capital of Shaanxi province in northwestern China, hoping to serve its clients in the country’s central and western regions. The new cloud computing facility will cover an area of around 84,700 square meters and will be the first data center in west China with the capacity to accommodate 100,000 servers.

Why it’s important: The move is part of Baidu’s efforts get ahead of its rivals by serving industries that are undergoing a technological upgrade and hungry for computing power. In February, Baidu announced plans to construct its second mega-cloud data center in Hebei province. Baidu’s first facility, located in Shanxi Province’s Yangquan City, is said to be the third-largest data center in Asia. According to IDC, Baidu Cloud came in fourth in public cloud market share in Q4 last year. China, which is set to be the world’s largest cloud market, has become a heated battleground for domestic and foreign cloud service providers.

Nobel Prize-winning author Mo Yan, known for unconventional, semi-fantastic novels set in China’s countryside, made an appearance on Thursday at the 2019 iQiyi World Conference in Beijing.

On stage, the 64-year-old writer spoke in sweeping terms about the progress of technology and entertainment over time. “Things that could only happen in mythology now happen in reality,” Mo said. The author, who has faced censorship in the past, also spoke of potentially transforming his words into new forms of media.

Somewhat whimsically, he concluded by imagining a multi-sensory experience where an audience member, viewing a roast chicken on the screen, could also get a whiff of its savory smell. While less ambitious, iQiyi CEO Gong Yu stated earlier in the day that the platform saw potential in pursuing AR and VR technology for the platform.

The appearance of Mo, China’s only Nobel laureate in literature who still resides in-country, seemed to be part of iQiyi’s attempt to bolster its credentials. In 2018, iQiyi attributed a 72% year-on-year increase in subscribers to its sizable investment in original content production. However, it came at a cost. The company, owned by Baidu, reported losses of RMB 9.1 billion (around $1.3 billion) during the same period.

In an interview Thursday, iQiyi CTO Liu Wenfeng said that the company was aiming to control costs so spending was expected to trend downward while scaling its user base. When asked, however, he did not specify a timeline for profitability.

Besides the challenge of monetization, iQiyi faces an increasingly strict regulatory environment. On Thursday, Weibo netizens noticed that a woman appearing on an iQiyi variety show, “Idol Producer,” who had previously worn her hair dyed green was now sporting purplish-black locks, a change apparently made in post-production. Regulators have previously criticized the flamboyant styling choices of TV performers, leading producers to edit footage in order to tone down their hair colors. iQiyi representatives declined to comment to TechNode on the change.

On the same day, iQiyi also denied rumors that it plans to lay off 15% to 20% of its staff in Shanghai, Tencent News reported.

With contributions from Cassidy McDonald and Wei Sheng.

Correction: This article has been corrected to reflect that the woman whose hair color was changed was not an actress on “Idol Producer.”

Using the internet to adapt distribution channels is not limited to fresh produce or cosmetics; some Chinese sellers are capitalizing on the anonymity of the internet to distribute nitrous oxide.

Chinese media reported Monday that nitrous oxide dealers look to connect with buyers via posts on Tieba, Baidu’s bulletin board system (BBS) where users post questions or topics for online discussion, by leaving their WeChat IDs. In an investigation by one media outlet, a seller going by “CP” sold 300 laughing gas canisters for RMB 630 (around $93) on his WeChat stores. As of May 5, 77 orders of Kayser brand cream chargers had been sold, according to the report.

In a Weibo announcement released later in the day, Baidu said it cleared out related posts. The search engine giant added that it is currently gathering information to assist the police. A Baidu spokeswoman told TechNode that the company is still investigating the situation and were not yet releasing details to the public. WeChat owner Tencent did not respond to requests for comment.

Recreational use of nitrous oxide, or laughing gas, is a relatively unknown in China. In May 2017, a netizen named Teng Teng posted an account of nitrous oxide use on Zhihu, a Quora-like question-and-answer platform, detailing how it is consumed and its potential effects on the body. The post also mentioned that it was sold on Alibaba’s online marketplace Taobao as an agent to whip cream, a common commercial use.

Alibaba later announced it had forbidden the nitrous oxide sales on the platform by targeting relevant keywords. However, since buying and selling nitrous oxide is a legal grey area in China, purchasing it for use in certain industries, both online and offline, was technically legal, said the company.

Chinese cyberspace watchdog are intensifying the fight against illegal activities online, shuttering over 33,600 apps and 2.3 million websites in a recent government move in four months beginning in December. Baidu said it had removed 120 million pieces of information as well as 500,000 accounts which were deemed “harmful” from Tieba in 2018, which was largely seen as a response to the government’s sweeping efforts to clean up the country’s cyberspace. In January, the company said it removed 50 billion pieces of harmful information in 2018 as a whole, an 11% increase over the year prior.

Google bans app developer with 600 million downloads for being a fake click factory – The Verge

What happened: Google is banning popular Chinese app developer Do Global, which is partly owned by search giant Baidu and has more than 600 million downloads, from its Play Store after it was found committing ad fraud and abusing app permissions. The company allegedly faked ad clicks to boost revenue. According to researchers, at least six of Do Global’s apps contained code that allowed fake ad clicking that would run even when the apps were closed.

Why it’s important: Nearly half of Do Global’s 100 apps have so far been removed from the Play Store. In addition to abolishing the apps, Google has also moved to stop Do Global profiting from AdMob, the search giant’s mobile advertising platform. Do Global was a subsidiary of Baidu until it was spun off last summer. Baidu now holds a 34% stake in the company. The removals follow similar moves by Google against Cheetah Mobile and Kika Tech, which are also Chinese app developers. However, Google did not ban the internet firms entirely, only taking action against the infringing apps.

Tech giants Baidu and Bytedance on Friday filed lawsuits against each other for unfair competition, with both companies seeking RMB 90 million (around $13 million) in damages and extended public apologies.

The companies filed their respective lawsuits at the Haidian District People’s Court in Beijing. They each also seek 30-day apologies posted to their competitor’s website and app.

Baidu alleges that Bytedance stole a number of its TOP1 search results, a feature that displays relevant information from a Baidu search query without having to click through to get information. For example, if a user searches for the weather forecast, a graphic displaying conditions will be displayed as the first result on a search page.

Baidu said it used anti-counterfeiting measures including watermarking and inserting code into its TOP1 results, which enabled the company to track their usage. The search giant said the allegedly stolen results were used in content aggregator Jinri Toutiao’s newly launched search engine function. “This kind of behavior is a blatant theft of [Baidu’s] technology,” the company said in a statement.

Bytedance told TechNode the company is actively responding to the lawsuit.

Hours after Baidu, Bytedance filed a lawsuit against Baidu for “stealing” videos from its short video app Douyin, media outlet PEdaily reported.

Bytedance found that a lite search app from Baidu named “Jiandan Sousuo,” or “Simple Search” includes a tab for popular videos on Douyin. The Douyin owner added that Baidu erased the watermark on Douyin’s videos to make the “stealing” less conspicuous.

Baidu declined to comment when reached by TechNode.

In its filing, Bytedance stated that Baidu’s search app has “maliciously robbed” Douyin of its rightful users and traffic, which significantly damages Douyin’s operating results. Bytedance also condemned Baidu for increasing the competitive advantage of Simple Search at the expense of Douyin’s growth, calling the gains “unearned” and accusing Baidu of unfair competition.

Launched in July 2017, Simple Search is a search app that looks similar to Baidu.com and is available on iOS and Android. The app promises to never include ads.

Both companies have taken an increasingly litigious stance toward one another. In January, Baidu sued Bytedance, along with professional networking platform Maimai, for RMB 5 million over allegations of defamation and copyright infringement. Two months later, Bytedance vice president Li Liang won a defamation suit against Baidu, in which he said the company posted slanderous material about him on its website and app.

Additional reporting by Tony Xu.

Baidu is reportedly working on a major push into the music entertainment world including developing a music mobile app and several talent competition shows as part of a bigger initiative to capture user attention amid deceleration in its core businesses.

According to 36Kr, the company has formed a small special project team affiliated with Baidu’s content business group. The new team had originally planned to build a music video app similar to Douyin, Bytedance’s popular short video platform. However, this was later rejected internally with the aim to “make something bigger,” 36Kr cited a source as saying.

A reality TV competition is also on the agenda, with which Baidu seeks to achieve success like similar to “Singer,” a Hunan TV reality competition featuring professional singers, or “Produce 101,” a music talent show created by Tencent. The source said Baidu is more likely to outsource the production work given its inexperience in show business, though the project was currently in early stages of planning and could be changed.

A company representative declined to comment when contacted by TechNode.

Baidu was one of the very first tech giants in the country’s nascent online music market after it launched its music search service, Baidu MP3, in 2002. Over the next few years, the musical business achieved huge success, with some reports that it contributed up to a third of total traffic to the search engine. However, it faced harsh criticism from the music industry for allowing users to access a large number of tracks online and even download them for free.

Baidu launched its first copyrighted online music website Ting in 2011 amid tightened government scrutiny, though growth has been slow. According to Chinese research firm BigData-Research, Baidu was the sixth-largest music streaming platform 29.5 million monthly active users (MAU) while top music app QQ Music had 329.6 million, Tencent-owned Kugou had 303.7 million, and NetEase had 156.5 million as of February 2018. Baidu chose to ally with NetEase by investing an undisclosed sum in October, after NetEase Cloud Music began seeking independent financing in April 2017.

California-based autonomous driving startup AutoX has completed a Series A3 funding round backed by Chinese investors as it shifts its focus to promote the use of self-driving technologies in the Chinese commercial vehicle sector.

The funding round in the “tens of millions” was led by Chinese auto maker Dongfeng, and will be used to fund mass production of advanced L4 autonomous driving vehicles in the Chinese market, according to the company. This follows an undisclosed round of financing by another state-owned vehicle giant, Shanghai-based SAIC Motor, in September 2017.

“AutoX, with its expertise in algorithms, provides us with a new way to explore artificial intelligence in the mobility sector,” (our translation) Chinese media reported Liu Fen, an SAIC research director, as saying at the time.

Founded in 2016 by Xiao Jianxiong, a former assistant professor at Princeton University, AutoX focuses on the advanced L4 autonomy technology, meaning the car is capable of navigating itself except in extreme weather conditions. In August 2018, it launched a pilot program in San Jose, California for its grocery delivery business, allowing users to try out ordering fresh produce on its mobile application and receiving goods via self-driving cars.

The financing comes shortly after AutoX established its China research and development center in Shenzhen in January. It is currently testing its self-driving vehicles in the city’s Nanshan district, where Tencent headquarters and a Baidu regional office are located, as shown in a 30-second video sent to TechNode. In an announcement released Monday, AutoX plans to build a Windows-style self-driving system, and commercialize advanced driverless vehicles in partnerships with Chinese auto makers.

Internet giant Baidu is taking the lead in the market for Chinese driverless vehicles, one of the technologies being nurtured by the central government. Baidu took the top spot in terms of mileage in Beijing’s self-driving road tests last year, accounting for more than 90% of the total amount, said local government in a report. Baidu also made alliances with over 135 OEMs and tier 1 parts suppliers with its autonomous driving open platform Apollo, according to CEO Robin Li in a February earnings call.

Baidu president of new business Zhang Yaqin has become embroiled in a class action lawsuit against Chinese electric vehicle manufacturer Nio after he served as a director at the company for three months last year.

Chinasoft International, where Zhang is a non-executive director, said in a disclosure to the Hong Kong Stock Exchange that Zhang had been named as a defendant in the suit against Nio. The legal action was filed in New York, with a similar suit being registered in California. Zhang served as a director at Nio between June and September 2018, according to Chinasoft.

Baidu was not immediately available when reached for comment.

The lawsuits against Nio allege that the company misrepresented itself in its IPO filing and violated US securities laws, resulting in losses for investors. Multiple law firms are currently involved in the New York and California suits, which were filed after Nio made public its fourth-quarter and full-year 2018 financials in early March. The law firms claim that a greater-than-expected slowdown in Nio deliveries let to a drastic decline in the company’s stock price, leading to losses for investors.

Other defendants include Nio CEO William Li, CFO Louis Hsieh, members of the company’s board, and IPO underwriters including Morgan Stanley, Goldman Sachs, and JP Morgan.

A Nio spokesperson told TechNode that the company believes the allegations are without merit and that it would defend itself vigorously.

Nio’s share price dropped by 50% in the three weeks following the release of its earnings. The company identified the lawsuits as a risk factor in its annual report to the Securities and Exchange Commission (SEC) on Apr. 2. Nio said that the company and certain members of its directors and officers had been named as defendants in the lawsuits.

In its financial results, Nio said it expected the slowdown to continue. The company projected that deliveries of its ES8 SUV would fall by more than 50% compared with the previous quarter.

According to a statement by Los Angeles-based Schall Law Firm, investors also incurred damages when Nio backed out of plans to build a production plant in Shanghai. The company initially planned to complete the plant by the end of 2020. Nio currently has a joint manufacturing agreement with state-owned vehicle manufacturer JAC Motors to build its vehicles in the eastern Chinese city of Hefei.

2019 年领英顶尖公司排行榜：中国职场人最向往的企业 – LinkedIn

What happened: Domestic tech firms made up 15 of LinkedIn China’s Top-25 Companies list in 2019, compiled based on feedback from the site’s 40 million users in China, an increase from the eight seen in 2018. Alibaba was again crowned as the most sought-after employer, with Baidu and Bytedance replacing Amazon and Apple for second and third place, respectively. Other tech companies that made it to the top include Nio, Didi, Huawei, and Meituan Dianping. New to the list this year include Tencent, JD, Didi, Ant Financial, Kwai, and Xiaohongshu.

Why it’s important: Chinese tech giants are increasingly popular employers, highlighting the country’s quickly evolving tech scene. The internet and technology industry, widely known in China for its high salaries, paid some of the highest bonuses with an average year-end additional compensation of RMB 8,801 (around $1,311) in 2017. In the past, tech companies attracted headlines by luring top talent with massive bonuses (in Chinese) equivalent to 50 or 100 months’ salary. However, this practice is history now as growth for China’s tech and startup companies is cooling compared with two or three years ago. Tech giants are now slashing employee bonuses and encouraging employees to adhere to the grueling “996” work week, shorthand for a workday schedule from 9 a.m. to 9 p.m., six days a week. A viral Github post about the phenomenon named e-commerce platforms JD and Youzan as two companies that embrace “996.”

Bilibili offering raises $824 million as China techs tap market after IPOs – Reuters

What happened: Chinese video streaming platform Bilibili raised more than $824 million from a convertible bond sale and new share offering as it seeks to fund diversified content offerings. According to an SEC filing released Monday by the company, it initially looked to sell a $300 million seven-year convertible bond and around 17.1 million American depositary shares (ADS), which totaled around $300 million calculated on its closing price on Tuesday ($18.05). The offering’s size was increased because of “overwhelming demand” from investors, Reuters reported citing a banker involved in the deal as saying.

Why it’s important: Just two months earlier, Chinese e-commerce giant Alibaba acquired an 8% stake in Bilibili in an agreement between the two companies to commercialize content-driven e-commerce on both platforms. Despite recording a net loss of RMB 565 million (around $82.2 million) in 2018, Bilibili is one of the few companies to receive investments from both Alibaba and Tencent. The company plans to use most of the funds from this round to expand its content offerings via proprietary productions, licensing, and investment. Also among the handful of Chinese companies that have returned to the market for more funds following 2018 initial public offerings was Baidu-backed iQiyi, which could raise up to $1.2 billion in a convertible bond, one of the largest-ever such sales by a US-listed Chinese company.

China video-streaming firm iQIYI targets raising $1.1 billion in convertible bonds – Reuters

What happened: Chinese video-streaming platform iQiyi plans to raise about $1.05 billion by offering convertible bonds in one of the largest-ever such sales by a US-listed Chinese company, as it seeks to fortify itself financially in the crowded online video market. According to a term sheet obtained by Reuters, the new six-year bond will pay a coupon between 2% and 2.5%. The total size of the deal could reach $1.2 billion, as it also has an over-allotment option for up to $150 million. This is iQiyi’s second convertible bond offering after raising $2.4 billion in its public offering on Nasdaq a year ago. It paid off its $750 million convertible bond obligation with a 3.75% coupon in December.

Why it’s important: The Baidu-backed video-streaming company faces pressure from rivals including Bytedance and Tencent, which have gained an advantage in China’s burgeoning short-video market. IQiyi recorded a net loss of RMB 3.5 billion (around $550 million) in the fourth quarter of 2018, ballooning 470% compared with RMB 612 million losses in the same period a year earlier. The company spent heavily to produce original premium content, further pressuring its margins, according to CFO Wang Xiaodong. Its stock price closed at $24.02 on Monday, nearly half of its record high of $46.23 in June.

Chinese authorities are stepping up efforts to fight online usury, an issue sharply criticized by state-owned broadcaster China Central Television (CCTV) in its recently annual Consumer Rights Day gala.

According to an announcement (in Chinese) released Thursday by National Internet Finance Association of China (NIFA), online financial service providers including Baidu-backed Duxiaoman, Bytedance, and Rong360 were asked earlier this week to conduct internal reviews of their practices. The government-led agency called for complete investigations by companies in the sector in order to eliminate access to “high-interest payday loan” on their platforms.

Online financial platforms were also requested to report non-compliant acts from their business partners, including violent methods of debt collection and invasion of privacy. An NIFA official stressed high-interest cash lending is “strictly forbidden,” adding that member companies should report the results of their inspections by the end of March.

A spokesperson from Duxiaoman responded by saying it does not have any payday loan business on its platform. Bytedance and Rong360 were not immediately available for comment.

The crackdown comes after the recent CCTV report named a list of online money lenders providing high-interest cash loans, dubbed “714 anti-aircraft missile,” to desperate borrowers. The name is a reference to the loan term, which can be of seven or 14 days.

Available through local lending platforms such as Rong 360, and Tiantu, borrowers are charged about 30% of the loan amount, while the rate on an overdue loan could be as much as 10% per day.

In one case, a woman surnamed Dong from Changchun in northern China’s Jilin province, accumulated a debt of RMB 500,000 (around $74,460), up from RMB 7,000 ($ 1,040) she borrowed three months ago. Dong, along with her family and friends, kept receiving harassing telephone calls from debt collectors, according to CCTV.

“Those loan practices are actually not protected by Chinese law and strictly prohibited by regulators,” Guangzhou-based lawyer Zeng Jie posted on social media platform WeChat. Zeng noted local courts only support loans with interest rates of up to 24%. He said that most debtors don’t turn to the courts for help because they are either afraid to do so or are put off by the red tape involved. Zeng called for more government action to be taken on companies offering illegal loans.

Shanghai police said Thursday it arrested nine people suspected to be involved in lending platform that administered illegal funds of almost RMB 1 million earlier this year.

NIFA’s Beijing branch announced Tuesday that it was launching a round of investigations into illegal lenders in the capital that didn’t have government licenses. More than 20 people, including lawyers and accountants, will take part in that probe, according to a report by publication Jiemian (in Chinese).

Baidu unveiled its executive retirement plan on Friday with the aim to invigorate its management team amid slowing ad revenue growth and a shrinking user base.

In an internal letter to employees, Baidu founder Robin Li announced that the company president, Zhang Yaqin, would be the first executive to retire after five years with the corporation.

Retiring executives will be compensated for their willingness to comply with the plan, said Li, who also said that more incentive schemes would be created to “ensure employees work hard with no concerns.”

Zhang joined Baidu as a president in September 2014, mainly responsible for the corporate business side of emerging technologies, including cloud computing, artificial intelligence, autonomous driving, and quantum computing. He was also appointed head of Baidu’s US research affiliate in March 2017. An Institute of Electrical and Electronics Engineers (IEEE) Fellow and Microsoft veteran, Zhang was a corporate vice president at Microsoft’s Asia Pacific technology research operation for a decade before joining Baidu.

Baidu is reshuffling to boost organizational vitality and augment its existing revenue streams. It announced restructuring plans in December to upgrade cloud computing and artificial intelligence services for enterprise clients. This was followed by a round of responsibility re-assignments among corporate executives in late February, Chinese media reported, citing human resources head, Lee Liu.

The search engine giant has lagged peers in the competition for user time spent, particularly younger, digitally native users. Rivals such as Bytedance have posed formidable challenges along multiple user segments. According to internet research firm Trustdata, Bytedance’s short video app Douyin had more than 300 million monthly active users (MAU) in February, nearly four-fold the 79 million users on Haokan, Baidu’s short video service which launched in November 2017.

Correction and clarification: This article has been corrected to reflect accurately Baidu founder Robin Li’s statement concerning the company’s employees. He said that more incentive schemes would be created to “ensure employees work hard with no concerns.” An earlier version of this story incorrectly stated that Li had said that employees should not be concerned about layoffs. This story has also been updated to reflect that Zhang Yaqin had joined the company as a president and not the president of Baidu.  

Baidu, Chery launch electric car with face-scanning payment, AR navigation features – South China Morning Post

What happened: Search giant Baidu has launched a production model electric vehicle (EV) with car manufacturer Chery Automotive, featuring an AI operating system that supports facial recognition payments, augmented reality navigation, and control of home devices while in transit. It also provides personalizations such as driver-specific greetings and automatic seat and light adjustments.

Why it’s important: Chery is looking to attract younger customers by incorporating more advanced technologies into its products, while Baidu accelerates its involvement in the auto sector amid slowing search advertising revenue. The search giant is already well known for its Apollo autonomous driving system and has been named one of China’s AI Champions by the government. It has also increased its investments in electric vehicle startups, most recently leading a $450 million funding round in WM Motor. The company previously invested in Shanghai-based EV maker Nio.

Electric vehicle maker Weltmeister Motor recently closed its RMB 3 billion (around $450 million) Series C led by Baidu, which seeks to increase its self-driving advantages in the country’s EV consumption boom.

The investment will be put primarily toward delivering an enhanced driving experience, including the research and development (R & D) of an intelligent cockpit, according to WM Motor founder and CEO Freeman Shen, in a statement sent to TechNode.

WM Motor has raised nearly RMB 23 billion total in all of its fundraising rounds. Along with Baidu, Series C investors include state-led asset management company Taihang Industrial Fund, as well as Shanghai-based venture capital firm Linear Venture.

Baidu has been backing the homegrown EV maker for years, leading an earlier round of funding totaling $1 billion in December 2017. The two companies announced a joint R & D autonomous driving venture at the Consumer Electronics Show in Las Vegas earlier this year, after WM Motor joined Baidu’s self-driving open source platform Apollo a year ago.

According to Chinese media, Shen said the partnership will accelerate self-driving capabilities in its electric vehicles. The China-based EV firm plans to ship self-driving car models in 2021 with Level 3 automation, a rating from the Society of Automotive Engineers (SAE) for cars that self-drive under certain conditions with full control of safety-critical functions.

Baidu has been upping its efforts in driving technologies that have application potential in public transport. In January the company announced that it would launch 100 self-driving taxis in Changsha, the capital city of central Chinese province Hunan, by year-end. The vehicles will operate on 130 miles of city roads equipped with its V2X (vehicle-to-everything) technology.

Baidu CEO Robin Li stated during the company’s fiscal year 2018 earnings call in February that its autonomous driving platform, Apollo, had been granted a license for driving tests in more than 50 provinces and municipalities in the country. “Apollo has garnered over 135 OEMs, Tier 1 parts suppliers, and other strategic partners to date.”

字节跳动上线了搜索业务，不再满足于做内容分发平台 – Jiemian

What happened: Media giant Bytedance has updated the search function in its content aggregator Jinri Toutiao, enabling users to access content outside the app with the built-in search bar, media outlet Jiemian reported. The new feature is an extension of the company’s “information creates value” slogan, Bytedance said. Jinri Toutiao marks search results from external websites with a “external” sign next to the name of the website. In-app searches have been available in Jinri Toutiao since Jan. 16.

Why it’s important: The new search feature puts parent company Bytedance in direct competition with Baidu, which dominated the Chinese search engine landscape since Google’s exit in 2010. With Baidu facing consumer criticism and a deteriorating brand image for promoting low-quality content, Jinri Toutiao could prove to be a strong challenger. Though it is still in the testing phase, the new search function could leverage user data Bytedance has at hand and help the company further monetize Jinri Toutiao’s traffic by redirecting users to sponsored results in the app.

At the forefront of political discussions this year in Beijing, a few key themes stand out: artificial intelligence, 5G and US-Sino relations.

Considered the largest event on the Chinese political calendar, China’s annual meeting of top legislative and political advisers, dubbed the Two Sessions, kicked off Sunday in Beijing.

More than 3,000 delegates from the two bodies—the National People’s Congress (NPC), the country’s top legislature, and the Chinese People’s Political Consultative Conference (CPPCC), an advisory body—will attend the plenary sessions over the coming two weeks.

A number of founders from Chinese leading internet companies flocked to the capital for the annual review and planning of government work. Some tech titans have been members of the two political bodies for years, among them Tencent’s Pony Ma, Baidu’s Robin Li, and Xiaomi’s Lei Jun.

Chinese media Yicai reported that Tencent CEO Pony Ma, who is also a representative of NPC, called on the central government to accelerate the deployment of 5G in China, and pushed for broader adoption of Internet Protocol IPv6, the most updated IP protocol.

More rapid networking services could have a profound impact on a number of sectors in the real economy, including manufacturing, finance, and healthcare, and could serve to bring increased productivity and value-add to China’s digital economy, Yicai report cited Ma as saying.

Xiaomi’s Le Jun, who is also an NPC representative, advocated the promotion of 5G-enabled applications, specifically self-driving and connected vehicles, as well as internet of things (IoT) and data analysis in the public health system on a large-scale basis. Such 5G commercialization would push China’s public transport on a fast track of digital and intelligent transformation, Tencent Tech (in Chinese) cited Lei as saying.

Baidu CEO, Robin Li, who is a CPPCC delegate, asked for projects to be established to pilot intelligent traffic lights and parking services, according to state-owned Securities Daily. Li also urged the central government to participate in top-level discussions of an AI ethics framework. 

On the issue of Sino-US relations in the field of technology, Hong Kong publication, the SCMP, reported Li as saying that while there was some competition in artificial intelligence between the two nations, there were also plenty of cooperation opportunities. “We do hope the two countries will not engage in a protracted trade war and instead engage in more collaboration and healthy competition,” SCMP cited Li as saying.

China’s tech billionaires back ethical rules to guide development of AI and other technologies – South China Morning Post

What happened: The CEOs of two of China’s biggest tech companies have stressed the importance of rules governing the ethical development of artificial intelligence (AI). Baidu’s Robin Li and Tencent’s Pony Ma submitted separate proposals to China’s “Two Sessions,” an annual gathering of the country’s lawmakers and political advisors, calling for officials to emphasize ethics in AI innovation.  Li urged the government to consult experts in the field and called for China to participate in the global dialogue on emerging rules governing the technology.

Why it’s important: The Chinese government is betting on technological innovation, including that afforded by artificial intelligence, to drive the country’s economy. Companies have been adopting AI in ever-increasing ways, including product recommendations, news aggregation, and surveillance, bringing the emerging technology into the spotlight. Li said that AI’s rapid development has sparked concerns among the public. Regardless, its proliferation will continue as China pushes to reach its goal of becoming a leader in AI by 2030, while simultaneously increasing its focus on high-tech industries through its Made in China 2025 initiative.

在百度搜索部分小学和幼儿园，会被导向色情网站 – News Lab

What happened: Entries in Baidu’s online encyclopedia, Baidu Baike, contained a link in the reference section that redirects users to a pornographic website, reported WeChat news account News Lab. The link appeared in nearly 40 entries about kindergartens and primary schools located in the southern Chinese city of Guangzhou. The link sends users to a website that once hosted education-related content but now hosts pornographic videos and can be accessed without a VPN. Baidu has since removed the link from the affected entries and pledged to review content on Baike more frequently.

Why it’s important: This latest incident may further degrade Baidu’s brand image, which has deteriorated in recent years for ad placement-related issues. Baidu has also faced consumer backlash for promoting its own results and low-quality content. Content regulators also continuously pressure the search giant over vulgar content;  the company has said in response that it removed more than 50 billion pieces of “harmful” information in 2018.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

(Can’t see the player? Check out the podcast on iTunes)

In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull discuss ByteDance allegedly asked to IPO on Shanghai’s tech board, gaming regulations (again!), Blackrock upping its stake in JD and Baidu & iQiyi’s Q4’2018 earnings.

Emma Lee joins to discuss and add Meituan-Dianping (HKEx: 3690) to our watchlist. Emma Lee is a Shanghai-based tech writer, covering startups and tech happenings in China and Asia in general.

The discussion should not be construed as investment advice or a solicitation of services. Please note, the hosts may have positions in the companies discussed. 

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan Dianping (new!)

Guests:

• Emma Lee – @EmmaLee12345

Hosts:

• Elliott Zaagman – @elliottzaagman
• James Hull – @jameshullx

Producer

• Peter Isachenko

Podcast information:

• iTunes
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

Search giant Baidu has faced mounting challenges to its consumer-facing businesses, as the Chinese government cracks down on online content and trust in its search and aggregation services among consumers wanes.

Nonetheless, the company on Friday reported solid revenue growth in the fourth quarter, while net income fell 50% year-on-year as the company sought to expand its content, artificial intelligence, and cloud computing offerings.

Total revenue reached more than RMB 27 billion (around $4 billion) during the quarter, up 22% year-on-year, but slowed compared with the same period last year.

Operating income slid 77% as the company increased spending on content, which included shows and films on video-streaming site iQiyi. Other expenses included those related to research and development, traffic acquisition, and promotional activities—including its “red envelope,” or hongbao, campaign over Chinese New Year.

“The diversification of Baidu’s business from mobile internet to the smart home, smart transportation, cloud, and autonomous driving markets will require heavy investments,” Baidu CFO Herman Yu said in a statement.

These investments, along with slowing quarterly growth in Baidu’s online marketing business, represent a broader turn from the consumer market as the Chinese economy sees its most significant slowdown in nearly 30 years. Rivals Tencent and Alibaba have also increased their focus on enterprise, while all three companies have restructured to counter challenges in the consumer sector—including increased regulation and competition in the content market.

In a note following Baidu’s earnings, Bernstein analyst David Dai listed declining users of the company’s search platform and advertisers migrating away from search, among others, as possible loss-making risks.

“We have entered a new stage in China’s internet where the population and penetration dividend has gone,” Baidu CEO Robin Li said during an earnings call on Friday.

Eyes on AI

In December, Li announced plans to restructure Baidu, upgrading its Artificial Intelligence and Cloud Computing Unit into a business group, as the company seeks to increase its focus on enterprise customers.

Following the move, Li told employees in an internal memo that the Chinese economy had “shifted to a lower gear,” and that the country’s firms were under “severe pressure from nationwide economic restructuring.” Li called for Baidu employees to decrease costs and improve efficiency for its business clients.

While the opportunity to pivot to enterprise-facing applications was always there, Chinese tech companies have been given an extra incentive following the slowdown in consumer spending, analysts told TechNode.

To boost revenue, company executives have been looking to deploy Baidu’s AI technologies beyond its consumer-facing search, feed, and smart assistant businesses to enterprise and government-led initiatives—including intelligent transportation and smart city projects. Baidu has already partnered with the municipal governments in Shanghai and Xiong’an, in the northern province of Hebei, among others, to provide their AI and cloud computing services to increase efficiency within urban areas.

“With the support of local governments, we see commercial opportunities to minimize traffic congestion, reduce pollution, and improving road safety,” Li said on the earnings call.

The company is also focused on self-driving vehicles. In 2018, China’s central government named Baidu one of five Chinese “AI Champions,” tasking it with spearheading the country’s autonomous driving development. In January, Baidu released a significant update to its self-driving platform, Apollo, enabling autonomous vehicles to navigate “complex urban and suburban environments.” At the same time, it also unveiled its Apollo Enterprise platform, designed for AVs that have been pegged for mass production.

Its Apollo program has been granted over 50 licenses for road testing in Chinese cities, including Beijing, Tianjin, and Chongqing. This year Baidu will roll out a fleet of robotaxis in the central Chinese city of Changsha.

Difficulties in the market

China’s internet regulator, the Cyberspace Administration of China (CAC), has targeted online service providers as part of a broad crackdown on “vulgar” content. The move has prompted Chinese tech companies to employ legions of moderators that they attempted to keep up with increasingly strict regulations.

Baidu hasn’t been immune to the campaign. Last month, the company said it had removed more than 50 billion “harmful” pieces of information in 2018, up 11% compared to the previous year. Baidu said the removals included content relating to pornography, drug use, gambling, and fraud. According to an annual content management report, the company intercepted 1,500 pieces of information per second.

But it wasn’t enough to appease regulators. In the same month, the CAC ordered Baidu, along with Sohu, to suspend a number of their news services for a week as part of a six-month campaign to clean up the Chinese internet. The company and the regulator didn’t provide further details.

Baidu has also faced scrutiny for its ad placement, leading to waning trust in the company’s search results following a 2016 incident in which a 21-year-old college student died of cancer due to ineffective treatment he had found through ads in Baidu search results.

This was followed by a similar incident last year. An internet user from Shanghai was directed to what she thought was the reputable Fudan University hospital through Baidu’s search results. She underwent an operation that cost tens of thousands of RMB at a similarly named institution. Following the procedure, she found her ailment could have been cured by medication costing RMB 200.

“I would see public sentiment as the biggest challenge Baidu faces,” International Data Corporation research manager Xue Yu told TechNode in an email, adding that difficulty in acquiring new users has increased the company’s traffic acquisition costs. “The negative impression of Baidu’s brand is still a major concern when people use apps,” he said.

The company was again subject to censure in January after it was accused of promoting its own results and low-quality articles on its content aggregator Baijiahao by Chinese journalist Fang Kecheng.

“Baidu no longer plans on being a good search engine. It only wants to be a marketing platform,” Fang wrote in an article. Baidu responded by saying that it would continue to improve its search results and content aggregator. The company also said just 10% of its results come from Baijiahao.

On Thursday, video-streaming platform iQiyi released fourth quarter and full year results for 2018, posting a loss of RMB 9.1 billion ($1.3 billion) in 2018, ahead of analyst expectations, with subscriber revenue driving growth. Memberships reached 87.4 million, representing 72% growth year-on-year and revenue surged as a result, rising 52% this year to RMB 25 billion ($3.6 billion) compared with a year ago.

“Membership business continued to be the main engine driving our growth, while we further broadened and diversified other revenue streams,” said CFO Wang Xiaodong. He added, “2018 was also a transition year for us, as we devoted more resources towards producing original content which added pressure to our margins.”

Original content helps lure paying subscribers, said CEO Yu Gong, amid a general shift in internet user behavior toward accepting paid content.

iQiyi reveals user numbers and net loss since inception in IPO filing

Fourth quarter results were in line with the full year, with revenue rising more than 50% compared with the same period a year earlier driven by income from subscriber services. Advertising revenue grew more slowly as economic headwinds weighed.

Parent company and search giant, Baidu, also saw a deceleration in online marketing revenue, it said in its fourth quarter and full year earnings release from the same day, as net income in the fourth quarter fell 50% year-on-year.

“Baidu’s Q4 earnings beat expectations, with solid growth driven by the company’s investments in AI, Cloud and video service, iQiyi. As the last few quarters have indicated, uncertainties about the Chinese economy seem to be slowing down their advertising business,” said eMarketer analyst Oscar Orozco in an email.

For the first quarter of 2019, iQiyi forecasts net revenue of RMB 6.8 billion to RMB 7.1 billion ($990 million to $1 billion) with memberships continuing to drive growth as the company maintains its focus on producing original content.

As I wrote previously, China’s digital economy has reached a turning point.

Before, new user growth could offset digital businesses’ strategic and commercial missteps. Double-digit or triple-digit MAU growth could mute criticism of flimsy unit economics, absent strategy, dodgy investments, or lackluster monetization efforts.

Now, internet user saturation within China’s consumer class makes it harder to avoid scrutiny with eye-popping user growth. Companies like Meitu, JD, and Zhihu are facing tough questions: shareholders and investors want to whether these platforms can turn their impressive scale into profits.

Weaker players might have a hard time meeting impatient investors’ demands for return on investment, but China’s digital giants are adapting. They are repositioning themselves to adjust to new market dynamics, developing strategies to take advantage of enduring opportunities as mature businesses.

Previously, China’s internet companies grew by latching onto investment frenzies in a particular product or industry vertical, known as fengkou (literally “a gap where a strong wind blows”) in Chinese startup lingo. These rapid influxes of capital and speculative behavior are so notorious that leading Chinese executives have joked that investors could pump in enough money to make pigs fly.

Investment frenzies have reshaped markets, delivered exponential growth, and minted some of China’s internet success stories. Meituan, Didi, and VIPKID were built off all the back of them. These companies identified white space, shaped user behavior, and benefited from oodles of capital to achieve scale and outlast a slew of competitors to win winner-take-all or winner-take-most positions. However, as the mobile internet’s white space shrinks, these investment frenzies are more volatile and less conducive to value-creation.

The recent struggles of live-streaming, bike sharing, and automated convenience stores illustrate the danger of relying on speculative investment flows. My own analysis estimates 80% of live-streaming players with Series-A funding didn’t last two years. ofo, a bike-sharing firm, has gone from a $2 billion valuation to the verge of bankruptcy. There are now serious doubts that Bingo Box, the automated convenience store darling backed by GGV Capital, can survive long enough (Chinese link) to make a meaningful dent in China’s retail landscape.

Six durable white spaces

China’s digital giants—Baidu, Alibaba, Tencent, Bytedance, Meituan, Didi, Pinduoduo, and JD—are looking for something more durable than spaghetti-against-the-wall investment flows.

When they first burst onto the scene, today’s digital giants were a thin, interfacing layer between consumers, products, services, and attention. Now, being a thin, interfacing layer isn’t enough. The giants are making themselves thicker in a way that adds new users, gives depth to existing offerings, deepens competitive advantage, and creates new revenue streams.

The giants are pursuing six avenues to growth:

New Tech R&D: China’s digital giants can develop or apply technology to existing or new operations. Leading players, such as Baidu, Tencent and Alibaba are developing leading capabilities in artificial intelligence, big data, and cloud computing.

Industry digital transformation: They can also offer new products and services to industry. Having shaped consumers’ digital behavior, China’s digital giants are lining up to lead the digital transformation of traditional industries such as retail, hospitality, tourism, and agriculture, packaging software and platforms as services.

Overseas expansion: They can seek growth overseas. China’s digital giants consider themselves well-placed to service mobile-first emerging markets, such as India and South-East Asia. These markets also have the growth prospects associated with relatively low existing internet user penetration.

Lower-tier cities: They can develop products, services and experiences for consumers in lower-tier cities. The stunning rise of Pinduoduo, Qutoutiao, and Kuaishou have shown that existing e-commerce, news, and entertainment apps don’t always meet the needs of users in China’s populous third, fourth, and fifth-tier cities.

Local services: They can further penetrate and digitize food, accommodation, shopping, and transportation markets. The size of the local services market and its potential for further digitalisation means the competition between “super-apps” like Meituan, Ele.me, Didi, and Alipay is just getting started.

New mediums: They can also explore new ways to search, connect, shop, and get informed. Innovations in newsfeeds, multimedia messaging, gamified reading and social commerce present opportunities to unseat incumbents in search, social media, and e-commerce.

Who’s playing where

Each of China’s digital giants has restructured in the last two years. That’s no coincidence. China’s digital giants are re-orienting themselves for future growth. If you cross-reference each restructure’s relationship to the above growth directions, you get a pretty good sense of who’s playing where for future growth.

Alibaba and Tencent’s investments, products and proxies will fight for market share across all six growth avenues.

Baidu continues its push to be relevant beyond search through artificial intelligence investments and applications.

Bytedance plans to take its content creation and recommendation products into lower-tier and overseas markets. At the same time, its recent tinkering with e-commerce integration and social messaging shows that it’s thinking about next-generation video commerce and social media.

Meituan hasn’t abandoned its ambition to be a super-app but has doubled down on services to restaurants and retailers on its platforms, with new features like order-management systems.

JD will strengthen its core business through investments in smart logistics, expand its offline retail partnerships and open up its logistics network to third parties.

Didi’s quest to become the world’s largest transport platform in 10 years continues unabated with overseas expansion, investments in developing markets’ ride-hailing services and autonomous driving tests.

Pinduoduo, China’s newest force in e-commerce, will improve merchant quality and test the upper limits of user growth.

As China’s digital economy has reached a turning point, China’s digital giants haven’t stood still. They’re seeking out durable sources of future growth. In so doing, they’ve set the stage for a new wave of intense competition.

The success of China’s commercial artificial intelligence and semiconductor markets will have a direct impact on the country’s geopolitical and military power, according to a new report.

The report, published on Feb. 6 by US think tank the Centre for a New American Security (CNAS), said that the technologies could insulate China from economic or political pressure from the US while increasing the “technological capabilities available to China’s military and intelligence community.”

“… China’s success in commercial AI and semiconductor markets brings funding, talent, and economies of scale that both reduce China’s vulnerability from losing access to international markets,” the report said.

China has set ambitious goals for the development of AI and other hi-tech industries. The country plans to move to a high-value economy through its Made in China 2025 initiative by developing its autonomous and electric vehicle, semiconductor, robotics, and aerospace sectors. The State Council, China’s cabinet, has also laid out plans for the country to become a world leader in AI by 2030.

Infographic: How four tech giants dominate China’s AI endeavors

According to the CNAS report, China has already shrunk the gap between Chinese and international AI and semiconductor companies. It added that the country should hold a defensible technological position in AI over the next five years as long as there are no significant shifts in US policy aimed at increasing competition.

Civil-military integration is a cornerstone of China’s national AI strategy, wrote Gregory Allen, report author and adjunct senior fellow at CNAS’ Technology and National Security Program, highlighting the extent of the cooperation between the private sector and the country’s military.

Citing China’s National Intelligence Law, Allen said that China’s tech companies are legally required to cooperate with China’s military and state security organs, in effect, giving the military access to emerging technologies developed by the private sector.

In 2018, China’s central government named search giant Baidu, e-commerce company Alibaba, social media and messaging firm Tencent, voice recognition company iFlytek, and computer vision startup SenseTime the country’s “AI champions.” Citing Sensetime executives, Allen said that the position gives the five companies assurance that they will not be threatened by competition from state-owned enterprises.

“The price of Sensetime and the other AI Champions being allowed to dominate these technologies is the Champions’ extensive cooperation with China’s national security community,” Allen wrote.

Editor’s note: A version of this originally appeared on Radii, a new media platform covering culture, innovation, and life in today’s China.

Amid all the headlines about dystopian doomsday scenarios and mass surveillance of the populace, it can be easy to lose sight of the fact that in some instances AI and facial recognition can be put to positive uses. A cuddly case in point: Chinese internet powerhouse Baidu has created an AI cat shelter.

The shelter, which comes complete with toys, regular dispatches of food and water, and warm spaces to sleep, features feline facial recognition to grant access. It can also check its guests for various diseases and assess whether or not they’ve been neutered. If it identifies a sick cat, a message is sent to a nearby volunteer organization that looks after stray animals to come and administer the required help.

The project was instigated by Baidu employee Wan Xi after he discovered a small cat sheltering under his car last winter. After taking the cat to a vets, he resolved to use his technological know-how to help improve the situation for other strays.

Baidu’s development is an especially impactful one for northern China’s cat population, with sub-zero temperatures and the difficulty of obtaining food leading Dongbei News to estimate that just 4 in 10 stray cats make it through the winter in the country’s northeastern regions. And you don’t have to ximao (literally “inhale cats”; a Chinese slang term that likens affection for felines to a drug addiction) to be on board with Baidu’s mission to help change those statistics.

But that’s enough text — bring on the cute cat pics/gifs: