Level Infinite, the overseas gaming distribution arm of Tencent Games, announced on Thursday that it has launched a global version of its hit mobile game Honor of Kings in a swathe of new international markets including Japan, South Korea, North America, and Europe.

Level Infinite stated that Honor of Kings has now established a global service network and supports 14 languages to enhance the gaming experience for players around the world.

Why it matters: The most profitable title from Tencent Games, Honor of Kings is already the world’s biggest multiplayer online battle arena (MOBA) game according to the company, with a global launch somewhat overdue. Honor of Kings maintains a daily active user base of 100 million, the company said.

Details: TiMi Studio, a subsidiary of Tencent Games, originally released Honor of Kings in China in 2015. The latest development means it is now available globally in more than 160 countries. 

• Honor of Kings is a competitive MOBA title where players choose from a diverse line of heroes, each with unique skills, to engage in strategic team battles. To celebrate the global release, the game introduced Lu Yana, a new hero exclusive to the global edition. Currently, a total of 85 characters, of which 28 are free to use, are available to global players.
• The design inspiration for Lu Yana comes from the mysterious Latin American legend of Boitata, according to the game team. The first region-themed exclusive hero was born after in-depth discussions with local gaming experts, they added. Boitata is a mythical creature from Brazilian folklore, often depicted as a giant serpent or dragon that emerges from bonfires and protects the forests.
• At time of writing, Honor of Kings topped the free-download game chart in 10 countries or regions, securing a spot in the top 10 of 25 countries’ free-download gaming charts, local gaming media outlet GameLook reported today. The ten countries or regions where it tops the charts are Canada, the Philippines, Brunei, Myanmar, Singapore, Cambodia, Malaysia, Indonesia, Bolivia, and Bermuda. Additionally, in terms of free-download mobile games, the game ranked second in the US, fourth in Japan, and eleventh in South Korea.
• Tencent Games has deployed dedicated servers in every country or region to ensure low latency and optimal game performance, the same GameLook report revealed. Due to regulatory constraints, Honor of Kings cannot achieve global cross-server play between Chinese and global versions. However, Chinese players can authorize migration of their data when logging into the global version.

Context: In the first quarter, Tencent’s revenue from the overseas gaming market increased by 3% year-on-year to RMB 13.6 billion ($1.88 billion), while revenue from the domestic gaming market decreased by 2% year-on-year to RMB 34.5 billion ($4.77 billion). 

• In 2023, Honor of Kings reached nearly $1.48 billion in in-game revenue, making it the highest-grossing mobile game of the year for Tencent Games, according to market intelligence firm AppMagic.

Tencent on Thursday launched an AI assistant app called Yuanbao, signaling the Chinese tech giant’s belated entry into the highly competitive artificial intelligence assistant field with an independent entry based on the company’s Hunyuan foundation model.

Yuanbao integrates artificial intelligence-based search, summaries, and writing competencies, and can be used to analyze documents, and basically engage with people based on prompts.

Why it matters: The opening of the independent app shows that Tencent has finally chosen to face competition head-on, several months after AI offerings from its rivals. Baidu’s ERNIE Bot has already amassed 200 million users, while ByteDance’s Doubao currently boasts over 26 million monthly active users.

Details: Tencent’s Yuanbao distinguishes itself from Baidu, Alibaba, and ByteDance’s products by offering direct access to content from the WeChat ecosystem, the company’s super app with nearly 1.4 billion monthly active users, which the firm says will give it superiority in terms of content timeliness and richness.

• WeChat, the all-in-one app, features a fan page functionality similar to Facebook’s, known as Official Accounts, where individual creators or enterprises can publish articles or information to subscribed users. The content cannot be directly accessed through mainstream search engines such as Baidu.
• Since its launch in September 2023, the parameter scale of Tencent’s Hunyuan large model has been upgraded from hundreds of billions to trillions, according to Tencent, and the pre-training corpus has increased to 70 trillion tokens.
• Based on the published guidelines of the Yuanbao app, the consumer-oriented assistant currently offers multiple AI agents, similar to GPTs, which can be selected for various functions, including English-speaking practice, daily life translation, and avatar generation.

Context: Last week, Tencent announced that it had made the lite version of its Hunyuan model free to access, while the price of its more powerful version has been reduced by 50% to 87.5%, as the firm joined a fresh price war among major Chinese tech companies.

• Tencent’s announcement comes just hours after iFlytek said its SparkLite API would be permanently free. In an interview with TechNode at the BEYOND Expo 2024, the firm’s vice president Wang Wei mentioned that the decision was made because “iFlytek should have a sense of social responsibility as a major company by making [AI] technology available for broader applications.”

On Tuesday, Chinese tech giant Tencent released its earnings report for the first quarter of 2024, which ended on March 31. Tencent’s revenue from the international gaming market increased by 3% year-on-year to RMB 13.6 billion ($1.88 billion) during the period, while revenue from the domestic gaming market decreased by 2% year-on-year to RMB 34.5 billion ($4.77 billion). Tencent attributed the domestic year-on-year decline to the impact of deferred revenue.

Why it matters: Over reliance on older hits such as Honor of Kings and Peacekeeper Elite may have led Tencent Games to stagnation, reduced player engagement, and increased its vulnerability to competitors launching new, innovative games. The lack of new hit titles from Tencent may risk diminishing the firm’s long-term growth and revenue potential in a rapidly evolving gaming market.

Details: Tencent’s gaming revenue totaled RMB 48.1 billion ($6.66 billion) in the first three months of 2024, marking a 17.6% increase quarter-on-quarter and a 0.41% decrease year-on-year. A yearly revenue drop but a quarterly rise may signal seasonal trends and indicate the company’s recent improvement in performance despite broader market challenges, including intensified industry competition, economic instability, and declining consumer demand.

• “During the first quarter of 2024, several of our leading games in China and internationally started to benefit from team reorganizations we put in place,” Tencent CEO Ma Huateng said in the financial report, “resulting in an increase in games’ gross receipts and creating a foundation for our games revenue to resume growth in future quarters.”
• In the first quarter, Honor of Kings and Peacekeeper Elite, two of Tencent’s flagship games, experienced a year-on-year decline in revenue. Tencent blamed this on a high base from the Chinese New Year period last year for the former, and weaker commercial content in the second half of 2023 for the latter. However, both games saw a year-on-year revenue increase in March.
• During the quarter, several domestic games achieved their highest-ever gross totals, with titles such as Fight of the Golden Spatula, CrossFire Mobile, and Arena Breakout leading the way, according to the company. Recently released overseas games, including VALORANT and Lost Ark, both exhibited robust growth, the firm said.
• Supercell, a Finnish game development company that Tencent acquired in June 2016, experienced growth in both usage and gross receipts in the overseas gaming market during the reporting period. The multiplayer online battle arena shooter game Brawl Stars’ daily active users more than doubled compared to the previous year, while gross receipts more than quadrupled year-on-year internationally for the title.

Context: In the first quarter, Tencent’s total revenue reached RMB 159.5 billion ($22.08 billion), reflecting a 6% year-on-year increase, while adjusted net profit amounted to RMB 50.27 billion ($6.96 billion), showing a notable 54% year-on-year growth.

• In the first quarter of 2023, Tencent’s revenue from games reached RMB 48.3 billion ($6.9 billion), up 11% up year-on-year. Tencent’s domestic gaming revenue during the period rose 6% year-on-year to RMB 35.1 billion ($5 billion), while its overseas gaming revenue rose 25% to RMB 13.2 billion ($1.8 billion).

The past year has seen Tencent’s TikTok-like short video service “deliver the expected results,” chairman and chief executive Pony Ma said at the tech titan’s annual staff meeting on Monday, while reaffirming his confidence in the company’s long-term development despite the sluggish general market.

Why it matters: In contrast to his sharp-tongued speech a year ago, where the emphasis was on cost-cutting, Ma’s more positive comments this year signal that he seems to think the company has overcome its challenging times.

Details: A year after Ma positioned WeChat Channels as Tencent’s major hope for the future, he said that the short video-sharing function has brought “lots of surprises” and committed to fully supporting livestreaming-based commerce in 2024. 

• In a half-hour speech that struck a positive tone, Ma mentioned recent news of Tencent buying land in the Haidian district of Beijing at RMB 6.42 billion as a “careful and calculated decision” due to the steady growth of the firm’s businesses. 
• Boasting 1.3 billion monthly active users, WeChat stands as the most powerful messaging app in China and comes with a flurry of social connecting features, but the app’s 12-year-old history gives Ma “great pressure,” especially as QQ, Tencent’s once-popular platform, undergoes a crucial transformation after 12 years in operation. Ma has called for WeChat, “the old tree”, to “sprout new shoots”.
• Ma also stated that Tencent’s current holding of the title of the world’s largest game vendor feels like “relying on the credit of our [previous] successes.” This sentiment comes amidst challenges from peers releasing new titles and the company’s relatively underwhelming offerings when it comes to fresh games, according to local media outlet Jiemian.

Context: Tencent shares have suffered in the past year but have not seen as big a slump as those of its Chinese internet peers, with the firm seeing a 16% decline in the value of its Hong Kong-listed shares. The company’s largest shareholder, South Africa-headquartered Naspers, added to the downward trend by cutting its stake in Tencent to less than 25% through frequent share selling in 2023.

Last week’s global launch of Papergames’ Love and Deepspace, a title touted as the first otome game to feature 3D modeling, has sparked a battle over the female-focused romance games market, with China’s major gaming companies weighing in with a raft of special offers and promotional events.

Otome games are typically targeted towards female players, with the Japanese term translating to maiden or young lady. The games often involve a female protagonist who interacts with male characters, and the gameplay focuses on developing romantic relationships with one or more of these characters.

Why it matters: Having previously found success with otome game Mr. Love: Queen’s Choice, Papergames’s new title aims to provide players with a more realistic interactive experience through its iterative improvements in 3D character modeling. The release has sparked intense competition in the sector.

Details: On January 18, the day Love and Deepspace launched, China’s major domestic gaming companies all unveiled new promotional activities within their respective otome games. Light and Night from Tencent Games, HoYoverse’s Tears of Themis, and For All Time by NetEase Games are among the genre’s most popular titles, alongside Papergames’ Mr. Love: Queen’s Choice.

• On the day of the Love and Deepspace’s release, a trending hashtag #0118决战国乙之巅# (Battle for the Peak of Chinese Otome Games on January 18) appeared on China’s Twitter-like platform Weibo. Posts under the hashtag listed the various promotional activities and benefits of domestic otome games, as Chinese players expressed their excitement over the developments.
• In order to compete for potential new players, NetEase’s new otome game Beyond the World, originally scheduled for a public beta release on January 26, announced on January 16 that it would bring its open testing period forward to January 18. NetEase also offered various in-game promotional events and benefits that were similar to those available in Love and Deepspace.
• Also coinciding with the Love and Deepspace’s launch, Tencent Games held its largest celebration event for the Light and Night since its launch in 2022, showering players with free benefits. Players can even receive animated video calls from game characters as part of the new offerings. Furthermore, Light and Night announced an ancient-style gacha event, a gameplay mechanic where players spend in-game currency to obtain random rare virtual characters. 
• Love and Deepspace had already received over 14 million pre-registrations before its official release, according to Papergames. At time of writing, the game is in the top ten iOS free-download games in the Chinese region. The game’s estimated revenue from iOS on the first day reached RMB 5.27 million ($740,000), while iOS downloads amounted to 890,000 during the same period, according to market intelligence firm DataEye.

Context: Otome games are popular in Asia due to culturally resonant narratives, attractive character designs, and targeted marketing towards female players. They align with animated gaming trends in the region, providing escapism through romantic fantasy scenarios.

• According to Qimai Data, Mr. Love: Queen’s Choice, generated a revenue of RMB 760 million ($108 million) in 2023.
• In September 2023, SensorTower released its State of Mobile Games Preferred by Women insights report (in Chinese), stating that the annual revenue for 2023 from female players was expected to exceed $16 billion.

On Jan. 13, Tencent announced that its hit game Honor of Kings would resume livestreaming on Douyin (China’s TikTok sibling) five years after it was banned following a copyright infringement case. In 2016, Tencent sued ByteDance for livestreaming the online game on its subsidiary video platform Xigua. In 2019, a court ruling in Guangzhou stated that ByteDance platforms were prohibited from livestreaming Honor of Kings without Tencent’s permission.

Why it matters: The return of Honor of Kings to Douyin signifies a further thawing of the relationship between Tencent and ByteDance. Tencent has been gradually lifting restrictions on ByteDance, as its competitor has begun scaling back its gaming interests in recent months.

Details: Tencent’s Honor of Kings is expected to start livestreaming on Douyin on Jan. 21, with game streamers invited to participate in the splashy return, as announced on the game’s page on China’s Twitter-like platform Weibo.

• Tencent Games plans to conduct testing of Honor of Kings on Douyin from Jan. 14 to Jan. 17, aimed at avoiding technical issues that may arise during the first live broadcast. From Jan. 18 to Jan. 20, Honor of Kings will host various game-themed activities on Douyin, with invited gaming influencers heading livestream sessions and handing out in-game benefits.
• A gaming industry insider said Tencent’s efforts to reconcile with Douyin stem from a noticeable slowdown in Tencent’s gaming revenue growth since 2022, according to Sina. New player growth and revenue for Honor of Kings have been weaker than in previous years, leading to immense pressure on Tencent’s gaming team, the insider said. 
• Another of Tencent’s hit games, PUBG Mobile, has also seen a decline in users, but there are currently no other new hit games to make up for the loss, the same insider added. In December 2023, Tencent released DreamStar, a new party game with the potential to challenge its domestic rival NetEase’s Eggy Party. At this stage it remains uncertain if it will emerge as the firm’s next hit game.
• Both parties may seek further collaboration in the future, as ByteDance has the potential to work with Tencent in areas including joint operations and distribution partnerships, according to the same Sina report. Douyin currently plays a crucial role in the gaming industry in China as a major channel for advertising and new player acquisition, and Tencent cannot afford to ignore it, the Sina report said.

Context: On Jan. 9, TikTok owner ByteDance said it was engaged in discussions with various potential buyers, including Tencent Games, for its gaming assets, according to Reuters. The two giants are discussing a deal involving major games published by ByteDance’s gaming unit Nuverse, as the TikTok owner looks to step back from the gaming industry.

• In November 2023, ByteDance unveiled plans to scale down its Nuverse gaming unit and sell related gaming assets in a strategic shift away from the gaming industry.
• Honor of Kings, a hit multiplayer online battle arena (MOBA) game, generated nearly $1.48 billion in 2023 for Tencent, but saw a notable decline compared to the $1.8 billion achieved in 2022, according to market intelligence AppMagic.

Chinese tech giant Tencent is planning to expand its short video and livestreaming e-commerce team as sales surge, according to a Monday report by LatePost, which said WeChat’s in-app shopping feature has achieved a total of RMB 100 billion ($13.9 billion) gross merchandise volume this year via its TikTok-like short video service.

Why it matters: The figure shows Tencent has increasingly drawn in users to spend more time shopping on Video Accounts, a service that launched in beta mode in January 2020.

• According to the company’s president Martin Lau, Tencent could gain a competitive advantage by attracting “a pretty significant high-income and affluent customer base” on WeChat, who may not typically make purchases on other short video platforms.

Details: WeChat Video Accounts, Tencent’s short video feature also known as Channels, has been seen as the “hope” of the company since founder and CEO Pony Ma highlighted it in an end-of-year meeting in 2022.

• As a latecomer to livestreaming e-commerce, Tencent is set to further develop the basics of online shopping, including WeChat payments, LatePost reported. During the company’s latest earnings call, Lau said the livestreaming e-commerce playbook was “quite clear” despite involving many steps. Tencent wants, “to build it in a systematic way, step by step,” Lau added.
• While Tencent’s e-commerce sales have reached an impressive RMB 100 billion, it has a long way to go before catching up with rivals Kuaishou and Douyin, as the former boasted sales of nearly RMB 800 billion worth of goods in the first three quarters this year, while TikTok’s sibling app Douyin is expected to see more than RMB 2 trillion in goods sales this year.
• Video Accounts brought RMB 3 billion in advertising revenue in the second quarter, Tencent said, adding that the figure for the subsequent three months showed “strong growth” over the previous quarter, although exact figures were not disclosed. Kuaishou generated RMB14.35 billion in advertising revenue in the same period.
• Ad load, which sits at less than 3% for Channels compared to rival platforms that regularly exceed 10%, serves as a growth driver that translates into more revenue, according to Tencent’s Chief Strategy Officer James Mitchell.

Context: WeChat, which started as an instant messaging service, now offers users a rich ecosystem of services via its mini-programs (in-app mini-apps) and Video Accounts. Tencent’s hope is that it can continue to offer the company more routes to profitability.

• Lau highlighted that several hundred million users interact with over one million mini-programs on WeChat, which facilitated over RMB 1.5 trillion in gross merchandise volume (GMV) between July and September this year. 
• In an indication of the Tencent platform’s importance, iPhone maker Apple opened an official retail store within WeChat this July.

Following a year of negotiations, Tencent and Meta have made a deal for Tencent to  exclusively sell Meta’s VR (virtual reality) glasses in China from late 2024, The Wall Street Journal has reported.

Why it matters: As social media platforms Facebook and Instagram are banned in China, the return of Meta to the Chinese market is unexpected. It remains unclear if Tencent requires government approval to sell Meta’s devices due to the absence of VR-related government regulations in China.

Details: The agreement provides Meta with a fresh opportunity to tap into China’s expansive consumer market, a door that closed when access to Facebook was restricted in China in 2009.

• The VR glasses will offer consumers more affordable lenses compared to Meta’s existing Quest 3 headset, which is currently priced at around $500 in the US, according to The Wall Street Journal. The less expensive device is scheduled for sale in various international markets in addition to China in 2024. 
• Insiders told the WSJ that Meta will receive a larger share of hardware revenue, while Tencent will obtain a higher proportion of revenue from content and services. The Chinese version of the VR headset will offer games and apps distributed by Tencent.
• Meta’s current lineup of VR headsets includes the 2023-released Quest 3, the 2022-unveiled Quest Pro, and the Quest 2, which went on sale in 2020. The upcoming VR device from Meta may be named Meta Quest 3 Lite, with an estimated price of $199 for the basic model, according to Chinese media outlet Cailian Press. This new product may feature a modified chip that will impact upon its performance due to its low cost.
• In its third-quarter financial report on Oct. 25, Meta disclosed that its Reality Labs unit, which develops metaverse-related technologies, experienced an operating loss of $3.74 billion. Revenue in the virtual reality and augmented reality division dropped 26% during the reporting period, falling to $210 million from $285 million a year earlier.

Context: Global shipments of augmented reality and virtual reality headsets went through a decline for the fourth consecutive quarter in the second quarter of 2023, dropping by 44.6% year-on-year, according to data from market research firm IDC.

• Meta emerged as the dominant player in the headset market during this period, occupying an approximately 50% market share, according to the same report from IDC. Sony and Pico (the headset division of TikTok parent ByteDance) secured second and third places, respectively.
• On Nov. 7, in response to a decline in global demand for VR headsets, Pico reportedly initiated a significant round of job cuts, marking its most substantial overhaul since being acquired by TikTok’s owner two years ago.

Chinese tech giant Tencent has acquired Japanese game developer Visual Arts (Kabushikigaisha Bijuaru Atsu), a specialist in galgame (female anime character-based games) and visual novels. The Osaka-based developer announced the news on Chinese social platform Weibo on Thursday. 

Why it matters: With Tencent’s acquisition, Visual Arts has said it will be able to reach a wider audience and explore new growth opportunities. Tencent, meanwhile, will further its aim of becoming a global gaming powerhouse by acquiring another reputable developer after a series of such moves in recent weeks. 

Details: Visual Arts’ announcement on Thursday coincided with confirmation of the retirement of its founder Takahiro Baba, which was initially revealed last year. Baba has reportedly transferred his controlling stake to Tencent, with Genki Tenkumo announced as the new CEO. 

• Founded in 1991, Visual Arts was at the forefront of the Japanese animation style galgame, a subgenre of dating games and visual novels focused on romance, typically marketed to heterosexual men. 
• Visual Arts is the parent company of Key, which is known for creating acclaimed works such as Kanon, AIR, and Clannad.
• Most Visual Arts games are characterized by a sentimental storyline. Kanon, AIR, and Clannad are all titles that were adapted into animations by Japanese studio Kyoto Animation, which has significant influence among ACG (anime, comics and games) groups.
• Heaven Burns Red, the company’s 2022 turn-based role-playing game, once topped Japan’s iOS bestsellers list, according to Jiemian.
• In the announcement of the Tencent deal, Takahiro Baba said the company was “in the best condition ever.” With the help of Tencent’s investment, Visual Arts hopes to create classics that spread across the world, he added.

Context: Tencent, China’s biggest gaming firm, has been expanding its international footprint in recent months, adding to its majority ownership of Riot Games with a series of major deals. 

• On July 5, Tencent invested an unspecified amount in Lighthouse Games, which will support the UK game studio to build an as yet unnamed forthcoming title. Lighthouse Games is a recently-opened triple-A studio from Playground Games co-founder Gavin Raeburn.
• Weeks later, on July 24, Tencent announced that it had become the majority shareholder in Techland, the Polish studio behind the popular game Dying Light. 

Chinese tech giant Tencent reported strong growth in gaming revenues in its first quarter earnings released on Wednesday. Overseas gaming revenue was up 25% year-on-year to RMB 13.2 billion ($1.88 billion), while gaming revenue in the Chinese market rose by 6% year-on-year to RMB 35.1 billion ($5 billion). 

Overall, Tencent surpassed analysts’ expectations with its first-quarter financial results. Total revenue for the company amounted to RMB 150 billion ($21.8 billion), representing an increase of 11% year-on-year. Net profit came in at RMB 33.4 billion ($4.9 billion) on a non-IFRS basis, up 27% yearly. 

Why it matters: The gradual recovery of Tencent’s gaming business was a key factor in the tech major’s upbeat performance, with the unit reversing its trend of negative growth in the last three quarters. Tencent’s release of new games such as Triple Match 3D and updates to existing hit games has helped generate healthy revenues for its overseas gaming business.

Details: In the first quarter of 2023, Tencent’s revenue from games reached RMB 48.3 billion ($6.9 billion), up 11% up year-on-year. The company’s average daily gaming revenue exceeded RMB 500 million ($71 million) in the first quarter of 2023, according to the figures.

• Tencent’s domestic gaming revenue during the period rose 6% year-on-year to RMB 35.1 billion ($5 billion), while its overseas gaming revenue rose 25% to RMB 13.2 billion ($1.8 billion). 
• Revenue from domestic games came mostly from established titles such as Honor of Kings, Dungeon and Fighter, CrossFire Mobile, and Arena Breakout. In the first quarter of 2023, Honor of Kings released new paid-for skins based on Shan Hai Jing (a classic compilation of mythological Chinese geography and beasts) using targeted marketing, which the firm credited with helping Honor of Kings boost its income. In January 2023, Honor of Kings earned $250 million globally from Apple’s App Store and Google Play, ranking first in the global mobile game best-selling list, according to market intelligence firm Sensor Tower. Revenue from iOS downloads in China accounted for 94.1% of this total.
• Fight of the Golden Spatula, Tencent’s self-developed mobile auto battler spin-off of the popular Teamfight Tactics released in 2021, was another highlight for the company, increasing its gross revenue by 30% year-on-year in the first quarter and topping 10 million average daily active users in April 2023.
• Revenue from Tencent’s international games was mainly driven by the strong performance of Valorant and PUBG Mobile. The first-person tactical hero shooter game Valorant increased monthly active users with the release of a new map and a new agent during the first quarter. Tencent’s financial report stated that the title’s gross revenue increased by 30% year-on-year in the first quarter, helped by popular Japanese- and alien-themed weaponry.
• PUBG Mobile ensured its growth in daily active users during the first quarter with new combat features and enhanced multi-player modes. Tencent introduced a map editing tool to facilitate user-generated content, increasing the game’s user engagement and time played.
• The report also provided an update on Tencent’s protection program for underage players. Minors accounted for 0.4% of total time played and 0.7% of total gross earnings for domestic games during the first quarter, down by 96% and 90% respectively from the same period three years ago. The Chinese government introduced a set of regulations in August 2021 ordering gaming companies to ban underage users from playing on weekdays and allow them only an hour of play time between 8 p.m. and 9 p.m. on Fridays, weekends, and public holidays.

Context: At Tencent’s annual gaming conference Spark 2023 this week, the Chinese tech giant introduced updates on 15 previously announced titles and revealed 20 new projects. The previous titles included Honor of Kings, Arena Breakout, Moonlight Blade, and SYNCED. The conference also featured more renowned imported titles, namely Valorant, Lost Ark, and Alchemy Stars. The company was keen to emphasize the “social value” of its gaming arm at the event, as the industry continues to emerge from a lengthy period of regulatory scrutiny.

• The National Press and Publication Administration (NPPA), China’s gaming regulator, announced 86 new licenses for domestic games on April 20 this year. Currently, 347 domestic games and 27 imported games have been issued with licenses so far in China in 2023, compared to 513 game licenses for the whole of 2022. The renewed issuance of licenses is seen as  a significant sign for the recovery of China’s gaming industry.
• In the fourth quarter of 2022, Tencent’s domestic gaming revenue was RMB 27.9 billion ($3.9 billion), a decline of 6% year-on-year. Revenue from international games reached RMB 13.9 billion ($1.9 billion) during that period, representing an increase of 5% year-on-year.

On Monday, Tencent Games held its annual gaming conference Spark 2023 online, introducing dozens of new gaming-related titles and projects. The Chinese gaming giant also highlighted a slew of “social value” projects using gaming technology, in an attempt to show that the gaming industry can have a positive impact upon society as it emerges from a lengthy period of regulatory scrutiny in China. 

Why it matters: China’s gaming industry has faced heavy regulation since the summer of 2021 but saw signs of this easing earlier this year as licenses for new games continued to return to regular levels. Tencent Games, the leading company in China’s gaming sector, is eager to prove to the regulators that the industry can provide value to society, outside of just producing popular entertainment. 

Details: Tencent introduced a series of new projects using gaming technology for “social value,” including a flight simulator, a game-driven robot-learning project, a 3D online tour of the Great Wall, and games related to clinical research. The gaming unit also announced 26 updates on its more traditional gaming titles, including new games and new updates on hit titles such as Honor of Kings.  

• Tencent will launch a full-motion flight simulator next month. The simulator is based on a gaming engine developed by Tencent Games’ CROS (Common R&D and Operation Systems) unit and was created jointly with Nanhang Xiangyi, a subsidiary of China Southern Airlines. Tencent said during the event that the simulator aims to create a more realistic and efficient training scenario for pilots.
• A new robot-learning project initiated by Tencent Games’ START Team and Tencent Robotics X Lab was also announced. It uses AI to generate the actions and decision-making of the robots, combining gaming and robot development. Tencent claims that the training efficiency of a single robot is improved by 20 times after CPU optimization via the project.
• Tencent’s online tour of the Great Wall combines photo-scanning modeling, game engine, and cloud gaming technologies. The project uses gaming technology to achieve fine-detailed rendering and immersive digital imagery usually seen only in AAA games rather than cultural heritage projects. The tour is accessible through a mini-program on WeChat and has received more than 40 million views since it was launched last June. The project won one of the 2022 Global Awards for World Heritage Education Innovative Cases awarded by the United Nations Educational, Scientific and Cultural Organization. The gaming giant also unveiled a similar project featuring detailed scans of the historic Buddhist artworks at the Unesco-protected site of the Mogao grottoes near Dunhuang.
• Another “social value” project came with the showcasing of narrative puzzle game Pavlov: Brain’it On, which looks to harness clinical research to “help players exercise various cognitive capacities, such as attention, thinking speed, memory, inductive reasoning, and spatial imagination,” according to Tencent. The title was developed by the Chinese tech giant’s Social Value Exploration Center in collaboration with NExT Studios and the Tianqiao and Chrissy Chen Institute (TCCI).
• The firm’s Social Value Exploration Center also worked on Room 301 NO.6, which aims to help the public better understand the world of Alzheimer’s patients. The narrative game “allows users to experience, feel, and understand the lived experience of patients with Alzheimer’s,” Tencent claims.
• In terms of new out-and-out gaming titles, Valorant and Lost Ark attracted significant attention at the event. Valorant is a first-person tactical hero shooter game developed and published by Riot Games in 2019, but which will now be available in China for the first time after Tencent announced a distribution deal. Valorant hit a new record with an estimated total of more than 20 million active players throughout April 2023, according to Tracker Network. The China version will start beta testing in June.
• Lost Ark is a 2019 MMO (massively multiplayer online) action role-playing game co-developed by Tripod Studio and Smilegate. Lost Ark will be launched for the Chinese market this summer, with unlimited pre-release reservations now open. In February, Lost Ark recorded more than 1.3 million concurrent players on Steam, according to Studio Loot. With this number, it overtook CS:GO to claim second place in the all-time concurrent peak charts, behind leader PUBG.

Context: The National Press and Publication Administration (NPPA), China’s gaming regulator, announced 86 new licenses for domestic games in April, the latest sign that the licensing freeze that spanned August 2021 to April 2022 has now thawed. But despite a return to relative normalcy, many gaming companies are still feeling the pressure of a tighter approval environment. 

• Facing heavy regulation and stagnant growth at home, Tencent Games has been accelerating its expansion in overseas markets in recent months. In March, it brought its highest-grossing mobile game in China, Honor of Kings, to Brazil, where it quickly became the most downloaded mobile game in the country.

China’s service sector has made a promising start to its recovery from its Covid-induced doldrums as the country saw tourism and spending surpass pre-pandemic levels during the five-day Labor Day holiday that ended Wednesday.

Why it matters: About 274 million domestic trips were made during the holiday, the second longest holiday since Covid restrictions were lifted last December, China’s Ministry of Culture and Tourism announced on Wednesday. Figures recorded over the period signal the country is seeing a resurgence in offline services and long-haul travel.

Details: Chinese domestic travel revenue surged to RMB 148.1 billion ($20.3 billion) during the May holiday, but while this marked a 128.9% year-on-year increase, per capita spending has only recovered to 90% of 2019 levels, government data showed.

• China’s trains took around 120 million passengers around the country between April 27 and May 3, according to data released by China State Railway Group.
• First-tier cities including Beijing, Shanghai, and Hangzhou were the most popular destinations this holiday, while third- and fourth-tier cities also experienced an unusual influx of tourists. 
• For example, Zibo – a city in eastern China’s Shandong province famous for its affordable local barbecue – saw its hotel reservations up more than 20 times compared to the 2019 level, data from travel service provider Qunar showed, as cited by media outlet NBD. Hotel reservations in third- and fourth-tier cities in general increased by more than 150% compared to the same period in 2019. 
• Asian countries and regions were the main destinations for Chinese outbound tourists during the holiday. Reports from Tencent’s WeChat-affiliated payment platform Weixin Pay sent to TechNode showed Hong Kong, Macau, and Japan as having the largest increases in offline payments compared to 2019. Japan saw the highest increase in average daily transactions through Weixin Pay in-store, by 141%. In Hong Kong SAR and Macao SAR, the average daily spending amount with Weixin Pay in-store registered the biggest growth (of 137%), while the number of transactions increased by 118%.
• Alipay, China’s largest digital payment platform, also reported a surge in spending by Chinese consumers using the platform for travel-related purchases during the first three days of the holiday. Overall spending increased by 70% compared to the same period in 2019, Alipay said.

Context: The recent holiday was China’s first in three years in which large scale travel was unimpeded by the Covid pandemic or restrictions imposed to prevent the virus’ spread. The lengthy pandemic severely hampered the country’s spending and dampened travel enthusiasm nationwide.

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.

China’s largest gaming firm Tencent can finally advertise on ByteDance apps, according to online gaming analytics platform DataEye, a new milestone in the two companies’ relationship. ByteDance and Tencent have competed fiercely over the years, barring each other from cross-promotion and regularly engaging in legal wrangles. As a result, Tencent games have had limited exposure on ByteDance platforms, while ByteDance’s apps have had little publicity on Tencent platforms. 

The latest advertising data shows that Tencent’s war game Return to the Empire and multiplayer role-playing game Naruto have been advertised on Bytedance’s Douyin (China’s TikTok twin), news app Toutiao, and Xigua Video in the past seven days. 

Why it matters: The relationship between Tencent and ByteDance has long been tense due to their rivalry in content, video, and gaming. Recent developments show the two companies are moving toward a reconciliation after years of bitter competition. 

• On Feb. 7, Douyin and Tencent Video announced an unexpected cooperation, in which the two parties will jointly explore the promotion of videos and the secondary creation of short videos. Tencent has issued a long-term video copyright authorization to ByteDance and clarified secondary video creation rules. On Tuesday, Tencent was able to register the official account of Tencent Video on Douyin. The partnership deal between the two companies has even become a hot topic on microblogging platform Weibo. 
• Such reconciliation was unthinkable a few years ago. In the second half of 2021 alone, Tencent sued Douyin 168 times for video rights infringements, with compensation reaching almost RMB 3 billion (or $430 million). 

Details: Tencent’s game Return to the Empire has started to place advertisements on ByteDance’s Toutiao and Xigua Video in recent days. The game had previously been advertised mostly within Tencent’s platform, according to DataEye statistics. In addition, ByteDance’s Douyin accounted for about 15% of the gaming ads distribution for another Tencent game Naruto.

• The reconciliation will potentially benefit both sides. Traffic from ByteDance platforms may head in Tencent games’ direction. At the same time, Tencent’s ubiquitous app WeChat could open up to ByteDance and introduce new users to ByteDance apps.
• The promotion of bestselling Tencent games (like Honor of Kings) in Douyin may enrich ByteDance content.
• The move will have repercussions in livestream gaming too. In the future, ByteDance-based games may also enter the WeChat network and WeChat video channel.

Context: Sharing a focus on content and entertainment, Tencent and ByteDance were the top-grossing publishers in global mobile app stores in the first half of 2022. Tencent was the top-grossing publisher in the game and non-game categories, earning about $3.3 billion in the first half of 2022. The figure is almost 153% higher than ByteDance, which came second with $1.3 billion in revenue. Their disputes have been long-lasting: 

• In January 2023, Tencent super app WeChat temporarily blocked users from accessing links to ByteDance-owned short video app Douyin. 
• In June 2021, ByteDance criticized Tencent’s practice of blocking links to its products on WeChat and QQ in an online post, attaching a 59-page PDF file chronicling incidents of blocking in the past three years. 
• In May 2019, Tencent filed two lawsuits against ByteDance, requesting the owner of Douyin stop streaming Tencent’s hit titles CrossFire and Honour of Kings.
• In June 2019, Tencent filed six new lawsuits against ByteDance, demanding the company delete all Honour of Kings gameplay videos from the accounts of six specified users on Toutiao and Douyin. It demanded  ByteDance pay RMB 10.8 million (around $1.56 million) in damages.

In 2022, the marketing goals of many brands focused on ensuring a more predictable growth. But to succeed in China’s changing digital landscape in 2023, investing in an overarching marketing strategy across all digital media and e-commerce platforms will not work. Instead, brands should focus on a few essential platforms and utilize new features on Chinese social media platforms. Marketers should “invest small and win big” for potential growth in uncertain times. 

Here are some highlights from the top social media platforms in China that may lead brands to the next stage this year from a recently released 650-page long 2023 China Mega Report by ChoZan.

Top 3 social media platforms with exciting new features to utilize in 2023

1. WeChat

WeChat’s ecosystem offers common functions like chat and payments, but its video section Channels and search engines can provide new ways for brands to enhance their digital journey. WeChat Channels usage surpassed Moments in 2022, while monthly active users of WeChat search reached 800 million with a 54% yearly increase in search volume. Brands can connect with consumers across digital touchpoints using WeChat’s function, building branding assets. A search for “red packets for CNY” can lead to various advertising and brand-owned channel sections. Jewelry brand CHOW TAI SENG has secured a single sales campaign hitting 5 million yuan revenue leveraging search function and live streaming. Brands must target secure events (like the Chinese New Year, Spring Festival, etc.) with large followings and utilize exciting WeChat tactics to form smoother digital journeys.

2. RED (Xiaohongshu)

RED (Xiaohongshu) is known for its authentic user-generated content, making it a great platform for word-of-mouth marketing. In 2023, RED updated its platform with a “video” section to create a more diverse community with more video content. The platform downplays sales and instead prioritizes creating a comfortable social atmosphere, making it unique compared to other sales-focused platforms.

Recently, Chinese actress Dong Jie’s livestream on RED delivered a sense of peaceful and soft-selling approach that differs from livestreams on other platforms. She has inspired many audiences to step back from the hustle and bustle of their life and slow down. According to RED official data, the viewers of her live streaming on Feb 24 exceeded 2.2 million and the cumulative GMV exceeded 30 million. 

By partnering with quality livestreamers and continuously delivering a unique brand vibe through stylish images and text, brands can further accumulate their digital assets and achieve long-tail effects. This kind of more immersive product seeding may turn more random customers into the brand’s loyal fans. 

Douyin

Douyin upgraded its “interest e-commerce” to “full-field interest e-commerce” in 2022, making refined management, creative livestream content, and beneficial partnerships with Douyin Shop vital in 2023. The platform’s traffic dividends are diminishing, with fewer users paying attention to random content. Consumers want unique, exciting, and convenient shopping experiences across various categories, taking the initiative to locate goods. In a fiercely competitive environment, brands must deliver high-quality livestream experiences to stand out.

A good example would be East Buy’s recent live streaming in the Greater Bay Area, which generated total sales of over 100 million yuan and more than 1.5 million overall transaction order volume. The brand was created by China’s education giant New Oriental and its success was due to its unique understanding of Chinese cultural experiences and audience’s emotional connections, offering a wide range of products including agricultural, food, and personal care.

Brands should continually explore creative ways to livestream on Douyin to impress customers. Leveraging Chinese cultural assets and aligning them with the brand can increase user stickiness and loyalty. Brands should also consider forming a closed loop by partnering with Douyin Shop.

Two niche Chinese social media platforms

Aside from the top three Chinese social media platforms, there are also a few niche platforms that brands can use in 2023.

Zhihu

For Zhihu, its approach prioritizes quality over quantity of content and is suitable for promoting high-cost goods like real estate, cars, education, and medical beauty that require informative and more in-depth content to guide consumers’ decision-making. Also, establishing a good content IP can help reach the target audience more precisely.  

Dewu

Dewu, a popular social media and e-commerce platform, began as a sneaker platform and evolved into an extensive marketplace. It attracted 7,000 brands, including major names like Michael Kors, Coach, and Adidas, who opened their stores on the app. Brands can utilize its various promotional tools like flash sales, group buying and coupons to attract consumer attention. 

Best Practices for Brands to Win in 2023 on Chinese Social Media Platforms

1. The emergence of WeChat Channels and search engine capabilities presents an unprecedented opportunity for brands to craft a more comprehensive and immersive digital journey for their customers. Brands should use these features for a more integrated customer experience, creating deeper connections with their audience.

2. The updated “video” section on RED offers brands a chance to create content that fosters community and emotional connection with customers, resulting in stronger brand loyalty and advocacy. Partnering with quality livestreamers and delivering unique brand vibes can create an immersive customer experience, turning customers into loyal fans.

3. Douyin’s upgrade to “full-field interest e-commerce” in 2022 highlights the importance of creative live-streaming content and beneficial partnerships. To stand out, brands must deliver high-quality live-streaming experiences that foster emotional connections with customers.

4. Craft compelling content that delivers consumer-centric information to drive engagement instead of being brand-centric. Collecting market data and analyzing consumer trends can aid in creating relevant content. Collaborating with KOLs/KOCs on platforms like RED and Douyin adds credibility via word of mouth and expands reach.

Chinese tech giant Tencent has launched an AI-powered video editing tool called Zenvideo, integrating a variety of features for short-form video creators, such as text-to-video generation and digital narration.  

Why it matters: With its growing emphasis on short video, Tencent is looking to further challenge current market leaders in the sector such as Kuaishou and ByteDance’s TikTok sibling Douyin. Tencent’s new offering comes with similar capabilities to ByteDance’s CapCut, which recently surpassed 200 million monthly active users in the US.

Details: Zenvideo is available to use both through web browsers and WeChat’s mini-program, but is more powerful as a web app. The version within Tencent’s superapp has comparatively limited AI features, only supporting AI painting and digital narration. 

• The video editing tool allows users to create short-form videos, with a range of editing options such as filters, visual effects, and digital avatars.
• Unlike ByteDance’s video editing toolCapCut (Jianyin in the Chinese market), Tencent’s new tool can be operated on the web without the need to download an app. Furthermore, users can import Tencent licensed video and audio clips and use them as long as the final work is published on Tencent’s open content platforms. For example, users are able to use music from Tencent’s streaming platforms and take clips from popular Tencent Video TV shows such as The Three-Body Problem and Red Sorghum and edit them for free within Zenvideo. 
• According to a notice within the tool, Tencent plans to share revenue with video creators as an incentive to attract more content creators.

Context: This week, Tencent’s super app WeChat also announced several changes to its ecosystem, especially for its short video section WeChat Channels. 

• WeChat Channels has an average daily user time of about 40 minutes, which is less than one-third of the two leading short video platforms Douyin and Kuaishou. The latter reached a new high of 134 minutes in the fourth quarter of last year, its latest financial results showed.
• Regarded as “the hope of the whole company” by Tencent CEO Pony Ma, WeChat Channels is planning to launch a paid subscription service and share revenue with creators of short videos. This move is likely to heat up the competition among similar platforms.

Tencent’s super app WeChat plans to share revenue with short video creators and launch a paid subscription service on its short video product WeChat Channels, the Shenzhen-based company announced on Tuesday night at a public event. Tencent also announced the launch of a new Quora-like question section in WeChat. 

Why it matters: Tencent is expanding its monetization efforts with regard to WeChat’s short video section, after seeing rapid growth in the channel but also facing direct competition from rivals Douyin and Kuaishou. This strategy aligns with CEO Pony Ma’s speech late last year in which he hailed short videos as “the hope of the company.”

Details: Zhang Xiaochao, leader of the WeChat Channel unit, spoke first at the event and shared that in the three years since its launch, the short video section of the super app has seen creators grow two times more active, while creators with more than 10,000 fans grew more than four times in 2022. Leaders from other WeChat units — WeChat Pay, WeChat mini-programs, office automation-focused WeCom, and WeChat search — also spoke at the event. 

• In 2022, the value of goods sold through livestreams on WeChat surged by 800% and creators who earned income through videos increased nearly three times, Zhang said.  
• Increasing earnings for content creators is a priority for WeChat Channel’s next phase of development. Zhang said WeChat will soon launch a paid subscription feature, which will allow creators to set up a paid content section where users can pay a monthly subscription fee. This will help creators quickly set up their own commercialization subscription system, Zhang added. 
• Additionally, creators will have the option to access Tencent’s advertising system, which can display content-related ads in the comment section. This incentive is part of Tencent’s aim to attract more influencers.
• WeChat is also planning to roll out a new question function called Wenyiwen (meaning “ask a question” in Chinese), similar to a Quora-style Q&A platform. The feature will aggregate high-quality answers to common questions. Tencent added that more than 800 million monthly active users utilize its search feature, which saw a 54% year-on-year growth in search volume in 2022.

Context: With just over 1.3 billion monthly active users, all-in-one messaging app WeChat primarily monetizes via livestreams, e-commerce, and advertising on its short video section Channels. 

• Total time users spent on WeChat Channels exceeded the time they spent on WeChat Moments (a Facebook-like timeline function) in the quarter ending Dec. 31, Tencent’s latest filing showed.
• Tencent conducted its first test of paid-to-watch livestreaming in January 2022, with users required to pay approximately RMB 10 ($1.45) to access a live feed of an NBA game. However, compared to rivals Kuaishou and Douyin, which have already furthered their attempts at paid content, Tencent is still lagging behind. 
• Kuaishou, for instance, has a separate “paid content” section on its app and recorded 59.6 million paid subscribers in the third quarter of 2022. Meanwhile, ByteDance-owned Douyin has operated a paid business model for watching short dramas since November 2021.

On March 8, the highest-grossing mobile game in China, Honor of Kings (HoK), launched in Brazil, marking the Tencent TiMi Studio Group game’s first foray into the global market. The number of pre-registered HoK players in Brazil before the MOBA (multiplayer online battle arena) title’s launch exceeded 2 million, quickly making it the most downloaded free mobile game in the country, according to a report from Chinese financial media outlet Baijing.

Why it matters: The Brazilian launch is a key part of Tencent’s global expansion as the Chinese gaming giant looks to overseas markets amid continued uncertainty at home due to heavy regulation and sluggish consumer spending. The team behind Honor of Kings hopes its experience in Brazil will lay a solid foundation for its future launch in other regions, such as Mexico, Egypt and Turkey, according to Tencent’s overseas game distributor Level Infinite.

• Tencent is increasingly relying on the overseas gaming market for growth. In its 2022 third-quarter financial report, Tencent’s global market revenue reached RMB 11.7 billion, more than one-third of its domestic game revenue RMB 31.2 billion.

Details: HoK released a series of high-quality cinematic trailers on YouTube ahead of its Brazilian launch. The pre-registration trailer Hey Brazil received 2.3 million views on YouTube in its first month.

• Tencent has set up dedicated servers in Brazil for a smoother gaming experience in the country. The firm also employed well-known Brazilian voice actors for the characters in the Brazilian version of Honor of Kings, alongside localization of in-game text, user interfaces, and character designs.
• HoK was released in Brazil on the iOS App Store, Google Play Store for Android, and Samsung Store, with the title offering 5v5 Matchmaking, 5v5 Quick Mode, 5v5 Ranked Match, 1v1 Solo Mode, and a newly created Casual Mode called the Infinite Brawl.
• Level Infinite first announced on Twitter last June that HoK would be launched globally by the end of 2022. However, this was later postponed until this year, with the company partly blaming the Covid-19 pandemic. 

Context: In February 2023, Tencent’s Honor of Kings remained the highest-grossing game app in China, earning about $113 million in monthly revenue. In 2022, Honor of Kings generated over $2.2 billion in revenue, making it one of the top-grossing mobile games of all time.

• At an event celebrating Honor of Kings’ seventh anniversary held in November 2022, Tencent provided new details on its plans to build a “universe” around the hit game, teasing a range of spin-off titles including chess and Street Fighter-style battle games.
• According to Chinese media outlet Sina, Brazil is the largest gaming market in Latin America, generating $1.84 billion in revenue in 2022. Among the gamer population in Brazil, the proportion of young players aged between 18 and 24 is relatively high, accounting for more than 20%, which benefits MOBA games that need a high level of DAUs (daily active users) and appeal to this demographic.
• In recent years, Chinese gaming companies have increasingly looked to overseas markets for growth. In the top 100 list of highest-grossing mobile games in the global market, Chinese game publishers account for 40% of the US market, 43.1% of the Japanese market, and 49.1% of the Korean market, according to Chinese data research firm CNG’s Global Mobile Game Market 2022 report.
• Chinese gaming giant Tencent doubled its stake in AAA game title developer and publisher Ubisoft to around 10% in 2022, a move it followed by taking a 20% stake in Korean studio Shift Up.

READ MORE: Chinese gaming companies go overseas as home growth slows

Duoduo Video, a vertical short video offering from Chinese e-commerce company Pinduoduo has reportedly recorded comparable watch time statistics to Tencent’s WeChat Channels, sparking a sudden uptick in attention from Chinese tech media. Local media outlet 36Kr said in a Wednesday report that the video section on Pinduoduo’s shopping app is seeing users spending about 30 minutes a day watching, a number that puts it roughly on a par with tech giant Tencent’s similar platform. 

Why it matters: Pinduoduo’s use of short vertical videos is another example of Chinese online retailers’ increasing competition with content platforms such as Kuaishou and ByteDance’s Douyin, as the latter two ramp up in-app shopping functions. Alibaba’s Taobao shopping app also has an embedded content section called Guangguang, using a combination of photos, articles, and videos to attract more users. 

Details: Pinduoduo added the short video section to its app in February 2022, according to a report from Chinese media outlet Jiemian. Pinduoduo incentivizes users to watch more videos by giving out cash rewards, which users can withdraw directly to other digital wallets.

• In a recent test, TechNode found Pinduoduo gives out significant cash rewards to newer users. Our reporter, a new user of the section, earned RMB 10 (about $1.5) after watching less than one minute of short videos. But the app only allowed the user to withdraw a small fraction of the earned reward (up to RMB 0.6) and encouraged them to log on more frequently to increase the withdrawal amount. 
• Duoduo Video is now led by a person who worked for Douyin before joining Pinduoduo in around 2021, the 36Kr report said. Pinduoduo is committed to investing in the business, not expecting commercial results in the short term, the report said, citing a source close to Pinduoduo.

Context: As China enters a relatively slower growth period, competition among the country’s top tech companies is heating up, with more cross-sector rivalry. For example, ByteDance’s Douyin, the equivalent of TikTok in China, has recently increased its investment in offering on-demand services, a core business offering of the life services giant Meituan. 

• Known for offering generous discounts and ultra-low prices, Pinduoduo saw great growth last year, with revenue up 65.1% year-on-year to RMB 35.5 million in the third quarter of 2022. But the company is facing more challenges from established online retailers such as JD and Alibaba. JD is set to launch a subsidy program worth billions of RMB and applicable to almost all items sold on its platform. Pinduoduo launched a subsidy program in 2019. 
• Taobao Deals, Taobao’s budget shopping platform, is set to form 50 offline service spots in industrial cities across China to help boost supply of quality products in nearly 900 categories, local media outlet 21Jingji reported on Feb. 27.

On Thursday, Chinese tech giant Tencent dismissed reports claiming that it was disbanding parts of its XR team, with the Shenzhen-based company saying that it is set to change the hardware development path of its XR business by making some personnel adjustments.

Why it matters: Tencent is the latest tech company to overhaul its metaverse-related activity, a move that comes less than a year after the company established its XR unit and follows its failed attempts to acquire AR hardware maker PICO and gaming phone maker Black Shark. XR hardware usually requires large amounts of capital over a long period of time, but as Tencent continues to cut costs and focus mainly on software, the company has been more cautious with its investments.

Details: Local media outlet 36Kr first reported on Thursday that Tencent was disbanding part of its XR team, which was established in June 2022. The report said that employees in the unit would be given two months to find new opportunities inside or outside of the company. However, Tencent later dismissed the report, saying it was simply making personnel adjustments within the unit.

• As of January 2023, there were still about 300 employees working on Tencent’s XR business, including tasks related to basic platform, content, Vision Labs, media technology, art and design, business decision, and spatial audio technology, according to 36Kr.
• Shen Li, previously the head of Tencent’s XR project, left the company in November 2022, with part of Tencent’s XR business suspended in January, 36Kr reported. 
• Shen, previously head of Tencent game studio NExT Studios, was one of the few people in the company’s XR unit with experience in VR hardware development, due to his work at French video game developer Ubisoft and at Epic Games before joining Tencent in 2013.
• Sources told 36Kr that Tencent’s XR project has few employees with hardware backgrounds and that the tech giant is hesitant about developing its hardware business.
• In early 2022, it was reported that Tencent intended to acquire gaming phone maker Black Shark, but the plan was abandoned a few months later, seemingly after the deal failed to get approval from the authorities.

Context: The global metaverse frenzy, kickstarted in 2021, caused Chinese tech firms to race to become front-line players in the sector, but lower-than-expected sales and user metrics are making them reconsider and adjust their investments.

• Tencent’s founder Pony Ma warned all employees at the end of 2022 that any business unit within the company could be cut if it isn’t self-sustaining.
• Pico, a Chinese VR headset maker acquired by ByteDance in 2021 and reportedly a one-time Tencent target, has also cut hundreds of jobs, with some teams reduced by as much as 30%, South China Morning Post reported on Thursday, citing two unnamed sources.
• ByteDance rolled out new VR headsets Pico 4 and 4 Pro last September, with Pico founder and president Henry Zhou saying he expected to eventually sell more than 1 million headsets. While the TikTok owner is yet to reveal sales or shipment figures, International Data Corporation (IDC) shows Pico’s market share reached about 15% in the third quarter of 2022; Meta’s market share fell to about 75% from 90% a year ago according to IDC.
• Microsoft ended its industrial metaverse project recently with the company reportedly shifting its focus to prioritize short-term projects instead. Redundancies at its metaverse team were part of the firm’s broader layoff of 10,000 employees announced in January, The Information reported on Feb. 9.

On Feb. 10, China’s National Press and Publication Administration (NPPA) released its approval list of domestic online games for February 2023 on its official website, with titles by Tencent, ByteDance, and NetEase among those given the green light.

Why it matters: The new list is the ninth batch of games approved in China since the NPPA resumed its issuing of licenses in April 2022 following an eight month pause. As with January, the number of new licenses this month exceeded 80, higher than any month in 2022 and a sign that China’s gaming regulators may be returning to a more consistent approach to approvals after months of uncertainty. 

Details: Some 87 new domestic games have been granted licenses by the NPPA, including 79 mobile games, seven PC titles, and one game for Nintendo Switch. 

• Tencent’s high-profile new game King Chess, a strategy battle mobile game that is part of the company’s attempts to build an Honor of Kings “universe,” was among those gaining approval. The official WeChat account for the game claimed on Feb. 10 that it is still in development and will undergo beta testing in the near future. 
• NetEase, another Chinese gaming giant that has struggled for new title approvals in the past 18 months, saw the mobile version of its massively multiplayer online role-playing game Fantasy Westward Journey make the list of February approvals.
• ByteDance has three new titles on the list: The Leader of the Battle from its publisher Ohayoo; Matrix: Out of Control by wholly-owned subsidiary Nuverse; and Hyper Instant Connection by its newly acquired company C4Games (all titles our translations). 

Context: China’s gaming industry has been sluggish over the past year due to tightening regulations on the industry and strict limits on young gamers.

• The total revenue of the video games market in China slumped 10.33% to RMB 265.9 billion in 2022, while game users declined slightly, down 0.33% year-on-year to 664 million, according to a report by the country’s semi-official games industry association.
• In August 2021, Chinese authorities restricted the weekly gaming hours for minors under the age of 18 to one hour a day on Fridays, weekends, and public holidays.
• China’s eight-month gaming license freeze was lifted in April 2022, but new approvals remained limited throughout the year. Just 513 game licenses, including 468 domestic games and 45 imported games, were issued over the course of 2022, 38% fewer than in 2021 and only a third of those approved in 2020, according to Caixin’s calculations. Tencent, one of the biggest gaming companies in the world, didn’t receive its first major approval of the year until November.

Editor’s note: China is on holiday for the Lunar New Year, or Spring Festival, from Jan. 21 to Jan. 27. For the week, TechNode has prepared three yearly summary reports. They include a list of the most-read articles, an in-depth feature on the rising Chinese EV sector, and an analysis of the growth of China’s overseas shopping apps. 

In 2022, many Chinese tech companies struggled to keep growing amid slowing demand, drastic Covid control policy changes, and heightened geopolitical tensions. 

TechNode looked back on articles published in this tumultuous time and saw readers gravitate toward several topics: new Chinese consumer tech products, the rise of Douyin and Shein in e-commerce, the US’s chip sanctions on the entire Chinese semiconductor sector, and key moves from China’s tech giants. 

Below are the 10 articles read the most by TechNode readers in 2022: 

1- A guide teaching programmers “to live longer” goes viral on GitHub among Chinese tech workers

A Chinese-language guide on GitHub entitled “HowToLiveLonger” was trending within the Chinese tech community in late April. Despite its serious and scientific tone, the new “guide” appeared to be a pointed joke, taking aim at ongoing overwork practices in China’s tech industry and their impact on employees’ mental and physical well-being. Its popular reception in Chinese tech circles reflected the community’s mood. 

2- ByteDance acquires two new entertainment companies

Chinese tech unicorn ByteDance acquired cinema ticketing platform Yingtuobang and online comics service Yizhikan Comics to further ramp up its push into the entertainment market, Chinese media outlet Tech Planet reported in mid-January. 

With the new acquisitions, the Beijing-based TikTok developer further expanded the reach of its entertainment empire, which already consisted of short video apps, short- and long-form video platforms, news aggregation services, online novels, gaming, music streaming, idol management, and virtual idols.

3- Tencent reported to be cutting 20% of its workforce

Chinese tech giant Tencent reportedly planned to lay off around 20% of its staff in mid-March, joining a lengthy list of tech firms trimming their workforces since 2021. 

Deep-pocketed tech titans such as Tencent and Alibaba, which are generally less vulnerable to small market fluctuations, have largely maintained their headcount until recently. The two giants have not been immune to China’s ongoing economic downturn, regulatory curbs, and international trade tensions.

4- China’s NFT market: Who are the major players, and what makes them different?

In China, the NFT digital art market is bustling with new players and projects. That may come as a surprise for people familiar with China’s strict approach to cryptocurrency, with the country having fully banned crypto trading and mining in 2021. However, China has also embraced controlled versions of blockchain technology, such as the digital yuan, encouraging its growth in various sectors. So far, China has allowed NFTs but banned people from speculating and trading them. 

NFTs are viewed more as a derivative of blockchain technology rather than a tradable asset in China. Tech majors such as Alibaba, Tencent, and JD have built their own platforms where users can buy and collect NFTs but are prohibited from trading or reselling their purchases. Most Chinese tech giants don’t even use the term NFT, hoping to stay on regulators’ good side and avoid association with the global crypto market. Instead, they use the term “digital collectible.” 

5- The US’s moves to contain China’s semiconductor industry: a timeline from July

In early October, the US announced a new set of semiconductor export restrictions aimed at cutting China off from accessing certain high-end chips and further limiting the country’s ability to make advanced chips themselves. 

The US Department of Commerce’s Bureau of Industry and Security issued nine new rules, imposing export controls on advanced chips, transactions for supercomputer centers, and transactions involving certain entities on the Entity List. The rules also imposed new controls on certain semiconductor manufacturing equipment and on transactions for certain integrated circuit end uses. 

6- Chinese semiconductor firms bear heavy fallout of US chip sanctions

After the US issued one of the broadest export controls on semiconductor technology to China in a decade in October, China’s semiconductor industry saw its market value tumble. At least 13 China-listed semiconductor firms saw their market value decline more than 10% in less than a week, and five saw a more than 20% decline. 

Issued by the US commerce department, the comprehensive restriction bars companies from shipping advanced chips and chipmaking tools to China unless they obtain a special license. More specifically, the restrictions aim to cut off China’s access to and ability to make advanced chips under 16nm or 14nm, DRAM memory chips of 18nm or more advanced, and NAND flash memory chips of 128 layers or more. These technologies are essential to supercomputing and artificial intelligence. 

7- Gadget review | Oppo Watch 3 Pro: a high-end Android watch that lasts for days

Chinese phone maker Oppo released its new generation of smartwatches, the Watch 3 series, in August with a price tag of RMB 1,599 – RMB 2,099 ($228 – $300). The company first entered the watch market in 2020, updating its range annually since then.  

The latest series has a new look and offers more premium features such as long battery life, and an always-on feature supported by a LTPO OLED display. 

The version TechNode tested, the Watch 3 Pro, is currently only available in mainland China and Oppo has yet to reveal any plans regarding overseas markets, but there is an expectation that it will eventually be sold internationally. 

8- Gadget review | Xiaomi 12S Pro review: Flagship made for photographers and gamers

Xiaomi launched the 12S Pro in China in early July. The phone is the mid-range offering in Xiaomi’s new 12S lineup (including the 12S, 12S Pro, and 12S Ultra), which updates annually and targets a broad range of mid-end to high-end users. The series is also the first set of Xiaomi phones to use Leica lenses. TechNode got a hold of the 12S Pro and spent a week using and testing it. 

The phone is a solid choice as a primary daily device. The Leica-branded cameras can lure photography lovers, and the 12S Pro’s specs offer a quality entertainment experience. We would also recommend it to avid gamers and video watchers.

9- Douyin sees e-commerce sales more than triple in the past year

TikTok’s Chinese version Douyin announced in late May that its online sales had more than tripled for the year ending in April 2022, an impressive growth rate for the e-commerce up-and-comer when other majors were slowing down due to an economic downturn in China.

Chinese short-video platforms such as ByteDance-backed Douyin and Kuaishou are quickly eating into the market shares of e-commerce giants such as Alibaba, JD, and Pinduoduo, thanks to their widely popular social content.

10- How Shein became China’s ‘TikTok for e-commerce’

Shein was among hundreds of thousands of Chinese startups that tapped into the country’s emerging cross-border e-commerce industry when it was founded in 2008 in the eastern city of Nanjing. 

More than a decade later, it’s a Chinese fast fashion decacorn (a private technology company worth more than $10 billion) with a market cap of $100 billion. Only three other tech juggernauts — ByteDance, Alibaba’s Ant Group, and SpaceX — have surpassed that benchmark, according to Crunchbase’s private unicorn list.

Shein is a much lesser-known name than its local peers, such as Alibaba and JD. Its relative anonymity is largely due to its unusually low profile, typified by the lack of public information on its mysterious founder Xu Yangtian, also known as Chris Xu. However, Shein is a name that is increasingly difficult to ignore, as its extraordinary growth has people comparing it with big-name rivals like Amazon and Zara.

All businesses under Tencent’s content unit achieved profitability at the end of 2022, according to a report by local media outlet LatePost. The platform and content group (PCG) unit includes Tencent Video, which turned profitable for the first time according to the report, and Tencent News, which saw a turnaround in the October-December period after a difficult first three quarters.

Why it matters: The division’s profits are largely thanks to Tencent’s ongoing and widespread cost-cutting measures and provide a key insight into how the tech giant intends to weather the macroeconomic slowdown. The several billion in profit from the unit is likely to provide a bright spot in the tech giant’s 2022 annual financial report. However, it does not mean PCG employees can rest easy, with continued profitability remaining far from certain and Tencent CEO Pony Ma previously warning he would cut any part of the business that was unable to sustain itself.

Details: LatePost reported that reaching profitability across the PCG will enable Tencent to “increase its annual profit to several billion yuan” for 2022. Established in 2018, the platform and content division integrates Tencent’s online video business unit (including long-form video platform Tencent Video, short-video app Tencent Weishi, Tencent app store Yingyongbao, and Tencent Comics), Tencent News, instant messaging app QQ, QQ Browser, Sogou search engine, and Sogou Pinyin Input. 

• In 2022, Tencent conducted at least three large-scale layoffs, with the PCG, which has the largest workforce, being the hardest hit. LatePost’s report said employee numbers were down from over 20,000 to less than 10,000 in the division.
• At the same time, the PCG has significantly tightened its requirements for the setting up of new projects. New initiatives, such as an original video project, must now be able to prove they can make five times their cost in revenue to be approved; previously, this requirement was set at twice the cost, a PCG employee told LatePost.
• Brands’ reduced advertising budgets amid a broader economic slowdown are hurting Tencent’s media ad revenue, with LatePost citing a source as saying that variety shows produced by Tencent Video, which rely heavily on such advertising, are essentially now losing money. The long-form video platform is trying to save money on buying original show concepts by shifting to a payment model based on an initial fee followed by performance-related incentives to copyright holders and developers.
• Tencent News, one of the tech giant’s best-known units, has seen a major turnaround after losing money for most of 2022. The unit reportedly returned to profitability in October after it adjusted to focus on high-quality content and algorithm recommendations following Jonathan He’s arrival to head up the team in May.
• The report says that QQ Browser, another unit within the PCG, finally turned profitable after it reduced promotional costs by over RMB 2 billion. The browser holds a small market share of just 4.87% in China, compared to Chrome’s 41.65%, according to traffic analysis website Statcounter.
• “PCG has made a solid step forward in its survival,” Tencent COO Ren Yuxin reportedly told an internal year-end conference, adding that this didn’t mean the unit could slacken off.

Context: Tencent recorded year-on-year declines in both its domestic gaming revenue and advertising revenue in the first three quarters of 2022, after Chinese regulators tightened time limits on young gamers and effectively froze the issuing of new game licenses. 

• There are signs for optimism however, as the government focuses more on the economy after the loosening of Covid control policies, and regulators granted more gaming licenses at the end of 2022.
• In a year-end speech to staff on Dec. 15, Tencent CEO Pony Ma reportedly lambasted areas of the business he deemed to be underperforming, saying “there would not be much time left for them.” 
• The tech giant undertook multiple job cuts earlier last year, with Tencent’s earnings showing that it had 108,836 employees by the end of September, 6.3% lower than in the first quarter of this year.

Tencent’s short-video product WeChat Channels reported impressive growth at its annual flagship event on Tuesday. The unit saw a 200% yearly growth in the total number of video views, and an 800% growth in total gross merchandise value (GMV) from livestream shopping content. 

Why it matters: WeChat Channels’ strong growth in creator numbers and view counts offers a wider basis for monetization plans. Tencent will likely see the short-video unit play a bigger role in its advertising revenue, with CEO Pony Ma recently declaring it “the hope of the whole company.”

Details: The total time users spent on WeChat Channels exceeded 80% of the time they spent on WeChat Moments (a feature similar to Facebook timeline) in 2022. The messaging app hasn’t revealed the amount of time users spend on the Moments feature since 2019, when WeChat founder Allen Zhang said the figure had been roughly the same over the years at an average of 30 minutes per day.

• WeChat saw the total view counts of its video unit increase by 200% from last year, and the number of creators with over 10,000 followers was up 308%.
• WeChat also posted significant growth in its live-commerce business, saying GMV grew more than eight times from last year, and the average unit price exceeded RMB 200 ($29.5), similar to last year’s.
• For livestreaming, executives said the number of users and time spent watching jumped 300% and 156%, respectively. The video unit has already livestreamed multiple concerts by popular singers, speeches by public figures, and major sports events to the public. Last April, the Chinese rock star Cui Jian’s livestreamed concert attracted more than 46 million viewers, setting a viewing record for live online concerts at the time. 

Context: Tencent urgently needs to find a new revenue growth point as it faces slow growth in video games and advertising operations. The company’s overall revenue has declined in the last two quarters. The company’s CEO Pony Ma sees WeChat Channels as a major source of hope for the future of Tencent, with the unit already initiating various attempts to monetize.

• Similar to rivals Douyin and Kuaishou, WeChat’s short-video unit have attempted to accelerate the commercialization process in multiple ways: livestream e-commerce, in-feed ads, encouraging users to tip livestreamers, and charging merchants a 1% to 5% commission fee, which started on Jan. 1.
• Launched in 2020, WeChat Channels positioned itself as a short-video platform for personal video content, largely thanks to its integration with Tencent’s WeChat super app.

China had a rough ride in 2022. 

Throughout the year, the economy was plagued by the frequent resurgence of Covid and the related containment measures that disrupted daily activities. In the first three quarters, China’s GDP grew by 4.8%, 0.4%, and 3.9% from last year, falling far short of its own 5.5% annual growth goal. 

The country’s tech industry was, of course, not immune to the overall sluggish economy. Chinese companies (many of which are in the tech sector) on the Hurun Global 500, a list that tracks the world’s most valuable companies, lost $2.9 trillion in 2022, more than half of their value from last year. 

The e-commerce and content sectors, in particular, saw the most damage as consumers and advertisers cut spending. Industry leader Alibaba reported a steep drop in revenue growth, while budget retailer Pinduoduo saw rapid growth as people became more sensitive to prices. Content giant Tencent also reported quarterly revenue declines, and advertising revenue dropped significantly. 

Meanwhile, green energy vehicle sales had been a rare growth point in China, and Chinese shopping platforms were rising rapidly in overseas markets despite challenges at home. 

It might be too early to tell whether the country is nearing a turning point. After three years of battling the highly mutable and transmissible Covid-19, the Chinese government suddenly relaxed its Covid control policies in early December, exiting from its previously strict measures in less than a week. Such drastic change has resulted in rapid Covid infections across China, triggering drug shortages and causing many people to stay home to recover. 

China’s earlier-than-expected reopening could bring an economic recovery in 2023. But the country might also need some time to learn to live with Covid after three years of strict controls.

Goldman Sachs expected China to reopen in the second quarter of 2023 in their annual China outlook report published in November and forecasted China’s GDP growth to “accelerate from 3.0% this year to 4.5% next year.” The first quarter after reopening might see negative growth, due to Covid case surges and people temporarily reducing travel, the report said. However, China might see accelerated growth once people adjust to the new reality, as experiences from other East Asian countries that have implemented strict Covid controls show. 

EVs drive automaker growth, BYD claims dominance

In a year of lackluster consumer confidence, new energy vehicles (NEVs, including plug-in hybrids and electric vehicles) have been a rare bright spot in China. The country’s car buyers showed a strong preference for NEVs over traditional gas cars. The share of NEVs in the new car sales reached 36.2% in November, growing from last year’s 22.5% and surpassing China’s goal of 25% by 2025, three years ahead of schedule. 

And no Chinese automaker had a better year than BYD. The local EV and battery maker climbed to a dominant position in the new energy vehicle segment. At the same time, China’s leading EV trio — Nio, Xpeng, and Li Auto — faced various problems and lost some of their shine.

BYD managed to capture market share from other strong rivals this year. In a year, BYD grew its share of NEV sales from 19.5% to 31%, while Wuling’s went down from 14.4% to 8%, and Tesla China went down from 10.7% to 7.9%. 

As of November, BYD more than doubled its sales from last year, selling more than 1.57 million NEVs this year in China, taking more than 31% of the market share, ranking first and way ahead of the trailing pack of automakers. Wuling, a state-owned mini EV maker, is second, selling more than 400,000, growing 7.1% from last year, and accounting for more than 8% of the market. Tesla’s China operation came in third, with more than 397,800 cars sold, a 59% annual growth, and a 7.9% market share. Li Auto, Xpeng, and Nio ranked 10th, 11th, and 12th, each taking less than 2.3% of the market, down about 1% from last year. 

Other local automakers, such as Geely, GAC’s Aion, Chery, Changan, and Hozon, also had a good year and grew their market share, though the speed and scale of BYD’s growth were unrivaled. Hozon made it into the top ten EV brands by sales for the first time this year, squeezing out the state-owned joint venture SAIC. Geely also saw impressive market share growth, rising from 2.7% last year to 5.3% this year. 

BYD has two main advantages: competitive pricing and an integrated supply chain. BYD’s popular models — BYD Song Plus and BYD Qin — have been frequent bestsellers in their categories in the last six months. Priced between RMB 150,000 and RMB 220,000 ($21,470 to $31,490), these models are known for affordability and fuel efficiency. Unlike many other automakers hit by supply chain crunch and price hikes of source materials, BYD was able to keep its competitive price as a major battery maker in its own right (and one that is reportedly set to supply its blade battery to Tesla). BYD is also expanding outside China, systematically entering Japan, Southeast Asia, and Western Europe, with more overseas pushes planned ahead. 

However, such impressive growth could slow in 2023. Multiple automakers in China gave conservative outlooks for the first half of 2023, citing the end of EV purchase subsidies at the end of 2022. Many brands also cut prices and gave out promotions to attract buyers to place orders before the end of 2022, boosting their year-end sales and capitalizing on the last subsidy run. These moves are likely to overdraft 2023’s sales in advance. 

Pinduoduo wins in China, competition heats up in overseas markets 

In the economic downturn, budget retailer Pinduoduo outrivaled established platforms like Alibaba and JD. In the third quarter, Pinduoduo reported 65% growth in revenue and a whopping 388% growth in operating profit, contrasting with Alibaba’s relatively flat growth of 3% in revenue and 68% in operating profit, and JD’s 11.4% growth in revenue and 276% in operating profit. Alibaba fared worse than JD, seeing a steep drop in revenue growth, with yearly growth hitting below 10% for the first three quarters of 2022, a major departure from the 20% or 30% plus growth rates it has been accustomed to in the past few years.

Although Pinduoduo’s vice president of finance, Liu Jun, said at a third-quarter earnings call that the company was “unlikely to maintain” that level of profitability, the temporary strong growth still showed the broad appeal of a well-run budget retailer during lean times. 

China’s year-end shopping festival Singles Day was also increasingly losing its appeal. Industry leaders Alibaba and JD didn’t release their overall sales data for the first time in a decade. Moreover, these established retailers were also facing serious threats from ByteDance’s Douyin as the short-video platform continues to see strong growth in live commerce. 

In contrast to the slow growth back home, outside of China, competition has been heating up for Chinese overseas retail platforms. In March, Shein, the Chinese online fashion platform known for its ultra-cheap prices, managed to expand its market share of fast fashion sales in the US to 40%, continue to widen its lead over H&M’s 27%, Zara’s 17%, Forever 21’s 9% and Fashion Nova’s 6%, a report from Bloomberg Second Measure said. Shein became the largest fast-fashion retailer in the US in the second quarter of 2021 and grew its US sales more than 5.6 times between March 2020 and March 2022. 

Seeing Shein’s success, Pinduoduo also launched an overseas retail platform Temu in September. The platform surpassed $1.5 million in average daily gross merchandise value (GMV) in its first month. Although the figure fell slightly short of internal expectations, the platform was spending heavily on ads to capture new customers, even becoming the most-downloaded shopping app in the US, surpassing Amazon, Walmart, and Shein. Nevertheless, it remains to be seen whether such growth is sustainable. 

A somber year for China’s semiconductor industry

Since Chinese tech giants ZTE and Huawei began to be hit by US sanctions five years ago, the Chinese tech industry has wondered about the evolution of US sanctions. This fall, the multi-year effort hit a new level. 

In October, the US announced a sweeping set of restrictions on semiconductor exports to China, aiming to cut China off from accessing high-end chips and the tools to make them. Instead of putting individual companies on blacklists, the new restrictions took aim at the entire Chinese semiconductor sector and related industries. 

In particular, the Biden administration is trying to limit China’s ability to make advanced chips under 16nm or 14nm, DRAM memory chips of at least 18nm, and NAND flash memory chips of 128 layers or more. Meanwhile, the US is also pursuing chipmaking toolmakers in the Netherlands (ASML) and Japan (Tokyo Electron), pressuring them to stop selling China the tools to make high-end chips. There aren’t many ways around these curbs. Unless advanced chipmaking technology changes or undergoes a fundamental evolution, China’s dream of making its own advanced chips in the next few years might be limited. 

Content platforms see ad revenue winter 

The content and entertainment sectors have seen significant blows in the past year, not just in China, but also worldwide. According to the Hurun Global 500 list, media and entertainment companies suffered the most significant drop in value in 2022, followed by retail, software, and services, while the biggest gainers were in energy and insurance. 

Major content platforms in China saw dwindling advertising dollars as companies cut marketing budgets to weather the economic downturn. Worse, whatever budget was left was increasingly going directly to e-commerce platforms such as Pinduodou and JD rather than content platforms like Tencent, Baidu, and Weibo. 

Content giant Tencent saw yearly revenue decline by 3% and 2% in the second and third quarters, with advertising revenue down almost 18% in the second quarter. In late December, Tencent’s CEO Pony Ma said in an internal speech that the company could cut Tencent News, the company’s signature news website established in 2003, if the site can’t break even by itself. 

Search engine giant Baidu also saw revenue decline by 5% in the second quarter, and a flat 1.9% growth in the third. Microblogging site Weibo saw heavy losses too, reporting 22% and 25% revenue declines in the second and the third quarter. 

Gaming companies in China saw a few signs of easing conditions. In April, China began issuing gaming licenses again after an eight-month freeze. But heavy regulation on the sector in 2021 has continued to have ripple effects, and video game companies were projected to see a 2.5% annual revenue decline in 2022. Many smaller studios had to lay off staff or even shut down their companies while waiting for their new games to be approved by the authorities. The worst might be over, but the pain is still being felt throughout the industry. 

Related reporting from TechNode

Auto 

• BYD makes expansion moves in Southeast Asia and Europe

• Meet the Chinese carmakers racing to get a larger share of the global markets

E-commerce

• How Shein became China’s ‘TikTok for e-commerce’

• Shein surpasses Amazon in downloads for the first time in the US

Semiconductors

• The US’s moves to contain China’s semiconductor industry: a timeline from July

• Chinese semiconductor firms bear heavy fallout of US chip sanction

Content

• China resumes issuing new gaming licenses after 8-month freeze

• Tencent’s overseas gaming revenue helps lead Q3 recovery

A week after Tencent’s co-founder Pony Ma emphasized that short video is key to the tech giant’s future, the company’s short video service WeChat Channels announced that it is set to charge e-commerce merchants a 1% to 5% commission fee in the coming year, according to a report by local media outlet Tech Planet.

Why it matters: Tencent’s rebounding profit growth in the July-September period after four consecutive quarters of decline is a sign of the company’s gains from its ongoing cost-cutting measures, but finding new revenue streams remains a priority. With 800 million monthly active users, WeChat Channels (a TikTok-like short video platform within the messaging app) provides a clear monetization opportunity.

• Tencent recorded its first-ever quarterly revenue decline of 3% year-on-year in the second quarter of 2022 and a 2% decline in the following quarter. Weak online advertising revenue was the main factor dragging down the company’s growth.

Details: The total value of live commerce sales generated from WeChat’s short video platform is between RMB 40 billion to RMB 50 billion ($57.5 billion to $71.9 billion), a service provider close to the unit told Tech Planet. 

• The report said Tencent’s short video platform will charge different service fees based on different categories, with the highest rate of 5% applying to personal care, underwear, sports and outdoors, baby and maternity, and home and kitchen.
• Tencent is offering new merchants preferential policies, with the commission reduced to 1% for transactions of RMB 1 million or less during the first 30 days.
• TikTok’s sister app Douyin has been charging 1% to 10% for technical services fees since February 2020, while rival Kuaishou requires merchants to pay 5% of the actual transaction value of an order.

Context: Tencent has seen users’ total time spent on WeChat Channels exceed 80% of the time spent on WeChat Moments (the app’s friend feed). The total number of viewers of video on the platform increased by 200% compared to the same period last year, the firm’s President Martin Lau said on the company’s second-quarter earnings call.

• WeChat’s video unit set up a live-commerce team last July, with its daily transaction value reportedly reaching RMB 100 million for the first time in September.
• In addition to the emerging role of the e-commerce business, video account ads are also being regarded as a major way for Tencent to expand its revenue. Lau said he expected quarterly revenue from in-feed ads to surpass RMB 1 billion in the fourth quarter.
• WeChat has launched a variety of advertising formats for businesses, including WeChat Moment ads on users’ friend feeds, official account ads, mini-program ads, video account ads, and search ads, with two to five options in each format.

China’s media regulator released its December game licensing list for domestic and imported games on Wednesday. The National Press and Publication Administration approved 84 China-made games and 44 imported overseas games. Among those winning approval, Tencent got a green light for Pokémon Unite, part of the famous franchise co-developed with Nintendo. NetEase also scored several approvals. 

Why it matters: Despite the resumption of gaming licenses in April after an eight-month freeze, China again skipped approvals this year in May and October, and overall approved far fewer games than in previous years. The country approved 468 domestic games this year, 38% less than in 2021 and only a third of those approved in 2020, according to Caixin’s calculations. 

Details: Tencent received approval for one domestic game and five imported games. NetEase got one domestic game and two imported games approved. Alibaba’s Lingxi Game and ByteDance’s Nuverse won approval for one imported game each. 

• Tencent’s NExT studio got its third-person shooting game Synced: Off-Planet approved. The world-leading game developer also won approvals for five imported games: Pokémon Unite, Valorant, Don’t Starve Newhome, The Age of Navigation: Sea Overlord, and Crossfire developer Smile Gate’s Lost Ark.
• NetEase’s Racing Masters, a racing game co-developed with British car game developer Codemasters, also won approval. NetEase also gained licenses for Raid: Shadow Legends and Fantasy Life, two imported role-playing games. 
• Chinese gaming firm Perfect World also won approval for two imports: Two Point Hospital and Dorfromantik.

Context: Although the Chinese regulator has shown signs of loosening the crackdown on the gaming industry that began in August 2021, it is still handing licenses to fewer games and doing so with less frequency than before. 

• This round of approvals was the first time in 17 months that the Chinese regulator gave nods to imported games developed overseas. Last year, the regulator handed out imported game licenses in June, approving 76 games, 42% more titles than on this year’s approved list.

Tencent’s founder and CEO Pony Ma has warned employees that any part of the business could be shut down if it underperforms, adding that short video is key to the tech giant’s future. Ma made the remarks at a Dec. 15 internal staff meeting held online. Part of his speech was first reported by the Chinese news outlet Jiemian on Thursday.

Why it matters: Focusing on profitability has become even more important as Tencent’s core revenue streams in advertising and gaming have been hit by the macroeconomic slowdown and Chinese regulators’ tightening of gaming limits for young people. Tencent’s billionaire co-founder insisted the company should make cost-cutting a long-term habit, a clear bellwether for current sentiment in China’s tech sector.

Details: Pony Ma, who rarely expresses frustration at internal meetings, was unrelenting in his criticism of some of the company’s best-known and established units, such as Tencent News, according to Jiemian’s report. He also emphasized that Tencent should continue to focus on its core businesses while making short videos its new priority.

• For Tencent News, Ma stated that if the business couldn’t be self-sustaining, “there would not be much time left for them.” Ma did note however that the unit had begun to turn around in October after he made a “high demand” regarding profitability to Jonathan He, the new Tencent News head, who replaced Wang Shimu in May.
• Ma indicated that he expects Chinese regulators to continue issuing limited numbers of video game licenses, asking the firm’s gaming unit to focus on making high-quality games and “not to waste any chance of getting a license.”
• According to Jiemian’s report, Ma told employees that he regards WeChat’s short video channel as “the hope of the whole company”. He said Tencent will incorporate e-commerce features into its short video channels in the near future. He also said that the rapid development of short video in recent years is forcing the company to adjust its investment strategy for longer-length videos.
• Ma reportedly went on to turn his attention to what he described as the “corruption” faced by the internet company, labelling the situation as “shocking”. Tencent fired nearly 70 employees in 2021 over claims of commercial bribery and embezzlement, local media outlet Yicai reported earlier this year. Among the 70, more than a dozen were referred to the authorities for suspected criminal activity.

Context: In the April-June period this year, Tencent posted its first quarterly revenue decline since it went public in 2004, with revenue falling another 2% year-on-year the following quarter. Tencent’s core gaming revenue and revenue from its online advertising business both recorded year-on-year declines in the first three quarters of 2022, hit by China’s economic slowdown and ongoing regulatory scrutiny.

• Ma’s remarks followed another round of layoffs at the company in November, with Reuters reporting the layoff affected Tencent’s video streaming, gaming, and cloud businesses. The tech giant undertook multiple job cuts earlier this year, with Tencent’s earnings showing that it had 108,836 employees by the end of September, 6.3% lower than in the first quarter of this year.
• Tencent has shut down at least 16 products in 2022, including digital collectible platform Huanhe, video player QQ Player (which had run since 2008), and free WiFi software Tencent WiFi-Manager. It also cut 29 games, four of which have been online for more than a decade, according to local media outlet Times Finance (in Chinese).

As much of the world grapples with slow growth and high inflation in 2022, Hurun Research Institute’s annual Global 500 list shows the damage that has been inflicted upon the world’s top companies in the past year. 

The top 500 companies lost $11 trillion — a 19% drop in valuation from 2021 and equivalent to all of the value they created last year. Energy companies enjoyed strong growth, while retail and e-commerce were the hardest hit. Companies from four countries accounted for 80% of the loss: US firms lost $5 trillion, Chinese firms $2.9 trillion, and German and Japanese businesses lost $600 billion each. 

Overall, 35 Chinese companies made the list in 2022, 12 fewer than the previous year. Sixteen companies dropped out of the list, including some notable leaders in their sectors such as short video platform Kuaishou, pharmaceutical company WuXi Biologics, electric vehicle maker Nio, ride-hailing giant Didi, and video content platform Bilibili. 

Four Chinese companies made onto the list for the first time. They are: Shein, Webank, JD Technology, and Tongwei.

Here’s what you need to know about the four new entrants: 

1. Shein

Ranking: #355

Fast fashion retailer Shein broke into the Hurun Global 500 list for the first time with a valuation of $40 billion, ranking at number 355.

Formed by Chinese entrepreneur Chris Xu in 2008 as an online wedding dresses platform, the business expanded to women’s fashion and took on the brand name Shein four years later. Today, it has become one of the biggest names in fast fashion.

The e-commerce site was valued at approximately $15 billion in 2020, according to figures from PitchBook Data Inc. cited in the Wall Street Journal; the US newspaper also stated that Shein’s valuation has risen nearly sevenfold in two years, hitting $100 billion this April. Shein’s total sales are expected to grow by 50% to $30 billion in 2022, the Wall Street Journal cited a source close to the company as saying in early November.

Various factors contributed to Shein’s rapid rise: low prices, a constant flow of new products per day, and popularity among TikTok users.

Shein is able to maintain lower prices than rivals Zara and H&M as it sells most of its products directly to consumers. The firm produces 700 to 1,000 new products in small batches per day, with mass production carried out only when an item sees high sales volume.

The fast fashion platform has received 7.5 billion views on TikTok with the hashtag #Sheinhaul, well ahead of the 4.2 billion views for #Zarahaul.

2. WeBank

Ranking: #433

As the first private internet bank in China, WeBank has been valued at $33 billion according to the Hurun Global 500 list.

Co-founded by Tencent in 2014, WeBank has attracted a significant number of users in a short period of time, relying on the tech giant’s messaging super apps WeChat and QQ. The digital bank posted more than 320 million active users by the end of 2021.

Weilidai and Weiyedai are the two main services the Shenzhen-based firm profits from; the former targets micro loans to individuals and the latter provides loans to small businesses. WeBank also offers auto loans.

According to Webank’s 2021 annual report, it achieved a revenue of RMB 26.99 billion that year, with net interest income accounting for 66.6% of total revenue. The internet bank recorded a net profit of RMB 6.88 billion in 2021, up 38.9% year-on-year; for comparison, Alibaba-backed MYBank posted RMB 2.09 billion net profit in 2021.

3. JD Technology

Ranking: #483

As the fintech arm of e-commerce retailer JD, JD Technology was reorganized in January 2021 on the basis of the former JD Digits, JD Cloud, and artificial intelligence units. The company mainly provides digital solutions to financial institutions and enterprises as well as local governments.

JD Digits filed for IPO on Shanghai’s Star Market in September 2020, with a valuation of up to RMB 200 billion. However, the firm later withdrew its IPO application in the middle of the process after Ant Group’s abruptly terminated IPO brought regulatory uncertainty to the country’s fintech sector.

The main source of revenue for JD Digits is its financial businesses. According to the prospectus filed by the firm at the time, it recorded a total revenue of RMB 10.33 billion in the first half of 2020, of which the revenue of two credit products – JD Jintiao and JD Baitiao – was RMB 2.64 billion and RMB 1.79 billion respectively, accounting for a combined 43% of the total revenue.

Reuters reported last month that the JD fintech unit is seeking Chinese regulatory approval for a new attempt at a Hong Kong listing as soon as the end of this year, adding that the size of the IPO is likely to be smaller than the previously suggested $2 billion.

4. Tongwei Co. Ltd

Ranking: #483

Based in the southwestern Chinese province of Sichuan, Tongwei is mainly engaged in the production and sale of agricultural feed. The company is also the world’s largest polysilicon supplier.

In the first three quarters of 2022, Tongwei achieved a net profit of RMB 21.73 billion, 1.65 times that of the last full year. The figures saw Tongwei better LONGi Green Energy Technology, the leader in the solar photovoltaic industry. LONGi posted RMB 10.98 billion in net profit in the January to September period, compared with a net profit of RMB 9.09 billion for the full year of 2021.

Tongwei attributed its rapid growth in the past two years to the continued strong market demand for high-purity crystalline silicon products, which has driven up market prices significantly.

The price of silicon materials has increased by 315% in the past three years, from RMB 73/kg in early 2020 to RMB 303/kg in the third quarter of 2022, according to Chinese financial and stock information provider Eastmoney.

Meanwhile, the company’s solar cell unit – which makes the core component for photovoltaic power generation – saw significant year-on-year growth in production and sales, enabling it to maintain strong market competitiveness.

Every September, Chinese tech majors kickstart a series of charity events, such as Alibaba’s Sept. 5 Charity Week and Tencent’s Sept. 9 Giving Day. Since this tradition of “charity month” in China was pioneered eight years ago by Tencent, these peer-to-peer fundraising campaigns have become the primary way that the general public in China gets involved in charitable donations to non-profit organizations.

Similar to Alibaba’s famous Singles Day shopping festival, these mega campaigns are led and hosted by internet companies and their respective platforms. Platforms will often offer generous fund-matching policies and incentives to encourage donations.

However, the past year has not been known as an easy one for most Chinese tech companies. Internet giants including Tencent and Alibaba reported slowing year-on-year revenue growth, while ByteDance reportedly cut a large number of staff across departments, including in sectors like edtech and gaming that were robustly growing before being hit by regulation changes.

Amid an economic slowdown, weak spending, and regulatory pressure, what’s the draw for Chinese tech companies spending on charity events?

Why are Chinese tech majors organizing giving events? 

Although the charity frenzy usually declines after the promotional period, it still creates substantial short-term traffic for the platforms at a time when users are increasingly hard to gain and retain. According to Tencent’s published data, more than 58.16 million donors participated in this year’s Sept. 9 Giving Day and total public donations amounted to RMB 3.3 billion (USD 476 million). “Charity festivals look good to the public at a time of distress, and are a very visible way to take on social responsibility for corporations,” said Rui Ma, China tech analyst and investor.

It’s an important period for the NGOs too. “Every September has become an unofficial carnival for non-profit workers,” said Jenny Yue, a volunteer at a Beijing-based charity organization, “marking it the most active time for Chinese non-profit professionals and an unofficial team-building experience.”

Yue stated that the pandemic had hit NGOs hard, with a lot of initiatives dying out and a significant shrinkage of funds for those that remained. Efforts during the charity month have therefore become paramount to building a strong donor base, and for some, survival. “Sept. 9 has almost become a ‘must’ instead of an option for non-profits,” Yue said. Omnipresent promotion from platforms, including Tencent’s super app WeChat, helps bring in more attention than these organizations could ever get otherwise. NGO workers thus tend to use all the resources at hand to make the most out of the festival. They recruit volunteers who care about the cause and train them specifically on how to use the platforms and navigate their charity month campaigns in order to maximize their impact during the festival.

The platform rules, however, while bolstering the donation process for charities, also create barriers for fundraisers, especially grassroots ones. Some small non-profits lacking organizational capacity or digital know-how are prone to get left behind during this period. ByteDance’s DOU Love Charity Day reportedly sparked some debate regarding its mechanism for matching fund distribution – fundraisers can only get promotional codes and bonuses based on the number of new users attracted to the platform. 

Yet as internet companies rise as definitive players in the field of philanthropy, more thoughtful engagements are expected to transform the decades-old charity practices in China.

The state of philanthropy in China

Unlike the US, where 80% of charitable donations come from individuals, 80% of charitable donations in China come from the corporate sector, according to the charity research platform Global Giving. This data reflects the challenge of fundraising in China: the country’s modern philanthropy ecosystem only began to form after the 1980s market reforms and has taken hits ranging from executive scandals and corruption to complicated bureaucracy and digital revolutions before it has really had a chance to bloom. 

Peer-to-peer social fundraising thus became a fertile ground for Chinese social media giants to establish dominance and differentiate themselves. In 2018, the Chinese Ministry of Civil Affair announced a list of 10 companies that were authorized to raise funds, effectively making mega internet companies the only players allowed to conduct online charitable fundraising alongside a few government-backed organizations. “Social media serves as a perfect pool of traffic that leads to the act of donation,” said Jonathan Yi, a Chinese internet analyst. “The WeChat-based Sept. 9 Giving Day is uniquely advantageous when it comes to raising funds through mobilizing individual volunteers and their social circle. ”

This year, Tencent upgraded its social token “little safflower” game to encourage wider participation in the annual campaign. Contributors could collect “little safflower” not just by donating money, but also through participating in charity activities, such as collecting running mileage and doing other good deeds on Tencent platforms, all adding to the final number of “little safflower” and the corresponding matching donation. “The sharing-donating-sharing chain perpetuates itself among a network of acquaintances, and formulates a virtuous circle,” said Yi.

The same goes for Douyin, another social app based on human-to-human interaction, an existing user habit that charitable donations could be built on top of. In 2020, ByteDance was finally approved by the Ministry of Civil Affairs as an authorized online donation platform. However, unlike WeChat, which retains regular social interactions, Douyin leans heavily towards a creator-consumer relationship. The platform thus tailored its matching fund policy to attract new users: donations from newly signed-up users are multiplied by 20 and matched by the platform. 

This is not the first time that ByteDance has tried to leverage the social function of its apps for charity. On the global version of TikTok, creators can pick a charity of their choice to display on their profile, designating not just a call to action but a sense of identity. 

Differentiation through giving

Tencent, which boasts the longest-running and most widely-participated charity festival, is moving beyond just donations and starting to further its all-encompassing ecosystem into business-to-business areas. Digital Toolbox, a package of a plethora of Tencent services including Tencent Cloud, Tencent Doc, and Tencent Meeting, was an initiative Tencent designed to help NGOs digitize. The Chinese tech giant has also launched an accessible version of a full range of products including WeChat, QQ Mailbox, QQ Music, and Tencent News to support individuals with disabilities. 

On the other hand, Alibaba, as an e-commerce platform, has made empowering small merchants its priority. Starting in 2019, Taobao enabled merchants to label some of their items as “charity products”, meaning a portion of the revenue will go to a charitable cause of the store owner’s choice. In 2022, 2.2 million Taobao merchants participated in this campaign, while 500 million consumers supported the initiative. 

Although its education unit is undergoing a major reorganization, ByteDance is still actively working to build an education empire off of its influence. In its 2021 ESG report, the company listed “education equity” as its “highly important” top value, ahead of “technological innovation” and “originality protection.” This year, ByteDance started multiple education-related initiatives, including one dedicated to helping Fujian primary schools in rural areas gain access to digital education. 

Conclusion

Despite economic stagnation, China’s tech majors are very unlikely to stop hosting charity festivals. In fact, they might rely more heavily on peer-to-peer donations and extend their influence further into users’ everyday life. At a time when major internet companies are trying to cut costs and increase efficiency, regular charity events could become another form of marketing for them. 

Chinese tech giant Tencent posted its results for the third quarter of 2022 on Wednesday, reporting RMB 140.1 billion ($19.7 billion) in revenue, a 2% year-on-year decline. The figure missed analysts’ average estimation of RMB 141.6 billion, according to Reuters. Profit attributable to equity holders of Tencent for the quarter was RMB 39.9 billion, a 1% year-on-year increase and a significant achievement considering the company saw a more than 50% yearly fall in that figure for the first and second quarters of 2022.

The data follows a number of “adjustments” that Tencent has made to its multiple businesses, and also reveals that its gaming sector, which accounted for 31% of the company’s overall revenue in the third quarter, recorded consistent growth overseas. 

Why it matters: Even as one of China’s most influential technology giants, Tencent is still struggling to fight against the macro downturn. As with other Chinese tech firms, it’s gaming arm has been increasingly looking overseas for growth, investing in international assets and working with partners to develop more titles for global publication. The return on this strategy is now evident in the company’s financial results.

Details: According to Tencent’s financial results, revenue from domestic games continues to fall this year, but international games have consistently contributed to revenue growth. In the past two years, Tencent’s domestic gaming business peaked at RMB 33.6 billion in revenue for the third quarter of 2021. Since then, it has dropped each quarter, mainly due to China’s gaming regulations aimed at minor protection, which include time limits for those under 18 and took effect in Sept 2021.

• For the reported quarter, revenue from Tencent’s domestic gaming business declined 2% quarterly and 7% yearly to RMB 31.2 billion, according to the company’s financial results and our calculations.
• According to Tencent, time spent on gaming by under 18s in China saw a sharp 92% drop in July compared with the same month last year. In July 2022, gameplay time by minors accounted for just 0.7% of the domestic total, the firm said.
• The situation was made more complex by the unpredictable nature of gaming license approvals in the country (the National Press and Publication Administration did not issue any licenses last month). However, Tencent executives struck an optimistic tone on Wednesday’s earnings call, saying that the company had acquired a license in September and believed that there would be more licenses approved soon.
• By contrast, revenue from Tencent’s international games saw steady quarterly growth. For the reported period, there was a 9% quarterly and 4% yearly increase in revenue for the company’s overseas gaming business, generating RMB 11.7 billion. In its most recent financial report, Tencent attributed the data to “robust growth from Valorant, the successful launch of Tower of Fantasy, and an expanded game portfolio at Miniclip, versus decreased revenue from PUBG mobile.”
• Regarding Tencent’s other businesses in the third quarter, CEO Pony Ma stated that “we started to benefit from the adjustments that we have made to reposition ourselves for a new industry paradigm. We activated in-feed advertisements in Video Accounts, and executed cost efficiency initiatives which re-focused us on core activities and controlled our cost growth.” He added that the firm had seen “a growth in non-IFRS earnings after four quarters of decline” due to these achievements, while also highlighting the breakthrough in international games publishing.

Context: Tencent is the largest video gaming firm in China and the second largest in the world by market cap. The tech giant also built a social network empire with QQ and WeChat (Weixin in China).

• Tencent faced mounting challenges relating to policy uncertainty and a macroeconomic downturn in 2022. The company’s stock price dropped to a five-year low by the end of October, according to data from Google Finance. 

• The company announced on Wednesday that it would divest over 90% of its $20.4 billion valued stake in Meituan to shareholders as a special dividend, following a similar divestment from JD.
• In the gaming sphere, the firm made major investments directly or indirectly this year in notable developers and publishers such as Ubisoft, Elden Ring developer FromSoftware, and Subway Surfers developer Sybo.
• Tencent is also building out content universes for its most popular titles Honor of Kings and League of Legends, as an additional means of increasing profit.

Chinese gaming giant Tencent held a special event on Nov. 12 to celebrate the seventh anniversary of its hugely popular TiMi Studio-developed title Honor of Kings. At the event, the firm provided new details about expanding a “universe” of productions related to the hit game.

Honor of Kings became China’s most profitable mobile title in January 2022, taking the crown from another mobile title developed by Tencent, PUBG Mobile. The game generated $190 million in September alone, according to US data firm Sensor Tower. Launched in 2015 in China, Honor of Kings recorded 50 million daily active users in 2016 and then hit 100 million in 2020, according to official data. Tencent brought the game to overseas markets for the first time this year. 

The game’s success has spurred Tencent to pursue a similar strategy used successfully with League of Legends: building and expanding the game’s universe by adding related titles and spin-off products for greater revenue growth.

While the titles shown at the event did not come with specific launch dates, the update was still a positive sign that the projects remain in progress despite the recent challenging regulatory environment for the Chinese games industry.

The event showcased new developments on three gaming titles – Honor of Kings Chess, Honor of Kings: World, and Code: Breaking Dawn – and one animation entitled Brothers Baili (all names are our translations). We’ve outlined the details (that we know of so far) for each below.

Honor of Kings Chess

At the release event, Tencent announced a new chess title based on Honor of Kings. Judging by the computer graphics preview, Honor of Kings Chess is either an auto chess or auto battle gaming title, with gameplay similar to League of Legends’ Golden Shovel (our translation). Players use strategies on the cards dealt to them or chess combos to fight with other players. The title was developed by a unit from the main Honor of Kings title, according to ITHome (in Chinese). 

Honor of Kings: World

First revealed in October 2021, Honor of Kings: World is an open-world RPG title. At the event, Tencent released a new demo video of the gameplay, presenting more details about character skills and the gaming world. Based on this, the title features a stylish art design similar to The Legend of Zelda: Breath of the Wild, with stunning visual effects during combat scenes. The general gaming scenes are also of high graphic quality and look close to an AAA-level title. Some details, such as clothes and grass, display surprisingly realistic physical effects.

The title will be published globally on multiple platforms, according to the description of a previous video released through Tencent’s official Bilibili account.

Code: Breaking Dawn

Code: Breaking Dawn is a fighting game that was first announced in 2020. The game title brings major “kings” from Honor of Kings to a stage for Street Fighter-style player-versus-player battles. At the event, Tencent released a new teaser trailer, demonstrating the skills of some of the characters, including Sun Wukong, Diaochan, and Kai.

However, the title is still in development, and no specific launch date has been set.

Brothers Baili

In addition to the aforementioned gaming titles, Tencent also provided an update on its Honor of Kings feature film series. The first movie, named Brothers Baili, will focus on the stories of the two popular characters Baili Shouyue and Baili Xuance. The movie will dive into the brothers’ childhood, building out the characters’ backstories. 

Based on the trailer, the animation could be presented in a 3D style. According to the description, the trailer involved Huang Chengxi, a notable director and animation artist who worked on 2017’s Boruto: Naruto Next Generations.

Chinese tech majors Tencent and ByteDance were the top-grossing publishers in global mobile app stores for the first half of 2022, according to a report by business insight firm Sensor Tower.

The global mobile app market is highly centralized, with 91% of revenue coming from the top 1% of publishers. Over the years, such centralization has been shrinking; the market share of the top 1% has hit its lowest point since 2019.

Why it matters: Tencent and ByteDance have dominated the global mobile markets for years with their trending game titles and the internationally phenomenal video app TikTok. The two majors have invested heavily outside of China, launching new services and acquiring studios in recent years.

• Despite the highly centralized nature of this market, top players are losing shares and creating more space for newcomers.

Details: By analyzing 900,000 publishers on the Apple App Store and Google Play, Sensor Tower found that the top 1% of publishers accounted for 79% of all downloads and 91% of revenue on the two platforms in the first half of 2022. The remaining 99% shared 21% of the market.

• Tencent was the top-grossing publisher in game and non-game categories, earning about $3.3 billion in the first half of 2022. The figure is almost 153% larger than ByteDance, which came second on the chart with $1.3 billion in revenue.
• Tencent was also the most profitable gaming app publisher in the same period, generating over $2.6 billion, thanks to its popular titles like Honor of Kings and PUBG Mobile​​. Tencent accounted for around 10% of revenue from all top game publishers.
• In the gaming category,106,000 publishers introduced new titles in the first half of 2022. While the top 1% of gaming publishers took over 79% of the market globally with 22 billion downloads.
• In non-game apps, ByteDance’s TikTok remains the global app bestseller and most downloaded in the first half of 2022, helping to boost the company’s revenue growth. 
• In August, TikTok and Douyin, two short video apps owned by ByteDance, pulled in more than $306 million from the global Apple App Store and Google Play, contributing to the first-place ranking in the global mobile non-game revenue list, a figure 1.8 times that of the same period last year.

Context: Revenue from mobile apps saw a 2.2% decrease semi-annually (in Chinese) in the first half of 2021, a total of $65 billion less than in the second half of 2021. It is the first fall in revenue since 2019, according to Sensor Tower.

• The fall was mainly due to a revenue decrease from mobile games, which hit $41.3 billion in the first six months of 2022. The US, Japan, and China are the top three markets for mobile games, with the former two seeing over 8% less revenue compared to the second half of 2021.
• Tencent has been ambitious this year, making major moves in the overseas gaming market. The firm announced new progress with its partner Ubisoft, which just doubled its holding shares in new mobile titles. It also invested in notable publisher and developer FromSoftware, and acquired Sybo, maker of popular game title Subway Surfers.
• TikTok also has great expansion plans in the overseas market, with a particular focus on e-commerce business. Since it launched TikTok e-commerce in Indonesia in February 2021, it has expanded local and cross-border business in Thailand, Vietnam, Malaysia, the Philippines, and Singapore. TikTok also cooperated with e-commerce giant Shopify last August, allowing users from the US and Britain to buy goods directly through the app.

Nearly a quarter of China-founded VCs make the Hurun Global VCs list.

Some 25 China-founded venture capital funds made it to the Hurun Global Venture Capitalists 2022 Half-Year Report released on Tuesday, which selected 121 VCs that have captured the largest number of unicorns and gazelles in their portfolios. (A gazelle company is a fast-growing enterprise with at least $100,000 in base revenue and four years of sustained revenue growth.)

US investment firms accounted for 71% of the list, while Chinese firms took 21%, and Singapore firms took 3%. Two Chinese VCs made it into the top 10. Tencent ranked fourth, behind Sequoia Capital, Softbank, and Tiger Global, investing in 122 unicorn and gazelle companies. CICC ranked fifth on the list with 115 investments.

The listed Chinese VCs invest in diverse industries, with biotechnology, smart manufacturing, and e-commerce as key industries that many pay attention to. The top 10 Chinese VCs on the list are Tencent, CICC Capital, Hillhouse Capital, Qiming Venture, CITIC Capital, Alibaba, Shunwei Capital, Yunfeng Financial, Dinghui Investment, and 5Y Capital.

Here’s what you need to know about the five top-ranking Chinese VCs from the list: Tencent, CICC Capital, Hillhouse Capital, Qiming Venture, and CITIC Capital.

1. Tencent

Ranking: #4

Tencent Investment is a corporate venture capital arm of the Chinese tech giant Tencent. The firm has helped fund more than 1,300 companies, with a preference for investment in social networks, online games, e-commerce, and healthcare sectors.

Key bets include Pinduoduo, DiDi, Keep, Xiaohongshu, Webank, HeyTea, XSKY, and Discord. 

Facing regulatory pressure and a slowing economy, Tencent Investment has been divesting recently,  selling its stakes in Chinese e-commerce giant JD, Southeast Asian tech firm Sea, and the A-shares listed Huayi Brothers. There have also been reports that Tencent may sell most of its shares in Meituan. However, Tencent has officially denied it, with representatives saying that Tencent hasn’t set any target amount for reducing holdings and the company is not under external pressure concerning its portfolios.

In addition, Tencent itself has also suffered a cut in holdings by its majority shareholder Naspers Group this year.

2. CICC Capital

Ranking: #5

CICC Capital has invested in 115 unicorns and gazelles, as defined by Hurun, an increase of 55 compared to six months ago. 

Beijing-based CICC Capital was a late participant in the venture capital party, forming in 2017, but has grown into one of the leading private investment managers in China. According to enterprise data site ITjuzi, CICC’s investments mainly focused on the healthcare and advanced manufacturing sectors. CICC has invested a total of 118 companies in these two sectors, with total investment hitting nearly RMB 12 billion ($1.72 billion).

CICC has invested in unicorn companies such as United Imaging and Horizon Robotics, as well as gazelle companies such as CH Biomedical and Dera.

3. Hillhouse Capital

Ranking: #12

Founded in 2005 by Chinese investor Zhang Lei, Hillhouse Capital’s investments included some leading technology companies worldwide, such as Uber, Airbnb, Tencent, JD, and Meituan. The firm also focuses on the health tech industry with investment in biotechnology companies such as BeiGene. Hillhouse Capital has participated in a total of eight fundraising rounds for BeiGene since 2014.

Hillhouse Capital’s top 10 stocks are Yatsen, Vipshop, iQiyi, Ke Holdings, Cytek Biosciences, JD, Gossamer Bio, IMAB, On Holding, and BeiGene. Seven of these are US-listed Chinese firms.

Since the first quarter of 2021, the firm has reduced its holdings of iQiyi, Pinduoduo, Uber, Uxin, Tuya, and Huazhu Hotels Group, while increasing its holdings in Yatsen, as well as Vipshop, Legend Biotech, and Alibaba during the past year. 

As of the second quarter of this year, Hillhouse Capital held 64 stocks, with biotech, cloud computing, new energy, and other technology-based enterprises accounting for more than half of its total.

4. Qiming Venture

Ranking: #24

Founded in 2006, Qiming Venture now manages 11 US Dollar funds and seven RMB funds, with $9.4 billion in capital raised. Qiming Venture focuses on investing in healthcare, technology, and consumer industries, primarily involving itself in Series A and Series B funding.

According to Hurun, Qiming Venture has funded 59 unicorns and gazelles. Xiaomi, CanSinoBIO, Meituan, Bilibili, and Roborock have all received investments from Qiming Ventures.

5. CITIC Capital

Ranking: #25

Hong Kong-based CITIC Capital manages over $17 billion of capital. The firm has invested in 52 global unicorns and gazelles, as defined by Hurun, with medical technology, semiconductors, and intelligent manufacturing among its most promising investment directions.

The firm’s prominent portfolio hits include Express, Airdor, Quicktron, and XtalPi.

Chinese gaming giant Tencent announced this year’s winning indie games from its Game Without Borders Game Awards (GWB) in mid-August. In its fourth year, the Award is organized by GWB, Tencent’s indie game incubator, and grants cash prizes (up to $72,982) and other benefits to promising Chinese indie game developers. 

Developed by small teams, indie games tend to be less profit-oriented because some developers make them out of passion. Nonetheless, some Chinese indie games can become a hit, such as horror titles like Paper Dolls and Firework, which contain traditional Chinese horror story elements. 

The Award selected 21 titles this year. TechNode highlights five notable games from the list. None of the five titles has an approved gaming license, but Chinese players still have a chance to play them via Steam on desktop. 

Yi Xian: The Cultivation Card Game

Gold Award in card game

The title is an online deck-building game that allows players to become “ancient Chinese gods” as they progress in the game. 

The game is designed with ancient Chinese styles and fictional characters. Previously, a famous Chinese card game called Legends of the Three Kingdoms became a big hit for referencing the Chinese historical novel Romance of the Three Kingdoms, a war period towards the end of the Han dynasty (A.D. 220 to 280). The Yi Xian game is a new attempt to explore different storylines from ancient China. 

Players need to build a new deck from scratch in every game. Decks can be strengthened by changing cards, with the goal of building more powerful routines to defeat opponents and win. The gameplay looks like a combination of auto chess and traditional card games – while it is based on cards, it also includes strategic aspects similar to auto chess, like eliminating players through selection or competition to enhance the gaming experience in multiplayer. 

Hangzhou-based Mo Ri Studio (our translation) developed the game, which also won the Award for games with the most business potential. 

The game also has a notable publisher, GameraGame, which has introduced many well-known gaming titles that have previously excited the gaming community, including Firework and Dyson Sphere Program, two famous indie games. The title has closed its public testing. Tencent told TechNode that the game is coming to Steam in the fourth quarter of this year. 

Murders on the Yangtze River

Silver Award in puzzle game

Murders on the Yangtze River is a detective game set at the end of the Qing dynasty (1912) and developed by OMEGames Studio. Players will find out the hidden truths by solving fictional cases.

The gameplay seems similar to its rivals. Players must find clues and solve riddles to figure out the whole picture of the story. The game art incorporated Chinese artistic style, with characters designed using ink painting.

OMEGames Studio is owned by a Beijing-based gaming firm, Beijing Unifly Culture Innovation, which was founded in 2012. The studio starts developing games in 2019. The title is the studio’s first piece, according to the studio’s page on multiple gaming platforms. The game title launched a demo in July, according to its Steam page. Tencent told TechNode that the title would launch in the first quarter of 2023.

Nobody – The Turnaround

Silver Award in roleplaying game

Nobody – The Turnaround is a roleplaying game that challenges players trying to survive in cut-throat city lives. Players will navigate the game as a newcomer to a metropolis, attempting to make a living. 

According to its official introduction, the game is “set in a parallel world that echoes modern society.” It challenges players to manage resources and time in difficult situations. It also quantifies the main character’s health and emotion, with both requiring complex strategies to maintain good condition.

Developed by a lesser-known team at U.Ground Game Studio, founded in 2020 in Chengdu, the game is their first title and was announced in 2021. The game will also come to Steam in the autumn of this year, according to Tencent.

Mercury Abbey

Bronze Award in puzzle game

Mercury Abbey is another puzzle-solving game. Its pixel art design and anthropomorphic animals might set it apart — a combination that is popular among people who like animation, comics, and games.

Players can roleplay two characters in the title to unravel the secrets behind the nursery by collecting clues and solving puzzles. The pixelated look offers a unique texture and feel. The game is also dialog-heavy, with much of the plot driven by the narrative. 

Founded in 2020, the game’s developer YiTi Games was based in Chengdu. The developer launched a demo of this title in April and will officially introduce it sometime in 2023, according to Tencent. Mercury Abbey is also the developer’s first game listed on Steam. Like Yixian, it is also published by GameraGame.

Five Dimensions

Nomination in puzzle game

Five Dimensions is a puzzle-solving game with simple plots. The core gameplay is designed around the use of highlights and shadows to explore different dimensions on the screen. Players can manipulate the lighting and view angles to control the dimension changes and advance through the game.

The art style uses doodles and sketch looks, using a primarily monochromatic color scheme with a bright yellow accent. 

The developing team comprises six members from top Chinese universities like Tsinghua University and the Central Academy of Fine Arts. The title is in a private testing phase and is estimated to launch on Steam in December of 2023, Tencent told TechNode.

Read more: Chinese indie game developers recreate experiences of Alzheimer’s patients

A hundred and forty-five Chinese companies made it to the 2022 Fortune Global 500 list released on Wednesday. The listed Chinese companies span a diverse set of industries, including energy, metals, technology, banking, and insurance. State Grid, China’s national energy provider, is the highest-ranked Chinese company on the list at number three, just behind Walmart and Amazon. 

The revenue of these Chinese companies accounts for 31% of the 500 companies’ total revenue, surpassing the total revenue from US companies on the list (which is 30% of the total) for the first time. 

However, Chinese companies’ profitability is still lacking compared to their counterparts. The average profit made by the Chinese companies on the list is $4.1 billion, much lower than the $6.2 billion average profit made by Fortune 500 companies. 

Below, TechNode summarizes what you need to know about the five top-ranking Chinese tech firms from the list: Hon Hai Precision, JD.com, Alibaba, Huawei, and Tencent.

1. Hon Hai Precision

Ranking: #20 

Founded in 1974, Hon Hai Precision is one of the world’s largest electronic assembling manufacturers and is best known for its Foxconn factories. Foxconn plays a vital part in Apple’s supply chains, assembling the brand’s Mac, iPhone, and iPad products. The company’s pivotal role was on show earlier this year, when China’s Covid lockdowns affected Foxconn factories and led to weeks of delays to some of Apple’s product shipments. 

The firm started investing in mainland China in 1988 and has more than 40 plants in the region. The company’s imports and exports account for 3.5% and 4.1% of China’s total import and export volume respectively, according to its official website.

Hon Hai’s position on the Fortune list rose two places from 2021. It brought in $214.61 billion in revenue last year and saw 18% year-on-year growth.

2. JD.com

Ranking: #46 

JD.com was founded in 1998 and has grown into an e-commerce giant focusing on consumer electronics in China. JD’s revenue hit $147.53 billion last year, but the firm’s losses continue to expand. In 2021, JD.com lost $551.8 million, up 107.7% from the previous year.

In recent years, the company has accelerated its expansion in logistics infrastructure and made an overseas push. JD Logistics bought delivery rival Deppon for $1.4 billion in early 2022 and logistics infrastructure provider China Logistics Property Holdings last month. In January, JD also teamed up with Shopify to help international merchants sell in China on its platform. 

The company is up by 13 places on this year’s Fortune list to the 46th.

3. Alibaba

Ranking: #55

A major Chinese e-commerce company, Alibaba has faced significant regulatory headwinds in China since late 2020. The group has also seen slower growth, partly thanks to more conservative consumer sentiment amid an economic downturn and China’s strict Covid control measures. 

The company’s revenue in 2021’s fiscal year grew 25.6% to $132.94 billion, but its net profit saw a 56.4% decrease to $9.7 billion in the same period. Analysts also expect the firm to record its first-ever decline in quarterly revenue in the coming month.  

Alibaba ranked 55th on Fortune’s list, eight places higher than last year. 

4. Huawei

Ranking: #96

Chinese telecom giant Huawei has fallen more than 50 places on Fortune’s international 500 list, dropping from 44th to 96th. The firm’s revenue also fell in 2021, with the figure down 23.6% on the previous year to $98.72 billion, but its profits grew 88.2% to $17.62 billion during the same period. 

The US’s ban on Huawei’s access to 5G chips has stopped the firm’s rapid growth in smartphone sales and pushed it into pursuing a variety of a new projects including cloud services, IoT, and smartphone operation systems. It has also found a growth point in enterprise business, offering cloud and hardware solutions to companies. This sector accounted for 16.1% of its total revenue last year.

5. Tencent

Ranking: #121

Tencent, owner of the ubiquitous messaging app WeChat and a global gaming giant, is also entering a slower growth period, thanks to China’s tighter regulations on gaming and monopolistic behavior.  

Nevertheless, in 2021 Tencent earned $86.84 billion in revenue, up 24.3% year-on-year. Its profits increased 50.5% from last year to $34.85 billion. 

Affected by China’s pause of gaming licenses and the country’s pandemic controls, Tencent has also been cutting down its workforce to control overheads. The firm turned to setting up studios like TiMi F1 for AAA-level title development and sought new profit growth in overseas markets in 2021. The firm’s overseas gaming business saw an impressive 31% yearly growth in 2021, according to its financial results.

Chinese tech giant Tencent is reportedly in the process of closing its digital collectible platform Huanhe after launching in August 2021, as Jiemian (in Chinese) reported, citing unnamed sources familiar with the matter. 

Why it matters: Digital collectibles are China’s version of NFTs with some key differences, such as restrictions on the resale of these NFTs. Huanhe is supported by blockchains managed by Tencent and its partners. The end of Huanhe may also mean the end of collectibles bought on the platform, which has drawn buyer concerns.

Details: Chinese new platform Jiemian reported that Huanhe closed its external service earlier this month, citing an unnamed source.

• However, another Chinese media China Times reported on Thursday that Huanhe told them that “the platform hasn’t received any notice and they are operating as usual.”
• Tencent didn’t respond to TechNode’s inquiry for comments.
• In May, Wang Shimu, head of Tencent News, joined the “social platform and applications line,” which includes the Huanhe unit. Tencent News subsequently shut down purchase links for NFTs on July 1 (in Chinese) and released an announcement to guide users to turn to Huanhe.
• Huanhe is also seeing some slow down in sales. For example, there are 20,245 pieces of NFTs of Master Hong Yi’s calligraphy that hasn’t been sold in the limited time offering in late June. Huanhe is closing the sales for these items. 
• In early 2022, Tencent’s Huanhe unit told Jiemian that they were developing a metaverse product. Yet, key employees of the unit left in April, Jiemian’s report said.

Context: Since last year, major Chinese tech firms have launched NFT-related platforms.  Apart from Tencent’s Huanhe, Ant Group launched a digital collectible platform called Topnod (JingTan in Chinese) on its AntChain in late 2021, while e-commerce giant JD launched an NFT platform called Lingxi last December.

Nubia, a brand owned by Chinese telecom firm ZTE, upgraded its gaming phone series with the new Red Magic 7S and 7S Pro on Monday. The new models introduce one of the fastest gaming frame rates and a virtual host for streaming as the brand looks to establish itself as a high-end gaming phone maker. 

Why it matters: In an effort to differentiate itself from other gaming phone makers, the new Red Magic models come with special tech to increase gaming frames per second to offer a smoother experience.

• Such a feature is a notable attraction for gamers as similar tech has been widely adopted on gaming computers.
• The phone also comes with a built-in virtual host for mobile gaming streamers, catering to the growing mobile game streaming market.

Details: The Red Magic 7S series’ gaming features are powered by Qualcomm’s latest high-end processor, the Snapdragon 8+ Gen 1, and Nubia worked with a partner to develop the Red Core 1 chip for additional display features. The standard version has up to 16GB RAM and 512 GB storage, while the Pro has options for 18 GB RAM and 1 TB storage.

• Red Magic 7S and 7S Pro both feature 6.8-inch AMOLED displays with 387 pixels per inch (PPI) density, helping to deliver detailed imagery. But the standard version has a better display in terms of refresh rate and maximum brightness, which could be an important selling point for players not willing to spend extra for a Pro. 
• The Red Magic 7S’s display has a refresh rate of 165 Hz and features 700 nits maximum brightness, while the Pro version only has a 120 Hz refresh rate and 600 nits maximum brightness.
• The new 7S series phones are both built with Red Core 1 processors which are developed by Nubia and a Shanghai-based chip design firm Shanghai Awinic Technology.
• The chip was first introduced into the 7 series in February, enabling gaming features such as vibration feedback, customizable touch control, and the ability for lights on the device to sparkle in sync with songs. The 7S Pro has a larger 5000mAh battery with 135W speed charging support, while the standard comes with a 4500mAh one, supporting 120W speed charging.
• The Red Magic 7S comes in two designs while the 7S Pro has four, including a Transformer’s Bumblebee limited edition. Pricing for the new phones ranges from RMB 3,999 ($594) to RMB 7,499 ($1,113) depending on storage and RAM choices.

Context: Nubia introduced the gaming phone series Red Magic in 2018, six years after the brand was first established.

• Red Magic and gaming giant Tencent reached strategic partnerships (in Chinese) to ensure optimized gameplay on the former’s phones in 2021.
• At the release event on Monday, Nubia also revealed that the Red Magic series is currently the top-selling high-end gaming phone (priced over RMB 4,000) in the world, accounting for 51% of the overall market in the first quarter of this year. Asus’s ROG and the Xiaomi and Tencent-backed Black Shark took 36% and 12% of the market, respectively.

Taiwan-based personal computer vendor Asus has teamed up with Tencent to release two new gaming phones aimed at professional mobile gamers. The phones, which go by the name ROG 6 and ROG 6 Pro, were announced on Tuesday, with price ranging from RMB 3,999 to RMB 7,999 ($597 to $1194).

Why it matters: Asus has used its brand, ROG (Republic of Gamers), to build a suite of professional gaming devices, such as laptops, phones, and desktops. The latest phone from Asus, the ROG 6, is backed by Tencent and offers deals for the gaming giant’s titles.

Details: Designed specifically for gaming, the ROG 6 and ROG 6 Pro models have been built with oversized specs, including a maximum of 18GB RAM. The two models have also been built with special designs and features that optimize them for gameplay.

• The ROG 6 and the Pro both use Qualcomm’s latest high-end Snapdragon processor, which runs 15.8% faster than the previous generation of the chip series.
• The phone also features an upgraded cooling system for continuous peak performance. The phone also uses 3300mg of boron nitride between the radio frequency board and the motherboard, a material that can cool the whole device more efficiently.
• Different from the common design of most android phones, which generally feature the main processor at the top of the phone, ROG builds its processors in the middle of the phone, an area where players do not typically hold the phone while gaming. This design ensures better cooling and further limits avoid any overheating scenarios.
• Another notable feature is that ROG 6 and ROG 6 Pro have built-in triggers, similar to those used on a console controller, and updated X-axis rectangular linear vibration motors for feedback, which offers immersive gameplay.
• The battery and charging system on these new phones also optimized the design for gamers. Both models use a 6000 mAh battery, which can be charged via two USB Type-C ports that are built in the middle on both sides of the phones, making it more convenient to play while charging. 
• The phone’s body is designed with a cyberpunk aesthetic, in white and black-themed colors. ROG also launched an extra cooling accessory and a full-size controller for phones with similar designs.
• The two models will be available to buy on July 12.

Context: Launched in 2006, Asus’ ROG focuses on various gaming hardware, from laptops to separate components like motherboards. The brand has become established in communities of spec geeks (people who prioritize high-level performance and metrics in devices) and gamers on its quality and iconic illumination effects.

• During JD’s recent shopping holiday, Asus topped the motherboard sales chart according to Chinese media outlet ZOL.

On Monday, Tencent held its annual gaming conference Spark 2022, introducing 44 new gaming-related titles and projects. The event provides a useful outlook on gaming industry trends and the world-leading gaming company’s future plans.

Tencent is expanding its existing advantage in popular titles and mobile games while developing more expensive blockbuster projects and exploring new technologies. 

As the largest gaming company in China and the second-largest in the world after Microsoft by market cap, Tencent’s domestic gaming business is plateauing while its overseas gaming business continues to grow. 

Tencent’s financial results for the first quarter this year showed the firm’s game revenue in China decreased by 1% to RMB 33 billion ($4.9 billion) compared to the same period last year. In comparison, its international game revenue saw a 4% year-on-year growth to RMB 10.6 billion. Tencent attributed the results to an increase in revenues from games including Valorant and Clash of Clans, partly offsetting a decrease in revenues from PUBG Mobile as user spending normalized in the post-Covid period.

These factors are also influencing Tencent’s current thinking, as Spark demonstrated. Here are four major strategies in gaming that Tencent appears to be pursuing: 

Bringing proven gaming titles to mobile

• Tencent has partnered with firms like Microsoft (in Chinese) that own popular gaming titles or series IP, repurposing existing titles for phones and tablets. 
• The company brought the Microsoft Xbox title Age of Empires, a real-time strategy game, to mobile platforms for public testing in June (in Chinese). The firm has also revealed a plan to work with 20th Century Studios to develop a mobile game based on the sci-fi movie Avatar. At Spark 2022, Tencent also announced further expansions to its existing League of Legends universe, including a new esports-themed title, having previously launched three titles related to this game on mobile platforms.
• Tencent is experienced in operating mobile game titles, with stand-out successes such as Honor of Kings and PUBG Mobile in their gaming portfolio, so this move makes a lot of sense for the company. Additionally, the global mobile gaming market made up over half of the overall total gaming market in 2021, according to gaming insight firm Newzoo. 

Ambitions in AAA games

• One of the most notable titles revealed at Spark was the still-in-development open-world game Code: To Jin Yong, produced by Tencent’s LightSpeed Studios. This appears to be a move to marry a hugely popular yet largely untapped (in gaming terms) trove of material from one of China’s most famous authors with Tencent’s gaming capabilities. 
• Since last year, Tencent has sped up attempts to establish an AAA game development studio (in Chinese), TiMi F1. At Spark 2022, Tencent also announced that it would operate Ubisoft’s AAA-level title Tom Clancy’s The Division 2. 
• However, China’s gaming approval body the National Press and Publication Administration (NPPA) rarely approves overseas AAA-level titles, with the organization having failed to issue any new gaming licenses for overseas titles for over a year (in Chinese). Developing its own AAA title may allow Tencent to bypass such uncertainty.

Taking gaming tech into other fields

• Spark saw Tencent announce several projects where it will use its gaming prowess in new fields, ranging from scientific research to cultural heritage to tourism. 
• One notable example was the company’s confirmation that it will join a program initiated by the Institute of High Energy Physics at the Chinese Academy of Sciences, to power satellites to explore outer space using the firm’s gaming algorithms. 

Building universes around its most popular titles 

• At Spark 2022, Tencent revealed a series of programs and new add-in gameplay options to some of its biggest operating titles, including Honor of Kings, League of Legends, and The Magic Sword.
• For League of Legends, Tencent has a routine to add new characters and renew the gameplays. Generally, there will be a new “champion” every one or two months, and the gameplay strategies will have a significant change twice a year. Similar moves are also adopted in titles like the Honor of Kings and the mobile version of League of Legends. 
• Additionally, Tencent will release cross-game events based on games’ background stories for promotion, drawing players’ attention and building a stronger connection between its titles. For example, Tencent introduced the Arcane program in late 2021 after bringing League of Legends: Wild Rift to the domestic market. Players from the desktop must download the firm’s other related titles and have a try to earn awards. Tencent even partnered with Netflix to release a TV series with the same name to promote.

Chinese gaming giant Tencent announced on Monday that it is working on an ambitious new AAA-level title based on the work of Chinese wuxia martial arts literature titan, Jin Yong, during its annual game release event.

Why it matters: The news that Tencent will attempt to adapt Jin Yong’s work as a video game shows the firm’s ambition to create popular AAA titles with original work. A legendary writer, Jin Yong (also known as Louis Cha) and his vast literary creation in martial arts fantasies have often been compared to J.R.R Tolkien and The Lord of the Rings. Jin was one of the world’s bestselling authors and is hugely popular in the Chinese-speaking world.

• Tencent’s LightSpeed Studios will oversee the development of Code: To Jin Yong. The studio was behind the development of the successful global hit, PUBG Mobile.

Details: Code: To Jin Yong is the first video game adaptation of the works of Chinese wuxia writer Jin Yong. The video game is authorized by Ming Ho Publications, which owns the rights to Jin Yong’s work, and will be based on popular stories like The Legend of the Condor Heroes.

• Code: To Jin Yong will be an open-world game in which players will explore a China set in ancient times, with popular martial arts characters featured in Jin Yong’s books, such as Yang Guo and Qiao Feng. 
• The title is powered by Unreal Engine 5, a highly-rated game engine that offers good render quality and will enable developers to recreate intricate martial arts movements. Tencent released a trailer demonstrating a fight scene with various visual effects and swordplay powered by Unreal Engine 5.
• To build the immersive gameplay, the game studio recreated a digitized Mountain Hua, an attraction in real life known for its challenging hikes and a major game setting. The studio used a technology called photogrammetry to scan pictures and real-life scenes of the mountain.
• Tencent said in the release event that the title will be available worldwide “in the near future.”

Context: The game may compete with Black Myth: Wukong, another promising upcoming new title based on ancient Chinese myths and characters and developed by Chinese game firm Game Science. The story is based on Sun Wukong (or The Monkey King), the protagonist in the Chinese classical novel Journey to the West.

• Jin Yong’s novels present Chinese game developers an opportunity to create a video game universe that incorporates hundreds of popular fictional martial arts characters into serial projects. Previously, Chinese animators and movie makers have been bringing Chinese mythological stories to life in a sprawling universe, with the likes of Sun Wukong, Nezha, and others, with mixed results.

Editor’s note: A version of this article was first published on RADII.

As the world’s largest video game market, China used to have a reputation for producing mediocre mobile games emphasizing microtransactions and profit over exciting and engaging gameplay. But in recent years, Chinese game developers have stepped up their games, producing numerous excellent titles, with many more in development. 

Here are 10 games developed by Chinese companies that every video game aficionado should check out. They are lesser-known compared to other Chinese video game phenomena such as Genshin Impact and Honor of Kings.

1. Naraka: Bladepoint

Platform: PC, with Xbox and PlayStation 5 versions coming this year

If you’re into the wildly popular battle royale genre (think titles like Fortnite, Call of Duty, and PlayerUnknown’s Battlegrounds), this might be the game for you. 

Developed by Hangzhou-based 24 Entertainment and first published by NetEase Games Montreal on August 11, 2021, Naraka: Bladepoint is your classic battle royale in many ways. Expect a host of weapons, superhuman characters, and an encroaching arena that shrinks until a single player remains.

In other ways, however, this Chinese video game is wholly its own. For starters, whereas in the aforementioned titles you can kill a competitor from a distance, Bladepoint emphasizes close-contact combat. You can still attack from afar, but a winning strategy will require some up-close-and-personal virtual violence. We’re talking swords, daggers, nunchucks, and something called a ‘bloodripper,’ which looks a bit like a demonic chainsaw fitted with a buzz saw on the end. Not particularly practical in real-life, but certainly ready to get the job done in the fantasy realm. 

The intimate combat style reminds us of arcade fighting games like Tekken and Mortal Combat, with movements and an aesthetic that bring the films Crouching Tiger Hidden Dragon and House of Flying Daggers to mind. The characters, or ‘heroes,’ as they’re called, are all refreshingly unique in their fighting style and weaponry. You can also customize fighters, leading to some mildly uncomfortable renderings of Squidward, Yoda, and more. 

Prepare to be hacked to bits repeatedly in the beginning, as there is a bit of a learning curve to the gameplay. 

2. Lost Soul Aside

Platform: PC, PlayStation 4 and 5

Remember when Lost Soul Aside was first announced in 2016? By now, you’ve probably completely forgotten about it or been driven crazy by the wait. Half a decade ago, the game had only one developer, Yang Bing, and audiences were flabbergasted about how a solitary endeavor could look so damn cool. 

Although the development team has grown considerably since the game’s announcement, it is still being helmed by Shanghai-based UltiZero Games. Based on the gameplay trailer released in April 2021, audiences have likened it to Final Fantasy XV and Devil May Cry for its fast-paced play and epic visuals.

The main character has a seemingly endless suite of superhuman abilities, and he’s accompanied by a floating robo-dragon (of sorts). The game will have open-world capabilities, and the combat is said to be rather challenging. While there’s no release date yet, we’re anticipating a 2022 arrival.

3. Bright Memory: Infinite

Platform: PC, Xbox

No list of games would be complete without including a good ol’ first-person shooter (FPS). Enter Bright Memory: Infinite, an FPS that also includes combat with a variety of swords. Players start with a single blade and machine gun and are armed with a few cool battle moves — a metaphysical pull feature, block, and dodge. As the game progresses, you can collect several additional weapons with their own feel and function. 

The game is a remade and expanded version of the original Bright Memory, which came out in early 2019. Both were developed by FYQD, originally a one-person studio run by Zeng Xian Cheng. It’s still quite a small operation, making the noticeable improvements to the second game all the more impressive. 

Bright Memory: Infinite was released on November 11, 2021, and so far, the response has been great. The title follows the story of Shelia Tan, a Science Research Organization agent tasked with investigating a mysterious force in the sky that is sucking in its surroundings. You probably won’t get too caught up in the narrative, though, as it’s almost nothing but action after the intro, which we’re okay with. 

4. Black Myth: Wukong

Platform: PC, Mainstream consoles

One of China’s most well-known folkloric characters is the Monkey King, Sun Wukong. Sun appears in countless ancient and contemporary texts but is most associated with the 16th-century novel Journey to the West, in which he is a traveling companion of Tang Sanzang, a character based on the real-life Buddhist monk Xuanzang.

The Monkey King has also appeared in numerous theatrical productions, films, TV shows, and more than a dozen video games (even the anime television series Dragon Ball contains elements from the story). But that’s not to say that Black Myth: Wukong isn’t something special.

Developed by Shenzhen-based indie studio Game Science, Black Myth: Wukong is a third-person action-adventure game where players step into the shoes of the protagonist Monkey King. It is easily the most hyped Chinese game that has yet to be released, and for good reason: The diverse landscapes and characters are laden with nods to Chinese history and cultural esthetic, with stunning visuals and combat scenes that are nothing short of badass. 

Small details in the game hold true to the original Monkey King mythology. Take, for instance, the scene in a gameplay teaser where Sun extends his staff and balances on end to defeat a massive white dragon. He can extend the magical golden staff to any length in the original mythology.

Daniel Ahmad, a senior analyst with Niko Partners, says Sun will have 72 abilities in total. So expect to see more mystical moves reflective of the original folklore — things like shapeshifting and splitting into infinite versions of himself.

No specific release date has been set yet, but gamers are anticipating its release in 2023. 

5. F.I.S.T.: Forged in Shadow Torch

Platform: PC, PlayStation 4 and 5

Welcome to Shadow Torch, a colonized city of anthropomorphic animals known as ‘furtizens.’ This is a Metroidvania, which, for the uninitiated, is a subgenre of action-adventure games where players navigate an open world, unlocking skills and new areas of the map as the game progresses. 

Rayton, a juiced-up rabbit and a former soldier in the war against the occupying Machine Legion, plays the main character. He carries a massive, multipurpose ‘fist,’ a gadget recycled from an old war machine that Rayton once piloted, containing his primary weapons. The city is distinctly steampunk-inspired, and different districts have their own appearance and atmosphere.

The game is two-dimensional and utilizes left-right scrolling to navigate the map. It has a fantastic storyline — albeit with some sub-par English-language voice acting — and features cameos from a host of fascinating humanoid animals, from cats to rats and bears to red pandas, but not forgetting robotic canines. 

F.I.S.T was developed by Shanghai-based TiGames and came out in October 2021 via Antiidelay. With relatively easy and user-friendly gameplay, it serves as a great introduction to the oversaturated Metroidvania market. 

6. Conqueror’s Blade: Paragons

Platform: PC

If you’ve ever wanted to control the whims of a maniacal warlord conquering foreign lands, you may want to do some soul searching. Alternatively, lean right in and give Conqueror’s Blade a try.

Like many popular games produced in China, this Massively Multiplayer Online Game (MMO) is free to play. While there are some pay-to-play elements, most of these are cosmetic, fortunately, and not necessary to succeed in the game.

Developed by Hangzhou-based Booming Games, Conqueror’s Blade is a turn-based game that incorporates action and tactical gameplay elements. What’s incredibly cool is the fact it includes both Eastern- and Western-style medieval warfare. Released on March 17, 2022, the latest update — Conqueror’s Blade: Paragons, as seen in the video above, was inspired by medieval France.

It is classified as a ‘sandbox game,’ meaning players have a high degree of control and creativity where gameplay is concerned and don’t necessarily have to follow predetermined objectives or goals (think Minecraft and Grand Theft Auto).

7. Wuchang: Fallen Feathers

Platform: PC, unspecified next-gen consoles

Set in imperial China during the collapse of the Ming Dynasty, Wuchang: Fallen Feathers combines history, folklore, and otherworldly dystopian elements that make for a surprisingly fresh take on the ancient era. 

Inspired by the turbulent period, players are dropped into a land plagued by unrest. Warlords, banditry, and violence abound. Adding to the mayhem is a mysterious condition causing people to grow feathers and lose touch with their humanity. The protagonist is tasked with unraveling the cause of the strange illness. 

This is the first title created by Chengdu-based LenZee Games, formerly Recano Chengdu Hurricane Zone. An action RPG, Fallen Feathers draws influence from games like Bloodborne, Dark Souls, and Sekiro. Don’t hold your breath for a quick drop, though: The game is scheduled for release in 2024.

8. Let’s Hunt Monsters

Platform: Mobile

We were hesitant to include this on the list, given its striking resemblance to Pokemon Go (and we don’t want to be responsible for any avoidable deaths). Still, the animated creatures are too cute to overlook!

To be fair to developers TiMi Studio Group (owned by Tencent Games), Pokemon Go was never available in China, which explains their urge to fill a much-needed gap in the niche market. After all, how many mobile games require the player to literally be mobile. 

Like Pokemon Go, Let’s Hunt Monsters is an augmented reality (AR) game where players catch digital creatures using their real-life geolocations. Instead of Pokemon, however, the hunt is on for creatures inspired by Chinese mythology. To catch all 302 monsters, players use ‘spirit orbs’ (basically yin-yang pokeballs) sourced from ‘Prayer Drums.’ 

You can also build structures within the game, mirroring gameplay in MMOs. Using the Tencent-developed blockchain, players can even trade digital ‘kittens’ in a feature not dissimilar to the Ethereum blockchain game CryptoKitties.

Let’s Hunt Monsters was first announced by Tencent in April 2018 and has been available on Chinese app stores since April 11, 2019. While there have been numerous attempts to recreate the success of Pokemon Go, none quite measure up, although Let’s Hunt Monsters has come closer than the rest. Five months after its release, the game generated more than $50 million in revenue just on iOS.

9. Tower of Fantasy

Platform: Mobile, PC

Tower of Fantasy is an action RPG infused with narrative elements and open-world gameplay. If you think that sounds a little too Genshin Impact-y, well, you’re not the only one; the game’s developers have even dubbed their creation a ‘Genshin Impact killer.’ 

Smack talk isn’t the only scandal they’ve been caught up in, though: They were previously busted using plagiarized content in a promotional video, and later, clearly not learning from their own mistakes, allegedly used reviews for Genshin Impact to boost their own game’s ratings.

Nonetheless, Tower of Fantasy has been in China for a year and is set for worldwide release in 2022, much to global gamers’ excitement. In March of this year, it was reported that the title is undergoing closed beta testing in the United States, Canada, the United Kingdom, and Germany. 

While Tower of Fantasy is in many ways similar to Genshin Impact, the former takes place in the future and combines elements of science fiction with anime-inspired characters. It also allows character customization and the use of various weapon types irrespective of which character you choose, further setting it apart from its rival. 

Released by Hotta Studios and published internationally by Perfect World, the game is set on the post-apocalyptic planet Aida. Once flourishing and technologically advanced, the planet’s energy source, Omnium, has become its undoing, as the radioactive material has caused some of the planet’s remaining inhabitants to mutate.

10. Icey

Platform: iOS, MacOS, PC, Android, Nintendo Switch

Initially developed by Shanghai FantaBlade Network in 2017, Icey is a two-dimensional side-scrolling action game — with a few twists. Led by an omnipotent narrator called the ‘Developer’ who guides your every move (should you choose to obey), the goal is to control the eponymous humanoid robot Icey.

In this hack ‘n’ slash melee-style adventure, Icey is armed with a sword and tasked with defeating a powerful enemy called Judas, all while unraveling the meaning of her existence. From start to finish, the Developer aggressively urges you to follow his every direction, but much of the fun lies in defying his overbearing, sometimes passive-aggressive commands.

The game is cheap to purchase, and the story takes no more than a couple of days to complete, though you can start again and unravel the story differently in subsequent sittings. As such, it’s the perfect game for the casual gamer or anyone who wants a few pleasant hours of digital distraction.

Honorable Mention: Stray (Formerly HK_Project)

Platform: PC, PlayStation 4 and 5

Carving out a new niche, Stray is not technically a Chinese video game but takes place in a dystopian future in Hong Kong. It was developed by BlueTwelve Studios and will be published by Annapurna Interactive, respectively based in southern France and California. The game is set for release in July 2022.

Players assume the role of a stray cat tasked with navigating the chaotic streets and buildings of a once-flourishing megacity now inhabited solely by robots. Its ultimate goal is to reunite with its family. 

The game aesthetic is heavily influenced by the Kowloon Walled City, which was destroyed in the ’90s at the behest of Hong Kong authorities. Once upon a time, it was the most densely packed place on Earth and operated independently from the British colonial government and law enforcement.

Needless to say, it was a fascinating place and one that we regret not having visited before it came crumbling down. But thanks to Stray, a Kowloonesque adventure is still possible. Navigating the city as a furry feline offers players a unique perspective on the digital world and allows for mobility and challenges that a clunky bipedal human simply can’t pull off. 

Major Chinese gaming companies Tencent and NetEase partnered with Microsoft’s gaming department to bring some of their games to Microsoft’s gaming subscription service Xbox Game Pass, which Microsoft announced at a Monday showcase event.

Why it matters: Chinese developers like Tencent and NetEase are facing an economic slowdown and a tightened regulatory environment in their home market. The partnerships with Microsoft, home to dominant global gaming platforms and a vast userbase, can broaden the appeals of Chinese-developed games and Xbox’s service.

• The partnership is a good opportunity for NetEase to launch its PUBG-like title Naraka: Bladepoint on a console platform, a format that is vital in the overseas markets.
• Microsoft will be able to give players access to popular titles from Tencent and NetEase, making Microsoft’s Xbox Game Pass a more attractive investment for gamers.

Details: The partnerships will bring titles from Tencent’s US-based developer Riot Games and NetEase’s trending PUBG-like title Naraka: Bladepoint to Microsoft’s gaming subscription service, Xbox Game Pass.

• Each of Riot Games’ five titles, League of Legends, Wild Rift, Legends of Runeterra, Valorant, and TeamFight Tactics, will be available through the subscription service. For instance, subscribers can now unlock all characters in League of Legends and Wild Rift for free. Some other bonus paid content will be free for subscribers later this year. 
• NetEase’s Naraka: Bladepoint, which has already sold 10 million copies (in Chinese) globally on desktop platforms, will be free to Xbox Game Pass subscribers. The title will premiere on Xbox on June 23 before any other console platform. NetEase plans to launch the game on Xbox rival PlayStation at a later date.

Context: Microsoft is making a push to promote its game pass subscription service, in a similar way to the likes of Spotify and Netflix, with users paying a flat monthly fee for access to a gaming library.

• Launched in 2017, Xbox Game Pass had over 25 million subscribers this year, as Microsoft revealed in a January 18 press release.
• Most AAA-level game titles cost around$39 to $49. Xbox Game Pass offers a variety of games for a monthly subscription fee of $9.99, which is significantly different from the traditional games’ buy-to-play business model.
• Apple and Sony have also launched their subscription services, Apple Arcade in 2019 and PlayStation Plus this year.

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?

Chinese tech giant Tencent is undergoing another round of layoffs across the company to counteract worsening financial results, Chinese media outlet Caijing reported (in Chinese) last Friday.

Why it matters: Tencent’s reportedly new layoff round indicates that Chinese tech’s “great layoff” is far from over.  

Details: Tencent initially began a headcount reduction at the end of last year, with an estimated 20% of employees at the firm affected. However, continued redundancies at the company, including its core business unit like gaming, in the wake of disappointing financial results may suggest that the cuts will go even deeper. 

• Caijing reported that Tencent has expanded layoffs, focusing on five sectors: cloud computing, gaming, advertising, and content, citing unnamed sources at Tencent.
• The gaming sector appears to be one of the worst-hit, with 10% of the unit’s workforce reportedly let go. The Cloud and Smart Industries Group (CSIG) is another sector that has been heavily impacted by the company’s cutting of staff, having already lost 15% downsizing of its team in March this year.
• The cited sources added that “the layoffs are due to the pressures of business performance” and attempts to “decrease costs.”
• When contacted by TechNode about the report, Tencent declined to comment.

Context: Tencent’s continuing layoff came against the backdrop of a slowing Chinese economy, a widespread regulatory crackdown in the tech sector, and several major hurdles in the gaming realm (including a seven-month pause in new game licenses), where it is an industry leader. 

• Tencent earned RMB 135.4 billion ($21.3 billion) in the first quarter of 2022, a 6% quarterly fall in earnings. The company’s net profit also plummeted by 23% to RMB 25.5 billion compared to the same quarter last year.
• Martin Lau, president of Tencent, said in an earnings call on March 23 that “the entire industry is focused on core businesses, more efficiency, and more cost rationalization.” He also noted that the firm will “streamline for the non-core businesses, or may exit [business areas] in some cases.”
• However, the firm has stated that it will continue to hire more staff than it has dismissed. Tencent’s employee count increased 3% in the first quarter of 2022, according to its financial reports.
• Tencent’s gaming business may also see more growth outside of China. Although revenue from domestic games in the first quarter of 2022 dropped by 1% compared to the same quarter last year, international game revenues grew by 4% to RMB 10.6 billion.
• Tencent is not the only Chinese tech major to have laid off staff in recent months. Since Didi’s US IPO sparked a cybersecurity review and industry-wide crackdown in July 2021, at least 216,000 people in the tech sector lost their job from last July to March, according to the Cyberspace Administration of China. 

Chinese tech watchers and venture capitalists are growing increasingly concerned over the long-term market appeal of Chinese tech companies. Industry leaders are sharing and quoting a Chinese financial infographic comparing the changing market capitalization of Apple and top Chinese firms over the past two years to show just how much the value of China’s tech giants has dropped. 

Why it matters: After two decades of enormous growth, the top five Chinese tech giants have lost at least 46% of their combined market cap over the past two years in the face of headwinds from saturating markets, pandemic outbreaks, trade tensions, and rigorous government regulations.

Details: Chinese tech companies are less valuable than they were two years ago. On April 26, Chinese financial media outlet Jin10 Data published an infographic (in Chinese) showing the drastic shrinkage in the valuation of China’s top tech firms. The infographic compared the market cap of US smartphone maker Apple with Chinese tech firms, showing that Apple’s $2.7 trillion valuation was worth more than double the value of China’s top 49 tech firms combined.

• The graphic highlights the stark market cap difference by comparing Apple and Chinese tech firms’ April market cap data with those from two years ago. On April 27, 2020, Apple, valued at $1.2 trillion at the time, roughly equaled the combined valuation of the top five Chinese tech firms — Alibaba (which had a market cap of $548.2 billion), Tencent ($508.7 billion), Meituan ($74.9 billion), JD.com ($66.2 billion), and Pinduoduo ($59.4 billion). Two years later, Apple’s valuation has more than doubled while many Chinese tech firms’ valuation has decreased or stagnated, making the former now worth more than 49 top Chinese tech firms combined. 
• Chinese financial writer Wu Xiaobo cited the infographic in a post titled “What’s wrong with us?” lamenting the loss of the “upbeat spirit” of China’s business world.
• China’s tech clampdown has wiped hundreds of billions off the valuation of Alibaba and Tencent, China’s two largest tech companies, amid the US-China trade war and the country’s antitrust clampdown since April 2020.
• On Monday, the market cap of Tencent, currently the most valuable Chinese tech firm, slumped to $427.6 billion, while Alibaba’s market cap has more than halved to $247.5 billion. Pinduoduo also lost more than $10 billion in valuation.

Context: The change in value of China’s biggest tech firms only reflects listed companies. Some of the country’s biggest tech players that remain private are not included in the comparison, such as ByteDance, Huawei, and Alibaba’s Ant Group.

• China is recording slow growth in the number of unicorns, or startups valued at more than $1 billion and not yet listed on a stock exchange, according to the Global Unicorn Index 2021 released by Hurun Research Institute in December. In 2021, China counted 301 unicorns, or 28% of the 1,058 unicorns worldwide, down from 41% in 2019.

Amid slowing growth and regulatory uncertainty at home, China’s gaming companies are increasingly eyeing overseas markets. Many of them have had impressive growth figures in international markets for some time, but the situation at home is driving them to view foreign gamers in a new light. Established players such as Tencent and NetEase – both of which are in the top five gaming firms in the world – are giving international growth new emphasis, while rising upstarts such as HoYoverse (formerly known as miHoYo), FunPlus, and 37 Interactive Entertainment are seeing surging interest in their titles outside of China.

The diversity in terms of the size of Chinese gaming firms finding success abroad shows that there’s something of a relatively level playing field outside of a domestic market that is dominated by a handful of majors – even small indie game makers are able to strike it big when they look beyond their own backyard. Yet there’s no cheat code for doing well internationally and Chinese game firms face new modes of competition and significant cultural challenges when they venture outside of China. 

READ MORE: The Chinese gaming startup outperforming Tencent overseas

Powering up internationally 

To reflect the increasing scale of its global gaming growth, Tencent started to disclose revenues from domestic games and overseas games as new sub-segments in the third quarter of 2021. 

In a challenging 2021, Tencent’s overseas games saw an impressive 31% yearly growth, while the domestic gaming sector grew by only 6%. Tencent made RMB 25 to 30 billion ($3.79 to $4.55 billion) in overseas games in the first three quarters of 2021, accounting for about 20% of its gaming revenue. Overall, the company saw its slowest revenue and profit growth in five years, 16.2% and 11%, respectively, underlining the international gaming division’s eye-catching performance. 

NetEase first revealed its overseas gaming performance in the third quarter of 2018, saying incomes from overseas markets accounted for 10% of the total net profit in its gaming business that year. The latest figures show that overseas gaming revenue accounted for 11% to 15% of NetEase’s gaming revenues in the first three quarters of 2021. However, the company didn’t reveal a detailed breakdown of overseas gaming revenue in its 2021 annual report.

Although the growth in NetEase’s overseas gaming revenue has been steady rather than spectacular in the last three years, the company has set a goal of expanding earnings outside of China to 50% of its gaming income, with a focus on markets in Japan and North America, according to Chinese media outlet Jiemian. NetEase also dramatically increased its research and development expense ratio in the past two years, hoping to win with better gaming developing skills. The report added that the ratio doubled from 8% in 2017 to 16% in the first three quarters of 2021. 

Chinese gaming companies taking it to the next level overseas 

In March of this year, of the top 10 highest-grossing mobile games globally, four came from Chinese gaming companies, according to Sensor Tower: Tencent’s Honor of Kings and PUBG Mobile, HoYoverse’s Genshin Impact, and Alibaba’s Three Kingdom TacTics. Lilith’s Rise of Kingdoms also made it into the top-grossing list on the App Store. Among the Chinese titles, HoYoverse’s Genshin Impact was the most profitable. Tencent’s PUBG Mobile was second, with Lilith’s Rise of Kingdoms ranked third.

Genshin Impact is a sprawling multiplayer online role-playing game (MMORPG). Launched in 2020, it hit 115 million downloads in its first 18 months, according to Data.ai, a US insight firm focusing on app stores. According to Data.ai, Genshin Impact’s success was so big it helped  put a positive spin on figures for the whole category, pushing MMORPG revenue to grow 17% year-on-year in 2021, despite other titles in the same category showing a slow and even negative increase in revenue.

Tencent’s PUBG Mobile, in many ways, has followed the success of its PC version. The title has found popularity with a new game mode called battle royale, whereby players fight to be the last one standing amid a mass competition with hundreds of other players. Its primary competitor is Call of Duty Mobile, also developed by Tencent and published by Activision, which ranks seventh on Sensor Tower’s list.

Challenging times at home 

Chinese gaming companies are having a tough time getting new games approved and making money in the domestic market due to tightening regulations around young players’ gaming habits and strict limits on new game licenses. 

Late last August, Chinese regulators asked all companies to limit minors’ access to games (in Chinese), with the aim of protecting them from gaming addiction. As a result, those under the age of 18 can only play games one hour a day on Fridays, weekends, and holidays, according to the rules, with no gaming time allowed on weekdays.

Tencent said in its 2021 annual financial report that the new regulations hit the company’s domestic games revenue due to “less spending by minors” and the company allocating developer resources “to implement new measures.”

Around the same time, China also stopped issuing licenses to new games. The regulator only resumed issuing licenses in April, eight months later. This wasn’t the first time the regulator withheld its licensing power. In 2018, the issuing of licenses was halted from March to December. Game publishers in China need a license from the National Radio and Television Administration (NRTA), the state’s regulator for news, print, and publications, to be listed in app stores or to be downloadable on their websites within the country. 

The extended freeze has forced many Chinese gaming companies to downsize. Since last year, major Chinese gaming companies such as NetEase, Lilith, IGG, and Perfect World have had to cut off projects and lay off staff.

READ MORE: China’s gaming industry is downsizing as regulators halt new game licenses: report

What’s next for Chinese gaming companies going overseas?

Amid such problems, many are forecasting another grim year at home for Chinese gaming companies in 2022. DataEye, a Shenzhen-based industry insights firm, wrote in their 2021 annual report that they foresee another slow year ahead. “The domestic market won’t see major growth. 5% growth is optimistic; no growth is also likely,” said the report. Instead, they noted, “The main growth in the industry will most likely come from the overseas market.”

It’s easy to see the allure of international sales given the picture back home. Yet, despite some major success stories so far, achieving sustained growth internationally comes with its own set of difficulties for Chinese game developers. There have been some surprise hits, such as indie outfit Coconut Island’s crossover success Chinese Parents, but for large-scale, longer-term growth, a sophisticated understanding of international markets is required.

“Localization in overseas markets goes way beyond just translating the content in local languages. The key is in cultural localization,” Wang Yangbin, CEO of DataEye, wrote in the firm’s report. “These are problems all top Chinese firms — Tencent, NetEase, and Alibaba — and second-tier companies have to solve quickly.”

How quickly they do so may well determine how soon and to what extent international markets can provide the kind of salvation that many Chinese gaming companies appear to be looking for by heading overseas.   

Chinese game streaming platforms Huya and Douyu have begun slashing headcounts as China’s mass tech layoff continues, Chinese media outlet Tech Planet reported Friday.

Why it matters: The pair joined China’s large-scale layoffs among tech companies as the country tightens restrictions on the game livestreaming industry.

• Layoffs at Huya and Douyu are another blow for Chinese gaming giant Tencent, a major shareholder in both of the companies. The Chinese State Administration of Market Regulation (SAMR) blocked a merger deal between Huya and Douyu in July 2021 to avoid “further strengthening Tencent’s dominance in the game streaming market.”
• In mid-April, China resumed issuing gaming licenses to Chinese game makers after an eight-month freeze. But the regulator has yet to resume issuing licenses to overseas games. 

READ MORE: INSIGHTS | Chinese tech giants are still slashing headcounts

Details: Huya’s layoff mainly affects its international business department, which has more than 200 employees, or around 10% of the company’s total headcount, according to the report. The company is planning a 70% cut in its international arm, while its domestic business will also face a 20% layoff. Douyu is reportedly planning for a 30% layoff, targeting teams for gaming business development and livestream agent services.

• The international teams at both of the companies will bear the brunt of the layoffs as they operate in a new business area that demands more investment, the report cites an unnamed employee of Huya as saying.  
• Douyu said the layoffs are just part of their “normal human resources optimization,” according to the report.
• Regulatory headwinds and decreasing user bases led to weak financial performances for the two companies during 2021. Huya recorded a net loss of RMB 312.7 million ($49.1 million) for the fourth quarter of 2021 after consistently posting profits since its IPO in 2018. Douyu posted a net loss of RMB 193.2 million for the same period.

Context: Huya and Douyu account for a combined 70% of China’s game livestreaming market, the SAMR said in July 2021. Huya owns a 40% market share and Douyu 30%.

• Earlier this month, Tencent said it will shutter its game streaming platform Egame by June due to a “change in business strategies.”
• China’s gaming industry has felt the layoff chills since the beginning of this year, with many of the key players trimming their headcounts.

Chinese tech giant Tencent announced on Wednesday that it will close a gamer-focused accelerator service that allows Chinese gamers access to overseas games. Due to “an adjustment in business operation strategy,” Tencent’s accelerator service will only support domestic games from June onwards.

Why it matters: This move by Tencent has caused players to worry that accelerator services for overseas games may soon become inaccessible in mainland China.

• It is difficult for Chinese players to play overseas Player-versus-Player (PVP) titles like the popular Apex Legends and PUBG: Battlegrounds without accelerator services. These games are popular among Chinese players. For example, more than 1.4 million comments on PUBG: Battlegrounds are in Chinese-language, a sign of wide popularity. Thus, major gaming companies Tencent and NetEase have traditionally offered accelerator services to users. 
• Many popular overseas games are unable to operate in China without a gaming license and a local operation company, making it difficult for Chinese players to enjoy these games due to network issues. 

Details: Tencent announced that its accelerator service called Tencent Jiasuqi will undergo a major update and be renamed Tencent Gaming Assistant. The service will no longer offer users access to overseas gaming networks. Instead, Tencent will offer refunds to users who have already paid for Tencent Jiasuqi. 

• Due to network blocks and the physical distance between Chinese players’ devices and overseas host servers, it is difficult for Chinese players to play video games with foreign players. Tencent Jiasuqi has allowed players to bypass these blocks and build a steady virtual private network.
• One Chinese Apex Legends player told TechNode that the suspension of Tencent’s accelerator service for overseas gaming will greatly limit their gameplay experience. While PVP games with servers in Hong Kong and Taiwan will still be available for users, titles in other regions outside of China will be completely unavailable. 
• The player also noted that NetEase’s UU Jiasuqi is one prominent alternative that is still in operation.

Context: There are over 100 gaming network accelerators in China for players, but many have less tech stability than Tencent’s and NetEase’s services.

• To enter the Chinese market, foreign gaming firms are required to cooperate with local Chinese operators, and each game must have a gaming license from China’s National Press and Publication Administration (NPPA). However, the NPPA has not issued any licenses for overseas games in more than nine months.
• Playing games directly from overseas platforms is still a gray area for Chinese players. Overseas gaming platforms like Steam are less accessible to Chinese gamers, with network “accelerating” services the only way to bypass these measures.

After China’s ride-hailing giant Didi was put under a cybersecurity review by the Chinese authorities last July, the country’s internet sector quickly entered a period of painful adjustments. Companies began closing unprofitable units and cutting staff wherever they could. Layoffs have since become so widespread that some Chinese tech majors have been attempting to soften the blow by telling fired employees that they have “graduated,” but it has become increasingly difficult to put a positive spin on such moves, as China’s consumer-facing tech companies go through a significant upheaval. 

Since July 2021, major Chinese tech companies have laid off at least 72,779 employees, TechNode research has found. After compiling news reports, company statements, and other sources from the past nine months, TechNode found 27 instances where major Chinese tech companies were reported to be making significant layoffs, with at least 10 such instances affecting more than 30% of employees at their respective companies. Some firms dismissed entire departments almost overnight.

After combing through the statistics, it is clear that layoffs have become a regular occurrence at Chinese tech companies. In the past nine months, there has been an average of two rounds of layoffs per month. Moreover, in the same period, ByteDance has had five separate rounds of staff reductions alone, making it the top cutter among the major tech companies in the country.

China’s “great layoff” first hit the edtech sector, prompted by a surprise national regulation barring all private curriculum tutoring, which took effect in July. It then hit less profitable units in the e-commerce sector, and most recently, it spread to Meituan, Alibaba, and Tencent, powerful leaders of their own sectors that had previously proven largely immune to the effects of any regulatory changes or downturns. 

Education, e-commerce, and the content and entertainment industry are the three sectors to bear the main brunt of this wave of layoffs. But just how far-reaching have the cuts been?

Cloud services, social platforms, and more

In March, Tencent, a major cloud service provider in China, started a 20% layoff of its team in the sector, affecting an estimated 12,000 employees. ​​The firm’s Cloud & Smart Industries Business and Platform and Content Group took the biggest hit.

Twitter-like microblogging service Weibo, one of the biggest social platforms in China, laid off at least 200 employees and introduced a stricter performance review standard in February 2022. Weibo has declined to describe the moves as a layoff, saying they were “structural adjustments.”

ByteDance also cut numbers at its customer service unit in October 2021, removing somewhere between 30% and 70% of the team due to what it termed “business adjustments.” 

Didi, which is still going through a national cybersecurity review that launched nine months ago and is looking to delist from the US stock market, reportedly cut 20% of its employees in February. 

Content and entertainment

The content and entertainment industry is another area where players large and small have been handing their employees grim news. Since last July, four major companies in the sector have undergone six rounds of dismissals and restructuring. 

ByteDance laid off at least 179 employees in two rounds last year, one of which was mainly focused on its gaming development business, Ohayoo. The company said that recently-hired college graduates would be reassigned to other vacancies as part of the round. The TikTok parent company followed this with another round of layoffs on October 20, aimed primarily at its commercialization and gaming businesses.

TikTok’s major rival in China, Kuaishou, started to lay off staff at the end of 2021, first in its commercialization team and then across multiple sectors. The company reportedly removed somewhere between 10% and 30% of its employees.

iQiyi, a Netflix-like streaming platform backed by Baidu, was reported to have cut between 20% and 40% of employees in December 2021. The company promised to compensate these unlucky employees, offering them bonuses based on how long they had worked at the firm.

While it’s undoubtedly been impacted by the overall economic downturn, the content and entertainment sector has also been hit by regulatory scrutiny, with crackdowns targeting celebrity culture and related idol content as well as the gaming sector. Pop Idol-like shows on platforms such as iQiyi have been banned and China put a pause on issuing new gaming licenses last year, essentially stopping companies from releasing new games. In addition, China has introduced strict controls targeting teenage players, limiting their playing time and payment for games. In response, Chinese gaming companies have shut down numerous development projects and turned to overseas markets, with their China workforces naturally being affected. 

E-commerce

E-commerce, a longtime booming sector in China, has also seen contractions. From July 2021 to March of this year, at least 11 major tech companies in the industry have downsized their workforces, according to TechNode statistics. 

Most recently, Meituan began on April 8 with an up to 20% cut across its business lines, including its core food delivery and hotel booking businesses.

Chinese e-commerce giant Alibaba has been through two rounds of layoffs in the first quarter of 2022 alone. The first round was in January this year, when it cut headcounts at its food delivery platform Ele.me and local shop review business Koubei. Two months later, Alibaba’s layoff expanded to the entire local service sector, with 30% of its employees losing their jobs.

Tencent also announced that it was making 30% of the staff at its e-commerce platform Mogujie redundant in late 2021, blaming the unit’s poor market performance. 

Community group buy, a subsector that caught on during the height of the first wave of the coronavirus pandemic in 2020, has seen deep cuts as part of the ongoing layoffs. The cash-burning sector quickly cooled down after the State Administration for Market Regulation (SAMR) demanded companies stop price dumping and other unfair competition practices in December 2020.  

Smaller players in this subsector have been hit hard, with one example being Tongcheng Life, which filed for bankruptcy last July. Those backed by bigger companies have also been forced to make adjustments to remain competitive. Didi’s Chengxin Youxuan cut about a third of its staff, while Alibaba-backed Nice Tuan stopped operating in several cities. 

Fast forward to late March, and JD was reportedly planning company-wide cuts of between 10% and 30%. Its community group buy unit Jingxi is thought to see the deepest cuts.

Other tech companies offering local services, such as apartment rental platform Ke.com and farm-to-table grocery startup Meicai, have followed suit. Ke.com cut its entire development team in October 2021, while Meicai laid off nearly half of its workforce around September 2021.

Dian, a Chinese startup offering rental charge packages for phones, was reported to have laid off 40% of its employees on March 1. According to Chinese financial media Lanjing, the company dismissed at least 2,000 employees. However, the company denied the news, saying it was merely making “adjustments in employee structure.” 

In addition, popular milk tea brand HeyTea, which makes heavy use of e-commerce and online promotions to support its business, was reported to have cut its workforce by 30% in February this year.

Education

After China’s new regulation on education agencies took effect in July 2021, there were at least five rounds of layoffs in tech companies focusing on education. More than 5,400 people lost their jobs.

Companies in the sector saw their stock prices crash after July 24. Within a day, Gaotu fell by 54%, New Oriental by 63%, and TAL Education saw more than 70% wiped off its share price.

Gaotu was reported to have laid off more than 10,000 employees in early August 2021. Another education giant New Oriental reportedly dismissed over 40,000 employees in mid-September. It wasn’t just the leading names in the industry who were hit, however,  Acadsoc, a Chinese company offering courses by foreign teachers, laid off 90% of its workforce on July 29, 2021.

Chinese tech unicorn ByteDance was also forced to make cuts. The company went through a series of downsizings in its education sector, with a first round in early August followed by a second round in December, shedding more than 1,000 employees. 

Looking ahead

On April 8, China’s internet regulator, the Cyberspace Administration of China (CAC), confirmed in a statement that 12 major Chinese tech companies (Tencent, Alibaba, Ant Group, ByteDance, Meituan, Pinduoduo, Kuaishou, Baidu, JD, NetEase, Weibo, and Bilibili) have laid off 216,800 staff from last July to March. However, CAC said “the number of employees in internet companies has remained stable,” disputing the layoff trend, adding that these companies have also hired about 295,900 new employees during the period. 

As painful as these adjustments have been to date, it seems unlikely that Chinese tech majors are in the clear just yet. Regulatory scrutiny will continue (perhaps in a more predictable fashion as the government prioritizes economic growth), rising geopolitical concerns mean that firms listed on US exchanges, in particular, will come under pressure, and China’s ongoing attempts to pursue a ‘zero Covid’ policy may mean further disruption for businesses. 

Since early March, China has extended lockdowns in the key growth city of Shanghai and introduced new control measures across the country to adhere to its zero Covid policy amid a resurgence in the number of coronavirus cases. As China’s economy takes a hit, the country’s tech sector is likely to come under more pressure. China’s State Council executive meeting on April 6 also acknowledged the challenge ahead, admitting that the country’s economy faces “complexity and uncertainties” that have exceeded expectations, and that “the recent Covid-19 outbreak in China has increased difficulties for market entities, and increased new downward pressure on the economy.”

There are some glimmers of hope, however. Although Didi’s investigation put a pause on Chinese tech companies seeking overseas listings, there appear to be moves to help Chinese businesses raise money more easily on foreign stock markets. Chinese Vice Premier Liu He said in a mid-March meeting that “China continues to support companies seeking to go public overseas,” offering the first major positive signal on the issue in nine months. Moreover, China’s securities regulator has proposed changes to long-standing rules in an attempt to avoid US-listed Chinese companies being delisted by American regulators.  

Nevertheless, the big picture remains unpredictable for China’s tech powerhouses. After years of unbridled growth, it’s clear that the industry has been through a turbulent period of late. Whether the widespread “adjustments” made across multiple sectors will be enough to stave off further disruption remains to be seen.

Chinese tech unicorn ByteDance has acquired no-code startup Hipa Cloud, a company that focuses on customized enterprise management systems, Chinese media outlet 36Kr reported on Monday. The acquisition appears to boost ByteDance’s enterprise software as a service business and transform the competitiveness of Feishu, its Slack-like messaging tool for businesses, in a sector currently dominated in China by Alibaba’s DingTalk.

Why it matters: ByteDance’s short video app Douyin (TikTok for the overseas market) has given the company huge success with its customer-facing business. Yet Feishu (Lark for the overseas market) has thus far failed to replicate that success in the enterprise-facing services sector. The acquisition of Hipa seems to be an attempt to change that. 

• The demand for customized team management and messaging tool systems for businesses has seen significant upswing since the beginning of the pandemic.
• Software development without coding has also become a major focus for the industry in recent years, with Microsoft, Google, and Github announcing no-code software development projects.

Details: Founded in 2019, Hipa Cloud focuses on no-code development platforms for enterprise clients, assisting them in developing customized management systems.

• Hipa Cloud announced on March 20 that it would be halting its services on May 31 following the ByteDance deal, urging users to export and migrate their data to other platforms, such as Feishu and Mingdao, ahead of the deadline.
• Hipa founder Chen Jinzhou and part of his team will be incorporated into ByteDance’s Feishu unit after the acquisition. Chen will report directly to ByteDance’s vice president Xie Xin who is in charge of Feishu, 36Kr reported.

Context: ByteDance first developed the Slack-like Feishu as an internal team collaborative management tool in 2016, launching it as a business in 2019.

• Rivals Alibaba and Tencent launched DingTalk and WeChat Work in 2014 and 2016 respectively. Huawei also released their own teamwork platform WeLink in 2017.
• DingTalk leads the market in China with 200,863 average daily downloads, while WeChat Work has 92,358 downloads per day. Feishu’s average daily downloads currently number just 19,795, according to Qimai Data.

Chinese tech giant Tencent is reportedly laying off around 20% of its staff, joining a lengthy list of tech firms that have started to trim their workforces since last year.

Why it matters: Deep-pocketed tech titans such as Tencent and Alibaba, which are generally less vulnerable to small market fluctuations, have largely maintained their headcount until recently. The two giants have not been immune to China’s ongoing economic downturn, regulatory curbs, and international trade tensions.

• Tencent’s rival Alibaba is reportedly slashing around 30% of its employees amid a market downturn.

Details: Tencent began downsizing its team at the end of last year, Chinese media outlet 36kr reported on Tuesday, citing people with knowledge of the matter.

• Tencent is laying off less than 20% of its staff based on business adjustments, according to the report. Other reports said the company plans to cut 30%, targeting employees older than 35-years-old.
• Sources told 36Kr that the firm’s Cloud & Smart Industries Business Group (CSIG) and Platform and Content Group (PCG) were taking the biggest hits. At the same time, the Interactive Entertainment Group (IEG) has a much lower layoff rate which only affects non-core businesses.
• The CSIG will shed more than 20% of its workforce by the end of 2022, a management figure in the group told 36Kr. The unit’s online education business division bore the brunt of the downsizing cuts due to the sweeping private education crackdown, which began last July. The edtech unit will merge with other businesses in the future, the report added.
• The remaining CSIG employees will face more pressure as the company aims for profitability for the Group this year.
• Job cuts in PCG are near 10% now and continue to grow, several PCG employees told the outlet.
• CSIG, PCG, and IEG are the three largest business groups within Tencent, each group employs around 20,000 people. The Corporate Development Group, Technology Engineering Group, and Weixin Group – smaller groups with less than 10,000 employees – remain relatively unscathed amid the workforce adjustment.

Context: Job prospects look grim in the Chinese tech sector as top tech firms ranging from ByteDance to Baidu, iQiyi and Kuaishou have slashed their headcounts since last year. Online education and fintech, two areas under harsh government scrutiny, are the worst-hit areas.

READ MORE: INSIGHTS | Chinese tech giants are still slashing headcounts

Note: This article was first published on TechNode China (in Chinese).

ByteDance, one of China’s newest tech giants, caused an uproar in the venture capital circle when it dissolved its strategic investment department on Jan. 18, reassigning at least 100 employees in the process.

The company said the move aimed to move staff into different units to strengthen internal collaboration. However, outsiders have speculated that the move, along with changes to the company’s investment strategies, represents an urgent shift from ByteDance as it looks to abide by China’s anti-monopoly regulations.

ByteDance’s decision and other Chinese tech giants’ recent moves to divest investments signal a change in China’s corporate venture capital funds (CVCs). They are downsizing after being major players in the capital circle for more than a decade and having nurtured promising startups to success. 

The golden decade of Chinese corporate venture capital

From 2010 to 2019, the top 10 companies in China’s equity investment market by CVC investment amount were Tencent, Alibaba, Fosun Group, JD.com, Baidu, SoftBank Group, Qihoo 360, Ant Financial, Suning Group, and Sunac China, half of which are CVCs in tech companies. In 2019, 10 industrial groups, including Tencent, Alibaba, Baidu, and Ant Financial, invested RMB 90.467 billion ($14.23 billion) in total. CVCs accounted for nearly 80% of their total investment during the same period.

CVC investment in China can be traced back to 1998, a relatively late start compared with other countries. During that first decade, Chinese CVCs remained in a tepid state. However, in 2010, Chinese CVC investment began to develop, as traditional industry giants and tech companies started to establish their strategic investment departments. 

Since 2015, under a government policy of encouraging entrepreneurship and innovation, Chinese CVC investment began to accelerate. During this period, the number of corporate venture capital institutions peaked at 170. In addition, the scale of startups and the amount of investment also expanded significantly. Since 2016, the total investment of Chinese CVCs has been on par with independent venture capital.

CVCs can generally be divided into two categories, the traditional enterprise CVC, and the tech one.

In traditional industries, manufacturing is the backbone of CVC entities, with these companies typically involved in media, games, real estate, medical care, logistics, automobiles, and consumer electronics.

Companies behind tech CVCs usually fall into two distinct groups: older tech giants like Tencent, Baidu, and JD.com, and newcomers focused on mobile devices like Bilibili, ByteDance, and Xiaomi.

Chinese tech CVCs have continuously driven the development of the real economy while serving the strategic development of their parent companies, becoming an essential part of China’s capital market.

The trillion-dollar investment playground for giant CVCs

Today, tech companies account for 20% of CVC companies in China, contributing a sizable part. Data shows that many CVCs within tech companies have been more active in foreign investment than those in traditional companies.

Take ByteDance as an example:

ByteDance mainly invested in content industries related to its own business in its early days. As traffic on the short-video platform Douyin (TikTok’s China version) began to peak, ByteDance sought growth in other areas by investing in education, consumption, e-commerce, medical care, finance, games, and even more niche areas like business-to-business services and hard tech.

Data shows that ByteDance has invested in 193 projects since its establishment and has increased the number of foreign investments every year since 2019. ByteDance invested in 64 companies in 2021, with a cumulative investment amount of nearly RMB 35 billion, which accounts for almost 10% of ByteDance’s total revenue in 2021, according to enterprise database Qi Chacha.

Tencent has one of the most successful CVCs in China. The company’s investment department was established earlier than most CVCs in China. Tencent is also a stakeholder in many well-known Chinese tech companies.

Tencent (including its sub-companies) had made more than 1,180 investments as of December 2021, IT Juzi data showed. Tencent invested in 250 companies in 2021 alone, more than the sum of Baidu, Alibaba, 360, JD.com, Xiaomi, ByteDance, and Bilibili. According to data shown in its Q3 report, Tencent’s 2021 investment projects are valued at RMB 1.75 trillion, which is almost equivalent to the total GDP of China’s northern Shanxi province (home to around 35 million people) in 2020.

Tencent prefers investing in pan-entertainment media industries, especially the gaming industry, one of its main business lines. The company is also heavily involved in corporate services, finance, education, healthcare, and new food and beverage chain brands.

Tech CVCs may invest less in tech

As ByteDance disbanded its CVC (which it called strategic investment department), copies of apparently official regulatory documents called “Rules of Practice for IPO and Investment of Tech Companies” (our translation) began to spread on the Chinese internet. The files showed that tech companies who want to conduct IPOs, or seek investment or fundraising will need to seek approval from China’s internet watchdog Cyberspace Administration of China (CAC) if they meet two standards: they either have more than 100 million users or more than RMB 10 billion in revenue in the past year, or, deal with sectors heavily regulated, such as media and financial services.  

Many commentators believe the document caused ByteDance to dissolve its CVC department, despite CAC denying issuing such a file. However, as Chinese regulators keep up the anti-monopoly crackdowns on top tech companies, many firms will look to cut down their strategic investments to err on the side of caution. 

Even before ByteDance dissolved its strategic investment department, other tech majors had already begun to cut ties with invested companies. 

Alibaba Group first sold its 5.62% stake in media firm Caixin in 2019 and withdrew its investment from Mango Excellent Media ahead of schedule in September 2021 with a loss of RMB 2.3 billion. Daniel Zhang, the CEO of Alibaba, stepped down as board of directors at both Didi and Weibo in late 2021 and early 2022.

Meanwhile, Tencent began reducing its shares in JD.com by paying a mid-term dividend; it later announced that it would reduce its 2.7% stake in Sea, the largest tech company in Southeast Asia, and give up its super-voting rights, with a total divestment of $3.1 billion. 

Tech giants’ CVCs have played a positive role in China’s platform economy, but at the same time, they have stifled small and medium-sized startups’ development, says Hu Jiye, a finance professor at China University of Political Science and Law. Top tech companies have sometimes forced startups to follow their strategy by holding shares and suppressing competition, Hu added, stating that startups can only survive by abiding by the rules set by these tech giants. The Chinese government considers this behavior disorderly expansion and the abuse of the companies’ dominant market position.

Hu believes that the voluntary contraction of tech CVCs could benefit small and medium-sized enterprises and that Chinese CVCs will enter an era of regulated development, leaving behind an unregulated era.  

Chinese tech giant Tencent has launched a major reshuffle in its entertainment and content production business, setting “social responsibilities” as the primary goal for film production arm Tencent Pictures.

Why it matters: Tencent is the latest among China’s tech giants to make changes to their business to stay safe amid wider regulatory crackdowns.

• Tencent, along with Alibaba and Meituan, have taken the brunt of China’s regulatory wrath over the past year.
• Chinese tech companies are scrambling to show their willingness to comply with the country’s broad goal of lessening inequality (reaching “common prosperity”) to stay on the safe side of an intense period of regulatory changes. 

READ MORE: Insights | Why Chinese tech giants are becoming very generous

Details: Tencent has merged Tencent Pictures, a unit under the company’s Platform & Content Group, with its Corporate Development Group, Chinese media outlet Jiemian reported on Thursday. Cheng Wu, vice president of Tencent Group and CEO of e-publisher China Literature, will oversee the business.

• After the adjustment, Tencent Pictures will focus on producing content that promotes Chinese core values to “take more social responsibility,” according to the report.
• Tencent Pictures affiliates such as television and film production company New Classics Media and China Literature’s film production unit will lead the development of the group’s existing commercial IPs.
• An anonymous source told Jiemian that commercialization will no longer be the top priority for Tencent Pictures, which has a new commitment to producing content promoting mainstream values, such as A Lifelong Journey, a TV series now airing on state broadcaster CCTV.
• Tencent could not be reached when contacted by TechNode on Friday.

Context: In 2014, Chinese President Xi Jinping called on local artists to present socialist core values in their works.

• In January, Tencent replaced the dystopian ending of the cult classic movie “Fight Club” with a happy ending and cut all nude scenes in a version streamed on Tencent Video. The company later restored the ending after a global backlash.

Editor’s note: 
China is on holiday for the Lunar New Year, or Spring Festival, for the week of Jan. 31-Feb. 6. TechNode has a number of our previous reports on the widespread layoffs and cutbacks that have recently taken place across a range of Chinese tech sectors and have included major Chinese tech companies, from Alibaba and ByteDance to Kuaishou.

Since late 2021, China’s tech industry has entered an adjustment phase. Many tech majors are cutting back in some areas while doubling down on others, responding to China’s slowing economy and tightening regulations. Companies have called the strategy “qufei zengshou” (“cutting the fat and strengthening the weaknesses”). 

From e-commerce giant Alibaba to content tech leaders ByteDance and Kuaishou, companies are rejigging business units, scaling back loss-making teams, and cutting offerings that no longer comply with a raft of new regulations. At the same time, they are implementing shorter working hours and better work benefits to appease both the regulators and public outcry over the industry’s infamous overwork culture. See below for a curated list of relevant reporting from TechNode: 

Alibaba and Ant Group

November 4
Alibaba reshuffles local lifestyle businesses
Yu Yongfu, the newly appointed CEO of Alibaba’s Local Life department, geared up for a major organizational reshuffle in November, local media LatePost reported. Yu planned to reorganize the local life services sector of the company – which includes travel service Fliggy, delivery platform Ele.me, and map app AutoNavi – into ten business units, including five consumer-facing business units, four enterprise-facing segments, and one infrastructure service unit for logistic support. Yu, the former head of Alibaba’s entertainment arm, was appointed as chief executive officer of Alibaba’s local service department at the start of the month. Alibaba’s move came on the heels of organizational adjustments made by ByteDance and Meituan. 

December 6
Alibaba appoints new CFO and restructures business units
Alibaba announced on Dec. 6 that deputy chief financial officer Toby Xu will replace Maggie Wu as the company’s chief financial officer next April. Separately, the company said it will create two new units for domestic e-commerce business and international e-commerce business. Trudy Dai will lead the domestic unit, and Jiang Fan will head the global one. The Chinese e-commerce giant is overhauling its business structure at a time of increasing regulatory pressure and rising competition. 

December 15
Alibaba expands employee benefits as China looking to improve working conditions
Chinese tech giant Alibaba announced an employee benefit program on Dec. 14 in response to Beijing’s call to improve working conditions. The program offers a range of benefits, including an extra one-week accompanying leave for family visits, an additional 10-day parental leave, a 20-day paid vacation for employees who have worked in the company for more than 10 years, plus extra subsidies for transportation and team outings. The company also adopted a more flexible work schedule, allowing employees to work outside of the office one day per week.

December 29
Ant Group shuts mutual aid fund Xianghubao
Alibaba’s financial affiliate Ant Group shuttered Xianghubao, the world’s largest mutual aid fund, on Jan. 28 amid Beijing’s regulatory crackdown on financial services. The four-year-old fund claimed more than 100 million registered users and said it had aided 180,000 people in need over three years. The move was one of a series of blows to the extensive business interests of Ant Group after regulators halted its planned mega IPO in November 2020. 

ByteDance

November 2
ByteDance started shorter working hours of ‘1075’
TikTok parent company ByteDance started to implement a lighter work schedule called “1075,” working from 10 a.m. to 7 p.m. five days a week, according to an internal document at the beginning of November. The new schedule was a departure from the Chinese tech sector’s infamously grueling work schedule of “996″ (working from 9 a.m. to 9 p.m. six days a week). ByteDance asked staff to seek permission at least one day in advance to work beyond the new hours. The move meant ByteDance became one of the first Chinese tech companies to mandate shorter hours. 

November 3
ByteDance to reorganize businesses into six new units
ByteDance hatched plans to regroup its main businesses into six new business units, according to an internal memo that was made public at the start of November. News aggregator Toutiao, Xigua Video, and search engine Baike were merged with Douyin, the Chinese version of TikTok, as part of the move. Dali Education, the company’s edtech unit which was hurt by the country’s online tutoring crackdown, was reassigned to oversee vocational learning services and employee development. Zhou Shouzi,  chief executive officer at TikTok, stepped down as ByteDance’s chief financial officer to focus on his duties at the short video app. 

November 25
ByteDance begins another round of edtech layoffs: source
ByteDance laid off more than 1,000 staff from its edtech businesses following the deep cuts it made in the sector in August. The new round was concentrated in the K-9 education units, a person with knowledge of the matter told TechNode. The person declined to be identified.

TikTok owner ByteDance became the latest Chinese tech giant to retreat from online tutoring services targeting students up to grade nine, or K-9, due to China’s crackdown on private tutoring services in late July. 

December 16
ByteDance cuts talent development center and scales back HR department
Another week, another reported round of job cuts. ByteDance planned to lay off its talent development center, according to an internal statement revealed by local media on Dec. 15. The employees were set to be transferred to other departments if they find suitable roles. The rest were to be laid off with compensation. The center was part of the company’s human resource department. ByteDance said in the statement that the talent center was disconnected from the company’s demands. The tech giant also hinted at further downsizing of its human resource department in the future. 

January 19
ByteDance cuts nearly 100 jobs in investment unit: report
A month later and the Chinese tech giant laid off nearly 100 employees in its strategic investment unit, Chinese media outlet Tech Planet reported on Jan. 19, citing several sources with knowledge of the matter. Team lead Zhao Pengyuan was transferred to the office of the company’s president together with four other members of the senior management team, according to the report. A ByteDance representative confirmed the “ongoing adjustment” of the investment team, but sought to portray it as a normal annual reshuffle to “strengthen business focus” and “reduce investments in businesses that have low synergies with other lines of service.” The company said at the time that some details regarding the changes were still under discussion, adding that it planned to transfer the employees in the investment team to other departments. 

Kuaishou 

December 9
Kuaishou starts a new round of layoffs: report
Chinese short video platform Kuaishou started a new round of layoffs, Chinese media The Paper reported on Dec. 8. Mid-level managers and low-performing employees were likely to be cut, according to the report. It was unclear how many people were due to be affected, but Kuaishou staff posted on China’s business social platform Maimai that the company was set to cut 10% to 30% of its employees. Kuaishou’s downsizing followed layoff moves from ByteDance and iQiyi. 

December 31
Kuaishou slashes employee benefits after layoff reports
The layoff reports were followed in Chinese media by news of cuts to employee perks to limit internal spending. The company narrowed down housing subsidies, only offering employees less than three years of support. It also canceled free meals and afternoon tea breaks for 2022. However, the company did expand maternity benefits, pledging to offer maternity allowance up to RMB 3,000 ($470) to employees. 

January 5
Kuaishou reportedly making major jobs cuts across its key teams
On Jan. 4, The Paper again reported that Kuaishou was in the midst of a wide-ranging layoff across all major teams, citing unnamed employees at the short video platform. The cuts, which reportedly began in 2021, affected the company’s main units, including e-commerce, algorithms, globalization, commercialization, and gaming. Kuaishou’s e-commerce team planned to cut 10-15% of positions, the algorithm recommendation group 30%, and the globalization team 25%, the sources told The Paper. Reports in early December had stated that Kuaishou was laying off people in the commercialization department. 

Tencent, Baidu, and beyond 

November 10
Tencent’s employee retirement package sparks envy online
Tencent released an employee retirement benefits plan in early November, prompting widespread discussion online over its generosity. The company claimed to offer long-term health insurance to employees who have worked for more than five years, which remains in effect even after staff leave the company. When employees have worked at Tencent for more than 15 years, they can retire early by receiving a bonus package or continue to work at the company. The retirement package includes lifetime health insurance, a six-month salary, and a choice between 50% of locked stock options or bonuses based on years of service.

December 3
“China’s Netflix” iQiyi poised for massive job cuts
Chinese video platform iQiyi reportedly planned to lay off 20-40% of its workforce as the Netflix-like firm tried to reduce costs amid increasing losses. The company had 7,721 employees in 2020. That means the layoff could have wiped out some 1,500-3,000 positions. Referred to as the largest round of job cuts in the company’s history by local media, the layoff was reportedly set to affect a range of business units such as content, gaming, and smart hardware. Middle-level management and senior employees were likely to be at the center of the storm according to reports. 

December 24
Baidu reportedly lay off staff at mobile business arm
Chinese search giant Baidu started a layoff at its mobile ecosystem group, which oversees its search and mobile businesses, several Chinese media outlets reported on Dec. 24, citing different sources. It was unclear at the time how widespread the layoff was, though several media outlets reported that the job cuts affected various business lines, from gaming to livestreaming to education. The Paper first reported the news on the night of Dec. 23 before retracting its story. Jiemian News reported the layoff was part of a “small-scale adjustment,” citing unnamed sources. Sina News reported the layoff was large-scale and included a cut of 300 people in the gaming department. The last two reports are still available at the time of publication.

January 13
Dingdong Maicai plans massive job cuts: report
Chinese online grocer Dingdong Maicai planned sweeping job cuts affecting several business units of the company in mid-January, according to Chinese media outlet Sina Tech. The reported workforce cuts were set to impact different departments, with the procurement team facing the largest reduction in the number of posts to just 50% of its current workforce, followed by a 30% cut for the algorithm unit, 30% for the operations team, and 10-20% for the firm’s recruitment arm. Dingdong’s headcount had already shrunk by around 10,000 compared with its peak, the report cited an employee of the company as saying. The Beijing-based firm recorded a RMB 2.01 billion ($320 million) net loss in the third quarter of last year, more than doubling its RMB 828.6 million net loss over the same period of 2020.

January 13
Chinese restaurant supplier Meicai cuts 40% more jobs ahead of Hong Kong IPO: report
Meicai, a Chinese app that supplies farm-to-table produce for restaurants, started a new round of layoffs affecting around 40% of the company’s workforce, Chinese media outlet iFeng reported on Jan. 12. The reported job cuts came just five months after a previous round of redundancies in September when the company cut at least half of its employees across several teams. The latest adjustment was reportedly in preparation for a Hong Kong IPO aimed at raising $300-500 million in the first half of this year. The Beijing-based company shelved a US IPO plan last July as Beijing tightened restrictions on overseas listings for Chinese firms. 

January 21
Youzan, a Chinese e-commerce service provider, starts mass layoffs after doubling losses: report
Youzan, one of China’s largest e-commerce service companies, reportedly planned to lay off 1,500 people, or nearly 30% of its employees in early 2022. Youzan, which develops software helping merchants to sell products on various Chinese online platforms, had faced substantial challenges as one of its major clients, social video giant Kuaishou, developed its own software services as it aimed to rake in more profit from the booming livestream retail sector.

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

WeChat’s app store-like mini program ecosystem attracted more than 450 million daily active users (DAUs) in 2021, up 12.5% from 400 million DAUs in 2020, according to figures released on Thursday by the Tencent super app.

Why it matters: Mini programs have seen increasing adoption in China and WeChat’s latest figures suggest users have grown used to operating on apps-within-an-app rather than going to multiple standalone platforms. 

• Mini programs allow users to access an array of services without leaving the main app. The system offers merchants a chance to access a vast pool of users by building lightweight apps within WeChat, an ubiquitous app in China, instead of having to develop a separate app and convince users to go there. 

Details: WeChat mini programs have expanded their user base and seen growing usage over the past year, head of Weixin Open Platform Lake Zeng said on Thursday at WeChat Open Class Pro 2022, an annual event for WeChat business partners and developers held in Guangzhou.

• Ahead of the system’s fifth anniversary on January 9, it was revealed that WeChat mini programs topped 450 million DAUs in 2021, with users spending 32% more time on them each day when compared with 2020.
• In 2021, the total number of mini programs increased 41% year-on-year, while mini programs supporting payment transactions grew by 28%. Users who pay through mini programs soared 80% year-on-year. Small- and medium-sized companies drove 90% of the growth, Zeng said. 

The pandemic accelerated mini program adoption: The company said that more than 700 million users have accessed pandemic control services such as Covid-19 tests and vaccination appointments through mini programs on WeChat, cultivating habits of using the embedded app function. 

• Sectors hit the hardest by the pandemic, including catering, tourism, and retail, saw their transaction volumes on mini programs double year-on-year in 2021.
• During the pandemic, the number of active mini programs offered by overseas merchants grew 268% over the past two years, with total transaction volume surging 897% in the same period. 

Context: Launched in 2017, WeChat mini programs have been aped and adopted by a host of Chinese apps, including Tencent’s QQ, JD.com, Baidu, Meituan, Alibaba’s Alipay and Taobao, and ByteDance’s Jinri Toutiao and Douyin. 

• WeChat’s healthy growth for mini programs comes as the total number of native apps in Chinese app stores has slumped more than 40% over the last three years amid regulatory crackdowns and a mature market.

Beyond Expo has been underway at the Venetian Convention and Exhibition Center in Macau since Thursday. The three-day offline tech summit and exhibition has attracted more than 300 exhibitors promoting everything from artificial intelligence and biotech to smart cities. Giant firms such as Tencent, China Telecom, Alibaba, and Huawei joined with upcoming vertical unicorns to showcase their latest technological developments and products.

Here are some highlights in case you missed out.

Innovations from giant firms

At Tencent’s booth, the company demonstrated 15 ways its technologies are applied in smart cities, industrial chains, and healthcare, mainly concentrating on commercial applications in the Greater Bay Area, which consists of nine cities in the southern Guangdong province, Hong Kong and Macao.

One example was Tencent’s cooperation with the Macao Water Supply Company. Tencent’s productivity app, WeCom, has greatly improved the working efficiency of his company, according to Hu Jianchao, head of the water firm’s pipeline management department.

Before adopting the app, the company relied on phone calls to learn about water pipeline emergencies. Lack of real-time updates often led to miscommunications. WeCom has streamlined the emergency treatment process by digitizing case details such as the location of the emergency, onsite pictures, and the staff in charge of the case, Hu explained.

Telecom carrier China Telecom has developed a smart city transportation platform for Macao by integrating technologies including IoT, artificial intelligence, cloud computing, and big data. The app, which claims more than 100,000 daily active users in the city, supports major features like route management and bus stop reporting.

The company’s 5G-enabled robot dog drew a large crowd at the event. The dog can be useful in various scenarios such as accompanying and guiding visually-impaired people in emergency rescues, said Chen Zhanhong, a representative from the Macao subsidiary of China Telecom. 

Robots at work

Service robots are well on track for commercial applications as traditional sectors turn to automation to increase efficiency and slash labor costs. The trend got a strong boost from the pandemic, which gave rise to the new concept of “non-contact delivery.”

Now, service robots are giving directions at malls, supermarkets, museums, and hotels, as well as delivering food in restaurants, taking care of the elderly, and assisting with medical treatments.

Cars take to the air

As electric vehicles and autonomous driving become more familiar concepts to Chinese consumers, entrepreneurs are exploring the future of daily transportation.

Developed by Chinese drone maker EHang, EHang 216 is a dual-seat passenger grade autonomous aerial vehicle designed for short- to medium-range air transportation. The passenger drone can travel at a maximum speed of 130 km/h. It can fly for 21 minutes with a full-load capacity of 220 kilograms.

Xpeng Huitian, an autonomous aviation unit of electric vehicle maker Xpeng Motors, showcased its “flying car” prototype Voyager X2 at the event. With eight propellers on four axes, the passenger drone could carry two adults. It has a maximum load of 200 kilograms. The electric drone can travel 35 minutes at between 80 and100 kilometers per hour on one charge.

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

Chinese tech giant Tencent announced Thursday it was ending its content creator incentive plan called “Project Dawn” after prompting wide backlash from content creators.

Why it matters: The competition among tech giants for quality content is reaching a fever pitch in China, but creators are pushing back against what they see as attempts to devalue their work.

Details: Tencent’s open content platform said in a Thursday statement (in Chinese) that it has terminated its content creator incentive program “Project Dawn,” which aimed to lure original content creators with monetary rewards for their work. On top of that, the company apologized to creators that were affected by the program.

• Tencent launched the project in July, pledging to give RMB 10 million ($1.5 million) in subsidies to empower and attract more video content creators to its platform. The project aimed at creators from various popular platforms such as Bilibili, Xiaohongshu, and video apps like Kuaishou, promising to help the creators promote their content across platforms and increase their revenue. 
• Several creators on the Chinese video platform Bilibili began to voice their discontent (video, in Chinese) last week, claiming Tencent tricked them into joining the program, which failed to deliver its promises. 
• The creators claimed that Tencent ran the program through a number of multi-channel networks (MCNs), which would take as much as 90% of the one-off incentive fee of RMB 200 promised to each creator by the platform.
• Bilibili creators who gave their ID information to MCNs after joining the program found their videos, which had already been uploaded on Bilibili, were copied to the Tencent platform and labeled as exclusive content there. As a result, their accounts were subsequently blocked on other sites for alleged piracy. Tencent refuted these claims in its statement, saying that it has never labelled content exclusive, “nor has it tried to obstruct creators’ profile on other platforms.”
• Tencent said content creators that want to leave their platform can cancel their account, an option that only became available on Nov. 9. Those who want to stay will now get the promised income from Tencent directly, instead of through MCNs, the company said.

Context: This is not the first time Tencent has faced a content creator backlash. The company’s online reading arm China Literature was subject to an author revolt due to what they saw as exploitative rules in 2020.

READ MORE: INSIGHTS | Who owns ‘internet literature’?

Update: The story has been updated with Tencent’s statement on exclusive content complaints.

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 are joined by South China Morning Post’s Josh Ye to discuss China’s gaming industry. They go over recent regulations, misconceptions, and whether Chinese gaming firms have a leg up in the future of the “metaverse.” James and Ell also briefly discuss Luckin Coffee, Evergrande, and antitrust regulations.

To read more of Josh’s work on gaming in China and much more, check out the Pro Edition of SCMP’s 2021 China Internet Report.

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:

• Josh Ye – @TheRealJoshYe

Editor:

• Peter Isachenko

Podcast information:

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

Philanthropy is shifting from a “nice to have” initiative to a “must have” commitment for Chinese tech giants.

Chinese internet firms ramped up their donations for the public good over the past few months, giving away billions of dollars to causes ranging from technology innovation to bridging income inequality. The move is widely viewed as an effort to placate a state that lately seems to be scrutinizing their every move.

Bottom line: Under intensifying regulatory pressure, Chinese tech companies are scrambling to show their willingness to operate and invest in compliance with the state’s broad goal of “common prosperity.” The change forced these tech titans, many already suffering selloff pressure due to tighter state reins, to seek a balance between shareholder interests and the higher operating costs due to huge donations.

Brief timeline: Tech giants such as Alibaba and Tencent are already active donors through their corporate funds. The companies’ billionaire founders are also writing large checks for charity from their personal foundations. Alibaba’s Jack Ma topped Forbes annual China charity list with nearly $500 million in donations in 2020. Tencent’s Pony Ma came in third with about $402 million, and ByteDance’s Zhang Yiming was fifth with $189 million. Pinduoduo’s Colin Huan topped the Hurun China Philanthropy List 2021 with donations totaling $1.9 billion.

Unlike previous donations that tended to be sporadic initiatives by individual companies, there’s a newfound generosity from nearly every major tech company over the past few months. 

• Tencent invested RMB 50 billion ($7.7 billion) in “sustainable societal innovation” projects in April. The gaming titan later doubled the sum, giving an additional RMB 50 billion to the company’s “common prosperity fund” in August.
• Alibaba announced in August an investment of RMB 100 billion across ten key initiatives to promote common prosperity in China. The company will establish the Alibaba Group Common Prosperity Advancement Working Committee, chaired by chief executive Daniel Zhang, as a permanent mechanism dedicated to delivering on the key initiatives by 2025. The committee will focus on technology innovation, economic development, high-quality employment creation, care for vulnerable groups, and the establishment of a common prosperity development fund.
• Pinduoduo rolled out in mid-August a RMB 10 billion agriculture initiative to address critical needs in the agricultural sector and rural areas such as food security and agricultural technology. In March, Pinduoduo founder Colin Huang stepped down as chairman after giving away 2.37% of his shares, worth $1.85 billion, to charity last year.
• Meituan’s founder and CEO Wang Xing in June donated $2.3 billion worth of Meituan shares; his company is still undergoing an antitrust probe by regulators following his controversial comments hinting of discontent with the government, wiped tens of billions of dollars off Meituan’s market value.
• Xiaomi founder and CEO Lei Jun transferred $2.2 billion worth of shares in the company to the corporate Xiaomi Foundation and the personal Lei Jun Foundation in July. This is in addition to the nearly $1 billion that Lei announced in April he would donate to charity.
• Zhang Yiming, founder of TikTok developer ByteDance, is giving RMB 500 million of his own money to establish an education fund. 

Compared with previous donations, tech firms’ burst of generosity over the past months was mainly directed towards the goal of public welfare and reducing inequality, a goal made explicit in the company’s five-year plan released this March.

The donations are mainly directed to fields like technology innovation, poverty alleviation, welfare of low-income groups, agricultural/rural development, education, basic science/research, healthcare, and small- and medium-sized enterprise (SME) support.

READ MORE: INSIGHTS | Tech in the five-year plan

A change in priorities for economic growth

When former Chinese leader Deng Xiaoping ended the country’s planned economy and embraced a free market in the 1980s, he said allowing some people and regions to get rich first would speed up economic growth and achieve the ultimate goal of common prosperity. Now, the priority seems to be shifting to the latter.

• On Aug. 17, Chinese President Xi Jinping called for the nation to achieve “common prosperity” in a speech, asking to rationally “adjust” excessive incomes and for wealthy individuals and companies to return more to society.
• Xi’s call came as Chinese authorities stepped up regulation of tech companies in multiple areas, including antitrust, data security, and privacy, ending the country’s long-standing laissez-faire regulatory approach towards the tech sector.

The changes also came as income inequality becomes an increasingly pressing problem in Chinese society.

• China’s top 1% own nearly 31% of the nation’s wealth, according to a study by Credit Suisse.
• Chinese Premier Li Keqiang said in May 2020 that 600 million people, or roughly 42.9% of China’s population, have a monthly income of RMB 1,000.
• China received a score of 0.465 on the Gini index of the World Bank, which measures economic inequality. The score ranges from zero to one, with one meaning complete income inequality. A score of 0.4 or above is considered at a “warning level.”
• “Alibaba is a beneficiary of the strong social and economic progress in China over the past 22 years. We firmly believe that if society is doing well and the economy is doing well, then Alibaba will do well,” said Daniel Zhang, chairman and chief executive of Alibaba Group, in a company statement on Sept. 3.
• Resentment toward tech companies is growing in China. Whether restaurant owners on food delivery platforms or startups in crowded verticals, small businesses feel they are squeezed by the digital behemoths.

Investor sentiments

While donating tens of billions of dollars for social initiatives out of their profits, the Chinese tech companies, mostly listed, face the double pressure of convincing investors that they are making the right decision to sacrifice short-term profits for long-term growth prospects.

• Chinese tech stocks have experienced a stunning sell-off since the beginning of this year as Beijing widened its crackdown. Intensified regulations over monopolistic behaviors, overseas listings, and data security, coupled with massive fines, wiped out hundreds of billions of dollars in market value of Chinese tech companies.
• “As platforms grapple with increased regulatory scrutiny inside and outside of China, investors will need to come to grips with the impact of regulatory burden and compliance costs on EPS (earnings per share) and ROIC (return on invested capital),” said Michael Norris, head of research and strategy at AgencyChina.

How effective philanthropic displays will be? 

But the efforts raise other questions: Will these philanthropic displays be enough to ease the wrath of regulators? Norris thinks there’s little chance internet platforms can avoid regulation through their social impact investments. 

• “However, these investments can signal internet platforms are responsible market participants. This hits the right notes with regulators who’ve been tasked with curbing exploitative practices and market irregularities,” Norris said. 
• “Think of it as stakeholder capitalism, with Chinese characteristics,” he added.

New opportunities under the disguise of donation?

The government’s attention to areas like tech innovation, agriculture, education, and basic science means opportunity for tech companies. By entering these strategic areas, they could expect returns from those donations, or investments, if they have aligned their business with the broader strategic goals properly. But the time for such returns may be long.

• Started as a social ecommerce platform, Pinduoduo has become laser-focused on “digitizing agriculture”, an initiative that aligns with the government’s drive to modernize agriculture and boost development for rural areas.
• Pinduoduo said in a statement that the company will be able to “get back” because the users “have placed their trust” in the platform.
• “I observed that both Tencent and Alibaba pledged to support SMEs. This might mean that some of the investment is applied to existing subsidies or retains discounted take rates,” said Norris. 

A lasting change?

China has lagged when it comes to charitable efforts, partly due to China’s tradition of passing fortunes through a family line. Back in 2010 when Microsoft co-founder Bill Gates and billionaire investor Warren Buffett invited Chinese moguls to a dinner to discuss philanthropy, lots of them turned down the invitation for fear of being asked to make a donation.

However, there’s been a significant change in charitable giving, especially since 2008, when donations struck a chord with larger groups due to the Sichuan earthquake. Donations for fighting the COVID-19 outbreak and helping victims of the recent flood in Henan peaked as tech firms tried to fulfill their social responsibilities, a concept specified in the country’s corporate law.

Chinese tech billionaires still have a long way to go to be on track with philanthropic models comparable to western counterparts like Gates.

China’s super app WeChat plans to launch a paid cloud storage service, state-owned media China Daily reported on Sept. 3, citing unnamed sources. The iCloud-like feature would be WeChat’s first paid subscription service since it launched in 2011.

Why it matters: The move could give WeChat’s 1.25 billion users an option to back up their chat records on the cloud, addressing an outstanding users’ complaint. The subscription could also bring new income streams for Tencent, WeChat’s parent company, as regulatory pressure on mobile games grows and companies are being encouraged to be more socially responsible. 

Details: The project, which has been pushed by Tencent aggressively, has entered “the final stage,” the report said, citing another unnamed source. 

• WeChat plans to charge users on a yearly basis. iOS users could be paying RMB 180 ($28) a year while Android users would pay RMB 130, the report said. 
• A WeChat spokesperson declined to comment on the issue when contacted by TechNode on Monday. 

Context: WeChat’s global monthly active users reached 1.25 billion in the second quarter of this year, up 3.8% from last year, according to Tencent’s Q2 earnings report.

• WeChat users have long been annoyed by loss of chat data as the app only allows local storage on devices. 
• More Chinese people are demanding cloud storage services. The number of cloud users in China was forecast to exceed 400 million in 2020, according to market intelligence firm iiMedia (in Chinese). 

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 are joined by regular guest Michael Norris to review some Q2 earnings highlights of Kuaishou, Tencent, and Xiaomi: The three companies have faced dramatically different fates in recent months, and their trajectories may offer insights into the current state of China’s tech and its regulatory overhaul.

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.com
• Pinduoduo
• Meituan-Dianping
• Kuaishou

Hosts:

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

Guest:

• Michael Norris – @briefnorris

Editor:

• Peter Isachenko

Podcast information:

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

All through my late teens, as a student at an elite public high school in the northeastern industrial city of Shenyang, after-school classes were a constant. They were usually held in makeshift classrooms located in random residential buildings close to campus. Scores of students packed elbow to elbow, while a teacher in the front, often from our high school, sweated through derivatives or English participles. Looking back, all that extra study was practically useless: Almost every question I was taught to crack during these sessions was levels above the difficulty demanded by the national university entrance exam, the infamous gaokao. At its best, it was intellectual acrobatics; at its worst, a massive grift.

My experience was not exceptional. By 2020, at least one-third of Chinese households with children of K-12 age (in Chinese) were paying for private classes to supplement the regular curriculum. Outlays by these families floated valuations of the K-12 private education industry from RMB 373 billion ($58 billion) in 2015 to over RMB 700 billion in 2021. In that span, the industry also rapidly moved online.

There were massive open online courses (MOOCs) provided by renowned public middle schools and animation-based interactive learning for the youngest students, but the most profitable innovation was the massive livestream class designed for passing a specific exam, often taught by a celebrity teacher. Livestreams helped the likes of Gaotu Techedu (GSX) and Yuanfudao to rapidly consume 15% of the private tutoring pie and transformed China into the world’s most desirable destination for edtech financing.

Then on July 24, Beijing’s State Council dropped a hammer on the industry with a 15-page collection of regulations known as “The Double Reduction Opinion” (in Chinese). With stated goals of lightening students’ homework load and saving parents money, the new guidelines require tutoring schools to stop teaching core curriculum subjects or spin off such activities into nonprofit units. Foreign ownership and public listings of such companies are banned. So is providing any classes at all on weekends and holidays—thereby slashing marketable hours by 80%. For-profit education companies will be limited to extracurriculars like art and sports.

The directive triggered massive stock sell-offs in the US and Hong Kong. Three of the US-listed stars—TAL Education, Gaotu Techedu, and New Oriental Education—collectively lost $100 billion in market cap from their peak earlier this year. It’s expected most of the $23 billion venture capital invested in the sector in the past five years, an estimate by HolonIQ, will be vaporized.

Decrees from the Chinese upper echelons can often be massaged and delayed to suit local conditions. But after flipping through a dozen interpretations by local governments, I don’t see any wiggle room. 

Cities and provinces are racing to be fastest, and strictest. Beijing encourages after-school services to adopt a “learn first, pay later” approach to prevent financial scams. Zhejiang asks its counties to set up “expert commissions” to supervise tutoring outfits on what to teach. Hunan leadership boasts it has “rectified 15,000 after-school training institutions since June, and disciplined 170 teachers who engaged in paid tutoring.”

In the month following this unprecedented crackdown, the smoke has begun to clear. We are getting a better sense which edtech firms will die, which will survive, and which might even prosper.

No more IPOs

Late-stage startups that were anticipating mega-IPOs will likely give up on listing and see their valuations shrink to nearly nothing. Among them are two of the world’s biggest edtech firms: Yuanfudao, once valued at $15 billion, and Tiger Global-backed Zuoyebang. Another high-profile case is Spark Education, which had filed for an IPO in late June. The cash-burning unicorn was dedicated to teaching three- to ten-year-olds math and science through small-class livestreams and animation, and raised a total of $590 million in nine rounds in under four years. Most likely, none of them will be able to raise money at a unicorn valuation for years.

Tencent-backed VIPKid has also shelved its IPO plans. Its business model, also employed by New York-listed peer 51Talks, relied on the now-banned practice of hiring English speakers overseas to tutor Chinese students by video call. VIPKid alone claimed to employ 100,000 North American tutors teaching 600,000 Chinese children in 2019. Under the new regulations, these and other online tutoring companies have to shift swiftly to customers outside China—or face extinction.

The various bans are also having an impact on foreigners employed throughout China in private language schools, known as training centers, which often serve adults as well as children. Many such teachers in August found they couldn’t renew their visas or their visas were suddenly cancelled, according to conversations in WeChat groups.

Giants already pivoting

The edtech giants are downsizing fast. Gaotu, Yuanfudao, Zuoyebang, and TAL have collectively cut tens of thousands of employees. ByteDance’s edtech brand, Dali, has laid off half its in-house K-12 tutors and shut down its one-on-one online English tutoring unit, GoGoKid. There have even been more than a dozen public protests by sacked Chinese staff seeking back pay.

All major firms are attempting to remain for-profit by pivoting into much smaller segments individually worth somewhere between $1.5 and $3 billion.

TAL started offering lessons in the permissible non-curriculum subjects of calligraphy, drama, and the board game go at its existing after-school centers. Youdao, NetEase’s educational brand, just unveiled a new six-app matrix with lessons in arts, robotics, and coding, aiming to rake in some offline licensing fees. Zuoyebang expanded its non-curriculum portfolio by three new apps, the most intriguing of which claims to “cultivate learning motivation”.

Like Dali, Youdao has the option of doubling down on its existing hardware lines. Both could use their traffic portals for paid courses or services unrelated to the K-12 core. The Ministry of Education’s recent announcement that physical education should be worth as many points as math in high school entrance exams makes sports an attractive new path for online-cum-offline providers.

Another direction is adult education. New Oriental’s latest “family education” line hopes to turn a decade-long free service to parents into a profitable business. TAL’s latest spin-off features language training and preparation for the National Graduate Program Entrance Exam. The Gaotu Professional app, launched in May, offers training in accounting, the civil service exam, and other life-long learning pursuits.

Homegrown companies venturing into online language training apps may be able to mine an especially sweet spot: Days after the release of the Double Reduction rules, popular foreign-owned apps like Duolingo and Memrise disappeared from mainland Android app stores.

It’s time for edtech to align more of its business interests with the public education system. First, the national rollout of after-class, on-campus programs, which the Opinion spent a chapter promoting, prompted inventions of CRM software used for billing parents who pay for extracurriculars. 

Second, classroom utility tech is entering a golden era as instructional competence needs to rise as homeworking wanes. Data-driven solutions that help analyze academic performance or grade exam papers will be in demand. And finally, MOOCs will gain traction, since they’re hailed as “equalizers of learning resources,” laying down a capitalizing path for platform players, such as Hillhouse-backed EEO (ClassIn).

No place for unicorns

I hope that millions of students across China will feel their study burdens resoundingly lifted soon. The truth is, I was never vocal about wasting my high school weekends in those dimly-lit classrooms. Nor did I complain about constantly moving from one building to another to dodge regulators’ door-knocking. I simply bought that I was “a good student,” and a good student always shows up.

Many determined parents are going to find ways for their children to show up to extra classes like I did, as long as only 6% of the 10 million taking the gaokao each year are admitted into one of the 150 tier-one universities, and standardized tests are the only keys to the kingdom.

It’s these stark facts that have driven so many, including up to 60% of upper middle-class households, to spend so much on online tutors and after-school classes. Affluent families will now simply reallocate their exorbitant education budgets to in-home tutors or to Chinese or foreign teachers found online, sometimes by reconnecting with the teachers abruptly laid off by the edtech giants.

Through the smoke-and-mirrors exercise of aggressive salesmanship and false marketing, parents have been fed, for years, a core message by the tutoring giants: “The school your kid attends is not enough.” As Chinese families follow their inertia to cram, part of the tutoring industry will go guerrilla. But if gaokao-oriented tutoring goes underground, this desperation won’t make any new unicorns rich.

Kuaikan, a popular online comics platform in China, has raised $240 million in a new round of funding, the company announced on Monday. Kuaikan claims the round is the largest ever in China’s online comics industry, according to its WeChat statement. 

Why it matters: Kuaikan, which offers digital comics in its app and website, has managed to attract investors’ attention in the competitive online comics sector.

• Founded in 2014, Kuaikan has become a leading digital content hub for readers of Chinese comics.

Details: Investors include existing backers Tencent, Coatue Management, and Tiantu Capital, and newcomers like CCB International, the investment arm of China Construction Bank, and One Store, a South Korean app market operator co-owned by Naver, which runs the world’s largest digital comics platform Naver Webtoon.

• Chinese media AI Caijing reported that One Store planned to invest around RMB 223 million ($34.4 million) in Kuaikan and take approximately 3% of its shares, citing sources from South Korean media. Kuaikan’s market value will be around RMB 8 billion after the round, the report said. 
• The proceeds from the round will be used to cultivate the platform’s content ecosystem. The company said it will spend a total of RMB 2 billion to subsidize its authors and produce animated comic book adaptions, according to the company’s statement.
• Kuaikan’s CEO Chen An’ni said in an internal memo (in Chinese) to employees that the firm’s comics business has turned a profit and maintained revenue growth of more than 50% in the past few years.

Context: Kuaikan is the largest Chinese online comic platform. In February, the firm ranked first in the most popular comic apps list with about 29 million monthly active users, according to Bigdata-Research (in Chinese), a Chinese market consultancy. 

• The company received $177 million in Series D funding in 2017, and $125 million from Tencent in 2019. ByteDance was once an investor of the company but exited after Tencent stepped in.
• China’s e-comics industry has grown at a more than 20% rate in the past five years, and the market is expected to reach RMB 4.6 billion by 2021, according to iMedia Research (in Chinese).

Chinese video-streaming platform Tencent Video said it has filed a lawsuit against ByteDance’s short-video app Douyin for copyright infringement and unfair competition over clips from a hit TV drama, seeking RMB 100 million ($15.4 million), Chinese media reported Wednesday.

Why it matters: Tencent Video’s legal action is the latest attempt by a streaming platform to control the spread of clips on short-video platforms. Streaming platforms fear that widespread posting of clips will undermine the value of expensive content.

Details: In the complaint, Tencent Video accused Douyin of circulating clips of “Crime Crackdown,” a hit TV drama, without consent. Claiming ownership of exclusive right to the online dissemination of the drama, Tencent said Douyin had allowed users to upload clips from the show and failed to take any measures after receiving a notification letter from Tencent. 

• In a response, Douyin claimed that it had signed a cooperation deal with the co-production company of the drama, under which the company will open an official account on the platform while Douyin will be responsible for curating promotional activities. Douyin also said that it had taken down clips immediately after receiving complaints from Tencent.    

READ MORE: ByteDance rages against Tencent over link blocking. Here’s why

Context: Tencent won a similar case against Douyin over clips of “Honor of Kings,” a hit Tencent game, earlier this month. ByteDance was fined RMB 600,000.

• Mainstream video-streaming platforms have recently ramped up criticism of their short-video peers over alleged copyright infringement practices. Tencent vice president Sun Zhonghuai lashed out at short video content, comparing it to “pig’s feed” and complaining of widespread copyright violations at an industry conference held in June.

Meituan, a Chinese life services and food delivery platform, is testing a social feature for food-ordering users, Chinese media Tech Planet reported (in Chinese) Thursday.

Why it matters: The social feature is part of Meituan’s effort to find new growth areas. The move comes as the food delivery sector becomes more crowded—social media giant ByteDance has been reportedly testing a food delivery feature through its short-video app Douyin since last month.

Details: Named “Fanxiaoquan,” the new feature allows users to share orders with their contacts on the Meituan app, in a format that is similar to WeChat’s Moments or Facebook’s News Feed. 

• Users can comment and like posts, access merchants’ shops through posts, and place similar orders.
• Users can add friends either through WeChat contacts or phone contacts. The platform also recommends new contacts based on users’ past behavior on the Meituan app, such as the mobile games they have played. 

Context: After years of fast growth, China’s food delivery industry is now growing at a slower pace. The market expanded 15% yearly in 2020, the slowest growth in the past decade, according to market consultancy Zhiyan (in Chinese). 

• Meituan hit a record in the number of transacting users and active merchants using its flagship app in the first quarter of the year, 569.3 million and 7.1 million, respectively, according to its financial statement. The growth is partly driven by the company’s popularity in lower-tier Chinese cities. 
• Meituan is seeking new growth areas in recent months by introducing social and content features, including a Pinduoduo-like group buying feature in its Meituan-Dianping unit and a short video feature in its flagship app.

Tencent Music to release “digital collections” built with non-fungible token (NFT) technology. The Chinese province of Guizhou reveals ambitious plans to turn freed-up crypto mining electricity into EV charging capacity. Tencent granted blockchain patent.

Tencent makes more NFT and blockchain moves

• Tencent Music announced on Monday that it plans to release “digital collections” on its music streaming service QQ Music starting this month. The company confirmed with Chinese media that the collection will incorporate NFT technology. The collection will include video, audio, digital vinyl, and celebrity merchandise. The announcement came a week after Tencent launched an NFT trading platform called Huanhe. (TechWeb, in Chinese)

• Chinese enterprise information database Tianyancha shows that Tencent has been granted a patent for “processing students’ identity information on blockchain networks.” The company applied for the patent in September 2019. The patent abstract shows that the technology can store users’ school identity information from different periods on a blockchain network and ensure the data is secure and can’t be tampered with. (China Star Market, in Chinese)

Crypto mining business disputes

China-based bitcoin miner manufacturer Ebang International said at a Monday press event that it is in the midst of an approximately RMB 400 million ($61.75 billion) business dispute with Huatie Emergency, a company listed in China. Chinese media previously reported that a Xinjiang-based subsidiary of Huatie had signed a contract to buy cloud computing servers worth roughly RMB 400 million from Ebang in 2018. (China Star Market, in Chinese)

Crypto ban accelerate EV adoption

China’s southwestern Guizhou province announced a recent plan to build 4,500 electric vehicle charging stations in 2021 and 10,000 more in the next two years. The province is using electricity freed up by China’s crackdown on bitcoin and crypto mining. Guizhou aims to install 38,000 EV charging stations by 2023, with at least one in each town. It will reserve 20% of car parking bays at shopping malls for EV charging points. (Cointelegraph)

Louis Hinnant contributed to the reporting.

Chinese social media and gaming giant Tencent vowed to further limit minors’ access to video games on Monday, the same day state media’s criticism of the industry spooked investors and caused Chinese game stocks to lose at least $57.6 billion.

Why it matters: Tencent’s announcement is a quick response to an article by state media that compared video games to drugs. 

• The Economic Information Daily, an affiliate of the state news agency Xinhua, called online video games “spiritual opium,” singling out Tencent’s top game “Honor of Kings” as “the most popular video game” among Chinese students. The article was published on Monday morning, pulled in the afternoon, and republished in the evening without those phrases.

Details: Tencent said (in Chinese) in a Monday announcement that it will set stricter limits on minors’ access to games, intensify its crackdown on minors using fake identification to circumvent restrictions, and promote industry-wide systems to prevent gaming addiction. The company also said it will start implementing the new measures in “Honor of Kings” and gradually extend them to other games. 

• On Wednesday, Tencent released new rules that limit underage players’ access to “Honor of Kings.” 
• The rules bar minors from playing the game from 10 p.m. to 8 a.m. Minors will also only be allowed to play one hour a day, and two hours on national holidays, down from previous limits of one and a half hours and three hours, respectively. 
• The new rules also prohibit children under 12 from making any in-game purchases.
• Tencent promised to re-verify suspicious accounts and crackdown on minors using fake identification to play games for longer periods. 
• Tencent also said it will encourage other gaming companies to build anti-addiction systems and discuss whether children under 12 should be completely banned from playing video games.

Context: The Economic Information Daily pulled the article on Monday afternoon after major game stocks in China and Hong Kong plunged more than 10%. The company later republished the article without the drug comparison on Monday night. Tencent and NetEase’s stock prices fell by 6% and 8%, respectively, and CMGE Technology, a mobile game publisher, lost 13%. 

• Chinese state media has consistently lashed out at video games over the past few years. In July 2017, multiple state-owned media companies, including People’s Daily, state broadcaster CCTV, and Xinhua News Agency, published op-eds criticizing video games and gaming companies for their bad influence on Chinese school children.
• Despite official pushback, the gaming industry has maintained growth in the past five years. The market reached RMB 136.6 billion ($ 21.1 billion) in 2020, according to CGIGC, a state-affiliated game publishing authority. In early 2018, Chinese officials started an almost year-long freeze on online game approval.

Tencent launched a non-fungible token (NFT) trading platform. A local Chinese court is building a judicial blockchain to improve intellectual property litigation processes. China’s central bank said in a work meeting that they would continue to crack down on cryptocurrencies.

Tencent launches an NFT platform

Chinese tech giant Tencent launched an NFTs trading platform called Huanhe on Monday. The platform promoted the launch by issuing 300 NFTs style as vinyl records based on the popular Tencent-developed celebrity talk show “Shisanyao.” Each piece is priced at RMB 18 ($2.8). The platform is planning to sell NFTs in the forms of video, audio, photos, 3D models, and others, according to the platform’s introductory text. (Wu Blockchain)

Court builds judicial blockchain

A local court in the northeastern Chinese city of Hulunbuir, Inner Mongolia, said in an official WeChat post that it is building a judicial blockchain to improve litigation processes for intellectual property cases. The Hulunbuir Intermediate People’s Court said it wants people to submit evidence through the blockchain and use timestamp functions to preserve the evidence. The court is currently testing the blockchain. (Hulunbuir Intermediate People’s Court, in Chinese)

Central bank vows to continue crypto crackdowns

China’s central bank said it will continue its crackdown on virtual currencies in a work meeting for the rest of the year. A work report released Thursday listed regulating the growth of fintech platforms and punishing illegal virtual currency activities as priorities.

More digital yuan implementation

• More than 10 commercial banks in China have started to build teams to support digital yuan services, the 21st Century Business Herald reported. State-owned banks are currently the leading operators for digital yuan trials, which began in late 2019. The report found a number of smaller commercial banks, some privately-owned but not all, are working to support digital yuan. China Minsheng Bank recently posted hiring advertisements for digital yuan managers. Other banks include the Suzhou Rural Commercial Bank, the Bank of Shanghai, the Bank Of Changsha, and the Bank of Xi’an. (21st Century Business Herald, in Chinese)
• Beijing’s metro system expanded digital yuan support on Aug. 1 to include transport card machines and manned ticket booths. The subway system began a pilot program in late June that allows people to pay fares with digital yuan using the metro authority’s Ruubypay app, known as Yitongxing in Chinese. (MPayPass, in Chinese)

At 9 a.m. on a recent Thursday, Sheng Li got out of a Didi ride at his office in downtown Shanghai. The ride-hailing company has had a rough ride recently, but for users like Sheng, Didi is still the first choice when hailing a car.

The 28-year-old office worker says he’s been experimenting with other apps lately. He’s noticed longer wait times as Didi struggles amid a “cybersecurity investigation,” temporary removal from Chinese app stores, and lawsuits from angry US investors.

Sheng told TechNode he doesn’t worry about the privacy and security issues the regulators are investigating. “That’s a matter for the state, not us,” he said. For him, it all comes down to price, service, and wait times.

Still, a Shanghai taxi driver surnamed Wu told TechNode that he has shifted his driving time to other platforms including aggregator Amap (Gaode Ditu in China), as there are now “much fewer orders” from Didi (our translation). Some former Didi users even deleted the app from their phones in a show of patriotism, the Shanghai-based driver added.

Founded in 2012 as Didi Dache, Didi has long been dominant in China’s ride-hailing market. It fended off an early challenge from Uber, buying out the US company’s Chinese operations when it left the market in 2016. The most recent estimates put its share at 90% of the Chinese market.

Now, challengers are racing to take advantage of Didi’s troubles. Like Sheng, millions of Chinese users are trying out other ride-hailing platforms. The rivals have begun a price war, offering steep discounts and subsidies to win over users and drivers.

Default Didi

Didi remains the default for most users TechNode met during rush hour interviews in Shanghai. Although Didi apps are no longer available for download on Chinese app stores, those already on users’ smartphones still work.

Chris Sun, a Shanghai-based video producer did not hesitate when choosing Didi to hail a ride to the city’s railway station for a business trip last week. Speaking to TechNode on July 22, Sun said he had no plans to try other services, adding that he “has got used to” Didi, despite some technical flaws such as inaccurate pin locations from drivers (our translation).

Chen Jie, a recent graduate, is also sticking with Didi. The 23-year-old tried Alibaba-backed Amap last year, but immediately switched back to Didi, frustrated by long waits at peak times.

Springing into action

Shopping and delivery titan Meituan, a longtime rival of Didi, relaunched its standalone ride-hailing aggregator app Meituan Dache on July 13, followed by a WeChat mini-app with the same name last week.

Meituan has offered ride-hailing services since February 2017, but shut down its standalone app in 2019 to cut expansion costs. Since then, it’s been available only as a mini-program within Meituan’s main app.

The company has boosted its subsidies to attract users after the long absence. Using a RMB 10 ($1.54) coupon, TechNode paid RMB 23.4 for a nine-kilometer trip on Meituan Dache on July 16 in Shanghai. A ride on Didi for the same route cost RMB 35 on July 2.

Upstart T3, a joint venture of state-owned automakers FAW, Dongfeng, and Changan, is among the most ambitious contenders. From its base of 21 cities and 15 million users in 2020, the two-year-old ride hailer has set goals to enter 15 new cities and add an average daily order of 1 million rides by the end of July, Chinese media reported, citing a company memo. 

Daily downloads of the T3 app on iOS peaked at 60,000 million on July 2, later stabilizing to around 40,000. In June, T3’s app was downloaded just 10,000 times a day, according to data from app-tracking service Qimai. Chinese media report that T3 staff have been working long overtime hours as the Nanjing-based company rushes to expand.

Alibaba-owned aggregator and mapping service Amap, launched in 2018, is also offering massive subsidies to both riders and drivers, including RMB 100 coupons for rides and a one-week zero-commission period to new drivers. Amap downloads on iOS have more than doubled since July.

Meanwhile, Tencent and GAC-backed Ontime is offering 50% off coupons plus a RMB 25 incentive to those who invite a friend to use the platform and take their first trip. Not everyone is joining the price war.

Chinese media reported that management at Caocao Chuxing have decided not to drive down prices,, but the company has adopted the infamous 996 work schedule following Beijing’s investigation into Didi.

Future landscape

Didi could be back on app stores later this month. Regulations specify that cybersecurity reviews should take no more than 45 days, and 45 days after Didi’s review began will be Aug. 16. However, the same regulations authorize regulators to extend the review if they find that the matter is especially complex or serious.

Some observers believe that Didi could face significant threats from smaller ride-hailers that are expanding their presence in China’s growing inland cities.

“Didi is mature in tier-one cities but not in second or lower-tier cities. There is still an opportunity for online ride-hailing in China, and Didi will not have a 90% share in China forever,” Tu Le, founder and managing director of business intelligence firm Sino Auto Insights, said during an online interview on July 6.

Didi controlled more than 90% of China’s ride-hailing market share before the government’s investigation into the company. There might be “double-digit” market share redistribution if the subsidy war meaningfully deteriorates the Didi app or mini-program core experience, according to Michael Norris, head of research and strategy at AgencyChina.

The supply of drivers, who are sensitive to subsidy and platform policy changes, will be key to winning the battle. “Didi’s competitors need to poach drivers to the point Didi’s app becomes unreliable to hail a ride,” he said.

“The competitive landscape depends on how hard Meituan pushes. Recall that Meituan, with one eye on its balance sheet, backed away from self-operated ride-hailing in late 2018. Meituan’s foray into community group-buy, including associated financing activities, have primed investors for big moves.” Norris said.

Meituan declined to comment on the story.

Still, at least one ride-hailer has decided to advance at its own pace. Rather than spending lavish sums for a victory likely to be temporary, Shouqi, operated by the namesake automaker, has publicly stated its goal is high-quality development, focusing on passenger and driver safety along with data security. With a footprint in over 170 Chinese cities, the state-backed company is now the country’s sixth biggest ride-hailer but lags far behind Didi in monthly active users, according to figures published by app tracking firm Aurora Mobile in May.

“China’s ride-hailing market has always been strictly regulated. Looking ahead, compliant, healthy, and sustainable development will be the major path for all the players,” a Shouqi spokesperson told TechNode on July 20 (our translation).

Read more: How did Didi get in trouble with data regulators?

Tencent’s popular super app WeChat said Tuesday it has temporarily suspended new user registrations, attributing the decision to “related laws and regulations.” 

Why it matters: This is the first time Tencent has suspended new user registration for the ubiquitous app in China, which many people rely on for communication and other life services such as paying utility bills and shopping online. 

• The action comes as China accelerates scrutiny on tech companies’ anticompetitive behavior and their data security practices.

Details: WeChat said in a Tuesday social media post (in Chinese) that the app is not accepting new individual users and public accounts to comply with “related laws and regulations.” The company calls the suspension a “technical security upgrade.”

• The company said it expects the upgrade to be completed by early August. 
• A WeChat spokesperson declined to comment when reached by TechNode. 

Context: Earlier this month, the Cyberspace Administration of China (CAC) banned ride-hailing platform Didi Chuxing from registering new users while launching a cybersecurity review into ride-hailing app Didi Chuxing. 

• The CAC in the same month announced similar cybersecurity investigations into three other companies, job recruitment platform Boss ZhiPin, transport companies Huo Chebang and Yun Manman, and asked them to stop registering new users.
• WeChat is China’s most-used instant messaging app. In 2020, the app had more than 1.2 billion monthly active users worldwide.

On Saturday, China’s top market regulator ordered Tencent to end exclusive music licensing deals within 30 days from Saturday, writing that the action was “the first case” of “necessary measures to restore market competition” in a Saturday statement (in Chinese).

Why it matters: The punishment may create openings for other music streamers in China. And the government says it is only the first.

Details: The State Administration for Market Regulation (SAMR) fined Tencent RMB 500,000 ($77,100) for violating market concentration rules with a 2016 acquisition of China Music Corporation. The regulator said that Tencent “illegally concentrated a market,” citing China’s Anti-Monopoly Law. 

SAMR said the deal gave Tencent control of more than 80% exclusive music libraries in “related market share,” allowing the company to “eliminate and restrict competition.” 

Tencent wrote in an online statement the same day that it will “comply with the regulator’s decision” and “contribute to healthy competition in the market.”

READ MORE: The Chinese gaming startup outperforming Tencent overseas

Chinese game streaming platforms Huya and Douyu announced on Monday that they would terminate a merger agreement after antitrust regulators blocked the deal on Saturday. The decision dealt a new blow to Tencent, leader of the merger.

Why it matters: This is the first time Chinese regulators have blocked a merger in the tech sector for antitrust reasons. In other recent cases, Chinese regulators have fined companies retroactively up to RMB 500,000 (around $77,318) over unreported merger and acquisition deals. However, companies have been able to keep these closed deals. 

Details: Huya and Douyu announced Monday they would terminate the merger agreement. Both companies said they “fully respect” and would “abide by” the decision made by the Chinese State Administration of Market Regulation (SAMR). 

• SAMR said the Huya-Douyu merger would “further strengthen Tencent’s dominance in the game streaming market” and empower the company to “restrict and exclude competition,” in a Saturday statement (in Chinese). 
• Tencent, a social media giant and the largest video game company in China, owns a 37% stake in Huya and 38% in Douyu.
• Huya and Douyu account for the majority of China’s game streaming market. Huya has 40% market share and Douyu 30%, said the SAMR statement. “If Huya and Douyu merge, Tencent will solely control the merged entity,” it added.
• SAMR rejected a Tencent proposal to add restrictive conditions to the merger deal, saying the plan “cannot effectively address the competition concerns mentioned above.”
• Tencent said in a Sunday statement that it would “abide by the decision, comply with regulatory requirements, and fulfill its social responsibilities.”

Context: Tencent, Huya, and Douyu announced the merger plans in August 2020, and filed for antitrust review in November.

• Chinese antitrust regulators started to tighten the scrutiny on tech companies’ merger and acquisition deals last November. It fined a batch of companies, including Tencent and Alibaba, RMB 500,000 for failing to report M&A deals. 
• Anti-Monopoly Law in China requires companies to report investment or merger and acquisition deals that could create a single company that holds more than half of its relevant market.

READ MORE: The Chinese gaming startup outperforming Tencent overseas

Top market regulators in China announced on Wednesday night a large batch of antitrust punishment. Tech majors Didi, Alibaba, Tencent, Suning, and Meituan were fined the maximum penalty under current law for violating the Anti-Monopoly Law by not declaring deals to the regulators.

Why it matters: Wednesday’s punishment involves 22 investment deals (in Chinese). Although the fines of RMB 500,000 ($77,350) each are trivial to the tech giants, it’s the largest batch since Chinese regulators began to crack down on major tech companies late last year. 

Details: The State Administration for Market Regulation fined at least five tech companies over 22 investment deals for violating market concentration rules. The earliest deal dates to 2011, the most recent closed in September 2020. 

• Didi accounts for eight of the 22 fined deals, Alibaba six, Tencent five, Suning two, and Meituan one. Many of the deals are made through subsidiaries of these majors. 
• These deals span the past decade. The earliest deal goes back to 2011, involving Tencent acquiring parts of Cheetah Mobile, a Beijing-based software company. 
• The most recent deal closed is a 2020 deal of Tencent buying 32.4% equity of the classify site 58.com. 

Attorneys’ take: Despite having the power to enforce divestment, regulators are unlikely to push for companies to retract these deals, legal experts told TechNode. 

• Zhu Bao, a Beijing-based corporate compliance lawyer, told TechNode that these fines should alert internet companies to brace for a tightening regulatory environment. But it would be complicated for regulators to force a retract because some of the deals are compliant with existing regulations. 
• “I find some of the fines puzzling, such as Alibaba’s for acquiring 50% equity of Guangzhou Evergrande Football Club in 2014. We didn’t think these kinds of deals would require declaring since the two companies are in vastly different fields,” Zhu added. 
• Deng Jingyu, a Shanghai-based company and finance lawyer from Win Zone Law Firm, agreed. She said regulators rarely nullify closed deals. 

Context: The antitrust fines came within a week after the Chinese cyberspace watchdog launched a data security investigation on the ride-hailing giant Didi and several other Chinese internet companies listed overseas. 

• While the number of deals fined is the largest yet, more companies were affected in a March ruling that fined 12 companies over 10 deals.  

READ MORE: How did Didi get in trouble with data regulators?

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:

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

ByteDance, the owner of the viral video platform TikTok and Douyin, briefly attacked Chinese tech giant Tencent in a long, strident online post on Friday. The tussle between two Chinese tech heavyweights comes amid increased governmental scrutiny on anti-competitive behavior in the tech sector.

ByteDance criticized Tencent’s practice of blocking links to its products on messaging platforms WeChat and QQ in an online post, attaching a 59-page PDF file chronicling the blocking activities in the past three years. The company has since deleted the post and the file.

“More than 49 million people were stopped from sharing Douyin content to WeChat and QQ every day on average,” said ByteDance’s post. The company didn’t specify how they calculated the number.

ByteDance complained that Tencent has been blocking links to its short-formed video apps Douyin, Huoshan, and Xigua, for three years, “affecting more than 1 billion users.”

ByteDance’s high-profile complaint came as Chinese regulators crack down on tech companies’ anti-competitive behavior. ByteDance could benefit if regulators take action against Tencent’s link blocking practice. The company competes with Tencent on multiple fronts, including news aggregation and online games.

In March, Reuters reported that China’s top antitrust regulator was looking into Tencent’s WeChat for monopolistic practices, and how the popular messaging app had possibly squeezed smaller competitors.

ByteDance declined to comment on the situation when reached by TechNode. Tencent also declined to comment. Chinese media saved a copy of ByteDance’s post.

Widespread practice

Tencent is not the only company that tries to stop users from clicking into rival ecosystems. Tencent has banned links of ByteDance’s Douyin and productivity tool Feishu on WeChat. It also prohibits users from opening links to e-commerce giant Alibaba’s Taobao and Tmall online marketplaces.

Alibaba also bans (in Chinese) merchants from listing their WeChat contact information on the platform.

In August, ByteDance’s Douyin said it would ban links to third-party e-commerce sites, including Taobao and Tencent-backed JD.com, on its live-streaming channels in October. However, it also relies (in Chinese) on selling ads with links to those e-commerce sites for its short video feature.

ByteDance wrestles with Tencent

ByteDance wrote that the post was a response to a comment made by Tencent executive Sun Zhonghuai last Thursday at an industrial forum. Sun compared short-form videos to food for pigs.

Sun, a Tencent vice president and chief executive officer of the company’s online video department, said short-video apps were feeding users vulgar content. “Because the personalized recommendation [algorithms] are so powerful, if you like pigswill, all you see is pigswill, nothing else,” Sun said.

Sun is responsible for Tencent’s video-streaming platform Tencent Video and short-video app Weishi, according to Chinese media reports.

ByteDance defended short videos in the post, saying Sun’s remarks were “arrogant and unfair.” “As a new form of communication, short videos help countless ordinary people record and share their lives, allowing more people to see a larger world.”

ByteDance also hinted in the post that Tencent’s criticism of short videos was insincere, pointing out that Tencent had tried various times to make short video apps while calling them “pigswill.”

In the attached PDF file (in Chinese), ByteDance listed evidence that Tencent had blocked links to ByteDance’s short-video apps Douyin, Xigua, and Huoshan on WeChat, while allowed Tencent-backed Kuaishou and Weishi to share links on the social media platform.

The file mainly consists of annals of news coverage of Tencent and ByteDance’s conflicts from 2018 to 2021 and ByteDance’s summary of those events.

“We see this pamphlet as a standing reference to the [link] blocking and monopoly. It always reminds us that time may erase memories, but time cannot erase facts,” wrote ByteDance in the now-deleted post (our translation).

Suing companies for link blocking

ByteDance sued Tencent in February for blocking Douyin’s content on WeChat and QQ, citing China’s Anti-Monopoly Law.

Bytedance accused Tencent of violating Anti-Monopoly Law and “misusing a market-dominant position,” “excluding and restricting competition.”

The lawsuit is still awaiting a first hearing date at the Beijing Intellectual Property Court. Tencent has requested (in Chinese) the case be transferred to a court in Shenzhen, where the company is headquartered.

In 2019, a Chinese lawyer sued Tencent for blocking Alibaba’s Taobao links. He dropped the case in early 2020 for “a lack of evidence.” But since then, anti-monopoly enforcement has taken off.

Zhang Zhengxin, the lawyer who sued Tencent, told TechNode in December that his odds to win the case would “increase by a lot” if the case had gone to court then.

In December, China fined a batch of tech companies over antitrust violations for the first time. A month before that, China’s top antitrust regulator proposed new guidelines targeting anti-competitive behavior to include internet companies.

Chinese tech giants like Alibaba and Tencent have long had the reputation of being some of the most active investors in China. They are behind a host of unicorns, from ride-hailing giant Didi to edtech platform Yuanfudao.

Now, they’re looking inwards, pledging to reinvest the money they make into new ventures ranging from supply chain digitization and grocery delivery, even if it means hammering their profits.

Alibaba CEO Daniel Zhang said in an earnings call in May that the company will invest all its incremental profits into core strategic areas. These funds include the difference between the company’s current year profits and those of the previous year. 

Tencent has made a similar pledge, aiming to sharply increase investments this year. Meanwhile, Pinduoduo said it will boost investments in logistics infrastructure and agricultural science.

In some cases, these pledges represent up to 15% of these companies’ annual incomes, according to analysts.

“While we don’t expect to see significant [returns] in the short term, we believe these investments will create sustainable long term profit growth for investors,” Esme Pau, analyst at China Tonghai Securities, told TechNode. 

Bottom line: Chinese tech majors Alibaba, Tencent, and Pinduoduo have all promised to up their investments as their users change behavior in the wake of the pandemic and stricter regulations weigh on tech firms’ businesses.

Tech investment hikes

Alibaba will invest all of its “incremental profits” in 2022, after a hefty $2.8 billion antitrust fine triggered its first quarterly loss in nine years. The company didn’t specify an amount, but Bloomberg has estimated that the total amount could reach RMB 25.8 billion this year, or 15% of the company’s RMB 172 billion non-GAAP net income for 2021 fiscal year.

• Non-GAAP figures usually exclude irregular or non-cash expenses to smooth out high earnings volatility. In Alibaba’s case, this figure excludes the $2.8 billion fine, which is reflected in the company’s RMB 142.3 billion net income for 2021.
• Alibaba has promised that its investments will be “highly targeted and disciplined,” given the potential size of its spending spree.
• The company’s investment priorities include technology innovation, support programs for merchants to lower their operating costs, improving user acquisition and user experience, upgrading merchandising and supply chain capabilities, and new business initiatives, according to CEO Daniel Zhang.

Focused spending: A source with knowledge of the matter told TechNode that livestreaming, Alibaba’s Pinduoduo competitor Taobao Deal, and Cainiao Logistics will be the focus areas of these investments.

• Funding for Alibaba’s livestreaming business will be focused on training livestreamers, helping more merchants use its livestreaming services, and improving livestreaming technology, the source added.
• Livestream is an important segment for the company. Alibaba’s Taobao Live, China’s largest player (in Chinese) in e-commerce livestreaming, recorded a gross merchandise volume of RMB 500 billion in fiscal year 2021.
• Taobao Deal, which offers value-for-money products for price-conscious consumers, is working to integrate suppliers from its wholesale e-commerce platform 1688.com to boost Taobao Deal offerings.
• Investments in Alibaba’s logistics arm Cainiao will be used to improve the company’s cross-border delivery capabilities by building and upgrading its global logistics infrastructure, the source said.

Tencent will plow a larger portion of its incremental profits this year into investments, as China’s internet industry undergoes “a heavy investment phase,” the company said in its first-quarter earnings report. 

• The social media and gaming giant also announced a RMB 50 billion fund that will invest in areas such as basic science, education innovation, carbon neutrality, and food provision, the company said.
• In an earnings call with analysts in April, Tencent President Martin Lau said the company would invest up to 20% of its incremental profits. 
• It’s unclear how much Tencent’s incremental profit will be this year. The company’s profit for 2020 was RMB 127 billion, with an incremental profit of RMB 29.4 billion. That would amount to around RMB 5.9 billion in investment.
• Tencent said it would channel the funds into enterprise services, gaming, and short-form video apps, largely in line with the company’s past investment strategy.
• As of the end of May, gaming made up around 17% of Tencent’s past investments while business services totaled 13.3%, according to Itjuzi (in Chinese), which tracks China’s venture capital market.

Pinduoduo, which claims to have a larger user base than Alibaba, plans to increase spending in areas along the agriculture industrial chain, where typically digitalization remains low. At the same time, the company is narrowing in on logistics, an area requiring massive, long-term investments. 

• The company has not specified the amount it intends to invest.
• Nevertheless, Pinduoduo plans to boost spending on logistics infrastructure ranging from cold-chain transport to warehousing and delivery. 
• For a company like Pinduoduo, logistics is even more critical given its increasing focus on perishable agricultural products. 
• While continuing to fund its grocery pick-up business Duo Duo Maicai, Pinduoduo will “invest heavily” in logistics infrastructure technology, said Tony Ma, vice president of finance and the company’s de facto chief financial officer. 
• Pinduoduo recorded RMB 2.9 billion in net losses during the March quarter. The company had RMB 83.4 billion in cash, cash equivalents, and short-term investments as of March.

What about the others?

We haven’t seen the other tech majors making such a fuss about investment, but here’s what we know.

Meituan: In March, Meituan warned about losses due to heavy investment in its community group buy service Meituan Select, which CEO Wang Xing called the company’s “best opportunity in five years.” 

• Retail, especially the community group buy business, continued to be Meituan’s largest investment area, the company said after reporting a RMB 3.9 billion net loss in the first quarter of this year.

JD: The company didn’t say much in its recent filings or in response to TechNode’s queries. JD continues to invest in new opportunities in cooperation with suppliers and brands, Chief Financial Officer Sidney Huang said in the company’s first-quarter earnings call. 

The effects

Hit to profits: Huge investment promises will mean less short-term profits.

• After Alibaba announced its investment plan on May 13, Bloomberg revised its estimate for Alibaba’s non-GAAP net income growth rate to 15% from 19% year on year for the 2022 fiscal. 
• Alibaba’s Chief Financial officer Maggie Wu said it would be “stupid” to promise short-term profit to long-term investors because “there are so many competitors who are investing large amounts to gain a foothold in the market.”

Long-term vision: The investments imply that these tech giants see big post-pandemic opportunities.

“This focus on reinvestment comes as China’s leading internet companies double down on capital-intensive growth opportunities,” said Michael Norris, senior analyst at AgencyChina. 

“Whether it’s reimagining retail, facilitating same-day or next-day delivery, or building out cloud computing infrastructure, it’s not cheap,” he added.

Tightened regulation is also likely a factor, as companies align their businesses with current government priorities, such as basic science, rural revitalization, food/energy/water provision, carbon neutrality, and technology for senior citizens.

READ MORE: INSIGHTS | Tech in the five-year plan

“Tightened regulation is likely to create a healthier ecosystem and a more competitive market, which might reduce the moat of these giants and slow down their growth,” said Pau from China Tonghai Securities.

These investments reflect a change in how digital giants see their role in the economy, Norris said.

“When they first burst onto the scene, China’s digital giants tended to be a thin, interfacing layer between consumers, products, services, and attention. Now, as China’s digital giants work on digitally transforming entire industries, that layer becomes thicker and more capital intensive,” he added.

Subject to crackdowns? Tech firms’ vast investment plans may meet with regulatory roadblocks as Beijing tightens antitrust grips on their anti-competitive practices, especially with unreported mergers and acquisitions (M&A) coming under scrutiny.

• While tech majors’ investments may be focused internally, venture capital investment and acquisitions are also likely to be part of the plan.
• Before the State Administration for Market Regulation (SAMR) fined Alibaba a record RMB 18.2 billion in April, most antitrust fines imposed on tech companies were related to a clause in China’s antitrust law that requires firms to report M&A deals that could create a monopoly.
• An overhaul of the law, which is expected to take effect this year, will allow regulators to issue fines up to 10% of the company’s annual revenue over unreported deals.
• The changing regulatory climate means tech giants now have to report their investment deals that could create “dominant players” in a market to the authorities. Antitrust regulators like the powerful SAMR would have a say in those deals.

China is also cracking down on the so-called disorderly expansion of capital, vowing to prevent firms from growing their businesses into every sector of the economy and forming monopolies. 

For those tech giants seeking to grow even bigger via investment, this could be a warning sign.

READ MORE: INSIGHTS | Antitrust push in China tech

Tencent-backed edtech company Yuanfudao attempted to withdraw or defer job offers to more than 2,000 new university graduates as regulators barred a key service. It is the latest Chinese online tutor to move to downsize operations in response to increased regulatory scrutiny.

Why it matters: Beijing is stepping up its scrutiny on the country’s online education sector, which boasts eight of the fifteen edtech unicorns as of early 2020.

• A new revision in China’s Minors Protection Law, which took effect on June 1, bans kindergarten and private tutoring institutions from teaching elementary-school courses to pre-school students. 
• The law affects most major Chinese edtech giants, such as Yuanfudao, Zuoyebang, GSX Techedu, Vipkid, and ByteDance, which also has a major presence in online education.
• Investment sentiment, both from venture capitalists and individual investors, could turn cold on the sector due to uncertainties brought by regulation, putting an end to capital enthusiasm triggered by online tutoring after the pandemic.

Details: Yuanfudao, the Chinese unicorn valued at $15.5 billion, withdrew or delayed job offers to new hires, most of them were fresh graduates, in pre-school tutoring, local media Phoenix Weekly’s business section reported on Monday.

• Zhang Yun (pseudonym), a university graduate, told Phoenix Weekly’s business section that Yuanfudao asked her to choose to either defer the offer till September or lose it right away. She had given up other options to accept the offer. Zhang said she had already rented a place in a new city to prepare for job. Other Chinese media outlets have reported similar cases. 
• A Yuanfudao spokesman told TechNode that the job offer change affected about 2,000 people, whose offers were either canceled or deferred. But the company has since set up a special unit to help graduates who face “real difficulties” in finances, such as those who have signed housing contracts or rejected other offers. He added that the company had also walked back some cancellations and allowed some new hires to start work as planned. 
• US-listed rival GSX Techedu reportedly trimmed a third of its headcount starting in late May as the company shut its pre-school education business for children aged between three to eight.

Context: Over the past few years, regulators have issued various rules on the online education sector to curb what they view as chaotic growth.

• Chinese regulators have imposed the maximum penalty on Zuoyebang and Yuanfudao in May, two of the country’s most valuable edtech startups, for unfair competition.
• Four major edtech platforms—TAL Education-backed Xueerxi, GSX Techedu, Koolearn Technology, and Gaosi Education—were fined for deceptive pricing practices in April.
• Since July 2019, Beijing has required all foreign teachers to hold valid teaching credentials and required companies to make public all related information, such as certificates and work experience details.

JD Logistics IPO

• The logistics branch of e-commerce giant JD.com is aiming to raise $3.4 billion with its Hong Kong debut next week. JD’s delivery service differentiates itself from Alibaba’s Cainiao by keeping everything in-house, running its own warehouses and staff instead of outsourcing operations to third parties. This makes for fast service: 90% of JD orders are delivered within one day. JD Logistics also makes its technology available to build out corporate clients’ supply chains, a growing source of revenue for the company. (TechCrunch)

Tech giants’ latest launches

• Tencent launched a standalone app for budget shopping platform Xiao’e Pinpin, previously a WeChat mini-program, this week, the latest in a chain of new retail initiatives by the internet behemoth. Key functions of the app include community group-buying and a “friends-like” feature that suggests products based on other users’ recommendations. (Tech Planet, in Chinese)

• E-commerce giant JD.com will reportedly open an official Douyin store, making all JD.com products available on the Bytedance-owned platform, according to 36Kr. Sources told 36Kr that JD.com will be responsible for marketing and sales, including managing livestreams, as well as logistics and delivery processes. (36kr)

Alibaba

• After receiving a record-breaking $2.8 billion antitrust fine in April, Chinese online retail conglomerate Alibaba posted net losses attributable to ordinary shareholders of RMB 5.48 billion for the quarter that ended March 31, its first quarterly loss since going public. Alibaba’s RMB 187.4 billion ($28.6 billion) in revenue, however, was up 64% year-over-year. In a call with analysts on May 13, company management said that they are planning to invest all incremental profits into core strategic areas including technological innovation, merchant solutions, and user acquisition and experience enhancement, among others. (TechNode)

• The Shanghai Municipal Administration for Market Regulation (SMAMR) levied a fine totaling RMB 500,000 ($77,000) on the Alibaba-owned food delivery app Ele.me on April 30 for misleading pricing, listing unlicensed restaurants, and hosting non-qualified merchants. RMB 300,000 was for violating of China’s Price Law after an investigation found that deals listed in promotional zones from July to August 2020 were not as low as the app claimed. The remaining RMB 200,000 fine was under China’s Food Safety Law for failing to monitor merchant qualifications in Tianjin. (TechNode)

• Alibaba launched a food review and sharing app called Foodie Notes. The app combines features similar to that of e-commerce social platform Xiaohongshu and food discovery app Dianping. (Tech Planet, in Chinese)

Shein making waves overseas

• Chinese fashion e-commerce upstart Shein has passed Amazon to become America’s most-downloaded retail app on both the Apple and Android app stores. The company, valued at roughly $15 billion, has largely gone under the media’s radar. Shein’s production process is vertically integrated, which helps it to adapt to trends quickly and ship new styles ahead of the competition. (TechCrunch)

Retail ups, downs, and sidewayses

• The pandemic accelerated the growth of online grocery delivery, according to a report published Monday by iResearch. The Chinese market research firm found that the industry expanded 64% from 2019-2020 to RMB 458 billion. Looking ahead, the report predicts online fresh food retail to surge to RMB 1 trillion by 2023, and RMB 6.8 trillion by 2025. (Ebrun)

• Chinese retail is recovering from the pandemic more slowly than expected, according to Bloomberg. Retail sales increased by 17.7%, instead of the projected 25%. Consumption peaked in the first quarter of the year and is expected to continue declining. Stagnant growth in household income is responsible for the lack of enthusiasm for consumption. Despite China’s economic stabilization in the wake of the pandemic, it’s still affected by uncontrolled outbreaks in other countries. (Bloomberg)

• After a fall from grace over fabricated financials last year, Luckin Coffee founder Lu Zhengyao is seeking with the launch of a new noodle chain called Noodle Diary (Xiaomian Riji). The Noodle Diary trademark was filed back in January 2019, and a suite of executives formerly of Luckin Coffee have joined the project. An as-yet unopened store by that name is listed on Meituan’s Yelp-like app Dianping. (Tech Planet, in Chinese)

Joining one of China’s tech majors is a bit like moving to a new country. There’s a lot to learn.

Then you’ve got to get on the local time zone—probably some variation on the infamous 996 hours.

Maybe you adopt a local religion, such as the benfen idea of duty. Or maybe you study the way of the fish touchers and stockpile snacks in the break room.

Working in big tech companies in China is certainly grueling, hard, and all-consuming. But it can also be liberating compared to the rigid hierarchies of traditional workplaces.

No boss or big brother

Nickname systems were introduced not just for discipline and management, but also for information safety and secrecy. In companies and departments that strictly implement the system, it is normal to not know the real name of a co-worker you cooperate with, especially when she works in a different department. Even when companies display the real names of employees along with their nicknames in internal communication systems—as Baidu and ByteDance do—just about every tech company omits precise ranks.

The nickname systems can be liberating, or at least were intended to be. “Everyone going by their nickname instead of calling each other based on their seniority felt more egalitarian than back in college,” explained a young employee at gaming giant NetEase. 

The ambiguity of the job position descriptions is intentional. In fact, internet companies are known to be China’s biggest advocates of a western workplace-inspired sense of equality and direct communication. ByteDance founder Zhang Yiming has stressed multiple times in public that he encourages employees to address each other by their real given names, even those of elders and supervisors.

It’s a clear rejection of the omnipresent hierarchy in traditional Chinese culture that is still commonplace in state-owned enterprises. Zhang has stressed that the use of zong (boss), ge (older brother) and jie (older sister) should all be abolished as well to create a more inclusive and equal workplace. 

Watermelon and Monkey King

Even though tech companies try hard to cultivate a flat workplace, seasoned employees still find ways to thwart the system. Since internal communication systems do not allow two employees to have the same nicknames, the shorter and easier one’s nickname, the higher ranking a co-worker tends to be. 

It is no secret that Pinduoduo founder Colin Huang, who recently announced that he is stepping down as chairman, bears the nickname A Zhuang, while the real identity of top executive A Bu remains a mystery even to the media. Below the founders’ circle of A nicknames, the next tier of executives tend to use the names of fruits.

“If you see someone nicknamed ‘Watermelon,’ ‘Monkey King,’ or ‘Doraemon,’ it’s almost certain they are senior managers,” said a Pinduoduo marketing employee. “More recent employees sometimes have to rack their brains just to think of a nickname that hasn’t been taken,” she said.

There are also some business units in which all staff members share matching nicknames from the same family in a work of fiction. “The longer an employee stays at the company, the better he or she will get at identifying a co-worker’s grip on the company just by their nicknames,” said the Pinduoduo employee.

Old-school Alibaba

Although the biggest Chinese tech companies largely share the desire for innovation, productivity, and growth that defines the industry, they tend to have different interpretations of the terms. 

Zhang’s own company, app factory and TikTok owner ByteDance, does not buy into the nickname system. The founders took a more direct approach to flattening their organizational structure. ByteDance employees are encouraged to call each other directly by their real given names, including calling Zhang himself “Yiming” to set the trend. The practice was also mirrored in Lark, the workplace messaging tool and working station developed by ByteDance. 

On the other hand, DingTalk, the internal messaging app of Alibaba, is an indicator of a more traditional hierarchical structure. It features stringent managerial functions, including punching in and out, review and approval, as well as briefings to the superiors. “DingTalk was designed to meet the managers’ administrative needs rather than those of individual team collaborators,” said a front-end engineer who has used DingTalk extensively for three years, “This reflects Alibaba’s culture. A relatively old-school internet company, Alibaba feels more authoritarian than some of the other internet companies, but is also more stable in terms of personnel and administration.”

Media outlet Jizhou Studio described some of the common perceptions among young students of the emblematic personality traits of each internet giant.  Alibaba prefers “high-achieving team players, who also lay great emphasis on execution,” it said, while graduates who get job offers from Tencent “tend to be the ones who are better at self-expression and active in student clubs and societies.” Those who go on to join ByteDance tend to be creative, while Pinduoduo prefers “hard-working, simple-minded, and benfen people.”

Staying in the benfen lane

The term benfen repeatedly cropped up in the accounts of working conditions by former Pinduoduo employees in the aftermath of the recent deaths of two young overworked employees. Pinduoduo is renowned for demanding work hours even beyond the notorious 996 so common in internet companies. Benfen roughly translates to “one’s part/role” and implies “staying in one’s own lane, realizing one’s own duty as well as what is beyond one’s grasp.” Benfen is stressed as a key value and enforced as an important guideline inside the company.

Chinese media consider benfen culture a legacy of Chinese entrepreneur Duan Yongping, the founder of electronics appliance company BBK, which was later split into smartphone makers Oppo and Vivo. Duan also served as a business mentor to Colin Huang. On the corporate level, these four companies share a conservative development strategy that places cost-effectiveness of an existing popular product or proven viable model over revolutionary innovation.

In the newest interpretation of Duan’s benfen philosophy, Pinduoduo has transformed the idea into a means to whip employees into hyper-intense competition. To a regular employee, the culture translates into nothing less than selfless dedication to the company, which only leads to one result: endless overtime work.

Hamsters touch fish

Oftentimes, unwritten expectations are what keep people in the office longer than the usual 996 working hours. For Zeng Jiajun, a former product manager who worked, consecutively, at Tencent, Baidu, Meituan, and ByteDance, getting off work at 9 p.m. was the earliest he experienced during his years at big internet companies. In fact, leaving then after a 12-hour workday was considered a “very early” punching-out time in the industry. “It feels like being a hamster on a wheel. We are more driven by the KPIs (key performance indicators) than the mandatory working hours themselves,” said a former Pinduoduo employee, who prefers to stay anonymous. “You cannot choose to leave when all other wheel gears are turning in the machine.”

The hustling culture often feels oppressive and unnecessary to many workers, especially when combined with bureaucracy and administrative errands. While many big tech companies embrace “wolf culture,” a term coined by Huawei founder Ren Zhengfei that highlights “hyper-intense teamwork,” burned-out young workers have come up with their own types of resistance: They have cultivated an underground culture of slacking off, or moyu. Literally meaning “touching fish,” the term comes from a Chinese proverb: “Muddy water makes it easier to catch fish.” In the online world, moyu has come to refer to surreptitious coping mechanisms undertaken in high-pressure workplaces. 

“What are the solutions to keep a balance between making money and staying healthy? The first way is to have a rich father, the second is moyu,” advises Xianren Jump, a popular Bilibili creator in a viral video that calls on fans to join the moyu force.

Forces of moyu

Moyu caught public attention in multiple online communities as netizens shared hacks for dossing off at work and memes for a good laugh. On Weibo, blogger “Massage Bear” garnered a big following for her passive-aggressive approach to moyu philosophy. “Set eight daily reminders on your phone to drink water. Every time you go to the pantry room or bathroom, try to hang out longer and use more company resources like free beverages and toilet paper,” reads one of Massage Bear’s posts. To the internet workers who have very little leeway to let loose at work, taking small opportunities to loaf on the job almost feels revengeful.

When clever moyu practices become too evident, companies take measures to crack down on them. Zhang, the ByteDance founder, rebuked employees for generating too many messages during work hours in an internal group chat of Genshin Impact game players. “I’m curious: Do these friends in the group have too much free time at work?” asked Zhang.

Other companies have tried to regulate the length of toilet breaks in response to employees dallying in bathrooms to recharge. Pinduoduo reportedly blocked internet access in bathrooms, which made playing with smartphones on toilet breaks practically impossible, while Kuaishou installed a timer to display how long each stall has been occupied. 

Aside from trying to do less work while maintaining the same work hours, internet company workers have also developed the art of “making their progress seem bigger.” In a recent viral WeChat post, a blogger known as “Xierqi Life Guide” ridiculed the phenomenon of increasingly unnecessary report writing. As actual working hours stretch beyond the default 996, commonly required work summary documents have ballooned from weekly reports into daily reports at many over-achieving business units. Rather than accurately communicating workloads, many commenters agreed with the original WeChat post that the arduous reporting system only added to the formality of internet corporates.

996 survival skills

Why do China’s best and brightest young people choose to join these cyber factories? The opportunities promised by internet giants, along with the financial incentives, are a key appeal. The 996 workweek is hardly a dealbreaker for many driven young people in the face of a full package of benefits in today’s extremely competitive job market, as well as opportunities to be part of “something bigger.” 

For some, the still private ByteDance is an ideal career starter for the potential it represents, despite the demands of 996. ByteDance recruited more than 40,000 employees globally in 2020 alone, almost doubling its workforce by the end of the last year. Newish internet powerhouses Pinduoduo and Meituan also ramped up their fresh graduate recruiting numbers this year in order to enrich their talent reserve for future competition.

For a lot of young graduates of top Chinese universities, their experiences of extreme competition that enabled them to survive China’s notorious gaokao university entrance exam make 996 hours appear less appalling in comparison. Even with the limitations, internet companies are, after all, places where hard work and good performance pay off. 

To more and more young people, though, opting to work in big tech feels more practical and “safe” than a wild dream coming true. “Internet companies are the new state-owned enterprises, said Eddy Gu, a recent graduate in search of a job. Turning the clock back only 20 years, state-owned enterprises were regarded as the dream career destinations in Chinese society due to the complete package of benefits, institutional stability, and prestige. With all the efforts to “be different,” internet giants are probably in the end more similar than they intended to be to those now-stagnant predecessors.

READ MORE: INSIGHTS | Why 996 just won’t go away

Just another dagongren

Some big tech employees, therefore, are just showing up to earn a paycheck.

A recent trend has young internet laborers referring to themselves as dagongren—working stiffs, the same phrase used to refer to migrant workers who go to the city to work on construction sites. “Dagongren” channels youths’ disillusionment with their outwardly glamorous city life: In a competitive job market and fast-paced society, they simply do not have much control over their own lives compared to their almighty employers.

Kyle Lin, currently an intern at ByteDance, thinks the surging living costs in major Chinese cities partially explain why many young people gravitate towards 996 hours. Lin rents a very small bedroom in an apartment shared with three other roommates in Beijing. “The wage I get as an intern barely covers the rent, but staying at the company for the entire day means free meals, free snacks, and a gym that I use,” said Lin. These Silicon Valley-inspired perks, of course, are meant to keep people on the company “campus” beyond their required working hours.

“I already accepted the reality of sacrificing health and personal life when I accepted the job after graduating,” said Kiki Zhou, a product manager who joined Alibaba about a year ago as a fresh university graduate. “The trade-off is a cruel but economic one, especially when there’s no other way to get enough savings for the down payment on an apartment,” she said.

Zhou now resides in Hangzhou with her boyfriend, who also works at Alibaba, but she plans to get a government job that allows more leisure time as soon as the couple have saved enough money. To accumulate that sum, Zhou estimates their stints as big tech dagongren will last at least four more years.

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 regulators have imposed the maximum penalty on Zuoyebang and Yuanfudao, two of the country’s most valuable edtech startups, for unfair competition amid a broader crackdown on its biggest internet companies.

Why it matters: Beijing is expanding its scrutiny of tech firms to the online education sector following extensive fines on various segments from e-commerce to community group-buy platforms.

• The penalty comes on the heels of the fines levied on four major edtech platforms—TAL Education-backed Xueerxi, GSX Techedu, Koolearn Technology, and Gaosi Education—for deceptive pricing practices.

Details: The State Administration for Market Regulation (SAMR) said in a statement (in Chinese) on Monday that it had imposed RMB 2.5 million ($389,000) fines each on Zuoyebang and Yuanfudao. The regulator also issued regulatory warnings to the startups, two of China’s most valuable (in Chinese) online tutoring platforms.

• The investigation showed Zuoyebang fabricated information about its teachers’ work experience, falsified user reviews, and gave misleading details about its services in order to boost orders.
• The Alibaba-backed company fraudulently claimed on its website to be a partner of the United Nations, according to the notice.
• SAMR pointed out that both of the two companies falsely advertised discounted prices to boost orders.
• A Zuoyebang promotional campaign on its own app and official stores on Tmall and JD markets offered a discount of around 21% off of online courses priced up to RMB 3,280 (around $510). Yuanfudao also lured customers with special deals, such as offering RMB 399 package courses for RMB 9. Investigations showed that no transactions at these prices had ever been recorded.
• Zuoyebang confirmed news of the penalty with TechNode, and pledged full compliance with the order and rectification of improper marketing behavior and misleading pricing.
• A Yuanfudao spokeswoman said that the company had already started inspecting various channels and had removed all the improper marketing banners.

Context: Investors have rushed into the online education sector, which has seen a boost during the coronavirus pandemic.

• Yuanfudao, focused on the K-12 age group, raised over $3.5 billion in 2020 from investors including Tencent, DST Global, and Jack Ma-backed Yunfeng Capital.
• Rival Zuoyebang received a combined $2.35 billion funding last year from investors including Alibaba, Tiger Global Management, SoftBank Vision Fund, and Sequoia Capital China.

Editor’s note: The ‘Techlash Tracker’ stopped updating from November as tech crackdowns became recurring in China. The topic is now part of TechNode’s daily news coverage. 

Starting this week, TechNode is launching a new open resource. The “Techlash Tracker” is a database of major regulatory moves involving big tech in China, an open-source project to help make sense of a major trend defining China tech this year. 

The tracker is a regularly and openly available updated set of spreadsheets, built in Airtable, recording events. Click here to view. 

We invite anyone interested in China tech to use this resource for analysis, and to contribute to it.

Something is happening here, but we don’t know what it is

In China tech, the word of the year is “antitrust.” Alibaba was fined a record-breaking $2.8 billion for “forced exclusivity” and other anti-competitive practices, while Meituan faces a probe by market regulators over the same practices. Tencent, Didi, and Baidu—to name only a few—have been fined lesser amounts for failing to submit M&A deals for review.

Or is it “de-risking”? The IPO of fintech pioneer Ant Group, slated to be the world’s largest, was abruptly axed late last year as regulators prepared a series of changes to its operations. JD Digits, a competitor, withdrew its IPO application voluntarily in the wake of the fiasco. This week, 11 other tech majors were summoned to Beijing to discuss changes to their fintech operations.

Some say it’s all about data. Beijing has moved in the past year to recognize the strategic importance of this resource, which it has called ”the new oil,” and hopes to prevent tech companies using walled gardens to monopolize access to it.

Related to data, the list continues: consumer rights, privacy, cybersecurity.

We can see the trend: Big tech is being regulated as never before. At TechNode, we’re seeing a big trend, and we’ve been wondering how to understand it—and what to call it.

It’s tempting to see it as the local vector of a so-called global “techlash” that embraces everything from the EU’s General Data Protection Regulation (GDPR) to US Senator Elizabeth Warren.

Or maybe it’s just “Jacklash”: both Alibaba and Ant were founded by Jack Ma, a flamboyant billionaire who annoyed regulators when he dismissed banking authorities as “old men” in a speech last year, and some commentators have interpreted many recent moves as personal attacks on him. But then, how to explain the broadening scope of the investigations?

Just make a list

When we don’t know where to start with a topic, we often approach it by just making a list. In our new “Techlash Tracker,” we aim to make a database of key events in big tech regulation. We plan to include enforcement actions, fines, and announcements of new laws and regulations. We will track private antitrust lawsuits in another sheet.

We’ve chosen an intentionally vague name, “techlash,” rather than “antitrust” or “crackdown,” to indicate uncertainty about an interpretation. 

The tracker is intended as a living document: we aim to update the list at least once a week with new events, if applicable. We’ll also continue to dig through our archives to add more previous events, and plan to create some visualizations to help understand the material as the list grows.

The material here is also a bit raw. Expect to see it in more digestible forms in our reporting in the coming months as well as, we hope, in the work of our friends and colleagues.

An open resource

The Techlash Tracker is an open resource. In addition to making it free to use, we invite other analysts to use the data we’ve collected (but please do credit us if so). We’re also counting on our readers to help us catch events. Click here to submit more events for the tracker if you see something we’ve missed.

Thanks for your support, and we hope you’ll find the tracker useful!

Your techno-friends,

The TechNode team

May holiday consumption

The Ministry of Commerce will kick off a month-long campaign to increase consumer spending on May 1 in the hopes of boosting economic recovery amid the pandemic. Some 260 e-commerce retailers will participate in the national event including tech giants Alibaba, JD.com, Meituan, Trip.com, and ByteDance. (SCMP)

Meituan, livestream commerce probes

• The State Administration for Market Regulation (SAMR), China’s top antitrust regulator, said in a one-line statement on Monday that is investigating food delivery leader Meituan for “forced exclusivity,” a practice in which platforms force merchants to use only one company’s platform or services. Meituan said that it would cooperate with the investigation. The Tencent-backed platform, along with 33 peers in the internet sector, had previously pledged from April 14 to 16 to comply with SAMR rules. (TechNode) 
• Seven central government agencies including the Cyberspace Administration of China, the Ministry of Public Security, and the Ministry of Commerce also announced new rules on April 23 governing livestreamed e-commerce that will go into effect on May 25. The regulations on livestream views and transactions, misleading marketing, and user data privacy follow a previous set of rules announced by SAMR on March 12 at the annual 315 consumer rights protection gala. (TechNode)

Funding and IPOs

• JD Logistics, the logistics arm of Chinese online retailer JD.com, will seek approval from the Hong Kong stock exchange for a public listing. The company filed its prospectus for an initial share offering on Feb. 16. JD Logistics would be JD.com’s third publicly traded unit after its healthcare arm went public in December. (IFR)
• Alibaba-backed edtech newcomer Zuoyebang may pursue a US listing as early as the third quarter of this year. The study services platform could raise over $500 million. The startup has hired a CFO from Nasdaq-listed Joyy Inc purportedly for his knowledge of the American market. (Bloomberg)
• According to Sohu Finance, Chinese supermarket chain Wumart Group submitted a prospectus to the Hong Kong stock exchange on March 29, in which it had agreed to either take an up to 2% stake in Chengxin Youxuan or buy a maximum of $100 million in shares in the Didi-owned community group-buy platform. Community group buying is a platform-based grocery service employing a network of organizers who coordinate selling products to their neighbors. By combining individual orders into bulk shipments, group-buy companies can offer lower prices to customers. (Sohu Finance, in Chinese)
• Delivery service Baishi Express hosted an internet conference in Hangzhou on April 24, where CEO Zhou Shaoning announced that the company is currently in financing discussions. He said that the quickest timeline for an IPO would be in 2022. (36kr, in Chinese)

Food delivery and grocery

• Grocery e-commerce startup MissFresh began offering its produce on the JD.com app and its offshoot JD Daojia earlier this month. In exchange for access to its marketplaces, JD will collect commissions and fees per transaction. The two platforms have the same target audience, consumers who want produce delivered to their doors. MissFresh filed a prospectus to US regulators earlier this month. (KrAsia)
• Food delivery behemoth Meituan’s new autonomous delivery vehicle commenced full operations beginning last week. The company highlighted improvements in vehicle range, storage capacity, and artificial intelligence capabilities. First trials of the vehicle began in February to minimize the need for close contact amid the pandemic. This space is one to watch as Meituan and Tsinghua University are teaming up to work on autonomous vehicle and other AI technologies, while Beijing’s city government has set aside urban districts for vehicle prototype testing. (Caixin Global)

Cross-platform troubles

• Alibaba’s Taobao Deals, a Pinduoduo rival, has made little progress in applying for a mini program on Tencent’s mega chatting app WeChat, according to an Alibaba executive. The executive said that Tencent has stopped testing for Taobao Deals and has not provided a timetable for the launch of the mini program. (SCMP)

Alibaba has launched a mini app for its community group buy platform on rival Tencent’s instant messaging platform WeChat, Chinese media noticed on Friday. The mini program, Hema Market (our translation), was officially launched in October.

Why it matters: The Hema Market mini-program is a rare example of a direct Alibaba-Tencent ecosystem link. Chinese tech giants are usually walled gardens, and WeChat also blocks access to links to Alibaba’s Taobao online marketplace. 

• After Alibaba Group was stung with a RMB 18.2 billion penalty for anti-competitive practices, the company’s business units are expanding traffic gateways amid competition from e-commerce companies like Pinduoduo and JD.com.

Details: Chinese media Ebrun was the first to notice the existence of the Hema Market mini app on WeChat. Hema Market doesn’t yet have an independent app. The WeChat mini program comes with separate versions for customers and for community organizers.

• The mini program offered various time-sensitive discounts and rewards to gain users, including flash sales, referral bonuses for customers and organizers, and lists of discounted products on the front page, according to the report. Certain promotions such as “red envelopes” in central China’s Henan province were location based.
• Hema Market transactions can be completed entirely on the mini program, according to Ebrun.
• The mini program was initially registered in October by Shanghai Xuanhe Networks Technology, the operator of Alibaba’s Freshippo (Hema Xiansheng in Chinese) fresh-grocery service, according to its registration page on WeChat.
• A company spokeswoman said the company has no immediate response on Monday afternoon.
• TechNode was not able to complete a transaction in the mini app, which is accessible only to customers in covered areas.

Context: Alibaba on April 2 unveiled a new department to manage its community group buy business, headed by Alibaba Group partner Dai Shan. The department, known as MMC, has since publicly released nearly 1,500 positions to be filled, a source told Ebrun.

• Hema Market follows Alibaba-backed food delivery service Ele.me and logistics subsidiary Cainiao in launching WeChat mini apps.
• Secondhand e-commerce platform Xianyu applied for a WeChat mini program on April 7, the most recent Alibaba-owned service to do so, according to TechWeb (in Chinese).
• The head of Alibaba’s C2M department, Wang Hai, announced on March 25 that the company’s application for a mini program for Taobao Special Offer Edition, Taobao’s Pinduoduo-like discount shopping platform, was pending review, and that the e-commerce giant hopes to collaborate with Tencent.
• Community group buying is a platform-based grocery service which uses a network of organizers who sell products to their neighbors. By combining individual orders into bulk shipments, group-buy companies can offer customers lower prices. The red-hot but controversial model has gained traction particularly in China’s lower-tier cities.

Correction: A previous version of this article incorrectly stated that the Hema Market mini-program was launched last Friday. In fact, it was launched in October 2020, according to WeChat registration data, and noticed by Chinese media on Friday.

Tencent, Didi Chuxing, and Alibaba’s grocery unit joined Chinese tech peers in promising on Thursday to uphold rules against anticompetitive behavior amid a sweeping crackdown across the sector that began with e-commerce giant Alibaba.

Why it matters: In the wake of Alibaba’s RMB 18.2 billion ($2.8 billion) fine for using “forced exclusivity” tactics, regulators are sharply reining in China’s biggest internet companies.

READ MORE: What is ‘forced exclusivity’? And why did it get Alibaba fined $2.8 billion?

Details: On Tuesday, the Chinese State Administration for Market Regulation (SAMR) convened with the Central Cyberspace Administration of China and the State Administration of Taxation regarding China’s biggest internet companies.

• Tech firms were ordered to complete self-inspections within one month, in line with requirements laid out during the meeting.
• Gaming and social media behemoth Tencent promised to abide by the provisions of the Anti-Monopoly Law, filter out illegal advertisements, refrain from illegal collection and misuse of personal information, and protect intellectual property rights. 
• The rest of the 11 companies that issued on Thursday pledges to comply include some of China’s top tech firms such as ride-hailing platform Didi Chuxing, short video app Kuaishou, entertainment platform Bilibili, online travel agency Trip.com, and Alibaba’s supermarket chain Hema.
• Covering a variety of internet market segments, all company letters contained commitments to anti-monopoly practices and fair competition.

Context: The regulatory crackdown on anti-competitive practices started late last year with small antitrust fines for Alibaba, Tencent, and others, culminating in Alibaba’s record penalty on Saturday.

• The meeting on Tuesday between regulatory bodies addressed topics such as antitrust regulation and the practice of “forced exclusivity” notably used by Alibaba, where it imposed penalties on merchants if they operated outside of Alibaba’s ecosystem. 

Updated: revised first bullet point under “Details” for clarity.

Chinese internet giant Tencent’s investment in Japanese tech firm Rakuten will be “monitored for national security implications,” Japanese government officials told their US counterparts prior to the meeting between the two nations’ leaders on Thursday, Nikkei reported.

Why it matters: Chinese tech companies’ overseas investment activity faces increasing scrutiny as the US pushes for a tech alliance with allies.

Details: Japanese officials briefed the US National Security Council on Tencent’s March investment in Rakuten, a Japanese e-commerce and telecommunications service provider, Nikkei Asia reported on Thursday. 

• Rakuten announced on March 12 that it planned to raise a total of JPY 242.3 billion (around $2.2 billion) by issuing new shares to investors including Tencent, Japan Post Holdings, and US retail giant Walmart.
• Tencent, through its Image Frame Investment subsidiary, paid JPY 65.7 billion on March 31 to acquire a 3.7% stake at Rakuten, according to Nikkei.
• Japanese officials worried that the investment might run afoul of an executive order signed by former US President Donald Trump in January which banned transactions with eight Chinese apps including Tencent’s WeChat Pay over national security concerns.
• Tokyo will “closely monitor” the tie-up to see whether Tencent has access to non-public technology, sources told Nikkei.

READ MORE: Before the bans, China tech investment turned away from US

Context: Rakuten is an online retail company founded by Japanese billionaire Hiroshi Mikitani. The company also runs a telecommunications business. It launched its 5G service in September.

• Japanese Prime Minister Yoshihide Suga is set to meet with US President Joe Biden in Washington on Thursday. 
• Biden has upheld the Trump administration’s tough policies on Chinese tech firms. Biden’s government last week imposed sanctions on seven Chinese supercomputer developers, barring them from acquiring US technology.

South African telecom company Naspers said in a statement Wednesday that its tech arm had sold up to 2% of Chinese internet giant Tencent for $14.7 billion, cutting its stake in China’s most valuable tech firm to 28.9%.

Why it matters: Naspers’s block sale repeats a March 2018 trade in which Tencent’s biggest shareholder sold 2% of the world’s largest gaming company for $9.8 billion. Tencent’s stock fell by nearly 50% over the following six months.

Details: Prosus, the Dutch-listed international arm of Naspers that holds Tencent shares, said Wednesday that it had sold 191.89 million Tencent shares for HKD 114.1 billion (around $14.7 billion), reducing its stake to 28.9%.

• Prosus remains Tencent’s largest shareholder.
• Those shares were sold at the price of HKD 595 each, slightly lower than Tencent’s Wednesday close price of HKD 629.5. 
• Tencent shares dropped by more than 2% on Wednesday morning following the announcement.
• Prosus said cash from the sale will “increase its financial flexibility to invest in growth.” The trade is “understood and supported by Tencent”, said Prosus.
• The firm also promised not to sell more of the company’s shares for three years.

Context: Tencent said last month that its profit for the fourth quarter of 2020 rose 175% year on year to RMB 59.3 billion (around $9.1 billion). The company’s revenue for the fourth quarter rose 26% year on year to RMB 133.67 billion.

• Shares of Tencent reached a historical high in January, but then started to fall as China began to tighten regulations on tech companies.

On March 12, China’s top antitrust regulator said it had issued fines to 12 Chinese companies over 10 investment deals in the internet sector that were in violation of the Anti-Monopoly Law. The State Administration for Market Regulation (SAMR) disclosed the 20 companies that were involved in those deals. 

Nearly all of the companies mentioned were Chinese companies considered “big tech,” or their subsidiaries. They include Alibaba, Tencent, Didi Chuxing, Baidu, JD.com, ByteDance, Meituan, and Suning. Those firms were fined for failing to report merger and acquisition (M&A) deals in advance, which is considered a violation of China’s antitrust law.

Bottom line: The penalties—RMB 500,000 (around $76,095) each—were trivial for companies of such size. But the regulator’s move was a warning: China’s tech antitrust campaign, which began in November, has not ended and will only grow in scope and severity.

A brief timeline

• August 2016: Chinese regulators open an investigation into the merger deal between Chinese ride-hailing platform Didi Chuxing’s merger with US rival Uber. The investigation appeared to be unofficially suspended by the time Uber filed for a public listing in April 2019.
• January 2019: SAMR launches an antitrust probe into Tencent Music Entertainment’s dealings with the world’s three largest record labels. A year later, the regulator decided to suspend the investigation.
• January 2020: SAMR proposes an overhaul of China’s 2008 Anti-Monopoly Law and introduces a set of antitrust regulations tailored for the internet industry. The revision of the law is in the pipeline to be approved by China’s legislature.
• November 2020: The Shanghai technology bourse halts an initial public offering for Alibaba’s Ant Group, citing “changes in the regulatory environment.”
• November 2020: SAMR proposes new guidelines targeting anticompetitive behavior to include internet companies. The new rules widen the reach of certain antitrust terms that previously only applied to the physical economy.
• December 2020: SAMR imposes antitrust-related fines on three acquisition deals involving Alibaba, Tencent, and SF Express, a move that legal experts described as the country’s first batch of antitrust enforcements against tech firms.
• December 2020: SAMR announces an anti-monopoly investigation targeting Alibaba.
• February 2021: SAMR’s guidelines targeting internet companies come into effect.
• February 2021: SAMR imposes a RMB 3 million penalty on the operator of Chinese flash sale online retailer Vipshop.com for unfair competition.
• March 2021: Reuters reports that SAMR is looking into Tencent’s WeChat for monopolistic practices and how the popular messaging app had possibly squeezed smaller competitors.
• March 2021: SAMR issues fines to companies including Tencent, Didi Chuxing, and Baidu over 10 investment deals in the internet sector that were in violation of the Anti-Monopoly Law.

Most fines are about unreported deals: SAMR issued three rounds of fines to tech companies over anti-competitive practices. Except for the Vipshop case, the fines were all related to a clause in the 2008 Anti-Monopoly Law that 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. 

• In those cases, firms were fined the maximum amount allowed by the existing legal framework, or RMB 500,000 each.
• SAMR’s overhaul of the Anti-Monopoly Law will allow regulators to issue fines up to 10% of the offending company’s annual revenue.
• Most deals in question can be traced years back. For example, Baidu’s 2014 acquisition of smart home equipment maker Ainemo was fined in the March action.
• SAMR hasn’t, so far, asked any of the companies to reverse the deals in question. But lawyers we talked to said the companies may be asked to do so as SAMR steps up enforcement.

SAMR is waiting for the law to catch up: The regulator is pushing for an overhaul of China’s Anti-Monopoly Law and other regulations—its punitive concentration on unreported M&A deals is evidence that it may lack the essential legal vehicles to rein in internet companies. It also may explain why the regulator dropped investigations into the Didi-Uber merger deal and the Tencent Music Entertainment case.

• China on Feb. 7 formalized SAMR’s internet antitrust guidelines and, on Feb. 8, the regulator used it to fine Vipshop over unfair competition behaviors identified by the new guidelines.
• The guidelines, dubbed the Antitrust Guidelines for the Platform Economy, specifically targets internet companies. It forbids internet platforms from forcing merchants into exclusivity deals, offering different prices based on user data, and using algorithms to manipulate the market.
• Vipshop was fined based on clauses about exclusivity deals, according to SAMR.
• SAMR’s proposed amendment to China’s Anti-Monopoly Law also asks authorities to consider factors such as network effects—services that rise in value as their user bases grow—as well as company size and data assets when determining whether a company is a dominant player. But the amendment—different from SAMR’s guidelines which were active starting in February—is not effective yet. China’s legislature said in March that it would review and approve the revision “this year.”

What’s next? Growing quickly by buying smaller competitors is a common practice in China’s tech industry. Giants created by merger deals include Meituan, which merged with rival Dianping in 2015; and classified advertising site 58.com, which merged with rival Ganji in the same year. 

• Didi Chuxing, China’s largest ride-hailing platform, also established its dominance in the market through the 2016 deal with Uber.
• The problem is that companies are usually not aware that they may be obligated to report those deals for antitrust review. As China steps up anti-competitive regulations in tech, M&A deals will be more and more subject to market regulator review, potentially stopping tech companies from scaling in size by merging with rivals.

The worst is yet to come: While China’s antitrust regulators have been taking relatively mild measures against tech firms, signs show that more serious moves are on the horizon.

• In September, Tencent offered to take NYSE-listed search engine Sogou private in a $3.5 billion deal as its sole owner. In December, Reuters reported that SAMR wanted to “make an example” using the deal and is “planning a thorough review that could mean the deal may miss a July 2021 completion deadline.”

However, existing monopolies may not have to worry about being broken up. “There are no such provisions for breaking up monopolies in China’s antitrust law,” Deng Zhisong, an antitrust lawyer at Dentons law firm in Beijing, told TechNode in December. What the regulator can do is issue steep penalties and veto deals that don’t pass muster. 

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.

China’s top antitrust regulator is looking into Tencent’s WeChat for monopolistic practices and how the popular messaging app had possibly squeezed smaller competitors, Reuters reported, citing anonymous sources. 

Why it matters: The latest development in China’s antitrust campaign indicates that Tencent, the country’s largest social media and gaming company, might be the next tech behemoth to be targeted. The company had previously been sued by rivals for anti-competitive behaviors.

Details: Wu Zhenguo, the head of China’s State Administration of Market Regulation (SAMR), expressed concern about some of Tencent’s business practices, and asked the firm to comply with antitrust rules when he met with Tencent founder Pony Ma this month, Reuters reported Wednesday, citing two people with direct knowledge.

• SAMR was gathering information and looking into WeChat’s business practices, and how the super app—China’s largest instant messaging app with more than 1 billion users—may have competed unfairly against smaller rivals.
• Ma, Tencent’s low-key chief executive, was in Beijing this month for China’s annual parliamentary meeting and visited the SAMR office two weeks ago. He met with SAMR officials to discuss compliance at his company.
• Tencent did not respond to requests for comment on Wednesday.

Context: SAMR had previously targeted Tencent in its antitrust actions. It fined a Tencent affiliate in December over unreported acquisition and merger deals and punished Tencent earlier this month for the same reason.

• Tencent is also involved in a lawsuit with Douyin, ByteDance’s Chinese version of TikTok, which accused the company of violating China’s antitrust law by blocking Douyin’s content on its WeChat and QQ instant-messaging apps.
• Tencent is about to report its fourth-quarter earnings on Wednesday. The company is expected to report a 42% rise in its quarterly profit, according to Reuters, but analysts said the investor focus will be on regulatory developments.

Chinese regulators have given more than 130 apps including those developed by dronemaker DJI, social media and gaming giant Tencent, and artificial intelligence firm iFlyTek until Wednesday to fix privacy violations that include overcollecting users’ personal information.

Why it matters: China has increased scrutiny on how private companies handle the data of its nearly 1 billion internet users.

• The country’s latest Five-Year Plan set out goals to develop systems and standards for data security rights and protections, as China pushes its digital economy.
• The amount of data that companies collect has become a major concern for Beijing. Regulators have led several crackdowns on the digital sector aiming to curb rampant data collection.

READ MORE: The loophole in China’s privacy regime: anonymization

Details: China’s Ministry of Industry and Information Technology (MIIT) said on Friday the companies had overcollected personal information and misled users into downloading their software.

• The MIIT said that the companies had been notified about the issues after an investigation but had yet to resolve the issues. The ministry has given the firms until Wednesday to deal with the violations.
• Apps included on the list include DJI GO 4, iFlyTek’s speech-to-text dubbing platform Peiyin, and Tencent’s mobile security app.
• The 136 apps are the third batch of the MIIT has cracked down on so far in 2021, according to the ministry.

China on March 9 rolled out its own “vaccine passport” amid global controversy around potential equality and privacy issues of the health document.

China’s vaccine passport, the International Travel Health Certificate (ITHC), serves as an international version of China’s year-old health code system that helped the country resume domestic travel after the initial outbreak early last year. It contains information such as the holder’s coronavirus test results, vaccination records, and antibody test results, according to China’s foreign ministry (in Chinese). 

To sign up, users enter their passport number in a foreign ministry-owned mini program on Tencent’s WeChat instant-messaging platform. Verify your identity using face recognition, and the certificate is instantly available. It is currently only available for Chinese nationals. China hasn’t revealed plans to issue the certificate to foreign nationals living inside or outside of the country.

The health code system began as a patchwork of different apps rolled out by local governments to track residents’ travel history and body temperatures, often with varying standards. It has since evolved into a nationwide database network of individuals’ health information. It appears that the newly launched vaccine passport also has access to the same data.

READ MORE: We read the technical standards for China’s ‘health code.’ Here’s what we learned.

Like the health code system, China’s vaccine passport may provide the world with a new option in the quest to resume normal international travel. China is promoting its standards for post-Covid travel documents. Experts have expressed concerns that the use of such certificates may exceed the scope of containing the coronavirus and empower governments to reinforce social control.

International health code 

China joins a host of countries experimenting with vaccine-certificate systems. The EU and the G7 are developing a regional system that will allow vaccinated travelers between participating countries to cross borders without quarantines. Thailand is issuing single-country certificates to enter—a vaccine visa, if you will. Israel and Bahrain have deployed digital certificates for domestic re-opening. China, with mostly closed borders and a largely re-opened domestic economy, is deploying a one-country system to vouch for outbound citizens

Beijing hopes to persuade other countries to accept its system as proof of vaccination. Wang Yi, China’s foreign minister, said at the announcement of the ITHC last Tuesday that the document “fulfills Chinese President Xi Jinping’s proposal to inter-recognize health codes internationally” (our translation).

Xi first made the comment about a “global mechanism” of the health code system to allow international travel at an online meeting at the G-20 summit in November. “We need to further harmonize policies and standards and establish ‘fast tracks’ to facilitate the orderly flow of people,” he said at the time.

A spokesman for China’s foreign ministry Zhao Lijian told reporters (in Chinese) on Thursday that the country had promoted and introduced the ITHC to “countries and relevant international organizations.” He added that some countries and international organizations had “expressed willingness” to cooperate with China, without naming them.

Nations are scrambling to set up standards for vaccine passports. The British government said last month that it would work with other countries through the World Health Organization (WHO) and the G-7 on “a clear international framework with standards that provide consistency for passengers and industry alike.” The European Commission said earlier this month that it would put forward legislation this month that will lay out the details on the format of a common EU vaccination certificate.

But unlike the EU and G7 nations, which are discussing regional vaccine passports that will allow people to travel freely, China seems to be unilaterally pushing for recognition of its vaccine passport for its citizens, said Nicole Hassoun, a professor at Binghamton University and the author of the book Health Impact: Extending Access on Essential Medicines for the Poor.

Hassoun suggested that China will need reciprocal arrangements. “They hope that other countries will eventually recognize their citizens’ certificates and allow them to skip quarantine, but right now China does not have a plan to let visitors skip quarantine,” she told TechNode. 

Will it work?

It’s too early to say if China’s vaccine passport will be a success, but it used a similar health code system to tackle the virus and resume domestic travel. The effectiveness of the system and other key measures—including its strict mandatory lockdown in early 2020—is difficult to deny, as life within China nears normalcy while many other countries struggle to contain the virus a year later. 

The eastern city of Hangzhou was the first city in China to roll out the health code system in January 2020.

The QR code-based system allowed people to travel inside China with greater freedom. A green code usually meant that the holder was a low risk for carrying the coronavirus and could thus be freed from quarantine after traveling. Accordingly, a yellow code meant medium risk and a red code, high. 

In the early stages of the system, code colors were given based on individuals’ self-declaration of Covid-related symptoms, travel history, and body temperatures. Now, the system has become a nationwide network of databases that contains information like Covid test results and vaccination history.

For the past year, China’s domestic public transportation system, which was one of the busiest in the world, has relied on those codes to manage and track travelers.

What are the concerns?

Experts have warned that vaccine passports could deepen inequality as residents of countries with access to vaccines can now do things that others cannot, including traveling.

Michael Ryan, executive director of the World Health Organization’s Health Emergencies Programme, said on March 8 that “vaccine passports” for Covid-19 should not be used for international travel because of ethical considerations that coronavirus vaccines are not easily available globally.

“Immunity passports inherit all the inequity in vaccine distribution,” said Hassoun of Binghamton University. “Most people are not eligible because most people cannot access the vaccines.”

China’s vaccine passport also inherits the health code system’s privacy concerns. While the health code system is widely used to track the spread of the virus, it also captures data about people’s whereabouts on a vast scale. 

In Beijing, people are now required to scan and register using health code mini-apps embedded in the WeChat and Alipay smartphone apps every time they enter a shopping mall or take a taxi. But in most Chinese cities, people are only required to show their health code at checkpoints, and their location information is not logged. 

Nonetheless, governments around the world are introducing or considering such systems. Their attraction is that they “may provide validated clinical information to facilitate expanded social engagement including travel,” John Nosta, president of healthcare think tank NostaLab and a member of the WHO’s Digital Health Roster of Experts, wrote in an email. “The danger is that some assessments go beyond Covid-19 and reveal other clinical realities that the individual may not wish to reveal.” He also warned that countries may limit the entry of people with other conditions such as mental health issues.

A city in eastern China had sought to make the health code system the norm even beyond the pandemic, but was met with backlash from netizens. In May, Hangzhou revealed plans to “normalize” (in Chinese) the city’s health code, monitoring people’s medical records, physical examination results, and lifestyle. 

Behaviors such as consuming alcohol would degrade the holder’s “health score,” while physical exertion such as long-distance walking would increase the score, according to local media reports about plans for the system. The plan was widely criticized on social media and has not been mentioned ever since.

“I’m fearful that once the toothpaste of a vaccine passport is out of the tube, there’s no putting it back,” Nosta said. “Other diseases and conditions may be flagged and establish new restrictions—from mental health to other infectious diseases—that can excessively empower governments for a new level of social engineering.”

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.

Home appliance titans

• Suning.com, the Chinese household appliance and electronics online seller, sold a 23% stake to Shenzhen-based state-owned companies in a deal worth RMB 14.82 billion ($2.28 billion). (TechNode)
• Franchise partners that run stores under Suning.com’s “Retail Cloud” platform plan to add 300 more new locations to its existing 8,000 outlets. (Ebrun, in Chinese)
• Suning archrival Gome Retail announced Tuesday that it raised HK$4.5 billion through private placement to bankroll its online and offline expansion. The firm said on Monday it had redeemed RMB 484 million in bonds issued in 2018. (Donews, in Chinese)
• Youzan Technology, a subsidiary of loss-making e-commerce service provider Youzan, filed its paperwork for a public listing on the main board of the Hong Kong stock exchange via introduction. Shares for its other arm, Tencent- and Baidu-backed Youzan China, will be taken private after the share transfer from Hong Kong’s growth enterprise market, where it listed in 2018. (Lanjing, in Chinese)

Coffee craze continues

• Tencent participated in a round of funding for the Chinese arm of Canadian coffee and snack chain Tim Hortons. The amount raised was not disclosed. (TechCrunch)
• Genki Forest, a popular Chinese beverage firm, has become the biggest shareholder of Never Coffee. After the deal, Genki Forest will hold a 51% stake in the specialty coffee and e-commerce platform. (Pandaily)

Poverty alleviation

• Chinese e-commerce heavyweights Alibaba and Pinduoduo are listed among 1,500 outstanding institutions awarded for their contributions to the state’s efforts to fight poverty. The award were extended to commemorate China’s “complete victory” over “absolute poverty” as announced by Chinese President Xi Jinping on Thursday. Meanwhile, Cheng Wei, founder of ride-hailing app Didi Chuxing, was recognized individually for efforts to support the initiative. (KrAsia)
• Alibaba and New Hope Group, an agricultural products manufacturing company, are discussing collaboration on an e-commerce project that aims to solve key problems in the agricultural industry. The program will train 200,000 farmers in the next three years. (Ifeng, in Chinese)

Ed tech

• Chinese online tutoring platform Vipkid said that it expects to reach profitability this year. (TechNode)
• Chinese online education platform GSX Techedu said that an internal investigation it initiated in response to accusations of fraud from a group of US short sellers in 2020 discovered no evidence of financial misdoing. (GSX statement)

Market metrics

• Market value for 74 listed Chinese e-commerce companies reached RMB 10.94 trillion in 2020, a jump from 2019 when 66 which were valued at RMB 6.45 trillion, according to a report from research and intelligence agency 100ec.cn. The market cap of Alibaba, Meituan, and Pinduoduo totaled RMB 6.99 trillion in 2020, accounting for more than 60% of the overall figure. (Ebrun, in Chinese)
• The market size of China’s business-to-business cross-border e-commerce sector reached RMB 3.7 trillion in 2019, according to Monday report by research agency iResearch. The sector accounts for 74.1% of China’s cross-border e-commerce market. The figure is expected to hit RMB 4.5 trillion in 2020, and further jump to RMB 5.7 billion in 2021. (iResearch, in Chinese)

Tencent’s WeBank and Ant Group’s MyBank will be the first two privately owned banks to participate in digital yuan trials, Chinese media reported.

Why it matters: The two online banks will be the first fintech companies to participate in the tests, possibly gaining an edge over their competitors despite widespread speculation that developing the currency was in part to curb their influence.

• The report comes just weeks after Ant Group reportedly reached a deal with Chinese regulators to restructure its operations amid a crackdown on fintech and big tech.

Details: Under the supervision of the People’s Bank of China (PBOC), the two banks are preparing to join trials such as those already underway, which are run by six state-owned banks, China Securities Journal reported citing anonymous sources.

• WeBank and MyBank accounts will soon become available on the digital yuan wallet app, the report said. Much like Ant’s and Tencent’s respective digital payment apps, the e-CNY app works by connecting to different bank accounts and transferring money to the wallet.
• Zhou Xiaochuan, former PBOC governor who spearheaded China’s digital currency efforts during his tenure, stated that Ant and Tencent were involved in digital yuan trials in an op-ed published in Caixin earlier in February, based on a speech he gave in late November.

READ MORE: UPDATED: We got some digital yuan!

Context: Ant Group’s Alipay and Tencent’s WeChat Pay digital payment platforms account for a respective 56% and 38.8% of China’s digital payment market, according to a report from market research firm iResearch. Holding such portions of the market fulfill criteria for the pair to be considered a duopoly, according to draft antitrust rules released by the PBOC in January.

• The digital RMB will enable other players, including traditional banks, to compete with the two fintech giants.
• Ant Group and Tencent each hold around 30% share of their respective licensed digital banks.
• E-commerce giant and Alibaba rival JD.com has been a high-profile participant in the digital RMB trials, even funding a $4.6 million lottery to distribute the currency in Suzhou.
• Some Ant employees in Shanghai have reportedly been participating in digital yuan trials.

Updated: added detail about Zhou Xiaochuan’s statements.

Huawei is seeking approval from authorities to acquire licensed digital payment provider Xunlian Zhifu, Chinese media reported.

Why it matters: The telecommunications giant is the latest of China’s big tech firms to expand into the digital payment industry, just as regulators are trying to break Ant Group and Tencent’s duopoly in the market with new antitrust laws.

Staffing: In addition to acquiring the Shenzhen-based licensed payment provider, Huawei is recruiting a “large number” of digital payment-related positions, such as deposit management, clearance, and bank cooperation, Chinese media reported on Sunday citing anonymous sources.

The acquisition: Founded in 2013 by Huawei’s competitor ZTE, Xunlian Zhifu was issued a nationwide online payment license in 2014. ZTE sold 90% of its stake in the payment provider to a Shanghai-based holding company in 2016.

• Huawei has operated Huawei Pay, a payment service that uses Near Field Communication and has been built into its smartphones since 2016. But bank card provider China UnionPay is responsible for transaction processing.

Antitrust: Regulators have ramped up anti-monopoly regulation in the last few months, following the suspension in November of Ant Group’s mega dual listing.

• Ant Group accounted for 55.6% of China’s digital payment market and Tencent for 38.8% as of June 30, 2020, according to market research firm iResearch.
• The two companies fulfill the criteria of a duopoly in the third-party payment sector, according to a a draft regulatory definition released in late January.

READ MORE: New digital payment rules likely to hit Ant Group, Tencent

New entrants: Several internet companies bought licensed digital payment operators in 2020, including Pinduoduo in January, and Bytedance and Trip.com in September.

• Bytedance launched an in-app payment tool in domestic short video app Douyin in January. The TikTok operator also launched a lending app in 2019.

READ MORE: Bytedance unveils Douyin mobile payment tool to rival Alipay, WeChat

A joint venture between General Motors, Chinese automaker SAIC, and connected car startup PATEO has filed a formal complaint against Tencent for using illegal, anti-competitive tactics to bully its rivals.

Why it matters: The complaint, currently under review by local authorities, marks the first time Chinese auto players have cited anticompetitive practices in a complaint about domestic tech giants that are fighting for share in the automotive sector.

• This could lead to another investigation into Tencent over antitrust behaviors amid Beijing’s clampdown on monopolistic practices.

Details: Chinese connected car company PATEO on Tuesday said it has filed a complaint against Tencent, alleging the company pressured automakers to stop using its software which connects smartphones to the in-car system. The app enables users to send and receive messages using WeChat.

• SAIC-GM-Wuling, a joint venture between General Motors, China’s biggest automaker SAIC, and others, collectively filed the complaint with PATEO.
• Previously, the in-car service platform had been installed on Baojun RS-3, an entry-level crossover launched in late 2019 by SAIC-GM-Wuling.
• Tencent in August sent letters to automakers including SAIC-GM-Wuling demanding that they end licensing the software for which there was no legal cause, PATEO said in a company statement. It said that Tencent has used its dominance and market monopoly to snuff out competition.
• The Xiaomi-based car connectivity startup also said it has sued Tencent for patent infringement, demanding that the Chinese social media and gaming firm pay RMB 80 million (around $12.4 million) for using patented technology in Tencent’s mapping service.
• Tencent responded on Tuesday in an announcement (in Chinese), saying that the in-car platform gathered private data without authorization from Tencent and users.
• Tencent had filed a suit in September against PATEO alleging unfair competition and trademark infringement in Shenzhen, the company said.
• GM did not respond to TechNode’s request for comment.

Context: PATEO is one of the major players of providing car connectivity software backed by a list of Chinese auto and internet giants. It was also reportedly in talks with Tencent’s rival Bytedance in May about a partnership on in-car software.

• The Shanghai-based startup last year raised a Series B for an undisclosed amount from investors including Nissan’s manufacturing partner Dongfeng Motor and domestic smartphone maker Xiaomi, Chinese media reported.
• Chinese retail giant Suning, as well as Haier Capital, the investment arm of Chinese electronics and home appliances maker Haier Group, were also among its early investors.

China on Sunday put into effect new antitrust guidelines targeting internet platforms, subjecting the country’s tech industry to tougher rules on competition.

Why it matters: The guidelines formalize earlier draft rules announced by China’s State Administration for Market Regulation (SAMR), the nation’s top trustbuster.

• Some of the country’s top internet-based services, including Ant Group’s Alipay, food delivery app Meituan, Tencent’s instant-messaging app WeChat, and online marketplace Taobao, will be subject to the new guidelines. 

Details: The new rules forbid internet platforms from forcing merchants into exclusivity deals, offering different prices based on user data, and using algorithms to manipulate the market.

• Pricing products or services differently according to customer purchasing power, consumption history, or user preference is now considered monopolistic behavior, according to the guidelines.
• The guidelines widen the parameters for determining a firm’s “market-dominant position” to include factors such as transaction volume, user base page views, and technological barriers. 
• SAMR, which issued the rules, said the guidelines will provide a legal basis (in Chinese) for the country to tighten antitrust regulation of internet platforms.

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 described as the country’s first batch of antitrust enforcements against tech firms.

• SAMR in January 2020 proposed an overhaul of the country’s Anti-Monopoly Law to include internet firms in the scope of antitrust regulations.
• Last week, Douyin, ByteDance’s Chinese version of TikTok, said it had sued Tencent for monopolistic behavior including blocking Douyin’s content on WeChat.

Beijing has imposed a RMB 3 million fine on the operator of Chinese flash sale online retailer Vipshop.com for unfair competition.

Why it matters: Coupled with a RMB 500,000 penalty for irregular pricing dealt out in December, regulation pressure is rising as Tencent-backed Vipshop’s share prices reach historical highs after doubling over 2020.

• How the government addresses Vipshop, a major Chinese e-commerce player, could signal what’s ahead in the ongoing anti-monopoly investigation of its bigger peer, Alibaba.

Details: China’s State Administration for Market Regulation, the country’s antitrust watchdog, announced Monday it will fine Vipshop RMB 3 million (around $464,000) for unfair competition.

• In order to gain a competitive advantage, Vipshop had developed and utilized a system to obtain information about brands that sell through its and competitor’s platforms from August to December last year, according to the announcement.
• The data collected were referenced for monopolistic practices such as pressuring brands or merchants to only sell on its platform, a practice called “forced exclusivity.” It would throttle traffic, block, or even remove from the platform products from merchants that sell on multiple platforms, and boost traffic to sellers that sold exclusively on Vipshop.

READ MORE: Forcing sellers into exclusivity deals on marketplaces is illegal: regulator

• The company confirmed the news in a Weibo post, saying that it did not object to the facts in the ruling, and that it will comply and “rectify and reform” to maintain market order.

Context: China has stepped up regulation of internet giants over the past few months.

• In December, Beijing issued antitrust-related fines for three acquisition deals involving Alibaba, Tencent-backed China Literature, and an SF Express subsidiary. Each of the companies was fined about RMB 500,000.
• China’s market regulator fined JD.com, Alibaba’s Tmall, and Vipshop RMB 500,000 each for irregular pricing in the same month.
• Vipshop is reportedly considering a secondary listing in Hong Kong. The Beijing-based company went public on the New York Stock Exchange in 2012, raising a total of $71.5 million.

Douyin, ByteDance’s Chinese version of TikTok, said on Tuesday it had sued Chinese social media giant Tencent for monopolistic behavior including blocking Douyin’s content on its WeChat and QQ instant-messaging apps.

Why it matters: The legal move comes as China tightens antitrust regulations for tech companies and refines its laws to better rein in the internet sector. While similar lawsuits had often resulted in a stalemate, it is believed that officials and judges will now be less tolerant of internet companies and anti-competitive behavior.

• The lawsuit is also seen as a tactical move as Douyin’s biggest domestic rival, Tencent-backed short video platform Kuaishou, is preparing to list in Hong Kong.

READ MORE: China’s tech giants aren’t ‘immune’ to antitrust any more

Details: ByteDance has filed a lawsuit with the Beijing Intellectual Property Court, accusing Tencent of violating China’s Anti-Monopoly Law by restricting WeChat and QQ users from sharing Douyin’s short-video content, the company said on Tuesday.

• Tencent’s practice, it said, ran afoul of the Anti-Monopoly Law’s provision of forbidding “misusing a market-dominant position, and antitrust behavior of excluding and restricting competition” (our translation).
• ByteDance asked the court to require Tencent to cease such behavior and make a public apology. The Beijing-based firm is also seeking compensation of RMB 900 million (around $13.9 million) from Tencent.
• There are no other operators that provide services that rival WeChat and QQ, ByteDance said, meaning that Tencent enjoys a “market-dominant position”—the threshold for citing the Anti-Monopoly Law in court.
• Tencent said in a statement that ByteDance’s accusations were “false” and that the company will bring a countersuit.
• Tencent said Douyin had acquired WeChat users’ personal information by “means of unfair competition” and had breached the platform’s rules.

Context: China has ramped up antitrust regulations in the tech industry in recent months. In December, the State Administration of Market Regulation (SAMR), China’s top antitrust regulator, issued fines to Alibaba and affiliates of Tencent and logistics giant SF Express over three separate acquisition deals, a move that legal experts described as the country’s first batch of antitrust enforcements against tech firms.

• SAMR had previously proposed an overhaul of the Anti-Monopoly Law in January and introduced a set of antitrust guidelines tailored for the internet industry in November.
• In March, ByteDance complained that WeChat had started blocking links to its enterprise messaging app and productivity tool Feishu.

As the Biden administration takes office in the US, there’s a bipartisan, arguably multilateral, appetite to mess with China tech. 

The new president has promised to make a U-turn on many of Trump’s policies, but China isn’t on this list. Cabinet picks have said that they support an aggressive stance on China and have made it clear that technology is a key aspect of their foreign policy, but haven’t revealed details as to how they will be tough on tech. 

“The view that the two countries are competitors is now firmly held in both Beijing and Washington. In turn, there is little prospect for a meaningful improvement in US-China relations under the Biden administration,” Agathe Demarais, global forecasting director of The Economist Intelligence Unit, told TechNode.

“Biden will need to appease China hawks in both political parties in order to get support for his more ambitious domestic programs, such as building new infrastructure and healthcare,” Alex Capri, visiting senior fellow at the National University of Singapore, told TechNode. 

Bottom line: China’s tech companies have seen big changes in their relationship with the US during the past four years, and a new US administration probably won’t undo many of those changes. The Biden administration is likely to put a pause on surprise moves like app bans, and be less unpredictable, but there’s almost certainly no going back to 2015.

Trump era policies

‘Buy American’ initiative: Trump tried to encourage US federal agencies to buy homegrown products from the very beginning of his presidency. The American federal government is likely not a big client for Chinese companies, with some exceptions.

• An LA Times investigation found that from 2016 to 2019, direct federal procurement of foreign-made goods increased by 0.1%: from 3.5% of total federal spending to 3.6%. 
• Several federal agencies stopped buying drones from Shenzhen-based DJI between 2017 and 2020. 
• The initiative turned into a “Don’t Buy Chinese” policy in August 2020, when a law barred federal agencies from buying goods or services from companies that use equipment from Huawei, Hikvision, and Dahua Technology. While the US federal government is not a big direct client for these companies, contractors like Amazon are. 

The Entity List: More serious threats to China tech began in 2016 with the short-lived addition of telecoms manufacturer ZTE to a list that limits exports of US technology, a move that temporarily cut it off from crucial supplies of semiconductors. In 2019, ZTE peer Huawei was added to this list in a move called a potential “death blow.”

• ZTE was added after accusations that the firm sold equipment to North Korea. The telecoms equipment vendor paid a $1.19 billion fine the next year and pleaded guilty to violating US sanctions, and was removed from the list. 
• Surveillance equipment manufacturers Hikvision, Dahua Technologies, and AI companies Megvii and iFlytek were added to the list in October 2019. SMIC and drone maker DJI were added in December 2020. 
• In Aug 2020, the Commerce Department expanded the scope of export restrictions on trading with Huawei. In an explicit attempt to target Huawei’s semiconductor supply, the department effectively banned any chips that include US tech to be sold to the Chinese telecoms company. 

Transaction bans: Perhaps Trump’s most confusing tech policy, if anyone is keeping score. On Aug. 6, 2020, Trump signed an executive order to bar US companies from making transactions with TikTok and WeChat over alleged privacy violations. Both bans were suspended by courts before coming into effect.

• On Jan. 5, 2021, Trump banned transactions with another eight Chinese companies: Alipay, CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay, and WPS Office. 
• The new Commerce Secretary will have to decide which transactions fall under the ban. 

Investment bans: Trump banned investments in companies designated as affiliated with the Chinese military by the Department of Defense (DoD) including China Mobile, China Telecom, and China Unicom, starting Jan. 11, 2021. Shares of the three telcos in Hong Kong fell sharply on the announcement. The list also includes Huawei and Hikvision.

• Trump later added that US investors must divest from Chinese companies by Nov. 11, 2021. 
• On Dec. 3, 2020 the DoD added chipmaker SMIC to this list, and on Jan.14, Xiaomi. 

Delisting: Not a Trump policy per se, but a potentially major hassle for US-listed Chinese tech companies. US lawmakers voted unanimously to pass the Holding Foreign Companies Accountable Act, which threatens to force Chinese companies off US stock markets within three years.

CFIUS: The Committee on Foreign Investment in the US blocked Chinese investments on several occasions, and expanded its jurisdiction in 2018. 

• The committee blocked Ant Group’s acquisition of MoneyGram in 2018. 
• In 2019, CFIUS forced Chinese gaming company Beijing Kunlun Tech to sell gay dating app Grindr, which is popular in the US, citing privacy concerns. The sale finally went through in March 2020. 

Clean Network: First launched on April 29, 2020 as “Clean Path,” and later expanded in August 2020, the initiative seeks to rid US allies’ tech networks and infrastructure from Chinese technology. 

• Various countries have reportedly signed on, although it is unclear what commitments they had to make to be part of it. 

Tariffs: Trump slapped tariffs on several Chinese tech products, starting with solar panels in January 2018, and later on electronics, including laptops and phones. 

• Apple dodged tariffs on its China-made products at the last minute, when the US and China agreed on the phase one trade deal. 
• Tariffs have not severely affected China tech companies, with US firms bearing the brunt of the duties. 

I could go on, but these are the most important. 

How China tech responded

Funding: Chinese VC activity in the US fell dramatically in 2019 and 2020, as Chris Udemans documented, when the techwar heated up. 

• Many market factors affected Chinese VC investments in US startups, but the drop is partly attributable to the changes to CFIUS rules in late 2018. 

By contrast, US funding is still flowing into China. Beijing-based VC Qiming Venture Partners closed a $1.2 billion round of financing in September, mainly led by US university endowments and pension funds. 

Semiconductors: Export controls have also inspired big efforts in China to achieve semiconductor independence, or at least limit reliance on US chipmaking technology. This is a very long road and several US companies guard key chokepoints, but there is probably no going back. 

• Stewart Randall has written about how the open-source RISC-V chip architecture is a promising avenue for Chinese chipmakers to free themselves from reliance on American companies, and is reportedly being used more frequently. 

Grand strategy

The Trump administration aimed to decouple the US and China in the tech sphere, Scott Kennedy, senior adviser at the Center for Strategic and International Studies in Washington, told TechNode.

Biden will be using similar policy tools, but his goal will likely be risk mitigation rather than complete separation, Kennedy said.

Biden’s team has begun to describe an approach that could lower the temperature without changing the basic fact of rivalry.

Kurt Campbell, Biden’s Indo-Pacific Advisor, and Jake Sullivan, Biden’s National Security Advisor, summarized an alternative approach in a 2019 Foreign Affairs article: 

Washington, for its part, will have to invest in the core sources of American economic strength, build a united front of like-minded partners to help establish reciprocity, and safeguard its technological leadership while avoiding self-inflicted wounds.

-Kurt Campbell and Jake Sullivan, “Competition Without Catastrophe,” Foreign Affairs

 Competition: Biden’s early appointees have said that his administration will continue competing with China on technology issues. However, Biden-style competition could mean more efforts to boost US innovation and fewer surprise app bans.

• Antony Blinken, Biden’s Secretary of State, said he approves of the direction of Trump’s tough China policy, but disagrees with the former president’s tactics, during his confirmation hearing. 
• Even the relatively cautious Campbell and Sullivan say the US should get comfortable with “considerable friction.”
• Biden is looking to strengthen the US’ domestically, boosting innovation and production capacity. Campbell and Sullivan wrote that this “domestic foundation” is what Washington needs to build on to deal with the China challenge. 
• Biden has promised to call up US allies trying to mend relations, so that they can exert united pressure on China at international institutions. 

Cooperation: The new administration doesn’t only want to ramp up competition with China. Cabinet picks including Antony Blinken have said they want to find ways to work with Beijing on global issues such as climate change. Biden’s Secretary of State said in September that a full decoupling is “unrealistic and ultimately counter-productive.”

• In Foreign Affairs, Campbell and Sullivan wrote that Washington should adopt a compete first, cooperate second approach. 

• Sullivan cautioned against making China an “existential threat” in the minds of American people and policymakers in a ChinaTalk podcast episode recorded in 2019.
• Other than the environment, one area of cooperation could be regulation to rein in big tech, Xue Lei, research fellow of the Institute for World Economic Studies at the Shanghai Institute of International Studies, said in an event on Jan. 20. 

Biden’s China team 

Biden’s cabinet picks have almost unanimously expressed a desire to be tough on China on issues ranging from trade to human rights. They have also stressed the rising importance of technology on geopolitics. 

President Biden and his incoming team have not detailed how they will deal with the US-China tech war. “I have not heard them whisper a word,” Kennedy said. 

Biden’s top cabinet picks have often dodged making specific comments on technology issues. Here’s some exceptions on what they have said on China tech:

• Laura Rosenberg, China senior director
  • Rosenberg is the head of the Alliance for Securing Democracy in Washington DC. She is expected to bring attention to China’s censorship and allegations of surveillance technology. 
  • In a Dec. 31, 2020 report, the advocacy group argued for an alliance of democratic countries to counter China’s influence over global internet governance. 
• Tarun Chhabra, senior director for Technology and National Security
  • Chhabra argues that American progressives should use rivalry to get Republicans to agree policies including increases in federal spending for R&D and education, as well as immigration policy changes to counter China’s Thousand Talents Program that attracts top tech talent from abroad. 
• Jessica Rosenworcel, chairwoman of the Federal Communications Committee 
  • Rosenworcel supported December 2020 decisions to revoke China Telecom’s US license and to reject an application from Huawei to review its designation as a national security threat. 
• Ely Ratner, top China advisor to the Pentagon chief 
  • A report co-authored by Ratner made several specific recommendations to the incoming administration on China tech, including expanding export controls based on end use of tech equipment, diversifying rare earth supply chains away from China, and coordinating with US allies on semiconductor export controls. 

Tactics

“Democracies must employ scalpels rather than sledgehammers,” Rosenberg said. CSIS analyst Kennedy said he expects the administration to “carry out a top-bottom review of China policy and the entire foreign policy of their tactics and strategy.”

There’s some policy areas where experts expect to see movement from the new administration, albeit further down the line. 

Made in America: Biden signed an executive order on Jan. 25 that will narrow the definition of American-made products and make it harder for federal agencies to justify buying foreign-made goods. 

Backseat for tariffs: Experts expect tariffs on imported goods to take a backseat in Biden’s administration, giving way to strategic tools that confront China’s tech companies in different ways, like sanctions. “Rather than tariffs, the Biden administration will increasingly shift to sanctions and export controls to confront China’s rise in the technological sector and to try to re-assert the US global dominance in this area,” Demarais told TechNode. 

Export controls: Campbell expressed support for “enhanced restrictions on the flow of technology investment and trade in both directions,” but not in a wholesale manner to avoid the Balkanization of the internet. 

• In the same op-ed, he identified the Huawei ban as a “cautionary tale” and called for creative policymaking, such as “establishing a multilateral lending initiative to subsidize the purchase of alternatives to Huawei’s equipment.”
• China is “too big” to be steered with “traditional” financial sanctions, said Demarais. The new White House is likely to rely more heavily on export controls, and “this trend is likely to be a long-term one that will outlive the Biden administration,” she said. 
• “Biden is not likely to walk away from chip restrictions that are fueling China’s technology ambitions. Nor is Biden likely to walk away from blacklisting Chinese tech companies that have ties with the” People’s Liberation Army, Abishur Prakash, futurist at the Center for Innovating the Future in Toronto, told TechNode.
• At the same time, Biden could finally give US firms “an audience,” a chance to “air their grievances regarding the suffering of collateral damage from Huawei restrictions,” Capri said. 
• A US semiconductor industry group wrote to the Commerce Department asking a review of the export restrictions to Huawei, Reuters reported on Jan. 26. 

Standards setting: Some Biden advisors have said that they want the US to play a stronger role in international standard settings institutions to curb China’s influence in global tech standards. 

• At her Senate Confirmation hearing, Commerce Secretary nominee Gina Raimondo said Washington should “play offense” when it comes to standards setting. 
• In a Dec. 22, 2020 op-ed Laura Rosenberg, China senior director for the Biden administration, said Huawei’s “New IP” standard proposed at the International Telecommunication Union and the company’s 6G proposals are an attempt to “redesign the underlying architecture of the Internet to allow nation-states to exert greater control over Internet traffic and access.” Democracies have been “too passive” in international institutions, and they should work together to counter states like China, she wrote. 

China tech in suspense

At this point, the broad strokes of the Biden team’s China approach are fairly clear. But tech companies and investors have a lot riding on the specifics. US policy won’t be going back to the rosier times of 2015, but China tech companies will have to wait to see how their access to US markets and stock exchanges will shape up in the next four years. 

Kennedy said that US presidents usually don’t make decisions on foreign policy until the summer after they take office. 

In the meantime, several of Trump’s policies will remain intact, chiefly entity lists. If you are Huawei or Hikvision, you will have to continue living with US export controls for the foreseeable future. If you are WeChat or Alipay, you can take a breather and expect to hear an update on whether you can operate in the US in a few months’ time.

Unfinished business: Analysts don’t expect any new moves any time soon, but the new administration has some homework due within the next two months. 

• The new Commerce Secretary has to define the scope of the Jan. 5 transaction ban on eight Chinese bans, including Alipay and WeChat Pay, by Feb. 19. 
• CFIUS has put its review of the TikTok deal on hold. Oracle and Walmart are reportedly still committed to buying the short video app, as they said four months ago.
•  “I fully expect CFIUS to continue blocking tech acquisitions in the US and to keep lobbying its allies to choose firms from America,” Capri said. 
• According to one of Trump’s last executive orders, by November 2021, US companies must have divested from 35 Chinese companies considered to have ties to the Chinese army, including chipmaker SMIC. 

Stalling: Kennedy says Biden might try to hit the pause button on these actions until he has finished his policy review. 

• On Jan. 27, the Treasury Department extended the deadline by which US investors would be barred from investing in Chinese military companies by five months.

“In terms of the larger arc in figuring out how to manage the relationship with China, I am fairly optimistic,” Kennedy said. “The Trump administration highlighted the concerns of a Xi Jinping-led China. I think Biden will show more care in the tools to get effective action,” he said.

Update: This article has been updated to include the full name and title of Abishur Prakash, futurist at the Center for Innovating the Future, Toronto.

Chinese tech giants typically focus on the consumer market. But their appetite for semiconductors is growing. 

These deals highlight a trend: Chinese tech giants are trying to secure their future growth by making investments in the semiconductors industry.

Funding China’s semiconductor industry also underscores tech giants’ concerns about being cut off from the global semiconductor supply chain after the US effectively banned Huawei from sourcing American-made components. 

Other active chip investors are Tencent and e-commerce behemoth Alibaba, which have focused on investing in the artificial intelligence chips and computer processors that power their cloud computing businesses. Earlier this month, Tencent participated in artificial intelligence chip maker Enflame Technology’s RMB 1.8 billion (around $278.3 million) Series C.

Tencent and Xiaomi have been targets of Trump’s actions against Chinese tech firms, but they have so far not had trouble getting chips.

Increasing investment in semiconductors is also in line with Beijing’s push for self-sufficiency in strategically important technologies. Unlike Huawei, which is locked in geopolitical disputes with the US and is barred from most high-end semiconductors that use American technology, the other companies making these investments are largely free from US sanctions.

China has vowed to produce 75% of all the chips it uses by 2025—and it is putting a lot of money behind this goal. Total VC investments into China’s semiconductor industry quadrupled (in Chinese) in 2020 to RMB 140 billion from the previous year. The country has also set up a series of government-backed funds to support semiconductors startups, including a $29 billion “Big Fund.”

In this issue of VC Roundup, we look into how Chinese tech giants are making investments in semiconductors.

Huawei: The Shenzhen-based telecoms company, which produces everything from smartphones to base stations for next-generation 5G networks, has felt the pain of a shortage of semiconductors. The company may have to stop manufacturing smartphones in the middle of this year if the US doesn’t lift sanctions.

• In April 2019, Huawei set up its Hubble investment unit, led by Bai Yi, the then president of Huawei’s global financial risks control center. The company had RMB 700 million in registered capital when it was founded. In October, Huawei increased the investment unit’s registered capital to RMB 2.7 billion. Hubble has invested in 27 companies so far, all of them in the semiconductor sector.
• In August 2019, three months after Washington added Huawei to a technology export list, Hubble made its first investment in a Hangzhou-based battery integrated circuit (IC) designer.
• In 2020, Hubble invested in 20 semiconductors companies, according to Chinese corporate information platform Tianyancha (in Chinese).
• They include NineCube, a maker of chip-designing tools; ALLSEMI, a semiconductor manufacturing equipment maker; and Onmicro, an IC designer of processors and radio frequency (RF) front-end modules used in handsets.
• Industry insiders believe that Hubble’s investments are linked to Huawei’s plan to “de-Americanize” its supply chain. “The investments are clearly replacing US companies they can no longer get access to,” a chip industry executive told the Financial Times in December.
• Some of Hubble’s investments, such as RF module designers Onmicro and Evisionics, are aimed at replacing US counterparts, like Qorvo and Skyworks, said Stewart Randall, head of electronics and embedded software at Shanghai-based consultancy Intralink. 

But chip design won’t “help too much” if they don’t have access to chip contract manufacturers like Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea’s Samsung, Randall added. TSMC and Samsung are also subject to US export restrictions on Huawei because their production lines contain American technology.

Xiaomi: Xiaomi made its first foray into chips in 2014 when it launched a semiconductor division that focuses on SoC design. In 2017, the unit, called Pinecone, launched its first and only mobile processor, the Surge S1, which was featured in Xiaomi’s Mi 5C smartphone.

• In 2019, Xiaomi began rethinking its chip ambitions by pivoting to investment. In July 2019, it bought a 6% stake in Shanghai-based chip designer VeriSilicon.
• Xiaomi has since become a more active chip investor than Huawei. In 2020, the company funded some 30 early-stage semiconductor firms, most of which are designers of smartphone chips.
• There is some overlap between Xiaomi and Huawei’s portfolios. Both companies have invested in Onmicro and SmartSens Technology, a Shanghai-based digital camera image sensors maker.

Internet companies: E-commerce giant Alibaba is also China’s biggest cloud computing service provider. The company has been pouring money into making silicon for its cloud computing business to reduce reliance on foreign chipmakers such as Intel and Nvidia.

Alibaba’s semiconductor push began in 2017. The company invested in a series of artificial intelligence chip makers such as Cambricon (in Chinese) and DeePhi Technology (in Chinese).

• In April 2018, Alibaba acquired C-sky, a designer of homegrown 32-bit processors for servers. Alibaba then merged C-sky and Damo Academy, an in-house semiconductor research institution founded in 2017 to form T-head, a chip-designing unit.
• T-head’s offerings include the Xuantie processor series and the Wujian SoC Platforms series, which are mainly used to power IoT devices; and the Hanguang neural processing unit (NPU), which is used in servers in Alibaba’s data centers, according to the company’s website.

Artificial intelligence chips have also caught Tencent’s eye. The company participated in three financing rounds for chipmaker Enflame between 2019 and 2021. 

• Tencent is China’s second-largest cloud computing service provider after Alibaba, but the company is not as active in semiconductor investments as Alibaba. 
• Apart from Enflame, the only other semiconductor firm Tencent had a stake in is Shenzhen-based SDMC, a smart television chipmaker. In August, Tencent led a RMB 44 million (in Chinese) financing round in SDMC.
• Internet companies’ investment in semiconductors is a “global phenomenon,” Randall of Intralink told TechNode. “Facebook, Google, Amazon, etc. all have their own chip teams now. Alibaba and Tencent followed this trend,” he said.

A mixed picture: While the US hasn’t targeted the majority of Chinese tech giants with technology export restrictions, some companies have already found themselves in the crosshairs of US-China geopolitical disputes. It’s unclear whether their investment strategies will mitigate this risk. Huawei has demonstrated that investing in chips can be more profitable than strategic.

• “For Chinese companies at least it is also some form of protection,” said Randall. “If we get cut off from Nvidia then we at least have some in-house expertise to maybe create something to keep our services running as they grow.”
• But Huawei’s efforts to invest in the domestic semiconductors supply chain didn’t prevent it from being cut off crucial chips it needs to produce smartphones. The company had to sell its budget handset brand Honor in November. Reuters reported this week that Huawei is in early-stage talks to sell its premium smartphone brands P and Mate.
• Randall says these may just be good investments. “Sometimes you can make more profit that way. Like Qualcomm makes more off a Xiaomi phone than Xiaomi,” he said.

Big deals: semiconductors edition

• Jan. 25: Xiaomi injects RMB 200 million into Cvitek, a Beijing-based chip designer for video surveillance equipment.
• Jan 7: Beijing-based AI chip designer Horizon closes a $400 million Series C2 led by British firm Baillie Gifford and Hong Kong-based Aspex Management.
• Jan 5: Enflame closes a RMB 1.8 billion Series C led by state-owned Citic Private Equity and participated by Tencent.
• Dec 28: Huawei’s Hubble investment unit injected more than RMB 10 million into Ninecube.
• Dec 21: Senscomm, a wireless semiconductors designer based in Jiangsu province, closes a RMB 150 million Series A led by Oriza Holdings and Xiaomi.

Mimi Tao walked outside of her residential compound at seven in the morning as usual, but found that the driver had already dropped off the products at the front gate and left. After checking her order list and confirming all the products were accounted for, she hauled them all back to her garage and began the deliveries to residents on her list. There were cherries, apples, imported snacks, rice, and even handmade wontons from a local store in Suzhou. It usually takes Tao about two hours to complete the deliveries. 

Tao is the organizer of the group-buying platform Linxuanhaohuo for her residential development in Zhangjiagang, Suzhou in eastern Jiangsu province. She started the job in August 2018, after a friend’s recommendation. Tao works full time as an accountant as well. She says she usually spends four to five hours every day coordinating the orders and posting products on the WeChat group of 219 people she manages. 

“I am busier on Mondays, Wednesdays, and Fridays because I need to deliver products on these days,” Tao said (our translation). 

Tao is not the only person in the apartment complex who manages a community-buying group. She has a competitor in the compound—Maggie Xu, who works for another platform, the name of which roughly translates to Tongcheng Life. Xu’s group is double the size of Tao’s and the platform offers a wider variety of products. 

Group-buying platforms have their own mini programs on WeChat which customers use to place their orders. Each day, organizers post links in the chat group to products that are popular or are on sale. Xu usually starts putting product links in the group chat around 9 a.m. She first posts links for products on promotion, and then fruits. In the afternoon she posts links for snacks such as yogurt, sweets, and nuts, and then sometimes eggs. As Spring Festival approaches, gift boxes are also popular in the group. 

Resurgence of online fresh groceries

China’s grocery market is large—it is expected to be worth RMB 11 trillion ($1.8 trillion), the world’s largest, in 2023, according to research agency IGD. But it’s complicated—rather than a weekly trip to the supermarket, most Chinese consumers visit a variety of stores and marketplaces to stock their pantries.

Chinese companies from small to large have been trying to figure out how to sell groceries online for years. Venture capitalists fueled the craze by injecting hundreds of billions of yuan in the sector since its first boom around 2013.

The earliest attempts included asset-heavy approaches like Dingdong Maicai, which ran its own warehouses and logistics systems, and marketplace operators like Meituan and JD Daojia that offered delivery support for offline vendors.

However, within the broader online grocery category, selling fresh produce online has proven a hauntingly difficult task. Selling highly perishable goods with significant logistics requirements has driven more than a few fresh produce platforms out of business, from Amazon-backed Yummy77 to Xianpinhui. The most recent example is the collapse of Dailuobo, a grocery upstart that burned $92 billion in five months. 

China’s community-buying trend can be traced back to the early days on platforms like Meituan and Dianping, which offered Groupon-like deals. Community-based group-buying emerged around 2016 within chat groups on ubiquitous messaging app WeChat. The model gained momentum around 2018, especially in second-and lower-tier cities after WeChat launched its mini program ecosystem.

The Covid-19 outbreak changed Chinese consumers’ daily routine of shopping for fresh food and daily necessities offline. Although the behavioral shift boosted all businesses in the grocery delivery sector, community group-buying has taken off. One platform, Xingsheng Youxuan, has attracted investment from a number of tech giants, and was valued at $5 billion as of its latest round of funding led by Tencent. 

The group-buying model addresses the pain points of online grocery deliveries. Many group leaders themselves operate small mom-and-pop stores, which become informal hubs for such platforms. This saves on overhead costs such as running an offline storefront and expensive last-mile deliveries. Pre-ordering and overnight deliveries lower the attrition rate for fresh food compared with storing big piles of inventory at a nearby location to sell. Meanwhile, group leaders, motivated to acquire users through their own social networks for higher commission, help the platform save on user acquisition costs. 

The community group buy platforms are popular in second- and lower-tier cities in China, often outside of service areas for big-name online platforms such as Alibaba’s Freshippo. Some 85% of group leads for the community-based group-shopping model platforms are based in second-or lower-tier cities, according to a report (in Chinese) from Kaiyuan Securities.

Lower-tier cities and rural areas are also powering the next stage of overall e-commerce growth in China. Its shoppers are viewed as being more inclined toward social shopping experiences, given the quick rise of social e-commerce site Pinduoduo.

Bargain-hunting buyers

Unlike other sectors in China’s tech industry, there’s no big player monopolizing the community group-buy market. It’s more like a collection of stores, where customers place orders on different platforms according to what kind of products they want, such as fruit, seafood, or snacks. Some residents will buy eggs on one platform and cherries on another. 

For most of the buyers, finding a good deal is the main reason to join a community-buying group. Some residents in Zhangjiagang told TechNode that they have joined more than one group-buying platforms to compare prices. Customers aren’t loyal to a platform; what matters is the price of the product and how well the platform handles the order fulfillment.

Partially due to platform competition and partially because of consumer demand, group leaders have started to promote products from multiple platforms (in Chinese) within the WeChat groups they manage, and offline pickup centers serve several platforms.

Xu said her mother-in-law had used Duo Duo Maicai exactly twice to take advantage of the platform’s free gifts for new shoppers. Unlike many group-buying platforms that deliver products to customers’ front doors, Duo Duo Maicai opened offline stores outside of compounds for customers to pick up. 

“She hasn’t bought anything since then because there are fewer products on their platform and they don’t support home delivery service,” she said.

The community aspect

Discussions with neighbors who share the same interests is a reason for shoppers to stay active on one platform. 

Deng Chanling, a stay-at-home mom in Shanghai, became an organizer for group-buying startup MMchong after using the service for a year. When Deng moved to her new neighborhood in October 2019, the part-time job helped her to get to know her neighbors. She now knows most of her 200-member WeChat group from offline promotional events, she told TechNode.

The workload of less than 20 hours a week gives her a comfortable balance between a job and taking care of her son, who is in primary school. Deng earns around RMB 3,000 ($462) a month, and RMB 6,000 during peak holiday seasons, through the 10% commission she earns from her sales in exchange for promoting the products, using her space for product storage, and logistics services.

The income is far from sufficient to support a family in a metropolis like Shanghai, but good enough for the time and energy she invests daily, Deng said.

The company delivers the products to Deng’s home the morning after a group order is placed, every other weekday. “It usually takes me an hour or two to sort out the orders. My neighbors will drop by to pick up their orders in the afternoon.” she said. She only delivers the parcels to a doorstep if the order is higher than RMB 108. 

The part-seller, part-user role of the group leaders help the platform select what products to sell, a crucial factor in differentiating from rivals. MMchong constantly updates its product listings. Deng says she tests samples recommended by suppliers and gives her feedback as a user before the platform determines whether or not to sell it. 

Deng doesn’t rely on the job to make a living, but some co-workers do. There are group heads who earn monthly income of around RMB 15,000 by mobilizing the whole family. “In such cases, they are operating on a larger scale and can afford to rent their own pickup storefronts,” Deng said.

Scorching hot market

As the community group-buying sector grows in size, smaller group-buying platforms are feeling the pressure. Xu said the competitive market has affected her commission rate. When she first started in 2018, she would net around 10% to 11% commission on each product, but now she earns just 6% to 7%.

“Last year there were not so many group-buying platforms so we had a high commission rate,” she said. “Now, more platforms have joined and they give a lot of coupons and discounts to attract customers, so the platform ended up cutting our commission.”

At the onset of the group-buying war last year, tech giants that set their eyes on the model had been poaching staff from existing players like Xingsheng Youxuan and Nice Tuan by promising to double or triple their salaries for similar positions, according to local media. In one case, most of Xingsheng’s employees at a Wuhan delivery center jumped ship to Pinduoduo within two weeks, forcing the downtown center to suspend its business. 

Competition between platforms starts with suppliers, according to Deng, the MMchong group lead. “Our supplier for sweet corn, a top seller on our platform last year, says that they have already sold out this year’s harvest to higher bids,” she said.

A threat to offline markets, maybe

Experts expect group-buy platforms to eclipse grocery stores. “There’s no chance for supermarkets larger than 500 square meters to survive in the next year or two given the increasing adoption of community-based grocery e-commerce,” (our translation) Ye Guofu, founder and CEO of Chinese low-cost retailer and variety store chain Miniso, said in December.

Pinduoduo cited an estimate from Goldman Sachs: By 2025, nearly half of China’s grocery shopping will take place online, up from 20% currently, and reach about $1 trillion in sales.

For Xu, she hasn’t set foot in the neighborhood supermarket for a while. She believes group-buying will replace the offline supermarket one day.

“I can just order online and the products will appear at my door the next day,” she said. “The price is also cheaper, so why not?”

However, there is still a lot of uncertainty in the sector. 

The government summoned tech majors including Alibaba, JD.com, Meituan, Tencent, Pinduoduo, and Didi for a meeting in December. Regulators issued a list of restrictions on group-buying businesses, forbidding predatory pricing to beat out competition as well as falsely advertising discounted prices and posting misleading product information.

The move follows a few months after these companies pushed into the sector with rock-bottom prices for fresh groceries, charging RMB 0.99 (around $0.15) for a box of eggs and RMB 0.01 per 500 grams (around a pound) of cabbage. The state-run People’s Daily ran a commentary telling tech companies to focus on innovation for bigger benefits instead of “thinking about the traffic of a few bundles of cabbage and a few pounds of fruits.”

Using low prices to attract users is reminiscent of the subsidy wars seen in many industries, but particularly tech-related sectors, from ride-hailing to bike rentals. Such an early intervention from state regulators comes against the backdrop of intensifying tech regulation, but could also be a result of the importance of fresh produce and grocery, a sector considered too vital to the masses for hot money to mess up. 

Many people have relied on group-buying platforms for daily groceries, rivals to offline supermarkets that also stock standardized and durable goods such as packaged snacks and detergents.

But there are exceptions, including neighborhood wet markets that consumers in China still depend on for the day’s fresh vegetables. Freshness still outranks convenience for many shoppers, particularly older generations who would rather make the daily trip outside rather than risk allowing a platform employee select food for the family dinner.

Xu stopped posting links for vegetables to the group after many complaints about quality. Tao said one of the advantages of living in second- and third-tier cities is their proximity to the countryside, which means easy access to fresh vegetables and seafood. For Tao and her family, going to the wet market for vegetables is a deeply ingrained habit.

“Usually it’s my mother-in-law who buys the vegetables and she is more picky and wants to see them before buying them,” Tao said.

ByteDance joins Spring Festival party

• Douyin, the Chinese version of TikTok, announced plans to distribute RMB 1.2 billion in cash giveaways during the annual CCTV Spring Festival gala to be held on Feb. 11. The Bytedance-owned short video platform replaced Pinduoduo as the the sole sponsor of China’s annual blockbuster of TV advertising events. The company rolled out a digital payment feature earlier this month, recalling WeChat Pay’s 2014 move in gaining its initial user base, an incident referred to by Alibaba founder Jack Ma as the “Pearl Harbor attack.” (Xinmin.cn, in Chinese)
• Alipay will launch its Five Fu (meaning good fortune) card-collecting campaign on Feb. 1 for its fifth year to distribute cash prices in exchange for user attention during the Spring Festival holiday. Tencent’s WeChat was the first to digitalize the centuries-old Chinese tradition of giving red envelopes with the rollout of the feature in 2014. The massive popularity of its digital red envelope feature allowed the app to convert hundreds of millions of social media users to payment users for WeChat Pay, then a budding Alipay rival. Alipay rolled out the the Five Fu campaign, a similar digital red packet feature, in 2016 and more than 600 million users have taken part since. Alipay users have continued to participate in the gamified campaign despite the significantly lower value of the red envelopes—less than RMB 2 (around $0.31) in total per person compared with RMB 271.66 in 2016. (PingWest, in Chinese)

Edtech firms cash in

• Huohua Siwei, a K-12 online math and science education platform, received $150 million in a third batch of its Series E which valued the company at $1.5 billion. (TechNode) 
• Online tutoring platform Zhangmen, backed by Warburg Pincus, hired Morgan Stanley and Credit Suisse Group AG as underwriters for its US public offering that could raise more than $300 million. (Securities Daily, in Chinese)

Luckin tries to boost staff morale

Embattled Luckin Coffee announced on Monday an equity incentive plan for 2021 in order to “retain, attract and motivate” employees and directors as the company’s management navigates internal turmoil. The plan, with a 10-year term, has a maximum number of 223 million Class A ordinary shares, represented by around 28 million American Depositary Shares, to issue as part of the plan. Shares of the company, still trading on the OTC market after its July delisting, jumped 25% on Tuesday to close at $12.97 apiece, gaining more than 50% since the beginning of this year, though still well below a historic peak of $50 reached in January 2019 when it listed on the Nasdaq. (SEC)

Jack Ma’s reappreance

Alibaba’s billionaire founder Jack Ma made his first public appearance after staying out of the public eye for nearly three months since regulators began a crackdown on his tech empire. (TechNode)

Shares of the electric vehicle unit of Chinese property giant Evergrande surged nearly 50% on Monday after announcing that it had raised $3.35 billion from six investors in an add-on share sale to support its plan to become “the world’s largest EV maker.”

Why it matters: The sale, one of the biggest for a listed electric vehicle maker, are part of a broader trend in global stock markets as investors make big bets on EV players thought to be the next Tesla.

• Chinese EV maker NIO recently raised more than $3 billion in its recent upsized follow-on offering which closed in mid-December. Meanwhile, Xpeng Motors and Li Auto secured war chests of around $2.5 billion and $1.5 billion, respectively, with their new stock offerings early last month.

Details: China Evergrande New Energy Vehicle Group closed the sale of 952 million shares at HK$27.3 each, representing a discount of 8.7% to Friday’s closing price of HK$29.9, for a total of HK$26.0 billion (around $3.35 billion), according to a statement released Sunday.

• The add-on offering raised HK$5 billion each from four private investors, including Cosmic Success Holdings and Upper World Limited, subsidiaries of Chinese real estate developers Kingkey Group and Zhongzhou Group, respectively.
• Investors also included Chan Hoi-wan, practical controller of Chinese Estates Holdings and wife of Hong Kong billionaire Lau Luen-hung, as well as Liu Minghui, founder of Hong Kong-listed China Gas Holdings. Chan and Liu each purchased shares worth HK$3 billion.
• All of the investors have close ties with Evergrande, which is the EV unit’s biggest shareholder. Some had invested in Evergrande’s property management arm which went public in Hong Kong in December.
• The company’s stock price jumped 48% to HK$44.5 by Monday afternoon, expanding its market capitalization beyond $50.6 billion, easily eclipsing some of China’s biggest automakers such as SAIC and Geely.
• The company plans to put the funds toward research and development, debt repayment, and production, according to the statement.

Context: Evergrande’s EV subsidiary said it will start mass production of its electric car portfolio of six models ranging from sedans to crossovers in its Shanghai and Guangzhou facilities by September. It has said that it expects its core business to reach profitability in 2022.

• However, the would-be EV maker has yet to start trial production, according to a Caixin report (in Chinese) last month. The company has also faced ongoing criticism for grabbing land under the guise of making cars, according to a Financial Times report.
• The company raised in September $516 million in fresh funding from Chinese tech giant Tencent and ride-hailing unicorn Didi Chuxing, among others, and revealed plans for a secondary listing on Shanghai’s Nasdaq-style STAR Market tech board.

Huohua Siwei, an education platform backed by Tencent and short video app Kuaishou, has been valued at $1.5 billion after receiving its latest batch of funding amid intensified investor interest in China’s online education sector.

Why it matters: Massive investments have flowed into China’s edtech market since the Covid-19 outbreak which forced millions to remain sequestered at home.

• China’s K-12 online education market received a combined RMB 50 billion ($7.72 billion) in 2020, exceeding the sector’s total funding in the preceding 10 years, figures from data intelligence agency Fast Data showed.
• Services targeting the K-12 age range have attracted the most attention from investors once students pivoted to distance learning during the Covid-19 lockdown.

Details: Huohua Siwei, a K-12 online math and science education platform, received $150 million in a third batch of its Series E. Trustbridge Partners led the funding with participation from existing investors including Tencent, local media outlet LatePost reported.

• The round followed a $150 million Series E1 in August and $100 million Series E2 in October. Together, the three batches total $400 million.
• The latest financing round valued the firm at $1.5 billion, a 50% increase compared with the $1 billion valuation in August during the first batch.
• LatePost cited a source as saying the company had recorded income of nearly RMB 1.5 billion on revenue of RMB 3 billion in 2020.
• The Beijing-based company is reportedly gearing up for a $500 million listing in the US that could take place as soon as this year, according to a Bloomberg source. The report said that Huohua is working with Credit Suisse and Goldman Sachs on the proposed listing.

Context: Since its founding in 2016, the company has received a total of nearly $600 million in seven rounds of financing from tech peers like Tencent, Kuaishou, and Yuanfudao as well as venture capital firms including Sequoia Capital China, IDG Capital, and GGV Capital.

• Investor interest in Chinese online education platforms has been increasingly focused on large platforms such as Huohua, leaving fewer opportunities for smaller players in the field.
• Yuanfudao and Zuoyebang, two Chinese edtech unicorns, accounted for around 80% of the total funding received during the year, according to the report.
• Xuebajun, an K-12 education app that received $200 million in funding since it was founded in 2013, is reportedly insolvent. Local media reports attributed the collapse of the company to its “1V1” or 1:1 teacher-to-student ratio model, which was criticized as costly and difficult to scale. 

The People’s Bank of China has proposed new antitrust rules for non-bank digital payment companies, which are likely to pressure the duopoly held by Ant Group and Tencent over the market.

Why it matters: The rules set the standard for monopolistic behavior in China’s third party digital payment market. If implemented, they are likely to trigger regulatory scrutiny of Ant Group and Tencent.

• The move is part of a wider regulatory antitrust clampdown on tech companies and particularly on fintech, but it is the first to target the digital payment sector.
• Sources have told TechNode that Ant Group and Tencent’s online payment duopoly does not sit well with banks and authorities, but there had been little to no regulatory movement to curb their power.

READ MORE: CHINA VOICES | The unsigned op-eds that foreshadowed Ant Group IPO suspension

Details: The new rules set market share thresholds for the “confirmation of market dominant position,” which might trigger a regulatory review. If non-bank online payment companies exceed these thresholds, the central bank will consult with the antitrust watchdog to determine whether the company or companies have engaged in monopolistic behaviors.

• For a single third-party payments provider, the market share threshold is half of the market; two-thirds of the market for two providers’ combined share; for three providers’ combined market share, the limit is 75% of the market.
• If one of the multiple-party payment providers accounts for less than 10% of the market, it will not be included in the anti-monopoly review.
• Ant Group individually and in combination with Tencent exceeds these thresholds. Ant Group holds 55.6% of China’s market for digital payments, and Tencent accounts for 38.8%, a June 30 report from market intelligence firm iResearch said.
• The rules also set early warning thresholds, which are lower than the “confirmation” thresholds, and might mean key personnel is called in for interviews.
• The draft rules are open for comment until Feb. 19.

Context: Regulators have been trying to rein in big tech in the last few years. Regulatory efforts have intensified, however, since Ant Group’s initial public offering in Shanghai was abruptly halted in November.

• Sweeping antitrust rules were released in the days following the Ant Group listing fiasco. Soon after, Alibaba, an SF Express subsidiary, and a Tencent-backed platform were fined for failing to report acquisition deals for antitrust reviews.
• The central bank released a technical document to standardize the use of AI and big data in payment risk prevention on Jan. 4.

TikTok’s Chinese owner has rolled out an e-wallet feature on its Douyin video-sharing app, a move that could pose a significant threat to the Alipay and WeChat duopoly in China’s mobile payment sector.

Why it matters: Douyin, the domestic version of TikTok, is one of China’s most used apps with 600 million monthly active users as of September.

• Bytedance’s ambition to tap into the payment sector have long been hampered by China’s strict finance regulations. The company in September inherited (in Chinese) a payment license from a small payment firm based in the central province of Hubei it acquired two years ago.
• E-commerce behemoth Alibaba’s Alipay and internet firm Tencent’s WeChat Pay, a feature inside the instant messaging app WeChat, are the two dominant players in the market. Together they hold nearly 95% of China’s online payment market, according to iResearch (in Chinese), a market research firm.

Details: Douyin recently added Douyin Pay onto its checkout page, Chinese media reported Tuesday. The payment method allows users to buy virtual gifts for livestreamers and pay for goods on the app’s e-commerce platform.

• Bytedance said in a statement to TechNode that Douyin Pay was rolled out by the company to “supplement the existing major payment options.” A Bytedance spokesperson said the feature had been available for a while and was previously in test mode.
• The app previously supported WeChat Pay and Alipay. Douyin Pay allows users to link cards from 10 banks including Bank of China and China Merchants Bank.
• Payments are processed by Ulpay, the Hubei-based firm it acquired in 2018.

Context: An in-house payment tool is essential to many of Bytedance’s offerings, including e-commerce and lending services.

• Bytedance is building an e-commerce platform on Douyin around its active livestreaming community. The business model, known as livestreaming e-commerce, has seen massive growth in China since 2019.
• The company in October 2019 launched a lending app, providing users with consumer credit, installment payments, and credit card services. Douyin had also recently launched Dou Fenqi (literally translated as Dou Installments), a feature that allows users to pay their bills in monthly installments, Chinese media reported.

Pinduoduo backlash, again

The Shanghai-based e-commerce platform was denounced on Chinese social media for infringing on data privacy after a user accused the app of remotely deleting screenshots in his smartphone photo album without consent.

The user saved screenshots as evidence to support a complaint he made about the company. In a marketing campaign, Pinduoduo had promised a RMB 100 ($16) cash reward to users who invite a friend to the app. The user only received a small voucher after doing so.

Pinduoduo responded in a statement (in Chinese) that it deletes the original picture in its app if it is edited, causing an erroneous command to delete related photos in the user’s smartphone album. The firm pledged that it will no longer delete users’ original photos once they are edited. (Liehuw, in Chinese)

• On Jan. 12, Pinduoduo launched Duo Duo Maicai in Shanghai, highlighting the e-commerce giant’s big bet on expanding its community group-buying business into the more competitive markets in major metropolises. (21st Century Business Herald, in Chinese)

Luckin the franchise

Luckin Coffee announced a partner recruitment program on Monday, inviting franchisees in 22 provinces and autonomous regions, including Sichuan, Shanxi, Heilongjiang, and Jilin to join the coffee chain. The firm has continued its offline expansion efforts, especially to lower-tier cities, despite its management tumult.

Cities where Luckin already had a solid presence, such as Beijing, Shanghai, and most of China’s provincial capitals, are excluded from the program.

The company will not collect franchisee fees from the partners, but becoming a Luckin franchisee requires an upfront investment between RMB 35,000 to RMB 37,000 for storefront decoration, equipment, and deposit. (Luckin, in Chinese)

Upcoming Spring Festival

• Short video app Douyin has taken over from Pinduoduo as the sole red packet sponsor for this year’s CCTV Spring Festival gala in February, local media reported Friday. The Shanghai-based firm is facing a wave of negative media coverage after two employee deaths which many attribute to its compulsory overtime work schedule. (KrAsia)
• Alibaba’s Tmall kicked off on Wednesday the shopping season for Spring Festival holiday, which falls on Feb. 12 this year. Alibaba’s logistics arm Cainiao is setting aside RMB 200 million for delivery staff incentive pay for working during the holiday. (Ebrun, in Chinese)

WeChat levels up in e-commerce

• The gross merchandise value of WeChat mini program commodity transactions doubled in 2020, reaching around RMB 1.6 trillion in 2020 based on the RMB 800 billion GMV figure the company disclosed for 2019. (TechNode)

The amount of goods sold on digital storefronts accessed via instant messaging app WeChat doubled in 2020 as the mega social platform becomes an increasingly popular entry point for online shopping in China.

Why it matters: WeChat parent company Tencent is a rising challenger for the sector’s biggest players, including Alibaba, JD.com, and Pinduoduo.

• Mini programs are an important growth driver for apps, functioning as an entry point for Chinese mobile users to access online services, according to a Quest Mobile report published in July.
• The Covid-19 pandemic accelerated consumer adoption of e-commerce on WeChat and powered growth, as confined shoppers spent more time browsing and shopping on the app.

Details: The gross merchandise value (GMV) of WeChat mini-program commodity transactions doubled in 2020, the company announced Tuesday at its 2021 Weixin Open Class PRO conference held in Guangzhou.

READ MORE: Why analysts don’t trust GMV, and why they use it anyway

• GMV booked through the “lightweight” apps on the chatting platform reached around RMB 1.6 trillion ($247 billion) in 2020 based on the RMB 800 billion GMV figure the company disclosed for 2019.
• In comparison, Pinduoduo posted RMB 1.46 trillion GMV for the 12-month period ended Sept. 30, 2020. WeChat mini program GMV includes sales from lightweight apps belonging to other platforms including Pinduoduo.
• Daily active users for WeChat mini programs increased by a third to 400 million in 2020 from 300 million in 2019, out of WeChat’s massive pool of 1.2 billion monthly active users.
• There were  731 million annual active buyers on Pinduoduo as of end-September, and 757 million on Alibaba platforms as of June.
• Fast-moving consumer goods and fashion brands were among the platform’s categories that recorded the most rapid growth, with GMV surging from two- to five-fold.
• Per user, the number of mini programs used rose 25% and the average transaction value increased 67% year on year in 2020, according to the company.
• WeChat Search, the app’s built-in search function, saw its monthly active users exceed 500 million for the first time.
• WeCom, WeChat’s enterprise and work communication tool, serves more than 5.5 million organizations and has more than 130 million active users.
• The company is planning more integration this year between official accounts, mini programs, and its short video feature, Channels.

READ MORE: New Wechat e-commerce tools point to Tencent’s ambitions

Context:  First introduced in 2017, mini programs have become ubiquitous on many of China’s biggest apps, including Tencent’s QQ, Baidu, Meituan, Alibaba’s Alipay, and Taobao, as well as Bytedance’s Jinri Toutiao and Douyin.

It has been nearly two years since Chinese tech workers took to Github, a coding collaboration platform, to protest Chinese tech firms’ overtime work culture known as “996,” a work schedule of 9 a.m. to 9 p.m., six days a week. The virtual protest drew global press attention, but things have scarcely changed since then. Today, Chinese tech workers are still plagued by 996.

The problem came under public scrutiny again this month when it was reported that a 23-year-old employee of Chinese e-commerce firm Pinduoduo collapsed and died on her way home after finishing work at midnight on Dec. 29, 2020. The tragedy prompted Chinese authorities to start a probe into Pinduoduo’s working conditions, something the 2019 protest failed to achieve.

Meanwhile, poor working conditions for blue-collar workers for China’s tech companies continue to draw public ire, triggered by similar misfortunes, including the death of a courier at food delivery platform Ele.me at work earlier this month, and the self-immolation of another Ele.me deliveryman this week.

Bottom line: 996 is still a problem in China’s tech industry. It’s brutal to employees, but it is questionable whether overtime work pays off even for companies. Tech executives have implied that 996 is one of the key ingredients for China’s tech success, but economists argue that it is a symptom of low productivity.

A brief timeline

• It’s unclear when 996 was first introduced. Online sources say it can be traced back to the early 2000s.
• January 2019: Youzan, a Chinese e-commerce software provider, announces it will adopt the 996 work schedule. Employees take to social media to protest.
• April 2019: Chinese tech workers create a repository called 996.ICU on Github. The crowd-sourced database collects allegations about Chinese companies’ overtime work schedules. Among the companies named are some of the biggest names in China’s tech sector: social media giant Tencent, e-commerce behemoth Alibaba, and Bytedance, Tiktok’s Chinese owner. The project is “starred” 255,000 times on Github. 
• April 2019: Meanwhile, tech executives jump to the defense of long work hours. Alibaba’s Jack Ma famously calls 996 “a huge blessing.” Richard Liu, CEO of e-commerce platform JD.com says people who slack at work “are not brothers of mine.” (Both links in Chinese)
• The topic soon died down without major changes made by companies. Despite condemnation from state-affiliated media, the government didn’t launch investigations into alleged violations of the labor law.
• H1 2020: Tech company workers complain that the 996 schedule followed them home as employees work from home during the pandemic.
• Jan 2020: Death of the Pinduoduo employee renews public scrutiny of tech firms’ overtime culture. In the same month, a second Pinduoduo employee dies after jumping from the 27th floor of an apartment building in Changsha, the capital of central Hunan province.
• Jan 2020: A Pinduoduo employee is fired after posting a photo of a co-worker being taken away by an ambulance from the company’s Shanghai headquarters. Pinduoduo says in a statement that he was fired for posting “radical” messages “in violation of the company’s employee guide.”

Changing demography: Shao Yu, chief economist at brokerage Orient Securities, wrote in a 2019 essay  (in Chinese) that anti-996 sentiment reflects China’s demographic shift from labor surplus to labor shortage in the past decades. 

• China reached a key demographic turning point in around 2010, wrote Shao, when the country’s unskilled labor market moved from surplus to shortage. Known as the “Lewis turning point,” this is a situation in economic development where surplus rural labor is fully absorbed into the manufacturing sector.

“Once the Lewis turning point is crossed, we enter the neoclassical development stage,  in which labor supply shifts from surplus to shortage, and economic development no longer relies on the crude input of labor force, but on the improvement of production efficiency.”

“One result of the shift is that people start to pursue a quality life instead of basic needs.” 

— Shao Yu, chief economist at Orient Securities

However, China still has surplus skilled labor, including tech workers, curbing skilled workers’ “bargaining power,” Eli Friedman, associate professor at the Cornell University School of Industrial and Labor Relations, told TechNode in an email.

“China’s higher education has expanded dramatically in recent years, creating a huge number of graduates competing for jobs, particularly in the prestigious big companies. In essence, the companies can get away with it because workers don’t have a lot of bargaining power in the marketplace. Companies of all kinds would like to extend their employees’ working hours, and the tech firms have been in a position to get away with it.”

— Eli Friedman, associate professor at the Cornell University School of Industrial and Labor Relations

How do they get people into 996? It’s not as simple as telling people to stay late at work. Tech companies try to “create consent” when forcing employees into overtime work, He Xuesong, professor at East China University of Science and Technology, wrote in a 2020 paper (in Chinese).

• He wrote that tech firms have widely adopted a project-driven work system. As a result, wrote He, “tech workers have to work overtime to catch up with the speed of projects.”
• He also mentioned that tech firms tend to create an “overtime culture” in which anyone taking time off is seen as not pulling their weight.

“The overtime culture makes it impossible for employees to choose whether to work overtime or not according to their own will. They are forced to choose to work overtime together with their supervisors and colleagues in the atmosphere of overtime.”

— He Xuesong, professor at East China University of Science and Technology

• Not every tech office in China has such a culture.  In August, employees of Microsoft China, a company whose workers usually go home at 5 p.m., called out colleagues who had formerly worked at Huawei and Alibaba to “stop the 996 work schedule,” saying that they were disturbing the company’s work culture.

Is it legal? On the front page of the 996.ICU project’s official website, organizers printed clauses found on China’s Labor Law that prohibit unpaid overtime work imposed on employees. In April 2019, online protestors called on people enraged by Jack Ma’s endorsement of 996 to send an official copy of China’s labor law to Alibaba’s headquarters.

However, China’s courts have held that forcing salaried employees to work overtime does not run afoul of China’s existing laws, according to a lecturer at Nanjing Audit University.

• Tech workers are usually paid fixed monthly wages, rather than hourly rates, writes labor law expert Li Gen. The law provides that hourly workers receive overtime pay for hours worked over 44 in a week or on weekends. However, provisions about whether salaried workers should be paid for their overtime work are “ambiguous and chaotic,” Li wrote in a 2020 paper.
• China’s Wage Payment Provisional Regulations, first released by the Ministry of Commerce in 1994, said its provisions about overtime pay “don’t apply to workers with irregular working hours.” This means that the provisions on overtime don’t apply to workers who are paid fixed monthly wages, wrote Li:
• “This provision has become the main basis for both the judiciary and scholars to hold the view that ‘workers working irregular hours are not required to be paid overtime wages’.” 

Wrong metrics: Tech firms had to adopt the 996 work schedule to make up for low productivity, but longer working hours doesn’t necessarily mean better outcomes, Zhang Yilai, an economic professor at the Business School of China University of Political Science and Law, wrote in a 2019 paper (in Chinese).

• China has a low GDP per hour worked, according to Zhang’s paper, meaning low productivity: China’s GDP per hour worked was $13.5 in 2017, while that of the United States was $72 and Germany was $69.8 in the same year.
• GDP per hour worked measures how efficiently labor input is used in the production process. Data from the Organisation for Economic Cooperation and Development (OECD) shows that efficient work is associated with more time off—countries with better per-hour productivity tend to work less hours overall.
• Zhang wrote that Chinese companies don’t tend to think in terms of output per hour worked. Instead, they tend to use the concept of “output per person,” which simply divides total output by the number of employees, neglecting hours worked. Thus, he wrote, “it’s no wonder that enterprises utilize overtime work schedules like 996 to increase their ‘output per person.’”

But it just doesn’t work: Increasing labor inputs, including increasing working hours, may lead to a rise in output, Zhang wrote, but it “follows the law of diminishing marginal returns,” a theory that predicts adding an additional factor of production will result in smaller increases in output.

“Chinese enterprises still tend to use ‘output per person’ as an indicator of management, which prompted the rampant 996 phenomena. We should switch to the management idea of how to improve ‘GDP per hour worked’ in order to maximize the innovation potential of enterprises and the society. ”

— Zhang Yilai, economics professor at the Business School of China University of Political Science and Law

Friedman of Cornell University said it’s unclear if 996 is good business, but he reckons that it’s an “ethical problem.”

“Why should people be forced to devote the overwhelming majority of their waking hours to work, even as these companies amass billions of dollars of wealth? Companies like Alibaba and Tencent can absolutely afford to have employees work the legally-mandated number of hours and still turn a profit.”

— Eli Friedman

Overtime culture in the spotlight, again

The sudden death of an employee of e-commerce giant Pinduoduo renewed public discussion about the work culture at Chinese tech companies, accused of encouraging or even requiring grueling work hours.

The employee, surnamed Zhang, worked for the company in the western Chinese administrative region of Xinjiang. Zhang fainted on her way home after finishing work at midnight on Dec. 29. After six hours of first aid, Zhang, who joined Pinduoduo in July 2019, was pronounced dead. Her death didn’t get much public attention until a self-identified acquaintance of Zhang’s blamed Pinduoduo’s grueling work schedule as the cause for her death in a post (in Chinese) on professional social media platform Maimai. The post has drawn more than 3,500 shares, while the hashtag, “Pinduoduo employee sudden death” was viewed more than 270 million times as of Wednesday on microblogging site Weibo.

The e-commerce firm then responded to a thread discussing the news via its official account on Q&A platform Zhihu in defense of the illegal but commonplace practice: “Who isn’t exchanging their life for money? I’ve never thought of this as a problem with money, but rather as a problem of this society” (our translation).

Pinduoduo quickly deleted the response, and later published a lengthy post on Weibo, explaining that the comment was posted by an employee from a partner company. The employee forgot to log out from the official Pinduoduo account when sharing his opinion. Pinduoduo apologized and pledged to tighten control over their management.

The labor supervision department in Shanghai, where Pinduoduo is registered, has launched a probe into the company’s working conditions.

However, investor interest in the company appears resilient. Share prices for Nasdaq-listed Pinduoduo had more than tripled in 2020, and surged 12% on Wednesday after falling 6% on the news Tuesday.

READ MORE: INSIGHTS: 996 and China speed—Slowing growth in the face of a changing workforce

• A Chinese netizen based in Hangzhou voiced a complaint online after her company’s human resources department used data collected from a smart cushion to track her working hours, local media reported. As the developer of the smart cushion, the company responded in a statement that it asked employees to test the product in order to collect relevant data and promised it wouldn’t use the data to evaluate employee performance. (Jiemian, in Chinese)

Regulation enforcement

Chinese market watchdog, the State Administration of Market Regulation (SAMR), has issued fines of RMB 500,000 ($76,657) each for JD.com, Alibaba’s Tmall, and Tencent-backed fashion e-commerce site Vipshop for irregular pricing strategies during this year’s Singles Day shopping festival held on Nov. 11.

SAMR offered a detailed list of more than 20 products that were affected by irregular pricing across the three platforms. For example, a gift box of pastries sold on JD.com was priced at RMB 149 on Nov. 4 for the Singles Day promotion where buyers could get an RMB 20 rebate for orders over RMB 100. However, the product was priced RMB 10 lower on Nov. 3. (Reuters)

Online consumption in 2020

• Transaction volume in 2020 for China’s food delivery market is expected to hit RMB 835.2 billion, 14.8% higher than that in 2019, according to the state-backed media outlet Guangming Online. Growth decelerated sharply from the 30% year-on-year increase seen in 2019. The penetration rate of food delivery services in the first three city tiers reached 96.3%, according to the report. (Guangming Online, in Chinese）
• Total box office revenue in China reached RMB 20.42 billion in 2020, making it the largest movie market in the world for the first time thanks to the country’s largely successful coronavirus pandemic response. However, the revenue still marks a significant 68.2% decrease from 2019. Alibaba-backed Taopiaopiao and Tencent-backed Maoyan dominate the online movie ticketing market in China, where around 90% of film ticket sales happen online. (Maoyan statement)

Troubled rental platform Danke has repaid 86% or around RMB 1.3 billion ($201 million) of tenant loans underwritten by Tencent-backed WeBank, the bank’s chairman Gu Min said on Dec. 29.

Why it matters: The rental loan rescue plan is a positive sign for the survival of Danke, whose debt-fueled expansion led to public outcry and threatened the company’s future. The move may also release some pressure from WeBank, which faces questions about its exposure to Danke’s debt, as well as its due diligence and risk assessment processes.

• Neither WeBank nor Danke responded to TechNode’s requests for comment.

The Danke incident: In November, the local government of Beijing set up a special team to handle Danke, which was reportedly on the verge of bankruptcy and facing a $400 million cash shortfall.

• In the prior months, thousands of Danke tenants found themselves evicted from their apartments but still contractually obligated to pay rent—a result of landlords halting their collaboration with the platform, saying they hadn’t received their payments.
• Regulators reportedly spoke to Danke’s competitors Ziroom and 5j5j to take over its business. No agreement was reached due to Danke’s cash flow problems.
• On Dec. 2, an evicted tenant in Guangzhou committed suicide.

WeBank to the rescue: Just days after the suicide, WeBank announced two separate plans to help tenants in debt to the bank—and save Danke from collapse.

• On Dec. 3, WeBank announced it would extend by three years all outstanding rental loans for tenants whose contracts had been terminated early, waiving both the principal and interest payments.
• On Dec. 4 (in Chinese), the Tencent-backed bank announced it would transfer tenant debt to Danke, which alleviates some of the immediate risks around the platform’s business model and grants it some leeway with regulators.
• More than RMB 1.3 billion of loans from 136,100 tenants were repaid to WeBank under the debt transfer scheme as of Dec. 27, Gu said. Danke owed RMB 1.6 billion to WeBank for 161,845 loans as of early December.
• Gu stressed that WeBank has had a steady year for profits, and that its assets are enough to cover its exposure to Danke.

The Danke model: Under New York-listed Danke’s original business model, tenants would borrow a year’s worth of rent from a bank, like WeBank, when signing an annual lease with the rental platform.

• The bank would then pay the year’s rent to the platform upfront, which would repay the landlord in quarterly installments. Tenants would pay back their loan to the bank in monthly payments.
• At the end of 2019, 91% of tenants paid rent via loans, compared to 75.8% in 2018 and 65.9% in 2017, Caixin reported citing Danke.
• The company was using bank’s upfront payments to fuel its expansion, racking up debt without turning any profits. In November, it reportedly couldn’t pay its staff.

READ MORE: CHINA VOICES | Crisis at Danke has China worrying about out of control fintech

Chinese video-sharing app Kuaishou has asked all employees to work on every other Sunday starting Jan. 10, according to media reports.

Why it matters: The changes came as Beijing-based Kuaishou prepares for a Hong Kong listing as soon as January. The company is under tremendous pressure as it struggles to compete with rivals such as Douyin, the domestic version of TikTok, and Bilibili in the online entertainment sector.

• Chinese tech firms are known for encouraging or sometimes compelling employees into overtime work schedules. One schedule known as “996”— where employees work from 9 a.m. to 9 p.m., six days a week, sparked a widespread online protest last year. 
• Kuaishou’s new work schedule, known as “big/small weeks,” also triggered backlash on Chinese social media on Wednesday. The hashtag #KuaishouStartsBigSmallWeek became a trending topic on social media site Weibo with more than 12 million views. “The labor law never fails to give way to capitalists,” wrote one user.

Details: Kuaishou human resource head Liu Feng announced the new shift will be implemented beginning Jan. 10 during a staff meeting on Tuesday, Chinese tech news outlet Tech Planet reported Wednesday.

• The South China Morning Post on Wednesday confirmed the news with two anonymous Kuaishou employees. 
• Liu told Kuaishou staff that “a week starts on Sunday in the West” and that around 70% of the company’s employees had already adopted the big/small week schedule, according to Tech Planet. “For the sake of closer cooperation between all teams, Kuaishou will fully implement the big/small week schedule,” he told employees.
• TechNode could not independently confirm Liu’s remarks. A Kuaishou representative did not respond to TechNode’s request for confirmation on Wednesday. Liu cannot be reached for comment.

Context: In November, Kuaishou was caught in the crossfire of public criticism after Chinese media reported that it had installed timers on top of toilets in its headquarters.

• In November, Kuaishou filed to go public in Hong Kong. The company said it had amassed a total of 302 million daily active users as of June 30 with users spending over 85 minutes on average on its platforms.
• Kuaishou recorded annual adjusted net profits from 2017 to 2019. However, it booked an adjusted net loss of RMB 6.3 billion (around $964 million) in the first half of this year.

When Zhang Zhengxin sued the internet giant Tencent for anti-competitive behavior in April 2019, it seemed like the action of a quixotic lawyer tilting at windmills.

Zhang had challenged the company’s practice of blocking links to Alibaba’s Taobao stores from its flagship WeChat messaging app. Tencent’s lawyers simply denied that there was an instant-messaging market to monopolize. The case resulted in a standoff on this basis—debating the existence of such a market and how to define Tencent’s share of it. In January, Zhang dropped the case for “lack of evidence.” He came away feeling that big tech was “immune” to antitrust law, he told TechNode at the time.

Barely a year later, powerful Chinese regulators are coming around to Zhang’s point of view. They’ve dusted off China’s 12-year-old Anti-Monopoly Law and are applying it to big tech companies for the first time. Meanwhile, revisions to the law are giving it more teeth to go after tech.

“If my case hit the courts again today, my odds to win could increase by a lot,” Zhang, a lawyer at Beijing-based Yingke Law Firm, told TechNode on Wednesday.

On Monday, the State Administration of Market Regulation (SAMR), China’s top antitrust regulator, issued fines to Alibaba and affiliates of Tencent and logistics giant SF Express over three separate acquisition deals, a move that legal experts described as the country’s first batch of antitrust enforcements against tech firms. The regulator in January and November began laying the groundwork via multiple proposal laws and rules to tackle infractions by internet companies. 

China is clearly looking to tighten its grip on some of its biggest tech companies. Its suspension of Alibaba subsidiary Ant Group’s mega public offering, expected to be the world’s largest public fundraise ever, was a clear shot across tech company bows. Regulators are also stepping up scrutiny of data security measures and online content moderation, signaling the end of the relatively lax regulatory environment tech firms once enjoyed.

Tolerant no more

The fines were issued for failing to flag merger and acquisition (M&A) deals as possible antitrust issues, a sign that regulators are gearing up to enforce the anti-monopoly law against big tech, experts said. The penalties cited the existing Anti-Monopoly Law framework, which stipulates that such behavior would be subject to a fine of up to RMB 500,000 (around $76,556) or a reversal of the deal.

Applying the law to punish internet companies is a distinct shift in attitude toward tech companies.

SAMR’s recent moves are a response to the state’s call for “strengthening scientific and effective regulations on internet platforms,” Deng Zhisong, an antitrust lawyer at Dentons law firm in Beijing, told TechNode. “[The state] has changed its previous ‘tolerant and cautious’ attitude towards internet companies,” he said.

In 2017, Chinese Premier Li Keqiang encouraged a “tolerant and cautious” approach to tech regulation in a speech (in Chinese).

Questionable acquisitions

The three deals in question are Alibaba’s 2017 acquisition of Intime, a retail firm; Tencent-backed China Literature’s acquisition of television series studio New Classics Media in 2018; and the acquisition of China Post Smart Logistics by SF Express-backed Hive Box in May. Each is being fined the maximum amount of RMB 500,000, though none of the deals are being reversed.

While investigations into tech company acquisition deals are not new, until now none have resulted in any punitive measures. When Chinese ride-hailing platform Didi Chuxing merged with US rival Uber’s China unit in 2016, regulators opened an investigation into the deal. The case appeared to be unofficially suspended when Uber filed for an IPO in April 2019, according to Bloomberg. SAMR launched in January 2019 an antitrust probe into Tencent Music Entertainment’s dealings with the world’s three largest record labels after rivals complained that Tencent paid excessive fees for the initial rights and then passed those costs along to competitors. A year later, the regulator decided to suspend the investigation.

“With this latest development, regulators are signaling that they will no longer tolerate internet giants’ [monopolistic actions],” said Zhang, the lawyer who sued Tencent. He added, “They used to be more indulgent than tolerant.”

Beijing’s shift in attitude toward tech giants coincides with a global antitrust storm in which US and EU regulators are restarting efforts to check tech giants including Google and Facebook. In the US, several states filed Wednesday a lawsuit against Google over the search firm’s alleged antitrust violations in the online advertising market. In Europe, regulators proposed this week to designate companies with EU user bases exceeding 45 million as “gatekeepers,” making them subject to stricter antitrust regulations.

Changes to the law

Prior to the fines issued Monday, SAMR had proposed an overhaul of the Anti-Monopoly Law in January and introduced a set of antitrust guidelines tailored for the internet industry in November.

While the fines are relatively trivial amounts for the three companies—the smallest of which generated RMB 1.6 billion in revenue in 2019—future offenders may pay a much higher price for similar violations, according to the draft revision of the Anti-Monopoly Law. Companies will be fined up to 10% of their annual revenue if they don’t report M&A deals that could create a monopoly, according to the draft revision.

The proposed amendment also asks authorities to consider factors such as network effects—services which rise in value as their user bases grow—as well as company size and data assets when determining whether a company is a dominant player.

The November guidelines further explain what is allowed and what is not. The draft, dubbed the Antitrust Guidelines for the Platform Economy, specifically targets tech firms that run online platforms connecting businesses and consumers such as Didi Chuxing and Taobao. 

With the new rules in place, Tencent may no longer be able to argue that it doesn’t hold a dominant position in the instant-messaging market or that such a market does not exist. A dominant player in a market under the existing Anti-Monopoly Law is a company with more than 50% of market share. According to the newly proposed guidelines, a market could be determined by how hard it is for users to switch platforms. The proposed rules also expanded the parameters for determining market share to include factors such as transaction volume, user base, and page views. 

The changes could pave the way for further probes into tech firms over possible violations such as abuse of dominance and reaching monopoly agreements.

Pruning for long-term benefit

In November, the draft antitrust regulations sent Chinese tech stocks crashing. Bloomberg estimated that the shares slump wiped out more than $200 billion of value from Chinese tech companies within two days.

Analysts, however, are optimistic about the prospects brought by tougher antitrust regulations. Liu Zejing, analyst at brokerage Huaxi Securities, wrote in an investment note (in Chinese) that the government is not aiming to clamp down on the internet industry, but rather is making the “inevitable move” to curb potential monopolistic behavior, contributing to the health of the sector.

Commenting on SAMR’s Monday fines on tech giants, Huachuang Securities analyst Jin Xiangyi wrote (in Chinese) that tech giants are bound to fall under the purview of China’s antitrust law and that it is beneficial for them to return to technological innovation, thus boosting the industry. 

Nevertheless, the merger and acquisition tactic that formed incumbents such as Didi Chuxing, online classifieds marketplace 58.com, and Meituan will meet with greater regulatory resistance, said Zhang. Tech giants may have to reverse merger deals that run afoul of the antitrust law, he said.

Cause for tech company concern

Both Zhang and Deng of Dentons agree that Chinese tech giants don’t have to worry about being broken up as they grow bigger. “There are no such provisions for breaking up monopolies in China’s antitrust law,” Deng said.

Monopolists may be forced to open up their platforms or share their data with rivals as a consequence for abusing dominance, but also as a method of remedy, according to Deng.

Antitrust lawsuits against or between tech giants will likely to see the impact of recent changes. In the past, similar lawsuits were usually mired in stalemates on technicalities like Zhang’s suit against Tencent, and court rulings were usually in favor of defendants. A suit between Tencent-backed e-commerce platform JD.com and Alibaba will enter a court hearing stage in Beijing, Chinese media reported in November, without mentioning a specific date. The case, in which JD.com alleges Alibaba abused its market-dominant position in forcing platform exclusivity, will likely provide a clearer picture of how the new rules and antitrust law amendment will be used in legal practices.

Pinduoduo unveils Duoduo Pay

Chinese e-commerce titan Pinduoduo on Thursday rolled out its own payment tool, Duoduo Pay, as it moves to close the service loop within its ecosystem for its 731 million users.

To activate the payment tool, Pinduoduo users have to register with their real names and then link a credit or debit card to their accounts. Duoduo Pay supports basic payment features such as account recharging and cash withdrawals. Its features are minimal compared with those offered by Alibaba’s Alipay and Tencent’s WeChat Pay.

Duoduo Pay is supported by Fufeitong, a Shanghai-based third-party payment service founded by the local Shanghai government to facilitate online payment of utility bills. Pinduoduo became a controlling shareholder after acquiring a 50.01% stake through a Shanghai-based subsidiary in January.

By luring users to its payment tool, Pinduoduo could both lower the cost for financial transactions—it paid RMB 516 million in 2019 to use Tencent’s WeChat Pay—and keep user payment information within its own system.

Payment is a crucial infrastructure service for Chinese tech giants that aim to keep users within its own service ecosystem. E-commerce giant JD.com, food delivery app Meituan, ride-hailing app Didi, and smartphone maker Xiaomi are all promoting their own payment options to attract users from WeChat Pay and Alipay. (36kr, in Chinese)

Community grocery e-commerce sizzles

Authorities in the eastern Chinese city of Nanjing rolled out on Dec. 9 a guideline targeting unfair competition and shadowy practices in the red-hot community grocery e-commerce sector.

• The watchdog warned tech firms to cease “dumping” products prices below cost, a practice platforms use to beat out competition. The authorities also prohibited the platforms from falsely advertising discounted prices and posting misleading product information.
• Management at top players including Alibaba, Meituan, Didi, Suning were summoned for a meeting, where they signed an agreement promising to comply with the rules. Competition between Chinese tech companies can turn cutthroat when battling for market share in an emerging sector, from ride-hailing to food delivery. (Jiemian, in Chinese)

JD.com poured a massive $700 million strategic investment into community grocery e-commerce platform Xingsheng Youxuan, the company announced on Friday. (Ebrun, in Chinese)

READ MORE: Covid-19, an opportunity for e-commerce

Pandemic a boost to China’s online retail

Growth in China’s online retail sales decelerated to 11.5 % year on year in the first 11 months of 2020 from 16.5% in the same period last year, according to data from China’s National Bureau of Statistics.

China’s online retail sales totaled RMB 10.54 trillion (around $1.61 trillion) in the same time period, according to the report. Sales during the period were 0.6% higher than those during the first 10 months, signaling a gradual recovery for the world’s second-largest economy.

More Chinese consumers shifted to online purchases during 2020, the report said, with online retail sales for physical goods accounting for 25% of total sales for retail consumer goods in the reporting period, up from 20.4% during the same period last year. (National Bureau of Statistics, in Chinese)

Chinese regulators imposed antitrust-related fines on three acquisition deals involving Alibaba, Tencent, and SF Express on Monday, in a sign of increasing concern about monopolistic behavior by internet giants.

Why it matters: The actions are fresh signs that Beijing is tightening its grip on internet firms, which once enjoyed a relatively lax regulatory environment. Officials have recently stepped up scrutiny on data security and content moderation. Regulators, meanwhile, have proposed stricter antitrust rules aimed at internet firms.

Details: The State Administration of Market Regulation (SAMR) said Monday it had decided to fine e-commerce giant Alibaba, Tencent-backed China Literature, and an SF Logistics-backed logistics firm for failing to report past acquisition deals properly to the regulator for antitrust reviews. Each is being fined about RMB 500,000 (around $76,410). It is not clear if regulators intend to pursue further action on these deals.

• Penalties for such behavior include reversing the deal or a fine of up to RMB 500,000, according to China’s Anti-Monopoly Law, which first took effect in 2008.
• The three deals involved were Alibaba’s 2017 acquisition of Intime, a retail firm; China Literature’s acquisition of New Classics Media, a television series studio, in 2018; and the acquisition of China Post Smart Logistics by Hive Box, a logistics firm backed by parcel giant SF Express.
• While the fines are trivial for companies involved, regulators warned that they plan to scrutinize more internet firms. “The internet industry is not a lawless domain for antitrust, and all companies should strictly comply with antitrust laws and rules,” a SAMR spokesperson said in a press conference (in Chinese) on Monday.
• Hive Box has said the company “sincerely accepts” the fine, according to local media. Both China Literature and Alibaba said they would “actively rectify and reform” to meet the regulator’s demands.

The next shoe to drop? SAMR said during the press conference that it is also looking into a merger agreement between gaming streaming platforms Huya and Douyu announced in October and planned to close in 2021. Both firms are backed by Tencent. 

• Huya said it had previously reported the merger deal to the SAMR and that the company would “give active cooperation to” the authorities (Links in Chinese).

Context: China has this year tightened antitrust oversights on internet firms. In November, SAMR proposed new rules that could pave the way for antitrust authorities to launch more such probes into internet firms.

• The new rules widened the reach of certain antitrust terms that previously only applied to the physical economy. One example was the definition of “relative market,” in which players may pose a “dominant position” if they control more than 50% of the market and thus fell under the jurisdiction of China’s Anti-Monopoly Law.
• Legal experts have long criticized the 2008 law because it was designed to regulate companies in traditional industries and in most cases did not apply to companies operating on the internet, an increasingly important segment of the country’s economy.
• The new rules expanded the parameters for determining market share to include factors such as transaction volume, user base, and page views.
• A draft revision of the Anti-Monopoly Law unveiled in January, also announced by SAMR, included similar provisions.

Read more: China’s antitrust law doesn’t seem to apply to internet giants

Facing eviction from an apartment managed by “second landlord” platform Danke Apartment, a young graduate jumped out of his 18th story apartment after setting it on fire in Guangzhou Dec. 3. 

The tragedy was only the latest fallout from the troubled second landlord industry. Numerous tenants of Danke Apartment flocked to social media in recent weeks to share their experiences of being evicted by landlords from their apartments. Some said that the locks of their rooms were changed and they couldn’t go back home after coming back from a business trip. Some said their water, electricity and gas were cut off. 

The crisis at Danke, fueled by mismanagement of small loans and a race for growth, is further spurring a conversation about financial risks associated with major tech platforms—one that’s recently had serious consequences for Ant Group’s IPO.

Thousands of landlords claim they haven’t received the rent from the company for months, while tenants insist that they have been making payments. Many Danke tenants borrow money to pay the platform a year’s rent in advance in return for discounted rates.

It’s not just landlords and tenants. On Nov. 10, hundreds protested at the company’s Beijing headquarters, including suppliers and maintenance workers. Similar protests have happened at Danke offices in different cities across China.

Danke, which means “eggshell” in Chinese, is a second landlord platform in China. Similar to Wework, second landlord platforms rent whole apartments on a long-term lease, then divide them into smaller units and furnish each one before subletting them. The company was listed on the New York Stock Exchange in January this year, becoming the second Chinese long-term rental player to list in the US. However, since its founding in 2015, Danke is yet to make a profit.

The company has relied on rental loans to fuel its growth. Under this model, Danke gets one year’s rent upfront directly from a partner bank, while tenants make monthly loan payments in lieu of paying rent. Meanwhile, Danke pays landlords on a quarterly or monthly basis, creating free cash for rapid expansion. But the loans model meant that when a platform runs out of money to make rent payments, tenants can face eviction while still owing money to a bank.

READ MORE: ‘Second landlord’ platforms get tenants in debt to fund growth

By March this year, Danke reported operating over 415,000 apartments in 13 cities. According to Danke’s financial reports, it recorded a net loss of $174.3 million in the first quarter this year, 51% wider compared to the same time a year earlier. In 2019, its annual net loss stood at $493.7 million.

We don’t know the exact number of tenants affected, but Danke partner Webank said Dec. 2 that about 40,000 evicted tenants have registered with them. On Dec. 4, Webank began allowing evicted tenants to assign responsibility for the debt to Danke, in a measure widely assumed to be a response to the Guangzhou suicide. 

 Anger at Danke

The suicide of the fresh graduate fueled people’s mounting anger towards Danke, many expressed sorrow and anger online. In a typical post, a Weibo commentator wrote: 

When will the government deal with this case? Those cheated are mostly poor young people who have just stepped out of the ivory tower. Danke operates [around] 500,000 apartments and serves more than 1 millions tenants around major cities in China, it’s a big issue relating to people’s life. It’s now in a crisis, but no one deals with it—so disappointing.

Danke’s flawed business model has also been condemned by establishment voices:

More evilly, this business model transferred its potential risk from the apartment operator to the landlord and tenants. The company took the profits while leaving the risks for financial institutions or even the whole society.

— Caixin editor Zhang Hong, in a Dec. 2 podcast.

Who’s to blame?

But other voices argue that the model isn’t all bad. Business outlet Latepost argued that the second landlord model is a good idea brought down by risky finance:

An investigation into Danke crisis: in this game of chance, the whole society pays

Latepost
Nov. 27, 2020

The business of long-term apartment rental is not irrational: It has real demand. The “floating population” accounts for nearly 20% of the whole population of China. When renting a house, the quality of its decorations cannot be guaranteed, and disputes always happen when a tenant checks out. 

However, long-term apartment operators can change this situation. They improve living experience with standardized decoration and use technology to match supply and demand efficiently. Tenants can find their ideal apartments more easily, while property owners can rent out their houses more quickly. It’s a win-win strategy. 

 …

But when startups go with the flow of the internet industry and focus on unrestrained expansion, risks will build up quickly. As the industry deliberately pushes tenants to take out rental loans in order to take advantage of the time gap to fuel its expansion, the main risk bearers will no longer be the startups and venture capital investors. 

…

If the company fails, founders and investors take the risks of entrepreneurship; but property owners’ rent will also be delayed; tenants may be evicted while still having to pay the loans; suppliers bear the debts and workers cannot receive their wages. 

Now everything is in a mess.

…

No matter how this farce ends, one truth cannot be hidden: business growth relying merely on debt increase will inevitably accumulate risk. Leverage can multiply gains, but also intensify loss. They will not disappear into thin air. 

Webank, an online bank owned by Tencent, also found itself at the center of the crisis.  As Danke’s rental loan partner, Webank helped fund Danke’s wild expansion and allowed Danke to get away with loaning more than 30% of the rent to its tenants, which is the upper limit set by the government.

Several state media outlets blamed internet financial institutions like Webank for lax enforcement of lending rules—such as this article in the state-owned Economic Daily, later deleted.

Regulation of rental loans should be strengthened

Economic Daily
Dec. 2, 2020

The government has required companies to open a custodial account to manage rent and deposits. If related rules were implemented strictly, the money would not be appropriated. Of course, it’s difficult to to count on banks to enforce this rule, so the relevant authorities should take the lead to strengthen oversight of rental loans.

If the company is paying rent monthly, the article recommended, the bank should issue the loans month by month.

According to the rule, if tenants paid rent monthly, then Webank should not pay Danke the whole year’s rent at one time. Traditional banks would have to evaluate every month when they lend; the whole process is complicated. But online banks can innovate payment methods, simplifying operations and allowing rental loans to be granted and repaid on a monthly basis.

A broader moral?

Another piece from Guangming Wang, a state media website, drew a broader lesson from this crisis. 

The broken “eggshell” (Danke) shows the embarrassment of the regulatory environment

Guangming Wang
Dec. 2, 2020

The crisis, the article wrote, was the inevitable result of a new business model under an old regulatory system. It also tied this crisis to the failure of P2P lending—a disastrous case of under-regulation that’s remembered as the original sin of Chinese tech regulation—stating that “the improvement and innovation of related systems have reached a critical point.”

“To solve this kind of problems, we should seize the momentum, accelerate reform and innovation of related systems, enhance effectiveness in the operation of the systems, so as to boost the development of new business and new models,” the article read. 

Guangming Wang wasn’t alone in connecting the dots between high-profile failures of star Chinese tech companies.

An article from Digital People TMT, a website belonging to the People’s Daily group, compared Danke to three other failed Chinese companies—LeEco, Ofo, and Luckin Coffee—all of which relied on immense funding for “blitzscaling” growth before flaming out. But what the article has to say about small loans could be most relevant as regulators consider a new approach to fintech firms like Ant Group.

From LeEco to Ofo, from Luckin to Danke, it’s time for an era to end

Digital People TMT
Nov. 25, 2020

This is an era when the virtual economy has misled the real economy… 

If Danke really wants to protect young people like an eggshell, it should have a business model that respects its users, instead of trapping them into debts and leaving them homeless.

…

This is an era when financial tools and leverage prevail. Because the real economy is being bullied by the virtual economy, whether it is for survival or “exponential growth” businesses have to rely more on financial and leverage tools, which leads to “novel financial services” permeating these so-called “new economy” enterprises, fueling their growth while hollowing them out.

…

Chinese internet companies’ fascination with finance is increasingly a widespread syndrome– from top giants to unicorns, all want to get involved in making small cash loans… When the systematic financial risks caused by this twisted growth mentality penetrates every aspect of our life through so-called “innovative enterprises,” it’s everybody’s problem.

…

It’s time for this era to end.

Chinese tech giant Tencent continues its gradual push into e-commerce with new search and marketing features aimed at helping brands reach consumers on its giant messaging app, Wechat.

New Wechat features for marketers

Tencent is developing a new feature lineup to help narrow the distance between marketers and consumers, according to George Xie, head of consumer packaged goods planning for Tencent marketing solutions, at the Luxury Society Keynote Shanghai 2020 Summit on Thursday. Following Tencent’s acquisition of Chinese search engine Sougou, the search feature previously only accessible Wechat’s Discovery tab has been prominently placed within chat windows. In addition to in-app search, the firm released in mid-November a hashtag feature, which redirects users either from a chat window or a Wechat Moment post to the hashtagged topic for more information. Hashtags can refer to content in Wechat “Channels,” a short video feature that began testing livestream functions in October.

Wechat already offered a set of services for online marketing and sales. Wechat official accounts help brands push promotions and advertising campaigns while engaging with users. Mini programs allow content, often from official accounts, to link directly to a checkout page, and consumers can use Wechat Pay to make purchases without leaving the app.

Social DNA

Long seen a promising platform for e-commerce, Wechat’s massive monthly active user base of 1.2 billion has lured online marketers into using the app as a social touchpoint for advertising and promotions. Tencent is aiming to close the entire e-commerce loop on the app, to build out capabilities so it can offer brands a place to acquire, interact, and engage with users who then make purchases.

Wechat’s “social DNA” is a competitive edge for the company’s e-commerce push because “whenever there’s less re-direction [in the consumer purchasing process], there’s higher conversion,” Xie said.

Discovery and engagement is more natural when the user journey starts with content shared by friends or come from the brand’s officially registered Wechat mini-program stores, Xie added. References from friends or promotions from authorized stores are reassuring for Chinese consumers, who are very conscious of product quality and authenticity, he said.

READ MORE: Why Wechat mini-programs are the cutting edge of e-commerce

Tencent’s annual report showed that gross merchandise volume (GMV) booked through Wechat mini-programs surged to RMB 800 billion in 2019, making it the fourth largest online platform in terms of GMV, following Alibaba, Pinduoduo, and JD.com. GMV for sales placed through Wechat surged 210% year on year in the first eight months of this year, Xie said.

Retail sales via social commerce in China has significant growth potential, according to data from market intelligence firm Emarketer. Sales in the segment are expected to reach $242.41 billion this year and nearly double to $474.81 billion by 2023. Retail sales via social apps account for 11.6% of total commerce sales in 2020 and is expected to reach 14.2% by 2023.

The decade plan

Tencent, while a giant in the social and gaming sectors, has struggled to gain a foothold in e-commerce. Unsuccessful e-commerce ventures included Paipai and Yixun before the company retreated to merely holding equity in JD.com and Pinduoduo.

Wechat is spearheading Tencent’s e-commerce ambitions, but the company is wary of damaging user experience. Market watchers meanwhile have complained (in Chinese) about the company’s slow progress in e-commerce.

For Tencent’s e-commerce initiative to succeed requires a major change in consumer shopping habits. A majority of online shopping traffic still goes to platforms like Alibaba’s Tmall because “Chinese consumers have their habits to search and do their e-commerce purchases there,” Kim Leitzes, chief executive officer of marketing platform Parklu, told TechNode.

However, Wechat stores could work as an e-commerce option that provides a differentiated shopping experience or products for brands, she added.

Wechat Work for CRM

Enterprise communication app Wechat Work now has 250 million registered users as more and more brands use the app for customer relationship management (CRM), Xie said. Wechat Work allows brands and their sales associates to manage customer relationships in a decentralized fashion by creating and engaging with their private customer pool. At the same time, consumers using Wechat Work can be connected to the company’s CRM databases, allowing brands to retain a direct connection with customers without the need for a sales rep intermediary. The app also offers digital data analytics tools to help brands better allocate their resources.

READ MORE: WeChat Work will disrupt social selling

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

This week, Michael Norris is back for his regular earnings check-in, as the guys go over the calls from Bilibili, Pinduoduo, and Tencent, including Bilibili’s formula for success, and the increasingly intense debate between Pinduoduo’s longs and shorts.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Luckin Coffee

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

India expands China ban

Border tensions have escalated to a broader tech war—India blocked another 43 Chinese apps on Tuesday, expanding the total number to more than 200. Alibaba’s global marketplace Aliexpress and livestreaming platform Taobao Live as well as several other dating and gaming platforms were added to the blacklist, joining a lengthy roster that already include some of China’s biggest apps such as Wechat, Tiktok, Weibo, and Alipay. Similar to earlier bans targeting Chinese apps, the government cited national security as the reason for the move. (Bloomberg)

IPOs and acquisitions

• JD Logistics, the logistics unit of Chinese online retailer JD.com, is looking to raise $5 billion in its IPO, a figure that would value the company at $40 billion. The valuation is much higher than its reportedly $30 billion valuation from late 2019. The public offering could come in 2021 and JD is choosing between Hong Kong and the US for the listing, according to a source cited in the IFR report. The JD affiliate operated approximately 750 warehouses that covered an aggregate gross floor area of over 18 million square meters, according to an internal letter (in Chinese) written in August by JD Logistics CEO, Wang Zhenhui. (IFR)
• JD Health, the healthcare arm of JD.com, is looking to raise $4 billion in Hong Kong’s largest listing of this year, potentially valuing the company at $29 billion. The offering is scheduled for Dec. 8, local media reported. The deal has attracted cornerstone investors including Hillhouse Capital Group, Singapore sovereign wealth fund GIC, and several long-term funds, according to Hong Kong-based media. (Reuters)
• Yatsen Holding, parent company of Chinese online cosmetics brand Perfect Diary, raised $617 million in its New York debut on Nov. 19, selling 59 million American Depositary Shares for $10.5 apiece. The four-year-old firm said the proceeds will be used for company operations, strategic investments and acquisitions, product and technology development, and offline expansion. (Beijing News, in Chinese)
• Bluecity, the Nasdaq-listed parent of China’s largest gay dating app Blued, has fully acquired local rival Finka for RMB 240 million ($36.4 million). The acquisition comes three months after Bluecity acquired China’s lesbian social networking app Lesdo. (Bluecity)

Regulating livestreams

• China’s National Radio and Television Administration rolled out on Monday a new rule that requires hosts and audiences of live-streaming platforms to register using their real names in a move to tighten control over China’s flourishing livestream market. The rule also banned teenagers from sending virtual gifts after several teenagers bankrupted their parents by tipping livestream hosts tens of thousands of yuan. The move could significantly impact revenue for companies including Kuaishou, Huya, Douyin, and YY Live. (Nikkei)
• US short seller Muddy Waters said revenue from livestreams for China-focused platform YY Live is “around 90% fraudulent” in a 71-page report released Nov. 18.  The report said the company’s international livestream platform Bigo could also be inflating figures. The report followed shortly after Baidu announced its plan to acquire YY Live.(Muddy Waters)

READ MORE: US-listed Chinese firms are on thin ice

China tech’s dark side

• Tencent-backed online recruiting app Boss Zhipin drew public ire this week after local media reported that employers are using the platform for recruiting prostitutes. The company denied the claim, saying that it has rigid rules in place to control job postings and block accounts once sensitive words are detected. The company was criticized in 2017 for failing to screen jobs involving a pyramid scheme, which reportedly lead to the death of a 21-year-old university graduate. (Beijing News, in Chinese)
• Shi Miao, formerly vice president of Cainiao Logistics, was arrested in September, accused of receiving improper payments of several million yuan, according to an internal announcement made public last week. Shi, who began working at Cainiao in 2016, resigned from his roles at Cainiao in June. (Late Post, in Chinese)

China’s market regulator on Tuesday proposed new rules targeting anticompetitive behavior to include internet companies, which have largely fallen outside of the scope of existing antitrust laws.

What’s changed: The new rules widened the reach of certain antitrust terms that previously only applied to the physical economy. One example was the definition of “relative market,” in which players may pose a “dominant position” if they control more than 50% of the market and thus fell under the jurisdiction of China’s Anti-monopoly Law. The law came into effect in 2008. 

• Legal experts have long criticized (in Chinese) the law because it was designed to regulate companies in traditional industries and in most cases did not apply to companies operating on the internet, an increasingly important segment of the country’s economy.
• The new rules expanded the parameters for determining market share to include factors such as transaction volume, user base, and page views.
• The rules will subject some of China’s biggest internet companies, such as e-commerce behemoth Alibaba, social media giant Tencent, food delivery platform Meituan, and ride-hailing app Didi Chuxing, to tougher regulations. China earlier this month halted an initial public offering for fintech giant Ant Group over regulatory concerns.
• The draft (in Chinese), which is under public review until the end of November, also requires the consideration of factors such as network effect as well as market players’ scale and ability to deal with data. A draft revision of the Anti-monopoly Law unveiled in January, announced by China’s State Administration for Market Regulation (SAMR), included similar provisions. The SAMR also drafted the rules announced on Tuesday.
• The draft guidelines say that companies which force merchants to “choose one of two” online marketplaces on which to sell their products are engaging in anti-competitive behavior.
• Platforms that price their products or services differently according to customer purchasing power, consumption history, or user preference is monopolistic behavior, according to the draft rules.

READ MORE: China’s antitrust law doesn’t seem to apply to internet giants

Tech shares tumble: Share prices for Chinese tech companies tumbled Tuesday and Wednesday on news of the guidelines. Companies including Alibaba, Tencent, and Meituan saw their share prices dive at least 8% over the two days. The Hang Seng Tech Index in Hong Kong, where many Chinese tech stocks list, fell by more than 5% on Tuesday.

• Bloomberg estimated that the shares slump wiped out more than $200 billion of value from Chinese tech companies.

Context: Before China’s top antitrust regulator proposed revisions to the antitrust law in January and the draft rules on Tuesday, the SAMR was already working to curb potential antitrust violations from internet companies.

• The agency launched in January 2019 what is known as China’s first “internet antitrust investigation” into Tencent Music Entertainment’s dealings with the world’s three largest record labels after rivals complained that Tencent paid excessive fees for the initial rights and then passed those costs along to competitors.
• However, the SAMR decided to suspend the probe in January, according to Bloomberg. The regulator didn’t disclose how far the investigation went and why it was terminated, but it came after Tencent Music reached a music licensing deal with Bytedance, a Beijing-based startup that runs Tiktok, in late 2019.

Chinese video-sharing app Kuaishou filed Thursday a prospectus to the Hong Kong stock exchange, paving the way for a listing in the city.

Why it matters: The Beijing-based platform, backed by Chinese internet giant Tencent, is the second most popular short-video app in the country, trailing Bytedance’s Douyin, the domestic version of global hit Tiktok.

• Kuaishou also faces fierce competition in the saturated short video market from new entrants and entertainment incumbents including Nasdaq-listed Bilibili. Kuaishou is known to be popular among users living in China’s lower-tier cities and rural areas.
• China’s online entertainment industry is heavily regulated. Kuaishou said in the prospectus filed with the Hong Kong exchange on Thursday that it may “lose licenses we need to operate our business and suffer reputational harm” if it failed to comply with China’s laws and regulations regarding content moderation.

The prospectus: The preliminary prospectus to the Hong Kong bourse did not specify a timetable or size for the offering. However, it was the first disclosure of Kuaishou’s key financial details.

• Kuaishou’s revenue for the first six months grew by nearly 48.3% year on year to RMB 25.3 billion (around $3.8 billion), according to the filing.
• The company booked RMB 39.1 billion in revenue in 2019, and RMB 20.3 billion in 2018.
• Kuaishou recorded positive annual adjusted net profits from 2017 to 2019. However, it booked an adjusted net loss of RMB 6.3 billion in the first half of this year.
• “The time it will take for us to achieve profitability hinges on our ability to effectively monetize our product and service offerings and continuously grow revenues in a cost-effective way, which we may not successfully achieve,” it said.
• Kuaishou products, including its short video apps and mini programs running on Tencent’s Wechat, amassed a total of 302 million daily active users as of June 30 with users spending over 85 minutes on average on its platforms, according to the prospectus.
• Livestreaming is a major source of Kuaishou’s revenue. The business generated RMB 17.3 billion in revenue in the first six months of 2020, accounting for 68.5% of the company’s total revenue in the same period. The company said its live-streaming business had experienced “significant growth” in recent years, but warned that growth may slow, citing a decline in user demand.
• Kuaishou’s revenue structure has been diversified in the past few years. Revenue generated from livestreaming accounted for more than 90% of its total revenue in 2018. In the first half, the company generated 28.3% of its total revenue from online marketing services.

Context: Reuters reported in September that Kuaishou aimed to raise up to $5 billion in the Hong Kong listing, citing people with direct knowledge of the matter. The company planned to list in January, according to the report.

• Founded in 2011, Kuaishou has received investment from both Tencent and Baidu, two of China’s biggest tech companies. Su Hua, Kuaishou’s co-founder and chief executive officer, used to work for Google and Baidu.

From app bans in the US and India to the Chinese government’s increased push for self-reliance in cutting-edge technologies, 2020 has been a rollercoaster year for China tech. How has China’s VC industry been faring? Last week, TechNode held its Emerge 2020 conference in Shanghai. On the sidelines of the event, we chatted with William Bao Bean, an experienced venture capital investor who has been active in China since 2007.

Bean is a general partner at investment firm SOSV. SOSV runs Chinaccelerator, a startup accelerator based in Shanghai.

We took the opportunity for an interview. We’ve printed it in full below, edited for brevity and clarity.

TechNode: What are the new trends that you see in China’s VC market this year?

William Bao Bean: There are two major trends. First is enterprise B2B (business to business), where AI is becoming more important. Traditionally, large Chinese companies did not want to pay for their software, but now, one of the biggest applications of AI is personalization. For example, it can be used to tailor the messaging and advertising you see on an e-commerce site to each consumer’s preference. It’s very difficult for startups and other companies to build their own AI systems, because AI scientists are quite expensive to hire, and the big guys like Alibaba, Tencent, and Baidu basically hired most of the experts. So there’s actual demand for AI services from companies who want to remain competitive. Since the only way to remain competitive is personalization, companies are willing to actually pay to bring in AI solutions. 

Second, there’s a huge amount of investment happening around government policy. The Chinese government is really supporting investments in semiconductors, telecoms equipment, and a lot of hardcore traditional technology. Previously, you saw Chinese companies developing their own solutions. But because of the US-China tech decoupling and the difficulty in sourcing international semiconductors, telecoms equipment, and even manufacturing equipment, you’re seeing massive investment in these areas in China. It is a huge opportunity for local companies, and a very big opportunity for Chinese investors. 

TN: Do you think putting in more money will help China catch up with the world’s leading players in semiconductors?

WBB: China’s semiconductor industry is behind. But when you dump money on a problem, generally, you get a solution faster. I still think China is still four to seven years behind, but a huge amount of capital is flowing into the industry, so I think you will see the technology innovation gap narrowing. Often in China, when you have big government backing, there’s a huge amount of opportunity in that space—we’re seeing a huge amount of activity there. 

TN: What are the impacts of recent US-China tensions? Are China-based VC firms having a hard time raising money from the US?

WBB: Not so far. In China, VC firms have raised a lot of money from US investors. Now, we don’t know whether future funds will have difficulty raising money from those same limited partners (LPs). A friend of mine just closed a new $200 million fund from big traditional US LPs, and he is focused just on deep tech in China. He successfully closed last month in the middle of the Covid-19 pandemic. So far, the early data that we see is that it’s not having an impact. Investors are after returns, they don’t care about politics.

TN: We have seen many Chinese tech companies delist from US stock exchanges and more companies choosing to dual-list their shares in Hong Kong this year. What do you think these trends mean to tech investment in China?

WBB: 2020 has been a record year for Chinese companies listing in the US. When startups are getting bigger, they go where the capital is. It’s still the case that the US is where the higher valuations and the big capital willing to invest in technology can be found. 

In China, tech companies that list face a lot of restrictions. For example, they generally need to be profitable. Most technology companies are not profitable for three years —they grow fast and they’re investing money in the future. The restrictions on listing also make it very difficult for Chinese companies to tap global capital markets, so they choose to go abroad. The second thing is that the international appetite for technology investments is much higher than in China. In China, you have a huge interest in consumer-facing companies, but not so much interest in hardcore technology. And so those two issues combine to drive continued interest in an overseas listing. 

TN: Shanghai’s STAR Market doesn’t require companies to be profitable to list. How do you think this change in listing rules has impacted investment in China? Do you see increasing competition from RMB funds against US funds?

WBB: Startups just go where the capital goes. Many US dollar funds also have RMB funds. If you’re doing something on the consumer side, RMB funds make sense. RMB investors like investing in Chinese consumer-facing players—products that they can see and feel. For some companies that are not profitable, or require huge amounts of money, and have historically raised US dollars, they have to go the international path. Sometimes you move the company from offshore to onshore, or from offshore to onshore based on where the money is. It’s just a pure market effect. One is not competing against the other. It’s just what makes sense for the company to get the best value to be able to raise the money and then to exit.

Big deals

One of the biggest investments in China’s tech sector in the third quarter went to Yuanfudao, an online education firm. On Oct. 21, the company raised $1.2 billion from investors including DST Global, CITIC PE, and Temasek, valuing it at $15.5 billion.

Ted Mo Chen, a Beijing-based edtech entrepreneur, wrote in a column published on TechNode last month that the Covid-19 pandemic ignited a “unicorns take all” game in China’s online education market—and edtech startups have attracted big checks from investors.

Here are some of the biggest deals in China tech in the third quarter.

• July 23: Meiri Youxian, a grocery delivery startup, raised $495 million from investors including CICC Capital and Tencent, valuing the company at $5 billion.
• Aug. 5: Yipin Shengxian, a grocery delivery company, raised RMB 2.5 billion ($374 million) from Tencent and Capital Today with a valuation of RMB 15 billion.
• Aug. 18: JD Health, the healthcare unit of e-commerce giant JD.com, raised $830 million from Hillhouse Capital with a valuation of $30 billion. 
• Sept. 22: Electric vehicle maker VM Motor raised a RMB 10 billion (around $1.5 billion) Series D from investors including state-backed SAIC Capital, Baidu, and SIG China, hitting a valuation of RMB 35 billion.
• Oct. 21: Edtech company Yuanfudao raised $1.2 billion from investors including DST Global, CITIC PE, and Temasek, valuing it at $15.5 billion.

For the past ten years, some of China’s biggest companies have divided the country’s tech industry. Now, they’re fighting proxy wars in the emerging markets of Southeast Asia and India, battling it out for a share of the regions’ digital real estate. 

“These investments are building the muscles for a world-class clash of titans—with the big guys competing head to head and local players serving as proxies for the foreign giants,” consultancy Bain & Company said in a report describing the scramble for market share in Southeast Asia.

China’s tech giants are known as jealous backers. When Chinese startups take money from a tech major, they’re often committing to a side and its associated ecosystem. That’s why Tencent invested in Pinduoduo—the e-commerce company’s business model is based on users getting their Wechat contacts to buy items with them.

How much do these proxy wars spill over into Chinese tech giants’ new stomping grounds—Southeast Asia and India? I wanted to know, so over the past few weeks I’ve scraped, cross-referenced, and analyzed public data to map just how divided the digital landscape is in India and Southeast Asia. Here’s what I found:

• Chinese tech majors including Tencent, Alibaba, and Xiaomi have ploughed more than $26 billion into startups in the Southeast Asia and India regions. 
• Very few of the startups have investment from the same Chinese tech giant, dividing the young companies into camps depending on where they received their funding.
• The battleground is predominantly focused on fintech and e-commerce.
• In Southeast Asia, Alibaba, Ant Group, and Tencent have made the biggest fintech investments. Meanwhile, Alibaba and Tencent lead in e-commerce funding in both Southeast Asia and India. 
• Also, in India, Tencent, and Xiaomi have participated in rounds worth more than $2 billion to fund mobility companies. 

In the past five years, companies including social media and gaming giant Tencent, e-commerce firm Alibaba and its fintech affiliate Ant Group, search company Baidu, and smartphone maker Xiaomi have participated in 89 funding rounds totalling nearly $26 billion for Indian and Southeast Asian startups. 

Simultaneously, Chinese investment has shifted away from startups in the US to those in Southeast Asia and India as a result of rising US-China geopolitical tensions.

Funding round totals
Corporate giants jealously guard information about their investments in order to avoid tipping off their rivals. As a result, our data includes the total value of each funding round—a figure that includes contributions from other investors. While the data is incomplete, it still functions as a proxy for undisclosed numbers, and allows us to gauge Chinese tech giants’ stakes in various industries and regions.  

Battle for fintech supremacy

Southeast Asia and India’s underbanked population are driving a fintech boom. 

Underbanked people typically don’t have sufficient access to commercial banking services. But with the advent of digital wallets in the region, they’re able to hail a ride, buy online, and order food for delivery. The higher availability of these platforms then stimulates a need for more fintech services. 

According to Bain & Company, digital payments in Southeast Asia have reached an “inflection point,” with transactions expected to reach $1 trillion by 2025. 

Chinese tech majors don’t want to miss out. While Tencent and Alibaba operate their own digital payment platforms in several countries around Southeast Asia, the two companies have backed more than a dozen digital payment platforms in the region and India. 

These companies collectively account for around 150 million users in Southeast Asia, according to a report by Dealstreetasia. Meanwhile, in India, that number reached more than 350 million in 2019. 

Tencent and Alibaba are each recruiting their own team. No fintech startup in the two regions has been backed by both companies.

We don’t know exactly how much Alibaba and Ant invested into e-wallets—of these investments, most were either for undisclosed amounts or into large conglomerates whose e-wallets are not the whole show. The one disclosed e-wallet investment, into Myanmar’s Wave Money, was for $73.5 million. 

Alibaba has backed companies that are focused solely on digital payments, including WaveMoney and Thailand-based Truemoney, as well as large conglomerates that offer payment services among others, including e-commerce giant Lazada and internet service platform Grab. In India, the two Chinese giants have invested in digital payments platform Paytm. 

Tencent has taken a different approach. The company hasn’t invested in any e-wallet-first companies, but has taken stakes in several large firms that, like Wechat, offer wallets. 

Tencent has taken parts in rounds for Southeast Asia and Indian companies that total $9.4 billion. These companies include Sea Limited, which operates Airpay and Shopeepay; Gojek and its Gopay system in Southeast Asia; as well as Swiggy Wallet and Ola Wallet in India. 

Online services

E-wallets are being used for services ranging from ride-hailing to food delivery to e-commerce. 

In Malaysia, the government is incentivizing use of digital payments by offering MYR 450 million ($108 million) initiative, giving MYR 30 to all Malaysians older than 18 who earn less than MYR 8,333 a month. The incentive can be claimed using a variety of e-wallets, including Grabpay. 

Like the e-wallets, Chinese tech majors are divvying up these digital commerce platforms. 

E-commerce is one major battleground. China’s tech giants have divided up their Southeast Asian counterparts. On the Tencent-affiliated side, we have Singapore-based Sea Limited—a behemoth covering e-commerce, payments, and gaming. On Alibaba’s side, we have Lazada, a Singapore headquartered e-commerce company the Chinese giant acquired in 2016 for $1 billion. 

The same is true in India, where the two companies have bifurcated the country’s e-commerce and food delivery sectors. While Alibaba backed food delivery startup Zomato. Tencent funded Swiggy. While Alibaba backed Bigbasket, Tencent funded Flipkart.

Earlier this year, Zomato was reportedly in talks with Bigbasket to offer groceries on its food delivery platform. Both companies are backed by Alibaba. 

Tencent and Alibaba have participated in rounds for e-commerce companies in the region worth a total of $12.8 billion. This total includes some investments we have already counted above as digital payments digital payments. 

Meanwhile, Chinese lifestyle services giant Tencent-backed Meituan, a far less active international investor than either Alibaba and Tencent, has also backed Swiggy.

Chinese tech firms are not only competing among each other, but also with their US counterparts, including Amazon, Facebook, and Google. 

Ride-hailing boom

With a combined urban population of around 800 million people, getting people from one place to another has become ever more important. Ride-hailing platforms have stepped in to fill this gap. 

Several Chinese tech firms have funded mobility startups in Southeast Asia and India, but there is less of a clear cut divide. Southeast Asia’s two biggest mobility companies, Grab and Gojek, compete head-to-head in Indonesia, Vietnam, Singapore, and Thailand. These two firms also offer a host of other services, including food delivery and payments.

What happens when new giants with connections to Tencent and Alibaba enter the field? Well, it depends: Meituan, backed by Tencent, has joined the older company in backing Gojek and Swiggy. 

Didi is a boundary-crosser—it was formed by a merger between Tencent- and Alibaba-backed ride-hailing firms—but has integrated with the Tencent ecosystem. However, it joined with Alibaba to back Grab.

Gojek has raised $4.8 billion from funding rounds in which Tencent and Meituan took part, while details of Alibaba’s 2018 investment in Grab were not disclosed. Now, Alibaba is reportedly looking to invest $3 billion in the Southeast Asian mobility firm. Chinese ride-hailing giant Didi took part in two of Grab’s funding rounds, worth $2.9 billion. 

In India, Xiaomi and Tencent are dividing up the country’s ride-hailing market. In 2017, Tencent invested in Ola Cabs as part of a $2 billion funding round. Then, earlier this year, Xiaomi backed Oye! Rickshaw—a company that provides last-mile electric rickshaw rides—as part of the company’s $10 million Series A. 

Chinese companies may have a harder time investing in India startups in the future. Indian officials this year launched an offensive banning more than 100 apps operated by Chinese companies and increasing scrutiny of investments from neighboring countries. 

What’s next

For China’s tech giants, Southeast Asia is an important market, and they’re in it for the long haul. Several companies have announced plans to bolster their presence in the region over the next new months. 

Tencent said in September that it had opened a new office in Singapore in an effort to boost its business in the region. Meanwhile, Bytedance reportedly plans to invest billions of dollars and recruit hundreds of employees in Singapore in the next few years. A source told CNBC that Bytedance had already begun moving engineers to the city, with previous reports claim the company aims to set up a data center to back up US data. 

The investment war between China’s biggest tech firms will likely only intensify as companies double down on the region’s burgeoning digital economy. But they won’t just be competing among each other. 

US tech giants are shown interest in investing in the same companies Alibaba and Tencent already have stakes. In 2018, Microsoft invested in Grab. Meanwhile, Amazon may be zeroing in on Gojek and Google is reportedly taking part in a $350 round for Indonesian e-commerce firm Tokopedia—one of Alibaba’s portfolio companies. 

The future battle for Southeast Asia may not be between Chinese tech giants, but US companies and their Chinese counterparts.

China’s Cyberspace Administration has cracked down on eight mobile browsers, ordering them to stamp out clickbait and misinformation.

Why it matters: By targeting the largest platforms, the authorities are sending out a signal to other smaller browsers that they may be next in line. Platforms that do not change their practices likely face suspensions or bans. 

Details: The order affects Alibaba-backed UC, Tencent’s QQ, Huawei, Qihoo’s 360, Tencent-backed Sogou, Xiaomi, Vivo, and OPPO.

• The announcement says (in Chinese) that browsers have spread “chaos” by amplifying unofficial media sources and disseminating news that violates regulations. 
• It criticizes browsers for editorializing articles to misrepresent policies that impact people’s livelihoods and spreading rumors.
• It also singles out problems like creating clickbait through exaggeration, sadfishing, or smearing. On QQ’s homepage on Oct. 27, for instance, one top post was “No hope! Western media: No saving Huawei.”
• Also under fire is information that is vulgar, graphic, or gossipy and against “socialist core values.”
• Browsers must submit plans on how they will rectify their practices and conduct self-scrutiny by Oct. 28. They will also have to submit reports on the results of these assessments and their content operation system specifications by Nov. 9.
• Huawei and QQ have already issued statements promising to clear up their browsers of questionable content. 

Context: Unlike the US where services are protected from liability for content published on their platforms, China holds companies accountable for content that appears on their home pages. Mobile web browsers wield distinct power: 872 million people in China access the internet through their mobile phones, and browser home pages have become key to their news-reading habits. 

There’s just one thing wrong with this story—Douyin and Kuaishou aren’t really short video apps anymore.

Douyin supports videos anywhere between 15-seconds and 15 minutes, livestream content that may stretch over an hour, as well as mini-games. Kuaishou’s in the same boat, with a vibrant video game streaming scene to boot. The label “short video platform” has outlived its usefulness. 

Let’s take a quick look at why the term “short video platform” is less helpful than before and why it matters.  

What’s wrong with calling them ‘short video platforms’?

When short video apps first rose to prominence in 2013, they really were about short video. The Chinese term duanshipin (“short video”) was used to highlight the difference between an emergent content format (snackable video) and an established content format (tv-style streamed programming).

“Short video” wasn’t meant to stick around. It’s the type of term that should have gone away once everyone got the memo that online video doesn’t have to be a mobile-friendly version of 21- or 42-minute made-for-television programming.

However, the term persisted.

The term was easier to understand than alternatives, such as the alphabet soup of UGC, PGC, and PUGC (User Generated Content, Professionally-Generated Content, and Professional User Generated Content—don’t ask). Further, “short video” was easier to build a working, commonly-accepted definition around, becoming the default nomenclature for video content anywhere under five minutes.  

Without question, Douyin and Kuaishou are the most successful platforms built on short video content. Both boast eye-popping numbers of daily active users and increasing impressive shares of users’ internet time.

Note: The Douyin figure in the table above is a total for all mainland apps belonging to parent company Bytedance. Douyin is Bytedance’s most popular app. 

However, in 2019, these platforms started supporting different content types. Today, short video remains a platform staple, but it’s far from the only type of video available on Douyin and Kuaishou. A report released by Kuaishou earlier this year illustrates this nicely. 

Kuaishou has 300 million daily active users, of which 170 million watch livestream and 100 users engage in livestream e-commerce each day. (That, by the way, makes Kuaishou China’s fourth-largest e-commerce platform.) As Kuaishou further broadens its capabilities in e-commerce and cloud gaming (in Chinese), the range of on-platform activity will become even more diverse.

Given this range of activity, it’s no longer accurate to call Douyin and Kuaishou “short-video platforms.” 

Why does it even matter?

It might seem a little academic to object to the term as a catch-all for Douyin and Kuaishou. 

However, as these companies prepare to go public, names matter. 

Kuaishou is reported to be considering a $5 billion IPO next year. Bytedance, as part of its judo-wrestling match with the Trump Administration, may IPO TikTok, Douyin’s overseas cousin. Getting frames of reference right is an important part of each company’s dance with public markets. 

That’s because company valuation is an interplay between stories and numbers: Every number that makes up a valuation has a story behind it, just as every story about a company has a number attached to it. Terms like “short video” straitjacket stories these companies can weave and narrow potential investors’ appreciation of what Douyin and Kuaishou really are. The onus is on Douyin and Kuaishou to develop and field-test nomenclature that conveys their platforms’ depth, content diversity, and what they might offer in the future. 

Bilibili sets an instructive example. In its investor overview, it states “[W]e have evolved from a content community inspired by anime, comics and games (ACG) into a full-spectrum online entertainment world, covering a wide array of genres and media formats, including videos, live broadcasting, and mobile games.” That’s the sort of framing required to fight mischaracterizations like “the closest thing China has to Youtube.”

What would be a better name? “Online entertainment world” is a little too Rick and Morty for my taste. I’d stay away from hackneyed riffs on “super-app” and go with “entertainment hub,” encompassing video, gaming, and, increasingly e-commerce. 

Whichever way Douyin and Kuaishou decide to frame themselves, you can be sure they’ll steer clear from the term “short video platform.” Kuaishou, probably first in line to IPO, already calls itself a “platform.” That’s apt. The only reference to short video in the company’s online introduction is in the company timeline (Chinese). That highlights the degree the term “short video” is a relic. It’s outlived its usefulness, and sells these rich, diverse entertainment platforms short.     

Golden Week shines

• Chinese tourists took 637 million domestic trips during the eight-day Golden Week, generating revenue of RMB 466.6 billion ($69.7 billion), according to data from the Ministry of Culture and Tourism. However, China’s battered travel market still has a long road to recovery. This year’s number of domestic trips was around 80% of last year’s figure, even with the additional day, while revenue was 70% of last year’s RMB 650 billion. Trip.com, China’s largest online travel platform, trumpeted lackluster wins to offset the downturn in its lucrative international travel business. (TechNode)
• China recorded RMB 3.7 billion of box office revenue from October 1 to 7, second only to last year’s RMB 4.5 billion during the same period, according to data from the National Film Special Fund Office. This year, the state mandated a 75% operating capacity for public places including theaters. China’s online ticketing services like Maoyan Entertainment and Alibaba-backed Taopiaopiao benefited the most from the surge. (Tencent News, in Chinese)
• China Union Pay recorded online transaction volume of RMB 2.52 trillion during the holiday, up 8.3% year on year. China’s centralized online payment clearinghouse Nets Union Clearing Corporation reported that daily transaction value during the holiday increased 47% from the previous year, a sharp deceleration from the 163% annual growth seen during last year’s holiday. The number of daily transactions increased by nearly 42% year on year during the holiday, down from 80% annual growth last year. (Mpaypass, in Chinese)

Bytedance enters cross-border e-commerce

• Bytedance, the owner of short video apps Douyin and Tiktok, is testing a cross-border e-commerce project named Fuxiang Haigou, which offers special sales for branded products from a dozen countries. The service is accessible through mini-programs on the company’s news aggregation app, Toutiao, as well as Douyin. (Ebrun, in Chinese)
• Shein, Chinese fast fashion app primarily targeting overseas markets, entered a partnership with Canada’s installment payment service Paybright as the Nanjing-based company continues to expand its global footprint. With annual gross merchandise volume of RMB 20 billion in 2019, the Chinese fashion retailer’s popularity among teen consumers in the US, Europe, and the Middle Eastern markets is on the rise. The company is reportedly aiming for a US IPO this year. (Newswire)

Tencent gears up for livestream e-commerce

• Tencent’s mega messaging app Wechat is reportedly testing on a select group of users a livestream function on Channels, the Douyin-like short video feature it launched in January. The feature does not support virtual gifting now but allows viewers to like and comment on the livestreams. The livestreamer can share the sessions in Wechat chat groups as well as their Moments newsfeeds. Integrating a livestream feature to Channels highlights Tencent’s ambition to tap into short video and livestream e-commerce business, creating a new facet for competition with Douyin and Kuaishou. (Sina Finance, in Chinese)

Alibaba vs. Miniso

• Taobao Deals, Alibaba’s take on Pinduoduo targeting China’s bargain-seekers, opened its first offline experience store on Friday, selling products from manufacturing partners for as low as RMB 1. The move helped promote an online shopping campaign on the low-priced shopping app from Oct. 10 – 31. The company reportedly plans to open 1,000 such stores within three years. Taobao Deals, also known as Taobao Tejia, said it had around 40 million monthly active users as of June 2020, growing rapidly after a major update in March. Meanwhile, Alibaba’s expansion to offline retail for low-price products competes with Tencent-backed household product brand Miniso. Miniso filed its prospectus with the US Securities and Exchange Commission in late September for a New York listing. (Ebrun, in Chinese)

Software as a service (SaaS) has become a huge deal in China’s startup and venture capital world this year. Driven by demands of team collaboration amid the Covid-19 outbreak and increasing labor costs, venture capitalists and tech giants in the country are scrambling to put money behind SaaS startups.

In 2020, some 96 Chinese SaaS companies have received a total of RMB 12 billion (around $1.8 billion) from VC firms as of Sept. 30, according to VC market data provider Itjuzi. In 2019, VC firms injected a total of RMB 18.4 billion into 158 SaaS companies.

Looking at the US, it’s no surprise to see enthusiasm about the sector. Publicly listed companies like Slack, Zoom, and cloud data warehousing firm Snowflake have earned early investors substantial returns with subscription-based software targeting corporate users. 

But for Chinese investors betting on SaaS, the local equivalents of these products may not be the right answer. The market is different from the rest of the world, investors said. The country’s economy is dominated by big, state-controlled corporations, which are not so tech-savvy and prefer customized services. Meanwhile, would-be SaaS entrepreneurs have to compete with big tech offerings such as Alibaba’s Dingtalk and Tencent’s Wechat Work, which are already popular and free to use.

Read more: Where are China’s SaaS giants?

The SaaS market

The SaaS market in China is still small compared to other major markets. It was worth RMB 19.4 billion in 2019—just 0.26% of the $109.5 billion global SaaS market in the same year, according to a July report (in Chinese) by the China Academy of Information and Communications Technology (CAICT). According to the report:

• Despite its small scale, the Chinese SaaS market grew 34.2% year on year in 2019 from the previous year, faster pace than the global market’s 20.9% last year.
• Chinese SaaS companies are concentrated in areas such as customer relationship management (CRM), finance management, team collaboration, customer service, and marketing.
• SaaS companies tend to serve customers like the government, financial institutions, and schools and education firms.

Policy push 

Since 2018, multiple central and local government policies have encouraged enterprises to adopt cloud-based services. SaaS startups have benefited from policies to promote cloud computing, the natural habitat of SaaS.

• In 2018, China’s Ministry of Industry and Information Technology (MIIT) issued a set of guidelines dubbed “enterprise going to the cloud” (in Chinese) and set the goal of reaching 1 million companies that use cloud-based services by 2020.
• In March, the MIIT launched a campaign to encourage small- to medium-sized enterprises (SMEs) to leverage technologies such as cloud computing, artificial intelligence, and big data as part of their digital transformation processes.
• Also in March, the National Development and Reform Commission included cloud-based services in China’s massive “new infrastructure” investment plans.

Read more: INSIGHTS | China’s new infrastructure projects, explained

Big deals

• June 3: Jushuitan, an e-commerce enterprise resource planning SaaS company, raises $100 million Series C from investors including Goldman Sachs China and China International Capital Corporation.
• Aug. 26: Xiaoman, a Shenzhen-based startup that focuses on providing CRM services for cross-border e-commerce, raises RMB 100 million Series D from e-commerce behemoth Alibaba.
• Sept. 16: Healthcare SaaS company Kyee closes its RMB 430 million Series D led by Tencent. The company said its customers include more than 13,000 Chinese hospitals and grassroots health facilities.
• Sept. 18: Beijing-based account management service Yuannian receives more than RMB 100 million from investors including China Renaissance and Jiayu Capital. The deal values the company at RMB 500 million. 

More SaaS examples

To flesh out the picture, I chose a few more companies listed as SaaS by Itjuzi as examples: 

• Recurrent AI is a Beijing-based company that uses voice recognition and natural language processing to help banks and insurance firms manage customer service. The company’s products evaluate customer service phone calls and offer advice. The company was last valued at $100 million after closing a $12 million Series B led by Sequoia Capital China in September.
• Jushuitan is a Shanghai-based SaaS company that provides services such as order management, warehouse management, and supply chain management to e-commerce companies. According to Jushuitan’s website, it serves approximately 600,000 Chinese e-commerce companies.
• Ibeidiao is a Hangzhou-based company that offers on-demand background check services. The company’s website says that it can help human resource departments check job candidates’ legal identity, diploma, credit history, traffic offense history, and past job experience within one to four days. In May, the company raised several tens of millions of RMB from investors Legend Capital and Future Capital.

A unique market

A typical Chinese SaaS company doesn’t look much like something you’d find in Silicon Valley. American SaaS players often provide a fixed set of services—think of the regular fees you pay for access to Slack or Microsoft. Chinese companies provide more tailored solutions—so much so there isn’t a pricing page on their websites. Potential customers have to sign up via an online contact form to book a call or for a demonstration of their offerings. 

Startups have had to rethink basic assumptions to succeed in the Chinese market—even the idea that SaaS has to run in the cloud. The investor who told me about BATs competition also told me about a startup which offers database-as-a-service, but found that major state-owned enterprises (SOEs) didn’t trust a public cloud to hold their data. So they installed servers in a client’s office buildings and charged them a subscription fee to use and maintain them on-site—essentially reinventing IBM’s original business model. The client loved it—and now the company has a thriving business with SOEs.

“The environment of the Chinese enterprise service market is extremely different from that of the rest of the world, so applying the business models of foreign publicly listed SaaS companies in China doesn’t work,” Jixun Foo, managing partner at GGV Capital, wrote in an article in June.

Foo said that large enterprises in China tend to adopt tailored services and medium-sized firms are more willing to pay for SaaS products because of their flexibility. He predicts that medium-sized enterprises will be the main consumer of China’s SaaS services.

However, Zhai Jia, managing director at Sequoia Capital, warns that China doesn’t have enough mature small and midsize businesses (SMB) to support SaaS. He told Chinese tech news site Huxiu in September that only China’s largest companies are able to spend on software—SMBs’ margins are mostly just too tight. 

“As a result, SaaS companies are not able to offer standardized and fast-growing products… companies have to give up the SMB customers and serve only large clients,” he said.

• Zhai said that Chinese SaaS companies instead rely on “heavy customization,” and that Chinese players don’t necessarily have to see subscription fees as the only source of revenue: they can also earn money from sources like commissions on clients’ sales, “supply chain surpluses,” and outsourced services, he said.

For Chinese companies, the US approach to SaaS—retaining customers with standardized cloud-based service using recurring payments—“only looks good,” he said.

From Washington to Berlin, New Delhi to Shanghai, Chinese tech companies remain entangled in geopolitical conflicts this week. In the US, the Chinese-owned video-sharing app Tiktok just won an initial success in its legal challenge against the Trump administration. White House officials renewed pressure on Europe to ban Huawei from their next-generation 5G networks after German Chancellor Angela Merkel refused a full ban on the Chinese telecommunications equipment maker. A new round of export bans were imposed on China’s largest chipmaker SMIC by the US. In India, banned Chinese apps are trying to re-enter the market with revised names and logos.

Tiktok’s initial win

On Sunday, a US judge halted a looming Tiktok ban at the last minute. The ban, announced by US President Donald Trump last Friday, would have removed Tiktok from American app stores starting from midnight Sunday.

• The injunction granted by US District Judge Carl Nichols gave Tiktok a temporary reprieve amid ongoing deal negotiations to meet with Trump’s demand to sell Tiktok’s US operations. 
• However, the judge didn’t consider Tiktok’s appeal to block an executive order from Trump demanding the company to divest from its American assets, according to court documents. The order, requiring Tiktok parent Bytedance to either spin off or sell the app’s US operations within 90 days, will go effect on Nov. 12.
• Bytedance has applied to the Chinese government for a deal that would give American software maker Oracle and retail giant Walmart a combined 20% stake of Tiktok’s proposed US business. Beijing hasn’t yet made a final decision, but smoke signals from state media indicate opposition.
• In the past week, the party mouthpiece People’s Daily published three editorials commenting on the Tiktok deal. One of which (in Chinese) reads: “The ‘Tiktok deal’ is based on unfairness… If the forced deal finally goes that way, American stakeholders would earn tens of billions of dollars…then why do they need venture capital and entrepreneurship in the country when they can just mug Chinese companies?” (our translation).
• “China won’t swallow its tears when its core interests are endangered, and Chinese companies are not lambs to the US slaughter,” said another editorial (in Chinese).

US renews campaign to ban Huawei in Europe

On Tuesday, Keith Krach, the US undersecretary of state for economic affairs, said Finland’s Nokia and Sweden’s Ericsson were the only companies that European governments should choose for the 5G network rollouts. Huawei is “an arm of the CCP surveillance state and a tool for human rights abuse,” Reuters quoted him as saying.

• Krach’s remarks came as Germany and Italy are deciding whether to allow Huawei to participate in building their 5G networks. Last week, Merkel refused to compromise on her position that Germany shouldn’t single out Huawei with a targeted ban, Bloomberg  reported. Her government finalized draft regulations for the security of Germany’s 5G network, which would tighten the government’s scrutiny over equipment vendors.
• Before Germany made its 5G decisions, the UK and France had adopted a de-facto ban on Huawei, vowing to phase the company’s products out from their 5G and 4G networks in the next few years.

SMIC on Huawei’s heels

Shares of Semiconductor Manufacturing International Corp (SMIC) tumbled more than 6% this week after reports that the US had imposed restrictions on exports to the Shanghai-based chipmaker. The decision was made by the US Commerce Department on Friday upon the conclusion that SMIC’s products could be used for military purposes and therefore pose “unacceptable risk,” Reuters reported Saturday.

• The Commerce Department said in a letter to some suppliers of SMIC that they will now have to apply for individual export licenses to ship to the Chinese company.
• On Monday, the Shanghai-listed company said in a statement (in Chinese) filed with the Shanghai bourse that it had not received any official notifications about the restrictions from the US government. The company also said it had no relationship with the Chinese military and had never produced products for military end-users.
• Chinese Foreign Ministry Spokesman Wang Wenbing told reporters Monday that China opposes (in Chinese) US restrictions on SMIC and that the country would take necessary measures to safeguard the interests of Chinese enterprises.

Chinese apps launch second offensive into India

In India, several Chinese apps previously banned by New Delhi are trying to reenter the market with rebranded versions, local newspaper The Economic Times reported.

• Chinese video app Kuaishou has launched video-sharing app Snack Video, a Tiktok lookalike. Kwai, an international version of Kuaishou, as well as Tiktok were both banned in India in June.
• Hago, another Chinese social media app banned in June, has been replaced by an app called Ola Party, which allows users to log in using their Hago credentials, according to The Economic Times.
• The Indian government has banned a total of 177 Chinese apps from the country in two rounds of app bans imposed in June and September. The most high-profile apps banned including Bytedance’s Tiktok, Kuaishou’s Kwai, Tencent’s instant messaging app Wechat and the popular mobile game Player Unknown’s Battlegrounds, or PUBG.

There was twist after twist in the Tiktok drama over the weekend. US President Donald Trump said Saturday he had approved a deal that involves software maker Oracle and retail giant Walmart, but it falls short of an outright Tiktok divestment. Chinese parent company Bytedance denied some of Trump’s claims that the new Tiktok company would have nothing to do with China. Meanwhile, Chinese officials criticized the US for lacking “internet freedom.”

The deal: Bytedance, Oracle, and Walmart will form a new company called Tiktok Global as part of the deal, CNBC reported Saturday.

• Oracle was chosen as Tiktok’s secure cloud provider and will hold a 12.5% stake of Tiktok Global.
• Walmart said it would purchase a 7.5% stake in the new company and its CEO Doug McMillon would serve as one of the directors of the five-member board.
• Bytedance will own the remaining 80% of Tiktok Global.
• Walmart and Oracle said in a joint statement that Tiktok Global will pay more than $5 billion in new taxes to the US Treasury Department.

Trump’s blessing: Trump said Saturday that he had approved the deal “in concept.” But the deal still needs formal approval from his administration. “I give the deal my blessing,” Trump told reporters.

• Trump also said the deal would involve “about a $5 billion contribution toward education.”
• “It will be a brand-new company,” said Trump, who also said that Tiktok Global would “have nothing to do with China.”
• Trump’s remarks seem to contradict the facts, but as CNBC pointed out: “Because 40% of Bytedance is owned by US venture capital firms, the Trump administration can technically claim Tiktok Global is now majority owned by US money.”

What Bytedance says: In a slightly different narrative, Bytedance said in a statement (in Chinese) Monday on its Jinri Toutiao news aggregator that it currently owns 100% of Tiktok Global, and that the company plans to launch pre-IPO fundraising which will give investors—Oracle and Walmart—a combined 20% stake.

• Neither the algorithm nor the company’s technology will be transferred in the deal, said Bytedance. Oracle would instead have the permission to review its code.
• Bytedance also said the reported “$5 billion new taxes to the US Treasury Department” is an “estimate of taxes Tiktok will pay over the next few years” and that it has nothing to do with the deal.
• Bytedance denied Trump’s statement that the deal involves a $5 billion contribution toward education. “We heard from the news as well that there would be a $5 billion education fund,” Bytedance said in the statement.
• Zhang Yiming, the CEO and founder of Bytedance, will be one of the directors on Tiktok Global’s board, the company said.

Are apps still getting banned? On Friday, Reuters first reported that the Trump administration would ban Tiktok and Wechat from US app stores starting Sunday night. However, with Trump saying he approved the Tiktok deal, the Commerce Department said it would delay the plan of barring the video-sharing app from US app stores for one week.

• A US federal court halted a ban against Chinese instant-messaging app Wechat late Saturday, the Washington Post reported. 
• The US District Court in San Francisco said in an order that the plaintiffs, a group of Wechat users, had shown there are “serious questions” related to their First Amendment claim.
• In August, TechNode reported that the group, called the US Wechat Users Alliance, filed a lawsuit against Trump’s executive order to ban transactions between US citizens and Wechat.
• “Where [Judge Laurel Beeler] came down was essentially on the side of the Chinese-speaking communities in the US, and said that the ban was too broad,” Greg Pilarowski, founder of tech advisory firm Pillar Legal, told TechNode on Tuesday.
• “I think Wechat is safe, unless Trump wins” the US presidential election in November, Pilarowski added.

Chinese media takes: On Monday, most major Chinese media outlets reprinted an article titled “Does Tiktok really harm US national security? Why did Oracle fail in the Chinese market? Chinese enterprises storms overseas” (our translation), authored by the National Supervisory Commission of China and Central Commission for Discipline Inspection of the ruling Communist Party. It was first published on a website that the two government agencies share.

• The article is a rare direct comment from Chinese government agencies on the recent Tiktok drama. 
• “As a matter of fact, the United States, which promotes ‘internet freedom,’ never neglects its regulation of the internet,” the article said. “We can say that the US has the world’s strictest regulation on the internet.”
• Chinese newspaper Securities Times reported that a number of companies listed on China’s A-share markets which investors believe stand to benefit from Bytedance’s business activities, called “Bytedance concept stock,” had risen around 3.4% on Monday morning with one of the best performers jumping nearly 12%.
• International Financial News, an arm of party mouthpiece People’s Daily, wrote Monday that the upshot of the Tiktok drama “has yet to come.”
• The newspaper pointed out that while Trump had approved the deal, it still needs to gain approval from the Chinese government, because, it said, the algorithms Tiktok use are now subject to China’s new export restrictions.
• Hu Xijin, editor-in-chief of state-run tabloid Global Times, wrote on Twitter Monday that he knows that the Chinese government won’t approve the deal. “…because the agreement would endanger China’s national security, interests, and dignity.”
• Chinese financial magazine Caixin named the three other Tiktok Global board members. They are Arthur Dantchik, founder of Susquehanna Growth Equity (SIG); William Ford, CEO of General Atlantic; and “an executive from the American operations of Sequoia Capital.” SIG, General Atlantic, and Sequoia Capital are all Bytedance investors.

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)

Chinese tech giant Tencent and ride-hailing platform Didi Chuxing will join a $516 million investment into an electric vehicle business belonging to the country’s biggest property developer, Evergrande Group.

Why it matters: By forging an alliance with tech giants and prominent venture funds, Evergrande is gradually becoming a contender in China’s crowded EV market.

Details: China Evergrande New Energy Vehicle Group, the EV unit of the property developer, said on Tuesday that it aims to raise around HK$4 billion (around $516 million) in a private placement of shares from at least six investors including Tencent and Didi.

• The investor group will purchase a total of 176 million shares of the Hong Kong-listed EV unit, accounting for 2% of the company’s enlarged share pool. The shares will be priced at HK$22.65 each, a 20% discount to closing prices on Monday.
• The company’s shares dropped 11.5% to HK$25.05 with a market capitalization of around HK$216 billion as of market close on Tuesday.
• Top venture capital firms will also participate, including Sequoia Capital and YF Capital, a private equity firm co-founded by Chinese billionaire Jack Ma.
• Evergrande said the proceeds will be used to finance its electric car-making business without revealing details. The Guangzhou-based real estate developer had recently set an ambitious annual production target of 1 million EVs over the next five years. It plans to launch six EV models ranging from sedans to crossovers in the second half of 2021.
• Tencent has been a long-time investor in Chinese EV maker Nio.
• Around 1 million EVs offered ride services on Didi’s platform as of last year.

Context: Evergrande marched into the automotive industry in mid-2018 with a $2 billion investment plan in the once-promising EV startup Faraday Future. The two companies soon fell into a dispute later that year before ultimately dropping litigation against one another in early 2019.

• China’s EV market is starting to thaw after a year-long slump triggered by a drastic reduction in purchase subsidies and the Covid-19 outbreak. The industry recorded a 43% year-on-year jump in sales in August, thanks to strong sales from Tesla and cars from local EV makers.
• Legacy automakers have initiated their EV offensive moves. BMW is planning to launch in China by year-end its first all-electric model iX3, a crossover with a driving range of 500 kilometers (310 miles) and a starting price of RMB 470,000 ($69,300).

China tech in Africa is nothing new. Telecommunications giant Huawei has built around 70% of the continent’s 4G networks. Smartphone manufacturer Transsion commands 40% of Africa’s smartphone market. 

Over the past few months, TechNode has been mapping Chinese tech giants overseas empires. Initially focused on the US, Chinese companies have since 2018 slowed down investing in the country, as tensions between the two superpowers rise. As we’ve written previously, companies including Alibaba and Tencent have instead sharpened their focus on the developing markets of India and Southeast Asia. 

Africa is no different. Lifestyle services giant Meituan-Dianping, gaming behemoths Tencent and Netease, as well as Transsion have made big bets on African companies. Alibaba has taken a different approach by launching training programs for aspiring African entrepreneurs.

Meanwhile, big-ticket Chinese venture capital firms including IDG Capital, Sequoia China, and Gaorong Capital have sharpened their focus on Africa. Investors expect to see a boom in financial services on the continent as connectivity improves and under-served populations come online. 

Africa is a huge market with massive potential. The continent boasts six of the world’s ten fastest-growing economies. With a diverse mix of 1.3 billion people, its population is expected to surpass China’s by 2025. 

To be sure, China tech’s footprint remains modest in Africa, but the trends point to a major shift. Chinese tech titans see opportunities and conditions similar to those that lifted themselves in China before the internet boom. 

Humble beginnings

Like China in the early 2000s, Africa supports a massive population, an under-served market, and a growing pool of tech talent. As the demand for digital services has increased, dynamic tech hubs have sprung up in Nigeria, Egypt, Kenya, and South Africa. 

In the past decade, some Chinese companies have seen massive success in Africa. While the US has pushed countries around the world to exclude Huawei from their telecommunications networks, African countries have welcomed the firm as they push to improve connectivity. 

Huawei was instrumental in rolling out 4G rollout across Africa and is set to drive 5G adoption on the continent. Alongside Chinese rival ZTE, Huawei received preferential loans from the Chinese government to establish telecom infrastructure throughout Africa, found Iginio Gagliardone, a professor at the University of the Witwatersrand who has written extensively about the influence of China in Africa. The government loans enabled the two companies to expand their influence across the continent with little risk.

A few other firms bet the farm on Africa, like Transsion. Founded in Shenzhen, the phone maker’s primary markets are all in Africa. The company controlled more than 40% of the African smartphone market at the end of last year, according to the International Data Corporation (IDC). Transsion also holds nearly 70% of the feature phone market, IDC data shows. The company, which operates R&D centers in Nigeria and Kenya, went public on the Shanghai Stock Exchange’s Nasdaq-like Star Market last year. 

Driven largely by the Chinese government, Chinese investments in Africa have historically focused on infrastructure projects. Chinese foreign direct investment in Africa reached $5.4 billion in 2018, up 30% from the year before, according to data from the China Africa Research Initiative at John Hopkins University’s School of Advanced International Studies. 

But things began to change that year. At the Forum on China-Africa Cooperation (FOCAC) in September 2018, Chinese President Xi Jinping encouraged Chinese companies to invest $10 billion in Africa over the following three years, pronouncing an important shift from public to private investment in Africa. 

“China has demonstrated its readiness to invest in areas deemed by foreign investors and donors as too risky, not sufficiently profitable, or not high priorities in the aid agenda,” Gagliardone wrote in his book “China, Africa, and the Future of the Internet.” 

Since 2018, Chinese companies have sharpened their focus on the continent, and 2019 saw record amounts of Chinese involvement in the continent’s tech sector. 

Increased presence

Alibaba began its Africa expansion in 2017—the year founder Jack Ma made his first visit. The company believes that its experience in China prepares it to develop Africa. ”I found myself propelled twenty years back in time, to the time when Alibaba was founded,” Ma said after the trip. 

During the visit, Ma launched a $10 million fund for young Africa entrepreneurs to bring their offline businesses online and pledged to take 200 young business people to China to learn from Alibaba. 

He returned a year later when Rwanda became the first country to join Alibaba’s Electronic World Trade Platform (eWTP), which promises to make cross-border trade easier for small to medium enterprises. 

Chilli and coffee farmers in Rwanda have used the platform to sell their products on Tmall, Alibaba’s business-to-consumer marketplace, while Ethiopia became the second African country to sign eWTP agreements late last year. It remains unclear how many companies are benefiting from the initiative.

Meanwhile, other tech giants have also increased their focus on Africa. In early 2019, Chinese smartphone giant Xiaomi set up a business group to grab at sales on the continent in order to offset slowing growth at home. The move put Xiaomi at odds with well-established Chinese rivals rival Transsion and Huawei, which claimed a market share of nearly 10%. 

Transsion had been able to avoid fierce competition from domestic rivals in its home market by focusing on Africa, but those companies were now also looking abroad for new sources of growth. 

In 2015 Transsion launched music-streaming service Boomplay through a joint venture with Chinese gaming giant Netease. The service is primarily focused on the African market: 85% of its users come from Nigeria, Ghana, Kenya, and Tanzania.

The company launched the service to make its phones more attractive to buyers and to boost revenue from non-hardware sales. The initiative has so far been a success. In April last year, Boomplay raised $20 million from Chinese investors including Maison Capital and Seas Capital. 

Fintech focus

Complementing the spread of China tech in Africa, Chinese investors have also increasingly sought out startups across Africa. These investors are looking to place their bets on Africans without bank accounts.

African startups raised a total of $2 billion in 2019, more than 70% than the year before, according to data from global investment firm Partech. While Chinese investments comprised only a small portion of that total, Africa has received a major boost in attention from Chinese investors. 

Fintech services developed early in Africa. Ten years ago, fintech platforms in Africa were more developed than those in China, prior to the launch of Ant Group’s Alipay or Wechat’s Wechat Pay. “Mobile money,” which allows people to make payments, and deposit or withdraw money on even the most basic mobile phones, gained widespread adoption.

In 2017, Chinese-owned, Norway-based software company Opera pledged to invest $100 million in Africa’s digital economy. The company later launched super app Opay in Nigeria, which combined payments, food delivery, and ride-hailing services. 

Opay was a handful of fintech beneficiaries from a boom in Chinese investment in Africa’s tech sector in 2019. The company closed two funding rounds last year, raising $170 million to help its expansion plans. Investors included some of the biggest Chinese names: Meituan, Gaorong Capital, Sequoia China, and IDG Capital. 

“Opay will facilitate the people in Nigeria, Ghana, South Africa, Kenya, and other African countries with the best fintech ecosystem that Africa has ever seen,” Zhou Yahui, CEO of Opay and founder of Kunlun, said in a statement at the time. 

But due to the Covid-19 pandemic, the company announced in July that it was suspending its non-fintech operations, including ride-hailing and food delivery service 

Meanwhile, Africa-focused fintech platform Palmpay launched in Nigeria after a $40 million investment from Transsion and Netease. The investment also included a partnership with Transsion to pre-install the Palmpay app on 20 million of Transsion’s phones this year. 

The focus on investing in fintech is driven by a broad-based effort to bring financial services to Africa’s unbanked. According to the World Bank, nearly two-thirds of sub-Saharan Africans do not have bank accounts. In 2019, fintech received the most venture funding out of any industry in Africa, according to Weetracker. 

Ant Group has taken notice of Africa’s fintech revolution. Last year the company partnered with Silicon Valley- and Lagos-based startup Flutterwave to add Alipay as a payment method for Flutterwave’s 60,000 merchants. 

In July, Ant Group partnered with South Africa mobile operator Vodacom to launch a payments app in the country. The two companies aim to tap the 11 million South Africans who don’t own bank accounts. 

Driving digital services

Africa represents an opportunity that Chinese tech firms caught onto early, and show no signs of paring back. Many of these same Chinese firms thrived after the internet boom in China and stand to leverage their knowledge to help spread digital products across Africa. 

As the digital divide on the continent narrows, more people in Africa will adopt these services, and like in India and Southeast Asia, Chinese companies and investors won’t want to miss out. Their current push onto the continent is likely only the beginning. 

The owner of PlayerUnknown’s Battlegrounds (PUBG) has cut ties with Chinese tech giant Tencent in India after the country banned 118 Chinese apps, including international hit PUBG Mobile.

Why it matters: While most of the apps banned last week don’t have a huge user base in India, PUBG Mobile had more than 50 million players in India as of April 2019. PUBG Corporation, which develops and publishes the original PC/console game, is a South Korean company, but it partnered with Tencent to bring the game to mobile. The move to cut ties with Tencent is an attempt to lift the ban on the game.

Details: PUBG Corporation said in a statement Tuesday that it would no longer license the PUBG Mobile franchise to Tencent Games in India, CNBC reported.

• The company said it would take on all publishing responsibilities within India.
• “As the company explores ways to provide its own PUBG experience for India in the near future, it is committed to doing so by sustaining a localized and healthy gameplay environment for its fans,” said the PUBG Corporation.

Context: Last week’s ban followed a standoff between Indian and Chinese troops in the same week. In June, India banned 59 Chinese apps, including Bytedance’s Tiktok and Tencent’s Wechat, on national security concerns following a deadly border clash with China.

• PUBG Corporation is owned by South Korean video game studio Bluehole. In 2018, Tencent acquired a 10% stake in Bluehole, becoming its second-largest shareholder.

China’s investment market is going online, as digital brokers and other investment companies see new opportunities to help mainland investors send their money abroad. China’s huge economy and high savings rate means its investment services market could become one of the world’s largest, but options are limited for savers. One way to diversify is making investments in overseas markets like the US and Hong Kong.

Players old and new are dazzled by a potential user base of millions, but regulators remain tepid. While new regulations last fall encouraged tech and financial firms to go into mutual funds, most of the investment action is happening through brokerage services beyond mainland regulation in Hong Kong.

Bottom line: Digital asset management is a hot field, with a number of already-listed players offering financial services. But these players face real uncertainty about both US and Chinese regulation—most are domiciled overseas in an effort to avoid capital controls and limits on trading. As long as China keeps its capital markets mostly closed, the industry is likely to remain in a pretty uncertain position.

Room to grow: Mainland investors have traditionally had few places to put their money. But as China liberalizes its financial system, more people are seeking opportunities to diversify their assets through investments on global markets. Digital brokerage services are following the customers.

Executives at internationally-focused brokerage Futu estimate that there are 20 million Chinese nationals with overseas assets. By comparison, financial information outlet Shujubao reports (in Chinese) there are 158 million trading accounts in China.

• Consulting firm Oliver Wyman forecasts Chinese offshore financial assets will reach $2.1 trillion by 2022. 
• In domestic markets, Chinese stocks added over $1 trillion in value in just the first eight days of July, reflecting surging public interest in buying shares. Bloomberg dubbed investors’ strong appetite for investment vehicles a “budding equity mania.” 

The players

Brokerage startups with a global outlook are luring new customers and challenging established mainland Chinese trading firms and tech firms to expand their services, while big firms like Tencent and Ant Group are involved in advisory services such as personalized investment advice. Smaller firms lead in brokerage services, where investors can directly open accounts to buy stocks and bonds. 

Snowball Finance (Xueqiu): The New Zealand-registered service, founded in 2010, originally served as a financial news and advice platform for Chinese investors. It now offers brokerage services for US, HK, and China-A shares, discussion with other members, and more, all geared towards mainland users. 

• Snowball has over 12 million monthly active users. 
• Alibaba’s Ant Group invested $120 million into the app in 2018, and other investors include Sequoia China and Morningside Capital.

Futu: Founded in 2011 by former Tencent employee Leaf Hua Li and headquartered in Hong Kong, Futu aims to provide a “one-stop shop” for data and trading services in Hong Kong, mainland China, and US stock exchanges, boosted by investment from Tencent. It went public on the Nasdaq in March 2019, raising $90 million. According to the company’s most recent financial report, 66.7% of its trading volume is US stocks.

• Futu reported a strong second quarter with its highest ever total trading volume of HK$ 643.9 billion ($83 billion) and 303,102 total paying clients, an increase of 84% year on year.
• Futu credits its popularity to its interactive investor community: inexperienced traders can attend lessons and share ideas within the app.

Tiger Brokers: Launched in 2014, Tiger Brokers targets Chinese investors wanting in on the action in US and Hong Kong markets. Yet despite its similarity to Futu, it’s far less profitable. The company’s IPO on the Nasdaq in March 2019 raised $104 million.

• Tiger reported an additional 33,800 accounts with deposits opened in the second quarter of 2020, and holds nearly 60% of the market share for global Chinese investors in terms of US securities trading volume.
• Mainland Chinese users still make up the bulk of Tiger’s users, but international users made up 10% of the quarterly user growth, according to their Q2 earnings call.

Huatai and Zhangle Global: Huatai Securities launched a global stock trading app called Zhangle Global from Hong Kong in July, and plans to leverage its success in the mainland trading market to move overseas. 

• Zhangle Global is specifically aimed at Chinese investors living outside the mainland, according to a Reuters report. Huatai’s service for mainland users, Zhangle Fortune Path, had 9.11 million monthly active users (in Chinese) as of June 2020. 

Major tech firms aren’t directly competing as brokers. Instead, they target people already in their user base with simpler solutions like personalized investment advice and recommendations for mutual funds, a professionally managed portfolio containing the assets of multiple investors. 

Tencent tests the waters: Tencent is leveraging its ubiquitous messaging app Wechat to attract users for its new fund advisory service Yi Qi Tou, it announced last week. Yi Qi Tou isn’t a brokerage service, providing mutual fund recommendations instead. 

• Teng An Fund, Tencent’s fund distribution unit, said the service will be launched on Wechat after a trial period.  
• Tencent has also been strategically cooperating with Futu since 2018 through traffic, content, and cloud services.

What about Alibaba? So far, Alibaba’s Ant Group has invested in Snowball but not made any forays into brokerage services itself. They have launched other financial services, notably money market fund Yu’ebao in 2013 and a new advisory fund venture called Bang Ni Tou through a 2019 partnership with Vanguard. Both services are accessed through payments app Alipay, and Bang Ni Tou acquired 200,000 clients in its first 100 days. 

Enter Bytedance? Bytedance also appears to be exploring the offshore investments market with a new subsidiary called Squirrel Securities. But with a reported one epmployee, this company is clearly in early days.

Why go abroad? Exchanges in China have a much shorter history than in other countries, and are dominated by small-time retail investors. The Shanghai and Shenzhen stock exchanges opened in 1990, and Hong Kong’s many small exchanges didn’t merge into the Stock Exchange of Hong Kong until 1986. In comparison, foreign markets like those in the US have a reputation for stability and rationality. 

• More than 80% of A-share stakeholders are under age 40, according to a study by Shujubao (in Chinese). About half of all investors have little investment experience, and nearly 90% of all Chinese investors are primarily pursuing short-term gains over long-term financial planning.
• Shujubao also reports that out of the 158 million A-share accounts opened at the end of November 2019, 99% of them are retail investors that bring home less than $700 a month.
• Individual, inexperienced traders are the bulk of Chinese investors, making “share prices vulnerable to extreme swings in popular sentiment,” according to a Bloomberg article. 
• “There’s always been a tremendous demand for people in China to hold foreign assets,” Adam Lysenko, Associate Director at Rhodium Group, told TechNode. “There’s definitely an attraction to being in a market comparatively as stable, deep, and anchored by specific institutional investors as the US is.”

Regulatory hurdles for firms and investors

Cross-border brokerage: China’s brokerage industry is intensely regulated, and it’s not entirely clear if trading foreign securities is actually legal. Brokerages have avoided the issue by domiciling overseas, and Chinese regulators have let these platforms carry on so far. But with a clear focus on users in the mainland, these companies may face demands to register there.

• Neither Futu nor Tiger are licensed as a securities brokerage in China. But given the amount of mainland users on their apps, regulators might decide to consider them brokerage businesses in the future, forcing them to apply for licenses.
• Tiger’s IPO prospectus outlined their efforts to comply with their understanding of mainland Chinese law while acknowledging future risks: “We cannot assure you that the rectifications we have made will fully satisfy the relevant regulatory authorities’ requirements.”
• Meanwhile, regulators are encouraging experiments with digital mutual funds: China began issuing fund advisory licenses last October, but only a “handful of firms” will be able to raise enough money for their products, prioritizing established firms with existing funds.

Getting dollars: In order to trade foreign stock, users also have to get ahold of foreign currency. Beijing limits how much money Chinese investors can transfer out of China. If regulations tighten, they could be cut off from maintaining their foreign assets.

• China’s State Administration of Foreign Exchange (SAFE) limits conversions of RMB to foreign currencies to $50,000 per year in an effort to keep wealth within the country, and even this limited exchange needs approval. 
• Futu and Tiger Brokers don’t provide conversion services, and Futu doesn’t ask questions about whether money exchanges have been government-approved. Tiger emphasizes compliance with regulations but admits they can’t guarantee it.
• Futu’s IPO prospectus acknowledges that further currency exchange restrictions would slash their trading volume, leaving their future business with Chinese customers in the hands of the state.