There’s no easy way to say it: I’m leaving TechNode. This wasn’t an easy decision, but I believe that it’s the best for myself and my family.

Our editor David Cohen will be taking over as acting Editor-in-Chief. I have full confidence that, under his leadership, TechNode will move strongly into its next phase and get closer to achieving our vision of becoming the number one tech media platform covering China.

To our readers and our members, I want to thank you for your support, advice, and friendship. Your investments in our content over the last year have made it possible for us to double down on our passions. TechNode will continue to serve you with good quality content and more new media products and events. 

When I first took the job, many of my friends, professional acquaintances, and former colleagues cautioned me about joining a niche publication. The logic was, “Not only is the appetite for China relatively small, but the appetite for China tech is even smaller.” I would love to be able to say that I, against all the naysayers, knew that China tech would blow up like it has. The truth is, I got lucky. 

Bottom line: I never expected to be able to make a career out of covering technology in China. But since I started at TechNode, China, and its technology, have become a real field of study.

I joined TechNode not because of an uncanny ability to predict the future, but because it clearly would scratch several of my “meaningful work” itches: 

• building something
• working with smart and creative people
• my convictions that:
  • to understand the future we must first understand the current state of technology and, on the other
  • China will play an outsized role in any one of the many possible futures. 

I’ve been very lucky and extremely privileged to be doing this work while both China and technology have increased total mindshare. However, both topics are still poorly understood inside and outside of China, inside and outside of the technology industry. To fully “know” any given thing is inherently impossible, but we must do our best to understand and accept this amazingly complex world we’ve been born into. 

I truly hope TechNode has helped you along that path.

A brief, personal timeline 

Anyone who knows me has probably heard this many times.

• Summer 2004: After studying Mandarin for a year, I come with a study group and crappy Samsung feature phone to Suzhou to study Chinese for a month and then travel around the country for another month.
• Summer 2006: I do the above again.
• March 2008: I arrive in Beijing on a one-year contract to teach English to adults at a private “training center,” with a better Nokia feature phone. The phone to have back then was the Nokia N97, costing at least RMB 5,000 (about $700).
• Nov 2009: I got the media bug, taking a job at China Radio International as a booker, host, and “internet” reporter. I learn more about the world around me in any given week than I ever did since graduating university three years earlier. 
• Jan 2011: Groupon launches in China, precipitating a Cambrian explosion of clones including the now-mega successful Meituan.
• Jan 2013: I write my first blog post about China tech (surprise, it’s about Huawei!)
• May 2015: I got the building bug: I hit the “bamboo ceiling” of a very traditional, state-run organization and decided to switch industries to localization. There I built a team almost from scratch from three to 45.
  • Around this time, ride-hailing was already a thing and mobile payments were quickly becoming the norm.
• Nov 2016: Realizing that localization is actually a very unrewarding (and ultimately boring) industry and feeling the media itch, I join TechNode. At the time, the English team had only two full-time reporters and few people in Silicon Valley had ever heard of WeChat.
  • Meanwhile, the Mobike and Ofo bike-wars start warming up.
• June 2020: After almost four years, TechNode’s English team is producing consistently interesting, consistently deep, and consistently high-quality articles about China tech. This, if there ever is such a thing, is a good time to look for the next thing.

12 years, 5 lessons

What I’ve learned about China tech in my 12 years here (in no particular order):

1. Never underestimate the drive of Chinese entrepreneurs. China’s tech majors were founded by people who were born into an environment of high scarcity. Coupled with cultural pressures to achieve higher status, this has resulted in perhaps the highest density of ultra-ambitious business people the world has ever seen.

2. Don’t try to box in a company to your own limited expectations. In Asia, conglomeration and horizontal sprawl is the norm, not the exception. Growing up in a relatively mature consumer market, I always expected brands to be very specific. In China, companies, not just tech, are always reaching sideways both out of ambition, but also out of survival: wider, not deeper, is the name of the game.

3. China speed is real, but it’s also very messy. China doesn’t really have a professional culture in the sense that we see in many global corporations. Instead of process, China’s companies are built on informal networks within and between teams. This makes for extremely flexible organizations that can react to internal and external changes quickly, without the baggage of ritualistic habits. However, information flows can be very low fidelity, leading to mixed messages and unclear goals.

4. China, for all its tech successes, is still extremely low tech on average. China may have been the first country to roll out mobile phone-based solutions to containing Covid-19, but those solutions actually are just glorified certificates of health. Almost all of the tracking and tracing actually occurs through handwritten and self-reported records.

Contrast this to what Singapore and the EU have been doing: using existing bluetooth and near-field communication technology in phones to automatically create databases of people who come near each other. 

This is clearly a microcosm of a much bigger difference, one that has left China quite handicapped: it doesn’t make much technology. Before the chip war, this was okay. America could export the technological innovations and China could use its vast data sets and cheap labor to commercialize it. Now, it’s scrambling to find a solution it needed five years ago.

5. Most of China’s most famous tech companies don’t have much technology.

Of the original BAT triumvirate of first-gen consumer tech majors, only Baidu can truly claim to be a tech company. Like Google, they created their own algorithms to collect and understand the almost infinite amount of information on the mainland internet. 

What technology did Tencent and Alibaba create? They made applications on top of already mature technology. We call them tech companies because they use technology to translate traditional business models into digital ones.

Google, Facebook, Amazon, and Netflix all have very sophisticated technological methods of keeping users coming back to their services (mostly through computer science applied to problems of behavioral psychology.) 

I don’t mean to diminish anyone’s accomplishments. Tech majors have completely changed the landscape of China’s consumption markets… but by using existing technology to fill in very large service gaps in the offline world and create new online services and consumption models rather than by creating new technology.

Parting words

The future is not predetermined. It is clear that China, and its tech, will continue to influence and shape the world in interesting and unpredictable ways. 

I’m proud to have worked for a company and with a team that was helping to draw the map as the territory was being discovered. I look forward to watching as TechNode continues to grow and thrive.

I’d like to thank Lu Gang, TechNode’s founder and CEO, for giving me the opportunity to build something new and unique in the media industry. 

And of course, our members and other readers: thank you for taking a leap and joining us as we try out something new.

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

As the coronavirus swept through China, communities, local governments, and business have been trying to figure out how to best follow social isolation rules. This being China, of course, tech majors and telcos jumped at the chance to serve the country by leveraging their vast data pools. But how much tech is actually behind the country’s health code systems? Should we be more worried about how China is using data.

Links

• Become a member of TechNode Squared
• Our newsletters
• TechNode’s coverage of the coronavirus

Guest

• David Cohen, @MartynvanBuren

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @mbrennanchina, ChinaChannel

Editor

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

Tiktok has got a new chief—and he’s American. On Tuesday, Disney and Bytedance announced, in synchronized press releases, that Kevin Mayer, the man behind Disney+ and baby Yoda, was leaving Disney and joining Bytedance as CEO of Tiktok and global COO of Bytedance (which is much more than Tiktok). He is set to start on June 1 as Tiktok CEO and Bytedance’s global COO and will be based in LA.

Many are skeptical about the new hire. Tiktok is under a lot of pressure to prove it doesn’t answer to Beijing, thus making the move perhaps more about optics than operations. And Chinese companies don’t have a great track record with Western transplants. From Alibaba to Maotai, from Xiaomi to Baidu, there seems to be a serious mismatch between expectation and reality that forces high-profile hires to reconsider their decision. 

But Bytedance is not like other Chinese tech majors: Tiktok is China tech’s first true global hit in consumer-facing software. Neither Alibaba, Tencent, nor Baidu has anything like it. The only Chinese brands that have done well in the West are hardware-focused companies like Huawei and Xiaomi. An America CEO could be the right kind of localization that China’s most international tech major needs.

Bottom line: The jury’s out on how long Kevin Mayer will last and how much impact he will have, but given his track record and ambition, the move is significant. Mayer may be exactly what the company needs to fuel its next stage of growth. 
 
I used to be quite bearish on Bytedance, but after learning more about them, my opinion has changed significantly. They are one of the only true tech companies in China. Alibaba and Tencent translated an offline business model into the online space. Bytedance, on the other hand, has built its entire company on the back of a robust and extensible recommendation AI system. The company is almost indistinguishable, in its culture, products, and technology, from its Silicon Valley counterparts. Like those counterparts, it has proven that scalable technology can bring great success in new markets even if you don’t understand those markets very well.

A gaping hole: If politics weren’t an issue, it wouldn’t matter at all that it’s based in China and not the Valley.  Butpolitics do matter. When it comes to China, they matter even more. What Bytedance has in product development, they have lacked in global compliance, communication, and transparency and could derail its explosive growth.
 
After Bytedance lost a lot of momentum (and users!) in India last year, I wrote:

Unlike other Chinese companies that have enjoyed success abroad, such as smartphone makers, Bytedance creates products that have the potential—if not managed well—to create considerable social harm. . . Given the mounting pressure on Chinese companies as they seek new markets abroad, Bytedance cannot afford to trip over their own feet as they continue their meteoric growth.

Since then, they’ve come under increasing scrutiny for their content moderation policies, including discrimination against the disabled and the ugly, as well as what they do with the data of international users.
 
Michael Norris, a regular contributor to TechNode, wrote in an open letter to Tiktok in December:

Jingoistic politicians  aren’t your fault, but you’ll have to go all-out to add substance to your claims that TikTok’s management, operations, apps, markets, users, content, teams, and policies are separated from Chinese government interference. 

That’ll be made difficult by your connections to the Chinese Communist Party. These connections spur Bytedance to censor  sensitive videos, collaborate with party-related organizations, promote videos praising China’s armed forces, and de-tag videos which contain particular political figures.

Short detour: It’s not a Chinese company? According to a New York Times report, Tiktok claims it isn’t Chinese:

A TikTok spokesman on Monday stressed that TikTok was not owned by a Beijing-based company. Instead, its parent company, ByteDance Ltd., is incorporated in the Cayman Islands, though he could not say how many people are based there. That entity owns TikTok and all of the businesses in China, he said.

If you buy that Tiktok is from the Caribbean, perhaps I can interest you in some tickets to the next Fyre Festival?

Filling the gaps: Kevin Mayer isn’t Tiktok’s first international senior hire. Since 2018, they’ve regularly brought in non-Chinese executives to beef up compliance, communication, and product:

• Nov 2018: Mike Rodriguez, former Community Specialist at Youtube, joins Tiktok as head Content Strategy and Programming.
• Feb 2019: Tiktok hires Vanessa Pappas, former Youtube Global Head of Creative Insights
• April 2019: Digiday reports that Tiktok had poached up to 14 people from Snap.
• Oct 2019: Nikhil Gandhi joins Tiktok as its India head.
• Dec 2019: Richard Waterworth, former head of EMEA marketing at Youtube,  becomes GM for Tiktok in UK and EU.
• Jan 2020: Tiktok announces it has hired Microsoft IP chief, Erich Andersen, as general counsel.
• Mar 12 2020: The company announces the opening of a content moderation transparency center in the US.
• Mar 19 2020: Tiktok says it has formed an external content moderation advisory board made up of mostly American experts.
• As of May 22, most/all of these hires are still at Tiktok. 

An American in Bytedance: Chinese companies aren’t known for their ability to assimilate Western executives. But given Bytedance’s global hiring history, and how well it has retained American hires, I would not be surprised if Mayer, and Bytedance, prove to be a very visible exception to the historical pattern.

With his background in acquisitions, [Mayer] could build this into a colossus internationally, if internal company politics and resentment toward a foreign boss doesn’t get in the way.

Jim McGregor, Chairman, Greater China, APCO Worldwide

Who is Kevin Mayer? Mayer is most known for his efforts to build Disney’s streaming service. Judging by his CV, he is capable and ambitious:

• 1993: He joins Disney’s Interactive/Internet and television businesses, working on strategy and business development.
• Feb 2000: Kevin Mayer takes over as CEO of Playboy.com Inc.
• Sep 2000: He takes over as chairman and chief executive officer of the Clear Channel Internet Group.
• Feb 2002: Mayer joins L.E.K. Consulting LLC as a partner and head of the global media and entertainment practice.
• 2005: He is appointed as executive vice president of Disney’s new Corporate Strategy, Business Development and Technology Group. In this role, he was involved in the purchases of Pixar, Marvel, Lucasfilm, and 21st Century Fox.
• 2019: He is rumored in Bloomberg as possible next CEO of Disney
• Feb 25 2020: Mayer loses the fight to become CEO of Disney to Bob Chapek.
• May 19 2020: Bytedance announces that Mayer will join on June 1.

What he brings to the table:

• He’s not Asian: When talking with regulators or testifying to Congress, Tiktok will no longer have a face, literally, that reminds everyone of its origins.
• And handsome: He might be pushing 60, but he’s still got that all-American, just-stepped-off-the-football-field-look. Just sayin’.

Both points above seem superficial, but in the time of the “China virus,” it would be foolish for Bytedance to not take this into consideration.

• His experience with content: Given his experience with buying and selling content powerhouses, many are expecting him to go on an acquisition spree.
• His experience managing a global operation: Right now, everyone at Bytedance still reports to Beijing. Now, as head of Tiktok and COO of Bytedance’s global operations, all country GM’s will report to LA instead.

Short video decoupling? Douyin, under Zhang Nan, and Tiktok, under Alex Zhu, were already following different development trajectories. While Douyin carries its share of political content, Tiktok has done its best to be the exact opposite of Twitter and Reddit: a place where people can forget about the political debates of the day and relax with cute pet videos or maybe even pick up a new skill.
 
However, that’s just the frontend. The backend, the most valuable IP the company owns, is all created and maintained in China. Almost all of Tiktok’s engineers and product managers are still in Beijing and that doesn’t seem likely to change in the near future. But, having a clear delineation between Beijing and the rest of the world, or at least the appearance of one, could help Bytedance get out of the mire it’s found itself in.

Go further:

• TikTok took India by storm. Now it’s using the same playbook in the U.S.
• Inside The Hunt For TikTok’s New CEO—And What’s Next For The World’s Hottest App
• ‘A heavy hitter’: How Kevin Mayer gives TikTok an aggressive leader to break into the big leagues

Luckin Coffee has received notice from the Nasdaq stock exchange that the Xiamen-based coffee chain will be delisted. The announcement comes one day after a Reuters report claimed that the exchange will announce new rules that will increase scrutiny for new listings.

Watch: Thin ice for US-listed Chinese tech companies: Webinar playback

Luckin announced the delisting on Tuesday, and said they will contest the decision. This will allow them to remain listed until the hearing panel comes to a decision.

If delisted, Luckin shares could still be traded through over the counter systems like the Over-the-Counter Bulletin Board or the pink sheets system, putting it in the company of “penny stocks.” However, relegation to these systems is a reputational blow that few companies recover from.

On Monday, Reuters wrote that Nasdaq plans to announce new rules that require non-US companies to have raised more than $25 million in their IPO, or one quarter of their market capitalization after listing. While the new rules don’t specifically mention Chinese companies, the timing suggests this is aimed squarely at them.

Read more: Luckin fraud admission leaves more questions than answers

It’s been a horrible year for the coffee chain:

• In February, an anonymous report publicized by Muddy Waters raised serious doubts over Luckin’s financials.
• In April, Luckin Coffee, once a darling of China’s O2O industry, admitted to sales fraud amounting to RMB 2.2 billion in 2019.
• Last week, the company fired its CEO and COO over the fraud. But so far Charles Lu, founder and non-executive chairman, seemingly remains untouched.

In a filing to the SEC, Luckin Coffee has announced that CEO Qian Zhiya (also former CEO of CAR Inc.) and COO Liu Jian have been fired from their positions. This comes after “. . . evidence that sheds more light on the fabricated transactions described in the press release issued by the Company on April 2, 2020.” The Luckin board has appointed Guo Jinyi as Acting CEO.

No mention of Lu Zhengyao, chairman of the board and driving force behind CAR Inc. and the upstart coffee chain, was made in the filings. The firing of both Qian and Liu come more than a month after Qian’s beneficial and voting interests “decreased significantly” when Lu defaulted on $518 million loan from Goldman Sachs and a syndicate of other lenders.

Liu Erhai, founder of Joy Capital and prominent backer of both CAR Inc. and Luckin, remains on the compensation committee.

This is a developing story. TechNode will continue to follow it and update as necessary. Stay tuned.

Read more: Luckin fraud admission leaves more questions than answers

We are excited to share with you the recording of our latest webinar: Thin ice for US-listed Chinese tech companies.

In this online session we looked into the short reports accusing iQiyi, GSX Techedu and, of course, Luckin Coffee, of fraud. John Artman, TechNode’s Editor-in-Chief, and Emma Lee, our e-commerce and new retail reporter, were joined by market analyst Michael Norris and investor James Hull. They talked about how the short reports affected the accused companies and Chinese tech companies in US stock exchanges overall.

Because participants buy access to the webinar, we are making available to TechNode Squared members an abridged version. But don’t worry we have kept, most of it! We edited out participants’ juicy questions to our speakers.

Our next webinar on 5G, chips, AI and the trade war is coming up on May 21. As with the previous one, we will be giving limited-time free access to all our members. Sign up so you don’t miss it!

In the last week, we’ve seen Alibaba executive Jiang Fan demoted for an (alleged) affair with a major business partner, and Dangdang founder Li Guoqing attempt to seize control of the company by force as part of a very messy and very public divorce.

2020 has been the strangest year anyone living can remember. A localized outbreak that seemingly few expected to turn into a economy-crushing pandemic, an increasing vitriolic war of words between China and the Western world, one of the largest accounting frauds in China tech goes public, and a raft of bad behavior from China’s tech personalities. One does have to wonder just how bad this could all get. 

However, there are broader problems and themes that still need to be addressed.

It’s only when the tide goes out that you learn who has been swimming naked.

– Warren Buffet

Bottom line: Buffet’s quote was about companies and investors, but the same aphorism holds true for any number of phenomena: when things are bad, bad behavior comes into the light that much easier. Unfortunately, bad behavior and a lack of consequences in tech are nothing new. The origin of this week’s Insights is most certainly in part a victim of availability bias and, as we will see, there really is nothing new under the sun.

Recent headlines

The last two weeks saw two examples of bad behavior, one alleged and the other verified-by-video, one with big potential fallout, the other barely registered except for its soap opera-like quality.

Alibaba: Jiang Fan was the definition of an up-and-comer: one of the youngest Alibaba Partners and heir apparent to current CEO Daniel Zhang. It’s a pretty messy story, but here’s a concise summary:

• 2016: Alibaba takes an 8.56% stake in Hangzhou-based influencer agency Ruhnn.
• April 2019: Ruhnn goes public on the NASDAQ, raising $125 million. 
• April 17, 2020:  A Weibo user whom Chinese media identified as the wife of Jiang Fan posts a warning to Zhang Dayi, Ruhnn’s best performing KOL, not to “mess around” with her husband. Zhang accounted for nearly half of Ruhnn’s sales for almost three years. So far, we have seen no evidence to suggest the affair actually occurred.
• April 20: Jiang Fan calls for a probe into whether the alleged relationship with Zhang affected Alibaba’s dealings with her or Ruhnn, including their Taobao and Tmall operations as well as the investment in 2016.
• April 27: Alibaba announces that they have removed Jiang Fan from its list of Partners and demoted him from senior vice president to vice president. The company’s market cap falls by HKD 50 billion (around $6 million).

Listen to more: After Luckin, fraud will still be a problem

Dangdang: You’d be forgiven for forgetting that Dangdang still existed. We certainly had. The recent break in by co-founder and former CEO is a sharp reminder of the company as well as what a total a-hole Li Guoqing is. 

Pure sex without being in an extramarital affair does little harm to one’s wife.

– Li Guoqing in reference to accusations of rape against JD founder, Richard Liu

• 1999: Li Guoqing and wife Yu Yu found the company and, like Amazon, start by selling books. 
• February 2019: Li announces that he will leave the company, saying: “I believe that after I leave Dangdang and end the husband-and-wife business structure, Yu Yu will lead the company to future success and continue providing high-quality service to our 300 million customers.” 
• October 2019: Marital discord between Li and Yu goes public. Li blames Yu for forcing him out, and Yu fires back by accusing Li of stealing RMB 130 million from their joint savings account, having extramarital affairs with men, and domestic abuse.
• April 26, 2020: Li Guoqing, along with six others, storm into Dangdang’s Beijing headquarters in an attempt to take control of the company by taking the company’s official stamps. 

Chinese women pick men based on their ability to make money and they don’t care if they are good people. Chinese women’s depravity has led to the nation’s depravity.

– Yu Minhong during a speech at an education forum

No matter right or wrong, Lao Yu does not have to apologize to women, because his views just prove that he is a feminist.

– Li Guoqing referring to sexist remarks made by New Oriental founder, Yu Minhong

Not too distant headlines

In case you’ve forgotten, these aren’t the only cases of men in China tech behaving badly:

Richard Liu:

• July 23, 2018: Richard Liu is named as the host of a dinner party in 2015 that was the focus of a rape trial. Guest Xu Longwei was found guilty of seven charges, including raping a woman he met at the party.
• Aug. 31, 2018: Richard Liu is arrested in Minnesota for the alleged rape of a 21-year-old Chinese student who attended a dinner party with Liu. 
• Dec. 21, 2018: Charges against Liu are dropped for lack of evidence.
• Dec. 22, 2018: The Paper, the Chinese-language sister site to Sixth Tone, publishes an article with the headline: “Richard Liu’s attorney: Everything that happened was consensual, the girl kept asking for money.” Soon after, online mobs begin to go after the alleged victim.
• April 16, 2019: Liu Jingyao, the alleged victim, files a suit against Richard Liu in Minnesota Civil Court. 

Read more: JD readies for life after Richard Liu

Bao Yuming:

• November 2015: Bao Yuming, VP for oil company Jereh Group and independent non-executive director of ZTE, adopts a 14-year-old, identified in media reports as Xingxing. One month later, she tells police, he starts raping her.
• April 9, 2020: After years of Xingxing reporting the crime to the police in both Beijing and Yantai, Yantai police finally announce they are investigating the case after the accusations go public on Weibo.
• April 10, 2020: Jereh, ZTE, and Southwest University, where Bao was a researcher, announce they had severed contracts with him. Bao also announces his resignation from ZTE. 
• As of this writing, Bao is still a free man.

Not just China: Lest someone accuse me of being biased against China, I’d like to remind you of the following cases coming from Silicon Valley:

• Justin Caldbeck: On June 23, 2017, The Information reports on allegations made by six women in the tech industry who received unwanted and inappropriate advances from Caldbeck. One day later, Caldbeck issues an apology and announces an indefinite leave of absence.
• Andy Rubin: In 2014, Rubin is accused of coercing a fellow Google employee into performing oral sex on him in 2013. According to the New York Times, Google investigated, found the accusations credible, and asked for his resignation. Rubin resigns and leaves the company with an exit package of $90 million. In 2019, Rubin is sued by his ex-wife for cheating her our of a large portion of his personal wealth through an unfair and devious prenuptial arrangement.
• Dave McClure: On June 30, 2017, McClure is publicly accused of sexual assault and unwanted advances by two women. He makes a public apology in a now deleted Medium post and resigns as CEO of 500Startups. In 2019, McClure founds Practical Venture Capital.

An important reminder: We still don’t, and may never, know if Jiang cheated on his wife nor whether he gave Zhang and her company preferential treatment. Dangdang will probably never regain its leadership in China’s e-commerce industry, but the point here is much larger. As I wrote in 2017:

. . . much of the reason these men were able to get away with it for so long has much to do with the power that they hold and the ability to decide who gets what. Much like incumbents in traditional industries, these leaders acted as gatekeepers: determining who gets what funding, which part in a movie, or what job.

. . . 

China has been, and still is, a country rife with unethical and immoral behavior. While the corruption crackdown has certainly gone a long way to stem the tide of some of this behavior, old habits die hard. Not only are those old habits still alive, but since there’s no one talking about it, these unhealthy and damaging behaviors continue unabated and unpunished.

As prominent feminist thinker Leta Hong Fincher has written, things are actually getting worse for women in China. The equality of sexes of previous generations has been slowly but surely eroded as the traditional patriarchy of East Asia makes its resurgence in China.

At its most innocuous, men with money and power like Jiang Fan will continue to have mistresses. At its absolute most evil, men with money and power like Bao will continue to abuse, permanently and irreparably damaging, the nation’s young women and children. And not just in China.

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

An episode full of salacious scandals and controversy! In this episode, the guys welcome back Technode’s own Wei Sheng to discuss a recent lawsuit filed against Luckin Coffee in China, and how regulators are cracking down on the company since their admission of fraud. James and Elliott also discuss the controversy brewing between Meituan and their vendors, Pinduoduo’s recent moves, and the scandalous love affair involving some of the biggest names in the Alibaba ecosystem.   

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Luckin Coffee

Links

• Meituan
• Jiang Fan/RUHN scandal
• Pinduoduo

Guest:

• Wei Sheng – @weishengn

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

2020 did not start well. Covid-19 has created upheaval around the world and, while it started in China, the outbreak seems almost under control in the Middle Kingdom. Most of TechNode is back in China. As restrictions loosen, we’re all asking when will things go back to normal? What does the new normal look like? What happens in China may offer a rough timeline for the rest of the world, as well.

In order to answer that question, we’re working on compiling a list of indicators, including search queries, store openings, travel, and manufacturing. We’re planning to launch our Normalcy Tracker next week, but, for members, here’s a preview of what we’re seeing.

Bottom line: Everyone wants to go back to the “China dream” as soon as possible, including the government. Covid-19, provincial lockdowns, aggressive community isolation, and home quarantines have left their mark. The government, however, is close to declaring victory: travel restrictions for Hubei province have been lifted (except Wuhan), Beijing is telling its residents they can stop wearing masks, and many provinces are telling kids they can come back to school. However, it will be until at least June before the consumer market starts looking like it did pre-Covid. For industries that rely on global trade, the new normal hangover could be even longer: If the rest of the world is like China, then we’re looking at September this year before the global demand for China’s exports picks up again.

A brief timeline:

• Jan 21: Zhong Nanshan, known for discovering the SARS virus, confirms person-to-person transmission of SARS-CoV-19.
• Jan 23: Hubei, including Wuhan, goes into lockdown.
• Feb 3: Extended Chinese New Year ends. China’s workforce begins remote work.
• Feb 15: Hangzhou is the first city to end lockdown, with help from QR codes. 
• Feb 15: Beijing announces mandatory 14-day at-home-quarantine for anyone returning to the city from inside China.
• Feb 24: Seven provinces lower their emergency level.
• Feb 26: Beijing announces all passengers arriving to the city from abroad must also undergo 14-day at-home-quarantine.
• Mar 3: Interprovincial travel restored in Yangzi River Delta as Shanghai, Jiangsu, Zhejiang, and Anhui sign a regional health Schengen-type deal.
• Mar 26: China announces that foreign nationals will no longer be allowed to enter the country, except in rare circumstances.
• Mar 26: The same day, China also announces a severe limitation on inbound and outbound flights. 

Searching for normalcy: China wants to know when they can go back to work and school:

• In a Feb. 18 report, Baidu said that “return to work”-related search queries increased eight-fold month on month, while those related to Covid-19 had started to decline.
• In terms of industries, online education saw the greatest increases in searches on Baidu, ballooning nearly 250% compared to January as Chinese people looked to get their children’s education back on track while the effects of the outbreak subsided.

Travel coming back—within provinces: Tomb-sweeping day, a national three-day holiday, is right around the corner. Data from travel platforms suggests China is ready to travel again:

• Fliggy, Alibaba’s travel booking app, shows railway and attraction ticket purchases for the week ending March 23 doubled from the week before.
• As of March 17, tickets to nearly 1,500 popular tourist areas could be bought online, and 40% of the country’s top tourist spots had reopened.
• Around 80% of hotels have reopened in most provinces, according to online travel site Trip.com. The hotel reopening rate in eastern Anhui and Zhejiang provinces, southern Guangxi region as well as central Hunan and northern Shanxi provinces reached 95%.
• Qunar said that user searches for the upcoming May 1 holiday had increased by nearly 80% in a week. 
• One big caveat: Most of the uptick in bookings are for travel within the buyers’ province. 
• And: China’s tourism revenue is expected to drop by RMB 1.18 trillion (around $168 billion) in 2020, according to the China Tourism Academy. 

Spring shoots for retail: Major retailers, including Apple and Xiaomi, are coming back to life:

• Apple has reopened all of its 42 stores in China after they were shut in early February after China imposed measures to stop the spread of Covid-19. The company has gradually been reopening its stores since mid-February. 
• Xiaomi said on Thursday last week that it had reopened 1,800 stores across the country and 80% of its suppliers had resumed work. The company said that it plans to maintain a steady product release pace. 
• Ikea has also opened all of its stores except one, in Wuhan. The company has a total of 30 standard-format stores, two experience stores, and three LIVAT shopping centers in China. 

Factories are revved up, but who’s buying? Factory owners are keen to get production lines back up:

• 90% of firms in Guangdong  province had resumed operations as of March 2.
• In total, 209 companies that are major suppliers to Huawei, 21 suppliers to ZTE, 167 suppliers to Mida, and 343 suppliers for GAC Group, have been given the go ahead to recruit workers.
• China’s second-biggest automaker, Dongfeng Motor, resumed limited operations in Wuhan on March 11.
• However: Overseas orders are taking a big hit as Covid-19 chews through trading partners.
• Good Will Watch Case Manufacturing, a supplier to Fossil, has said they are putting their workers (over 600) on leave for at least three months.

A new normal? Tech companies, workers, parents, and regular people all want to get back to normal, but that will look quite different from just a few months ago. 

• Checkpoints at residential communities, consumer-facing businesses, and office buildings are still in effect.
• Offices are still far from full (with some even banning foreigners from entering).
• Cinemas and other performance halls are still closed despite bars, restaurants, and cafes re-opening.
• Tencent is cooperating with provincial CDC offices to launch a health QR code system for students returning to school. Under this system, each school can stick a passcode at its entrance which parents can then scan for unimpeded access.
• Alibaba’s fintech affiliate Alipay said on Wednesday that all cities in eastern Zhejiang, southwestern Sichuan, and southern Hainan provinces have adopted its health code system. The system is currently going national after being adopted in 200 cities.

Watch this space! This was just a preview of what we’re tracking. We’ll have the full new normal dashboard up on the site soon.

Read More:

• How China built its health surveillance system
• How China is using QR code apps to contain Covid-19
• How the Virus Got Out
• A third of coronavirus cases may be ‘silent carriers’, classified Chinese data suggests
• How much toilet paper?

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

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

In this episode, the guys welcome back guest co-host Michael Norris from Agency China. The three of them discuss markets’ sudden and dramatic correction and strategies for coping with such dramatically negative market sentiment. They also go over the recently-reported Q4 earnings reports from Alibaba, Baidu, and iQiyi.

Subscribe to TechNode

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Luckin Coffee

Guest:

• Michael Norris – @briefnorris

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

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

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

In this episode, the guys welcome Technode’s Wei Sheng to discuss the continued US-China tech decoupling, and how Huawei is attempting to succeed in Europe without access to Google Play services. James and Elliott also look at how the COVID-19 coronavirus outbreak has impacted China’s tech giants thus far.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Luckin Coffee

Links:

• TechNode Newsletters
• Huawei coverage on TechNode

Guest:

• Wei Sheng – @weishengn,

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

It’s hard to overestimate how much Covid-19 has changed life in China over the past few weeks. In a country that rarely leaves the office, most of the population has been on remote work for three weeks and counting. The question now is what will go back to normal in a few weeks or months, and what will be the lasting effects.

As discussed on the China Tech Investor and China Tech Talk podcasts, and explored extensively by our reporters, the outbreak is creating an immediate impact on many of the products and services China has taken for granted. Understanding what is happening now is the key to figuring out what China will look like once this is all over.

Bottom line: SARS-CoV-2 (the virus) and Covid-19 (the disease the virus causes) show no signs of going away any time soon. It could be until June for things to go back to normal, and even then, we’re still not sure what the new normal will look like. 

That being said, take the “top 10 ways China is changing” articles floating around LinkedIn with a generous pinch of salt. Ingrained work and educational culture don’t change so easily. Yes, remote work and online education will automatically get more users from this crisis, but don’t expect this to be the same turning point for online services as 2003 was for e-commerce.

The remote crunch: China officially resumed work on Feb. 3, but most offices remain closed and are relying on remote work tools. Dingtalk, Wechat Work, and Bytedance’s Feishu (also known as Lark) were some of the most used apps. DingTalk rocketed to the top of the China iOS app store, with Wechat Work and Tencent Meetings coming in at a close second and third. From Jan. 30 to Feb. 5, downloads of Dingtalk increased by five times while downloads for WeChat Work increased four times. On Feb. 3, Dingtalk announced on Weibo that they had served over 10 million companies and more than 200 million employees. However, in the same announcement, they also apologized to users for usability issues related to overloaded servers. One week later, we’ve heard anecdotal reports of similar issues with both Dingtalk and Wechat Work.

Back to school? As soon as the seriousness of Covid-19 became clear, China’s education authorities announced that in-person classes would be cancelled. Universities are expected to resume offline classes on May 1, while different cities have announced different schedules for primary and secondary education, some as early as March and others as late as April. Even before the extended Spring Festival was over, students were receiving new homework assignments. Kuaishou, Youku, VIPKid, New Oriental, and even Dingtalk are jumping to provide free services for students, teachers, and schools.

Misfortune is a blessing in disguise: Companies across China are making their best efforts to help during what Xi Jinping has called a “people’s war.” While it would be extremely cynical to doubt their altruistic intentions, it would also be naive to ignore the opportunities many are trying to capitalize on. Indeed, making paid services temporarily free is a classic sales tactic to drive user acquisition. In their recent earnings call, Alibaba highlighted “explosive” growth in Dingtalk user growth. In the same call, Alibaba CEO Daniel Zhang said that “over 150 million daily health check-ins have been recorded on DingTalk.”

In a Feb. 10 announcement, Wechat Work said their server load had increased by 10 times (Wechat did not provide specific user numbers). They have made large meetings free and have rolled out new features including group live streams, health reports for both businesses and schools, and online medical consultations.

Bytedance did not provide any data but said they had made many paid Feishu functions free, including an OKR tool, a health check tool, as well as other remote work functions.

This is not 2003: Covid-19’s implications for China tech are not the same as they were for SARS. The SARS epidemic was definitely a turning point for the internet in China. Not only did it validate the market for things like texting, but also increased the need for broadband internet and convinced users that shopping online could be trusted. 

In 2020, almost everyone who can get online already is. Online services unthinkable in 2003 have been validated and are quickly reaching maturity. The key for many online businesses during this time is user acquisition, not proving a model. The main challenge after the crisis will be user retention. Already Dingtalk and other education apps are seeing 1 star reviews from students in an attempt to get them removed from app stores. Employees forced to use enterprise apps were already complaining about the level of managerial intrusion into daily work long before Covid-19.

For now, businesses have no choice but to conduct their work online. Parents must allow their children to learn remotely. 

But many businesses are already pushing for their employees to come back into the office, both for operational reasons and as a sign of confidence and perseverance. Given the status of the teacher-student relationship in Chinese culture, it is hard to imagine parents forgoing face-to-face interaction for continued online learning.

Given the cabin fever many are experiencing, I actually expect a surge in demand for offline activities in the wake of the crisis. People want to get out of the house and will most likely take any excuse to do so once things start looking up.

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

The coronavirus epidemic doesn’t show any signs of getting any better just yet. While the future of the outbreak is still unclear, the winners and losers of this are clear. In this episode, Matt and John discuss how the coronavirus is changing the face of tech in China.

Links

• Become a member of TechNode Squared
• Our newsletters
• TechNode’s coverage of the coronavirus

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @mbrennanchina, ChinaChannel

Editor

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

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

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

In this episode, the guys welcome on veteran media executive and Caixin Global executive producer Marcus Ryder to discuss the massive ripple effect of the Wuhan coronavirus on China’s economy and tech industry. They try to get a grip on the many ways that the outbreak is shaking up our assumptions about the Chinese economy, markets, and tech space in the first quarter of 2020.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Luckin Coffee

Guest:

• Marcus Ryder – @marcusryder

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

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

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

In this episode, the guys welcome veteran China tech journalist Wang Boyuan to the show. They make some bold and not-so-bold predictions for China’s digital economy in 2020, including what we can expect from Xiaomi, Bilibili, Bytedance, JD, and the continued rollout of 5G. James and Elliott also talk about surging Chinese tech stocks at the moment, and strategies for managing your portfolio amidst a bull market.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Luckin Coffee

Guest:

• Wang Boyuan – @thisboyuan

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

Editor’s note: This post about Tencent investments originally appeared in our members’ only weekly newsletter, accompanying Elliot Zaagman’s analysis of Tencent’s global investment strategy published here. Sign up and read it first.

Tencent has an interesting investment strategy. In every sector except gaming, they spread their bets, usually taking only a 20% stake. However, as we discovered, that strategy still has room for variation. In preparation for Elliott Zaagman’s analysis of their investment strategy, we collected, cleaned, and visualized the publicly available data on how the tech major deploys its money.

One pattern was very clear: in relatively mature markets (US and India) they prefer to make a lot of small bets at the early stage. In immature markets (Southeast Asia and Africa), they go with larger players at later stages.

Our hypothesis: mature markets have already been won so it makes more sense to invest in smaller, but potentially disruptive companies. In immature markets, where they have less expertise and the market is still rapidly developing, it makes more sense to invest in companies who have already won or are about to. No matter which market, however, Tencent only likes making acquisitions in the gaming space, where it still garners the biggest proportion of revenue.

The data present is incomplete, though. We only included investments with publicly available funding data. Even then, we still don’t have exact figures on how much Tencent invested, no matter if they were led or followed-on. In addition, we don’t include the value of acquisitions, mostly of gaming companies (for gaming acquisitions, PC Gamer has a helpful overview). Elliott’s piece, the data he gathered and that we present below, is just one way of interpreting the data. If you have other interpretations, we’d be glad to hear them.

—John Artman, Editor in Chief

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.

Happy New Year! In this episode, the guys look over their watch list and discuss the biggest winners and losers of 2019. They also make a few bold predictions about what to expect in 2020 for the biggest names in China tech.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Luckin Coffee

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

In this episode, the guys welcome Tu Le, Managing Director of Sino Auto Insights, to discuss China’s dynamic electric vehicle and automotive industry. Tu explains how an investment bubble and generous government subsidies led to an explosion in EV startups, but how as the money has dried up, these firms are now under intense pressure to prove that they can actually compete with the large international automakers.

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.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping

Guest

• Tu Le – @sinoautoinsight

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

Additional contributions by David Cohen.

In the West, monopolies are a source of fear. Silicon Valley has tried for many years to convince users and regulators that the term should be rehabilitated. Since the 2016 American presidential election, however, the increasingly monolithic role of tech in Western society is coming under fire. Leaders of tech firms are being subjected to vitriol in public hearings in the US, while the EU searches for ways to curtail their influence in public and private life. In China, however, the role of tech in society is viewed in a much different light. For the state, big is beautiful.

Like the West, China has its clear tech winners. But there’s no easy comparison. Much ink has been spilled trying to understand Chinese tech majors by comparing them to Silicon Valley counterparts; just as American tech majors control ever more of the economy, so too do China’s. 

In China, more than anywhere else, the boundaries between online and off are increasingly blurred, giving tech giants outsized influence not just on how we consume, but also the broader shape of the economy. Since 2014, the growth in revenue for Baidu, Alibaba, and Tencent have outstripped China’s GDP by many multiples:

Far from the open space the internet was imagined as, these firms are defining it as a series of fiefdoms. Unlike US majors who have stayed relatively confined in their chosen verticals, China’s fiefdoms are sprawling empires encompassing almost every transaction in the consumer economy.

Bottom line: The heady days of the early internet are long gone. First envisioned as an open network freeing the flow of information, the global internet is now balkanized. While China was the first country to isolate its internet, we now see balkanization along company lines as well. Silicon Valley has its FANG (Facebook, Amazon, Netflix, and Google) while the Middle Kingdom has its BAT (Baidu, Alibaba, and Tencent) and TMD (Toutiao/Bytedance, Meituan, and Didi). To do business (not just online), entrepreneurs must rely on the giants for money, access to users, and much more. 

Competing fiefdoms: The two biggest fiefdoms are those of Tencent and Alibaba. Founded just a year apart, these two giants couldn’t be any different. Tencent began as a social media company with its release of QQ in 1999. Since then, it has expanded into gaming and content (movies, books, music, etc). Its CEO, Pony Ma, is notoriously media-shy and the company encourages a siloed approach to product development, encouraging teams to compete.

Alibaba, on the other hand, started as an e-commerce company. By creating a trust mechanism, Alipay gave buyers and sellers confidence to make transactions. Since then, the company has consolidated its e-commerce strength with a variety of services online and increasingly offline. Jack Ma, co-founder and former CEO, is outspoken, flamboyant, and always ready with a clever quip.

Valued at $75 billion, Bytedance is an outlier. A second-generation giant, Bytedance has amazingly grown from a news aggregator app into a real threat for both Alibaba and Tencent. Leveraging its powerful recommendation algorithm, Bytedance entertainment products are slowly eating away at Tencent’s hold on attention while their foray into e-commerce could potentially loosen Alibaba’s stranglehold as well.

Proxy war: Both Alibaba and Tencent, while expanding into peripheral verticals, also compete head-to-head: Tencent has allied e-commerce platforms Pinduoduo and Jingdong; Alibaba has social media/workplace tool DingTalk as well as music app Xiami and O2O services Koubei (which competes with Tencent-backed Meituan). These proxy plays are just another example of how ambitious these companies are. But they have to be: if they didn’t incorporate these new products and service models into their fiefdom, they would quickly become irrelevant and lose much of their hard-won market share, as Baidu has done.

A cautionary tale: If there ever was a company (and founder) who should have succeeded, it was Ofo and Dai Wei. President of the Communist Youth League at Tsinghua, Dai Wei was an up-and-coming leader. Zhen Fund, which claims to invest in founders more than ideas, saw a young, well-connected man who might just have what it takes to grow a company from nothing to a giant. However, Dai’s effort to play both sides (Tencent and Alibaba) doomed Ofo. 

Bike rentals, no matter which way you cut it, was a tough business. Dai made it even tougher by taking investment from, and allowing on the board, Tencent-backed Didi and Alibaba’s Ant Financial. Both wanted in on the booming bike rental market, but neither would allow the other to take control. Ultimately, Didi would instead buy and scale BlueGogo and Ant Financial would get into bed with lower-tier city success story Hello Bike.

The slow death of the open web: The web (as in the world-wide one) was meant to be open. The HTTP protocol and HTML language were created to allow anyone and everyone to create and disseminate information. It was about information, not monetization. However, over the past decade we’ve seen some of the smartest people create inventive ways to make money on top of the web infrastructure. But you can easily use the internet protocols without the web.

Eleven years ago, apps were a very novel thing. Many, at first, were ported websites with a mobile UX. By now, apps have evolved into the centerpiece of everyone’s phone: you can’t have a successful smartphone product without apps to back them up. 

Without companies dedicated to the open web a la Google and with the fierce competition in the China market, the open web is virtually dead in China. Baidu, even though very similar to Google, never had the same principles. Their search product, as it stands now, does more to drive traffic within its own fiefdom than actually fulfilling user requests for information. For companies, the open web means a much more shallow moat where users can flit from link to link. Apps, on the other hand, are sticky, designed to keep users inside as long as possible. “Deep linking” to other applications on a phone wasn’t even allowed until many iterations after the first version of iOS.

And the open web is only getting more dead: In China, private traffic has become the latest in monetization techniques. Using “open” platforms like Taobao, merchants pull buyers into their conversion funnels with WeChat groups 

For Chinese users, there’s almost no reason to open a web browser: all their content, friends, family, shopping, and playing are all done through apps controlled by one of the tech giants or their partners. 

This suits the giants very well. By keeping users in their ecosystem of apps and blocking deep links to competitors’ suite of apps, China’s tech majors are reinforcing their monopolistic fiefdoms while users are enjoying the fruits of even more consumption power.

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

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

In this episode, the guys welcome on the boss man, Technode’s Editor-in-Chief John Artman, to discuss trends, myths, and realities around the edtech space in China. James and Elliott also touch on some of Xiaomi’s recent moves, as well as Wolfpack Research’s serious accusations against Qutoutiao.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping

Guest

• John Artman – @knowsnothing

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

This episode, Matt and John embark on a wide-ranging discussion about China tech in 2019. Using Bytedance as a lens, they explore the disruptive power of new companies, Bytedance’s successes and challenges outside of China, as well as what the world is learning from China tech.

Key Questions

• What’s changed with Bytedance since we last talked about them?
• What challenges are they facing outside of China?
• How are other countries dealing with highly successful Chinese consumer products?
• How is Bytedance acting as a disruptor at home and abroad?
• What should we be thinking about as 2019 comes to a close?

Links

• Become a member of TechNode Squared
• Our newsletters
• 66: The next Facebook will be Chinese

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @mbrennanchina, ChinaChannel

Editor

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

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 discuss Alibaba’s blockbuster listing in Hong Kong, and why this could impact the future of Meituan Dianping, who posted their second-straight profitable quarter. James and Elliott also dig into what has made Meituan so special in 2019 and look into Xiaomi’s Q3 earnings as well.

Please note, the hosts may have an interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

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 Peking University finance professor, Carnegie-Tsinghua fellow, and Beijing indie-rock entrepreneur Michael Pettis for a hard look into the broader issues concerning the economy in China and around the world. Michael explains how outsiders should interpret China’s GDP numbers, the structural imbalances in the Chinese economy, and the underlying dynamics at the heart of the US-China trade war.

James an Elliott also discuss Pinduoduo’s Q3 earnings report, which sent the oft-volatile stock tumbling again, after its surge in recent months.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping

Guest

• Michael Pettis @michaelxpettis

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

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 guest-host Michael Norris from Agency China to talk earnings. They go over the quarterly reports from Alibaba, JD, and Tencent, as well as Luckin Coffee’s very impressive report, which sent their stock soaring.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping

Guest

• Michael Norris

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

On November 11, TechNode was proud to host the 6th annual TechCrunch International City Event in Shenzhen. As part of the conference, TechNode’s English team put together an afternoon of in-depth content as part of the Emerge side stage, including topics such as cloud gaming, mass customization and customer-to-manufacturer (C2M), and the relationship between the China and India tech ecosystems.

It was a chance to reflect on the last year, and where China’s tech is going. I gave a short presentation on what I believe to be the megatrend for 2019: going global. I know, I know, you’ve probably heard this already for year’s now and, if you’re in touch with China’s startups and tech majors, the term chuhai (going overseas) is probably hackneyed at this point.

Bottom line: While giants like Alibaba and Tencent have made significant investments abroad since at least 2011, 2019 was the year China tech could be palpably felt on the global stage. While many have been quietly expanding, Bytedance’s were some of the first content products to not only take off, but also gain significant attention from users, journalists, and politicians around the world. China is not only getting attention for its money, but also its clever implementation of technology. What’s next for China tech, however, is uncertain. As the trade war continues with no end in sight, China’s companies are receiving more scrutiny. Global investments, especially in the US, are decreasing. As always, though, the ride promises to be an interesting one.

A brief timeline:

• 2011: Tencent acquires a 92.78% stake in League of Legends developer Riot Games, based in the US, for $230 million.
• 2016: Alibaba purchases Singapore-based e-commerce platform Lazada for $1 billion.
• 2016: Bytedance invests in India’s largest vernacular content aggregation platform, Dailyhunt.
• 2017: Alipay officially launches in Southeast Asia with merger of helloPay (originally under Lazada) into Ant Financial.
• July 2018: Bytedance launches Helo in India.
• 2018: WeChat Pay officially launches in Malaysia, allowing users to directly bind their Malaysian bank cards to WeChat’s payment platform.
• Aug 2019: Transsion, the Shenzhen-based smartphone maker and largest in Africa, creates the Future Hub incubator for African startups. The smartphone maker has already made significant investments in browser company Phoenix, content aggregator Scoop and music service Boomplay.

Companies going global: It’s not just Alibaba, Tencent, and Bytedance—other companies like JD.com are making big investments overseas. Yet others, including Cheetah Mobile and UC Browser are global first:

• Huawei already has significant market share in Europe for telecoms equipment and smartphones. In February, they announced the creation of a data center in Egypt to service Middle Eastern and North African (MENA) users.
• JD.com has invested in its own operations in SEA as well as a $19 million investment in Thai fashion brand Pomelo.
• YY purchased Bigo, an AI technology company in Singapore, for $1.45 billion in March 2019.
• Others go global first, establishing home markets overseas:
  • Cheetah Mobile claims to have 68% of its user base outside of China.
  • JollyChic, a China-based e-commerce platform, is one of MENA’s most popular with 35 million users in the region.

Global doesn’t mean US: Focusing on the Western developed world, as we can see above, is a mistake. All the opportunities for real growth are in the developing world. Indeed, as we see below, it’s the developing world that benefits the most from China’s money and its models.

 Money going global:

• As of June 2019, Chinese VC firms have invested $667 million in Southeast Asia year-to-date.
• As of July 2019, total investment by Chinese firms in Southeast Asia reached $1.78 billion.
• In 2018, Indian startups raised $5.6 billion from Chinese investors.
• Alibaba has made investments totaling $1.35 billion in India, while Tencent and Shunwei (Xiaomi founder Lei Jun’s VC firm) have made investments totaling $1.25 billion and $33.6 million, respectively.
• The UAE has established a $10 billion joint strategic investment fund between Abu Dhabi investment group Mubadala, China Development Bank, and the Chinese State Administration of Foreign Exchange.
• Al Waha Fund of Funds invested an undisclosed amount into a $250 million fund managed by Beijing-based MSA Capital.
• Shaka Ventures, based in Nairobi and Nigeria, is founded by Chinese investors and has made three investments to date of up to $1 million each.
• Hillhouse Capital recently lead a Series A of $30 million for Lori, Africa’s “Uber of trucks.”

Models going global: You don’t need the Chinese majors’ money or their support to start rolling out similar models. Already bike and scooter rentals are taking off outside of China. In the US, electric scooters are more popular than pedal bikes—Americans aren’t exactly the biggest fans of exercise.

In Southeast Asia, companies like Grab and Gojek, who both started with ride-hailing a la Didi and Uber, are also trying to become super-apps with both offering meal delivery, grocery and medicine delivery, and mobile payments. Gojek has gone a step further and now includes O2O services like massage, laundry, and car repair as well as movie and tourism ticketing.

In Hong Kong, there are at least eight different payment providers vying for supremacy, while Vietnam has at least 10 trying to do the same. Earlier this year, I spoke with a Brazilian VC who was keen to learn more about mobile payments in China as their firm sees this as a next step for consumer services in the country.

Chinese style e-commerce is also gaining traction, especially in Southeast Asia, with similar logistics, warehousing, and payment challenges that China once experienced.

The turning point: While many tech majors are trying to crack global markets with services, Bytedance is the first the breakthrough as a global household name.

TikTok, formerly Musical.ly (built in Shanghai), is to date the most successful global content product made by a Chinese company.

But the company’s success has provoked suspicion. Previously, Bytedance products in India, including TikTok and Helo, were under scrutiny for data transfer to China as well as content linked to sexual harassment and political violence. In the US, Huawei was already the go-to whipping boy until US Senator Marco Rubio called on CFIUS to investigate Bytedance’s 2018 acquisition of Musical.ly after they were accused of censoring content related to the Houston Rockets and protests in Hong Kong. 

Just recently, a congressional advisory body published recommendations on dealing with the rise of China’s AI capabilities and Xi Jinping announced official support for the country’s blockchain initiatives. The fact that Chinese companies are getting so much scrutiny means that China’s tech has truly arrived on the global stage.

What’s next?: China’s arrival doesn’t mean that everything will be rosy for the country’s entrepreneurs, investors, and tech majors. Already the US has rolled back two major acquisitions by Chinese companies, China’s share of global investment is down to 2% as of April 2019 from a high of 21% in 2015, and data sovereignty is becoming more an issue.

Indeed, the world seems to be learning an approach China was the first to implement: the balkanization of the internet. Not only are some countries implementing stricter internet controls, but many US companies are making their services inaccessible to EU customers due to the costs of GDPR compliance.

Things change fast in tech. But the course we’re on now is that by the end of the next decade, the future of growth—in particular in developing countries—will be centered around Chinese models, not Western ones.

—Additional research by David Cohen

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

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

In this episode, the guys welcome Sino Global Capital founding partner and CEO Matthew Graham. They discuss the plans for the PBOC’s own digital currency, China’s love/hate relationship with blockchain, and how cryptocurrencies and blockchain technology could impact China’s tech firms and broader economy.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping

Guest

• Matthew Graham – @mg0314a

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

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

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

In this episode, the guys welcome The Financial Times’ Nian Liu and Christian Shepherd. They discuss Baidu’s fall from grace, Bytedance’s ascendency, and how China’s unique digital economy has shaped the roles that search and recommendation play within it.

Their recent article on the topic can be found here.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping

Guests

• Christian Shepherd- @cdcshepherd
• Nian Liu- Nian.liu at ft dot com

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

China’s social credit system (SCS) gets a lot of attention outside of China yet it’s still very misunderstood. Many scholars and China watchers have shed light on the topic, but none have done it so concisely and accessibly as Kendra Schaefer and her team at Trivium China. She joins us this week to explain how the SCS is a broad framework for better regulation and enforcement and how it applies to companies, individuals, and government agencies.

Key questions

• What is the purpose of the SCS? How far along is its development?
• Is the SCS only for individuals?
• How does the SCS apply to companies?
• How are China’s cities gamifying SCS?

Links

• 77: Peer-to-peer lending in China—Tech-driven shadow banking with Andrew Polk
• The apps using social credit in China
• Executive Summary: UNDERSTANDING CHINA’S SOCIAL CREDIT SYSTEM
• China’s Social Credit System: An Evolving Practice of Control
• Keeping track of social credit
• EUROPEAN CHAMBER REPORT ON CHINA’S CORPORATE SOCIAL CREDIT SYSTEM A WAKE-UP CALL FOR EUROPEAN BUSINESS IN CHINA
• Become a member of TechNode Squared

Guest

• Kendra Shaefer, @triviumchina

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @mbrennanchina, ChinaChannel

Editor

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

China gathered its tech elite—along with the part of the world that’s answering its calls—for the country’s annual internet conference last weekend.

Founded in 2014, the World Internet Conference Wuzhen Summit (that’s a mouthful, isn’t it?) is one of the main platforms the Chinese government uses to promote its vision of the internet. Just as in previous years, the conference featured big speeches from big names, including CEOs Robin Li of Baidu and Lei Jun of Xiaomi. Unlike previous years, however, most of Silicon Valley’s tech giants were absent, although other major American companies with better market access continued to attend. With the trade war in the background, this wasn’t surprising. Indeed, the sixth edition of the conference had fewer surprises, with minimal English-language coverage from domestic and international media. TechNode, unfortunately, was not invited to cover the conference and, in retrospect, I’m not sorry we weren’t.

Bottom line: This year’s WIC was sedate to the point of boring. While previous years featured a plethora of big names, big news, and big controversies, this year’s seemed more like a typical tech conference with a slight governmental flavor. The only really interesting bits were the World Internet Development Report 2019, released on the last day, and the unrelated Hurun Report on Chinese unicorns. 5G and AI were on prominent display during the conference.

A brief timeline

• 2014: The first World Internet Conference is held in Wuzhen. During the meeting, a draft of the Wuzhen Declaration is slipped under attendees’ hotel doors around midnight, leaving attendees little time to file for revisions. The Declaration contains language affirming each country’s right to cyber sovereignty.
• 2015: WIC gets more confident, with attendees including Xi Jinping, Jack Ma, and the prime ministers of Russia, Pakistan, Kazakhstan, and Kyrgyzstan. Organizers release the Wuzhen Initiative, which “calls on all countries to promote Internet development, foster cultural diversity in cyberspace, share the fruits of Internet development, ensure peace and security in cyberspace, and improve global Internet governance.”
• 2016: A low-profile WIC is overshadowed as China’s top legislature announces draft laws on cybersecurity and nuclear safety.
• 2017: WIC reaches peak international attention, with Apple CEO Tim Cook and Google CEO Sundar Pichai attending; Bob Kahn, a father of the internet, gives the opening speech. During the conference, the banquets featuring Ding Lei (founder of Netease), Richard Liu, Wang Xing, and Pony Ma garner attention after a photo of the Tencent ecosystem banquet sparks rumors—especially the surprising attendance of Zhang Yiming, founder and CEO of Tencent rival Bytedance.
• 2018: Xinhua’s first AI anchor makes its debut. Qualcomm is the only American tech company to send their CEO. Even Chinese top leaders are a no-show, with Xi Jinping sending a letter instead of making a speech as he did in 2015.
• 2019: WIC is held on October 20-21, with the theme: “Joining hands in constructing a community of shared future in cyberspace.”

Who wasn’t there

• Apple (according to the SCMP, Apple representatives registered for the conference but were unable to attend)
• Google
• Pony Ma
• Richard Liu, JD founder and CEO
• Xi Jinping

Who was there

Many of the corporate delegates were predictable. Given the trade tensions, however, the American companies in attendance were noteworthy. Nearly all, as you would expect, have significant interest in staying on the good side of the Chinese government, but they clearly aren’t consumer-focused. Instead, many are keen on the growing B2B market.

• Jack Ma
• Robin Li
• Lei Jun
• Yang Yuanqing, Lenovo CEO
• Mark Ren, Tencent COO
• Yuri Milner, co-founder and former chairman Mail.ru Group, formerly known as DST
• Microsoft
• Honeywell
• Intel
• Cisco
• Qualcomm
• Huawei
• Sequoia Capital
• NetEase
• Qihoo 360
• 58.com

Data points

• According to the China Internet Development report (in Chinese), released in August but highlighted in Wuzhen, China’s digital economy grew to RMB 31.3 trillion (about $4.4 trillion) in 2018 and accounted for 34.8% of the country’s GDP.
• E-commerce transactions that same year totaled RMB 31.6 trillion. E-commerce services generated RMB 3.5 trillion in revenue.
• As of June 2019, China had 854 million internet users with a penetration rate of 61.2%.
• Hurun released their annual Global Unicorn List, tabulating companies valued at $1 billion or more. This year shows China with 206 total unicorns, leading the US by three.
• According to the report, China and the US have over 80% of the world’s unicorns. It argues, “The rest of the world needs to wake up to creating an environment that allows unicorns to flourish.”

Interesting happenings at WIC 2019

• China awards Megvii and Huawei, both blacklisted by the US government, with the “World Internet Scientific and Technological Achievements.” Other firms given the recognition were Tencent, Baidu, Alibaba, Tesla, Microsoft, the chipmaker Xilinx, and SAP.
• Lei Jun announces that Xiaomi will release 10 5G phones in 2020.
• Zhao Ming, president of the Huawei smartphone brand Honor, announces that the 5G-enabled Honor V30 will be launched next month.
• Huawei unveils the Kunpeng 920, claiming that it is the world’s fastest processor—up to 25% faster than competitors and 30% more energy-efficient.
• Bank card provider UnionPay unveils a facial recognition payments system.
• On Monday, the second day of the conference, China’s legislature announced they were reviewing a draft revision to the Law on the Protection of Minors, including the management of cyberspace, the protection of personal information, and anti-addiction measures.

Overheard in Wuzhen

Official China

• The World Internet Development report, released at WIC, ranks China second (behind the US) in the development of the internet, but first in applications.
• Xi Jinping, in a letter to the conference: “It is the common responsibility of the international community to develop, use and govern the Internet well so that it can better benefit mankind … Countries should follow the trend of the times, shoulder the responsibility for development, meet the challenges and risks, jointly promote global governance in cyberspace, and strive to build a community of shared future in cyberspace.”
• Yang Shuzhen, the head of the Chinese Academy of Cyberspace Studies: “No sanctions or restrictions can hinder China’s development or the development of Chinese enterprises.”

China’s tech giants

• Lei Jun: “People in the industry fear that next-year’s 4G models won’t sell. This is a step you have no choice but to take. So we hope that operators can speed up their expansion of 5G base stations.”
• In a speech, Robin Li touts the safety of autonomous vehicles and praises AI for its ability to make “human beings immortal” through digital storage.
• Li also references Deng Xiaoping on the turmoil in Hong Kong, saying, “We can also ask Mr. Deng Xiaoping what he thinks of the situation in Hong Kong today.”
• Mark Ren: “Protecting minors is the lifeline of Tencent.”
• David Zhang, CEO of Alibaba Group: “The new business civilization in the digital age should return to a people-oriented approach, paying attention to clients, customers and the benefit of the whole society rather than only focusing on clicks and turnover volumes.”
• Wang Xing, CEO of Meituan-Dianping: “The digital economy should implement supply-side reform to develop. Digitizing the demand-side is easy, as most people use cellphones, but supply-side digitization will be much slower.”
• Zhou Hongyi, CEO of Qihoo360: “While new technology and science bring convenience and automation to humans, they also bring huge challenges and risks to network security.”

US tech giants

(as reported in Chinese)

• Guy Diedrich, global innovation officer at Cisco: “The development of China’s internet industry has brought incredible new experiences to the Chinese. Digitalization and IoT will undoubtedly promote the transformation and development of various industries in China.”
• Harry Shum, executive vice president at Microsoft: “In the face of the rapid development of artificial intelligence, all countries, technology companies, industry organizations and all stakeholders shoulder this social responsibility and historical mission. Years of experience in the field of technology has convinced me that only openness and cooperation is the key guarantee for technological development, social progress and people’s happiness.”
• Ian Yang, corporate vice president and president of Intel China: “The most important thing about the digital economy is adding value through innovation. If you don’t add value, numbers are useless.”

Other US attendees

• Unnamed US attendee tells Reuters: “There is not a candid discussion of the problems foreign companies face in China, or some of the larger problems having to do with internet governance in China. Rather, there’s technological boosterism.”

Still noteworthy: Because WIC is organized and sponsored by the Chinese government, it’s easy to brush it off just because it’s dull (and it certainly was). However, for Chinese and international companies alike, it’s an important moment to not only give face and show deference, but also to have direct contact with government decision-makers. While the speeches were—as noted above—“technological boosterism,” the WIC is yet another example of China setting the agenda when it comes to internet policy. For observers, what happens at the event itself isn’t all that noteworthy, but as outlined above, it does coincide with significant developments and initiatives announced during and around the conference itself.

—John Artman, Editor-in-Chief, with additional reporting by Wei Sheng

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

After an extended hiatus, John and Matt are back! This week, they look at the increasingly effective trend of private traffic. Powered by WeChat and its mini programs, marketers and brands are increasingly creating and driving organic traffic to their shops. Like owned traffic in the West, this is a direct response to the rising costs of reaching fans and followers. Matt delivered a presentation on the topic during the ChinaChat 2019 conference and they take a deep dive into the phenomenon this week.

Key questions

• What is private traffic?
• Why are brands resorting to this method?
• How does private traffic work?
• How do WeChat and Tencent view private traffic?
• What are traditional e-commerce platforms like Taobao doing to combat private traffic?

Links

• TechCrunch Shenzhen Nov 11-12
• Presentations from ChinaChat 2019
• China Tech Talk 83: Podcasting and why the open web is dead in China with Rio Zhan
• China Tech Talk 10: [Interview] Influencers in China and the future of brands with Elijah Whaley
• China Tech Talk 37: Weibo’s KOL woes with Elijah Whaley
• Become a member of TechNode Squared

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @mbrennanchina, ChinaChannel

Editor

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

First conceived as early as 2001 and put into national plans in 2014, China’s social credit system (SCS) has got a lot of attention in English-language press in the last few years. However, Western technophobia coupled with China-anxiety has made much of that coverage incomplete and biased. On the one hand, many have an exaggerated view of China, and its government, as a monolithic entity capable of swift and effective enforcement. On the other, people are still not comfortable with the idea that companies and governments see them as nothing more than a data point—and when that idea gets associated with a one-party state, we immediately get flashbacks to Orwell.

We at TechNode have covered social credit extensively over the last few years and there have been many others who have also tried to bring a dispassionate perspective to the matter. We recently syndicated a great piece from Trivium, a strategy consulting firm based in Beijing, on the apps being used to deploy China’s vision of social credit. I had so many questions that I wanted to ask the author, Matt and I decided to do a podcast episode with her. As preparation for the podcast, we cast a wide net to understand what’s going on. Here’s what we learned.

Bottom line: China’s social credit system is still not well understood, inside and outside the country. Many of the concerns we hear in Western media do more to reveal their own bias while not giving Western readers enough to understand why China might want to embark on it in the first place. Five years after the first national plan was announced and we’re starting to see some of the pieces come together. As always, there are some clear tradeoffs: regulations might actually get enforced consistently, but the cost of compliance is definitely going to rise.

A brief timeline:

• 2001: People’s Daily calls for the creation of corporate and individual dossiers, linking “sincerity” to the development of a healthy market economy
• 2003: Provinces begin experimentation
• 2010: Suining County, Jiangsu pilots a scoring system for citizens
• 2013: Central government issues regulations for the credit industry
• 2014: Central government releases Planning Outline for the Construction of a Social Credit System (2014-2020)
• 2014: People’s Bank of China (PBOC) licenses Sesame Credit and other pilot projects
• 2016: PBOC sets up National Credit Information Publicity System, allowing public lookup of corporate credit ratings
• 2017: National Public Credit Information Center created
• Aug 2019: Cyberspace Administration publishes draft regulation that would use social credit to punish “untrustworthy conduct” by individuals and the platforms they use
• Sep 2019: China’s National Development and Reform Commission releases its preliminary credit assessments of companies in a variety of industries

China’s enforcement problem: “The mountains are high and the emperor is far away” is one of my favorite Chinese idioms. Chinese governments have always had trouble getting provinces to listen, and they’ve often sought to get their attention with extreme, but rarely enforced, rules and punishments. Jeffrey Daum, prolific translator of Chinese regulations and legal documents, hits the nail on the head (emphasis mine):

If you’ve read stories about social credit and it’s menacing slogans about “the untrustworthy not being able to take a step,” it might be hard to believe that the relevant legal authority frames social credit as a means of streamlining regulation to remove burdensome requirements on business and letting market forces guide the way. It might even sound absurd, or like intentional double-speak, arguing that enforcement has to be stricter in order for regulation to be more relaxed.

Those who have lived or worked in China, however, are likely familiar with another, related paradox: that the laws are both draconian and unenforced, or maybe unenforceable.

SCS throughout history: In a May 2018 paper, Roger Creemers, a researcher at Leiden University in the Netherlands, connects China’s social credit ambitions with historical ideas of morality and authority:

The close linkage between morality and authority lies at the heart of China’s political tradition. . . Law thus is a tool to cultivate subjects’ moral sentiments and transform their worldview, in order to achieve social and cosmic harmony. . . The SCS fits squarely in this tradition. From the very beginning, the compliance problem that the SCS is intended to solve has been framed in moralistic terms. . . SCS policy documents claim its objective is to stimulate “sincerity” (chengxin) and “trustworthiness” (yongxin). . . The SCS can also be seen as a response to a moral crisis in politics. It came to prominence during a time where the political initiative had moved from the center to the localities, resulting in perceptions of weak central leadership and rampant local corruption.

Creemers points to an often overlooked and misunderstood aspect of the social credit project: the origins of such a project don’t just come from a central government and ruling party seeking more control. It’s deeply rooted in a philosophical and legal system that makes rulers responsible for the virtue of the ruled.

What social credit wants to be:

• A technological solution to the difficult problems of enforcement in China
• A big data project to encourage a “sincerity” culture for a healthy marketplace
• A way to remove human decision-making (and attendant corruption) from the market
• A system designed to automatically track, rate, reward, and punish the behavior individuals and companies

What social credit isn’t (yet):

• A unified top-down enforcement mechanism that constantly monitors and tracks behaviors of individuals and companies

What social credit is now:

• A fragmented landscape of public-private partnerships
• In the private sector (e.g. Sesame Credit), a siloed (per company/company-controlled ecosystem) solution to the lack of a financial credit rating agency for individuals
• A database controlled by the central government with credit files on individual and companies made available to state agencies and banks
• A tool to regulate corporate behavior through the use of blacklists for punishment and “redlists” for rewards
• A way to punish legal representatives of companies for violating regulations

What social credit means for your business: The corporate-focused European Chamber of Commerce/Sinolytics report on social credit is guardedly optimistic. They expect regulatory compliance to become a much bigger part of business in China—but they think their members have an advantage in compliance.

• Managing ratings will be complicated and expensive: Every locality and line of business a company is involved is likely to expose them to at least one new ratings scheme, and learning the detailed requirements of all these schemes is no simple matter.
• Could level playing field or give advantage to foreign enterprises: Foreign companies tend to be better at compliance than Chinese. The system aims to eliminate human judgment from oversight, should be more evenhanded
• But there’s still ample room for discrimination against foreign enterprises: Special “heavily distrusted company” list can be applied arbitrarily as a stick. Chinese enterprises are likely to have advantage gathering information needed for compliance

— adapted from Corporate Social Credit System a Wake-Up Call for European Business in China

Violations to watch out for:

• Not honoring legal obligations
• Failing to pay employees (especially migrant workers)
• Fraudulent financial activity
• Tax evasion
• Import-export offenses
• Violations of cyberspace laws
• Violations of environmental laws / excess energy consumption
• Endangering public health and safety

— from Trivium’s Understanding China’s Social Credit System

The death of privacy: Privacy is dying a slow death, and not just in China. Around the world, governments and private companies are collecting more and more behavioral data. In the West, this has been led by the likes of Facebook and Google. In China, the government is actively exploring ways to solve age-old problems with technology. While Big Brother is certainly watching you, his motives aren’t always nefarious and he still doesn’t quite understand what he’s seeing.

Social credit is here. You can go online today and check if a company is being sued or fined. People are already being kicked off high-speed trains for shady business practices. Personal scores, and jaywalking surveillance, are still confined to local experiments, for now. But what’s happened already is well worth understanding.

—John Artman with contributions from David Cohen and help from Squared member, Ed Sander.

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

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

In this episode of the China Tech Investor Podcast powered by TechNode, the guys welcome David Liu, VP of Strategy for Pinduoduo. David talks about PDD’s success in breaking into the ultra-competitive e-commerce market in China, and how they have defied expectations in both their ability to raise capital and grow their user base.

Since this is the first time that the guys have had on a representative from a company on their watch list, they’d love to hear from listeners about what they think about this approach. Feedback is welcome, as always!

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping

Guest

• David Liu, VP of Strategy, Pinduoduo

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

After last week’s column, I really wanted to get back to the bread and butter of technology in China. But the events of the past few days have made that quite difficult: The NBA has seen major backlash in China (where their official streams are hosted by Tencent) after Daryl Morey, general manager of the Houston Rockets, tweeted about the Hong Kong protests on October 4th. US Senator Marco Rubio (an avowed China hawk) is calling on the Trump administration to begin an investigation into Bytedance’s purchase of Musical.ly on national security grounds, something TechNode predicted months ago when the company was having problems in India.

Before we go any further, I want to make it very clear: TechNode does not take any position on political matters. Our mission is to inform the world about China through the lens of technology. In order to do that, we “seek truth from facts” so that you, the reader, can glean actionable insights into this complex market. I hope I do that mission justice with this essay.

Bottom line: The friction between disparate value systems is increasing with no end in sight. A post by a private individual to a Western public social media platform blocked in China that touched on a sensitive political issue has been interpreted as an affront to the Chinese people and the nation’s sovereignty. On the flip side, TikTok, the only Chinese-managed content platform to take off in the West, is being targeted for their alleged censorship of issues deemed sensitive to Chinese government. Taking both of these events at face value is, of course, naive. Doing so, however, offers a great opportunity to explore important points of conflict.

A tale of three value systems: Ken Wilber, a prolific writer and speaker, throughout his career attempted to integrate Western science (hard and soft) with Eastern philosophy. I first came across his work in university and have found some of it a useful heuristic for understanding all types of conflict. In particular, his typology of value systems is useful here. I’ll give a brief introduction to my understanding of it:

• Truth-conformist: Convinced of a transcendent order and believes their group’s system is the only correct one. Values the group over the individual. Historical examples: Catholic Europe, the USSR, fundamentalist religion.
• Rational-scientific: Pursues an objective view of the world and prefers to use observable data to explain phenomena. Believes in achievement and risk-taking. Values individual over group. Historical examples: the Scientific Revolution, capitalism
• Postmodern-pluralistic: Holds that there are many different ways to perceive truth and believes that no single interpretation is better than any other. Values the group over the individual. Historical examples: postmodernism, critical theory, environmentalism.

These, of course, are generalizations and aren’t mutually exclusive. There’s often no easy way to clearly delineate where one might end and the other begin in a society, country, or individual. In the US, we can see three value systems playing out currently to chaotic effect. In China, the first two play a major role while the third is emerging, but is currently subordinated and directed by the first two.

Nothing new with NBA: When Morey went on Twitter, I doubt he expected a government-level response. As he tweeted soon after, he was making the statement as a private citizen, not as a representative of the Rockets or the NBA. China, however, has a storied history of making sure others, individuals and groups, conform to their version of the world. Whether that’s Taiwan, Hong Kong, the South China Sea, Xinjiang, or any other topic with a domestically accepted truth, individuals and companies need to be careful if they want to avoid collective punishment. Interestingly enough, when someone comments on a sensitive issue, Chinese official media and representatives are very quick to make statements regarding the “feelings” of the Chinese people as well as the “sovereignty” of the Chinese nation. In effect, they are drawing upon postmodern values of empathy and anti-colonialism to defend the primacy of their truth-conformist version of the world.

While China has isolated its internet from the rest of the world, that doesn’t mean it’s not paying attention. Part of its social management project is controlling the narrative, no matter where that happens.

Where there’s a will, there’s a way: Soon after the offending tweet, China’s tech giants started damage control. Tencent suspended NBA preseason broadcast plans. E-commerce platforms operated by JD and Alibaba have removed Houston Rockets merchandise while smartphone maker Vivo, a significant sponsor, said it would stop all cooperation with the NBA. However, this doesn’t mean that Chinese fans are suddenly going to stop watching.

Anti-NBA voices are the loudest doesn’t mean that most Chinese people feel the same way. There’s a thriving grey market for illegal streams of live sports events, usually pirated from Taiwan television stations. Indeed, the Lakers-Nets pre-season game in Shanghai saw a full crowd.

A Chinese platform in America: Given the overt control of the political narratives domestically, it’s not a difficult jump of logic to assume that Chinese companies would follow similar policies abroad. However, just as Apple has to conform to Chinese laws and standards for their products in that country, so too does Bytedance in the US.

The Trump administration has blocked imports and tried to cut off Chinese tech companies’ supply chains. Most recently, it has floated kicking them off US capital markets. If they can’t quell accusations that they’re undermining US values, these risks will grow under any administration.

According to the company, all of their international platforms are localized and have local teams working to make better and more compliant products for the local market. In the US, the company has around 200 people working on TikTok where their content and moderation policies for the US market are created and maintained. There is, however, a discrepancy in their Chinese-language search results.

As analyst Ben Thompson pointed out earlier this week, the search results on TikTok are vastly different when searching in Chinese and English. When he searched for Lakers, Warriors, and Rockets, he found a plethora of content related to the teams. The same searches in Chinese (huren, yongshi, and huojian) showed similar results for the first two teams, but a conspicuous lack of the last. TechNode independently replicated Thompson’s search and found similar discrepancies.

This could be explained by the fact that not many Chinese speakers are on TikTok or that huojian is also in the name of a popular girl band Huojian Shaonv, but it’s still difficult to believe given the pre-kerfuffle popularity of the Rockets in China and the ready availability of other teams’ content when searched for in Chinese.

Another plausible explanation is that content suggestion algorithms designed and optimized from Beijing could have mistakenly been propagated into TikTok’s Chinese search results. This, of course, assumes good faith on the part of Bytedance, an assumption detractors like Marco Rubio are unlikely to make.

Uncertainty is the only certainty: All of this goes to show that, in the current climate, you really can’t separate politics from business. This is very unfortunate. There are many on all sides who believe that open and respectful dialogue should be the way forward. Their voices, however, are drowned out by louder ones seeking conflict and confrontation.

The size of the gap in value systems makes conflict inevitable. While Chinese nationalism is still a force to be reckoned with, official media has toned down the wrath. This could be a signal that they want to make sure Chinese pride doesn’t get out of hand, as they almost did in 2012, it could also be an olive branch ahead of further trade talks.

For investors and entrepreneurs, the lesson is clear: understanding what is sensitive is yet another barrier to success in China.

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

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

In this episode of the China Tech Investor Podcast powered by TechNode, the guys are joined by Quartz’s Jane Li to discuss the funding issues in the Chinese startup/private markets. James and Elliott also touch on delisting scare, FTSE bond index inclusion, 36kr filing for IPO, EV sales and NIO.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping

Guest:

• Jane Li– @Jane_Li911

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

TechNode was off last week for the National Day “golden week” holiday, but this year’s October holiday is special.

As is traditional, October 1st saw an hours-long celebration in Beijing, including speeches and an amazing display of military hardware. In the lead-up, citizens of Beijing were given many hints of what was to come with regular road closures and the constant buzz helicopters and jet airplanes.

This year was the 70th anniversary of the founding of the People’s Republic of China. The last “big ten” (i.e., 60th) anniversary was in 2009, under Hu Jintao, a leader who never quite got out from under his predecessor’s shadow. This anniversary is Xi Jinping’s first as President of China, Chairman of the Communist Party of China, and one of the most powerful leaders China has seen.

Indeed, during both the run-up and actual celebration, the message was clear: China is a strong country. Unlike previous iterations where such displays of strength could be construed as originating in an insecurity, there was no mistaking this year’s as originating in real strength, from China’s leadership, the Communist Party, and the country’s growing affluence and influence.

So why am I writing this? What does this have to do with tech? As a member, that should already be clear to you: the world is looking to China not just as a protector of global trade, but also as the best place to learn about the future, whether that’s mobile payments, how to monetize social networks, or effective “social management.” The “China model” isn’t just being passively learned from, but also actively exported to countries like Nepal. Throughout less developed Belt and Road countries, Beijing is slowly but surely bringing its values to the rest of the world. And, if history is any guide, it’s only a matter of time (barring any real catastrophe) before a good portion of the world is assimilated.

For the idealist in me, this is a sad realization. I was born in a culture that values freedom above all else. Anything that limits that freedom is difficult to grapple with. The realist in me, however, can’t help but wonder if China is exactly what the world needs right now: stability and strong leadership.

This is an uncomfortable and uncertain time for many of us. No matter where you fall in the China debate, we’re all in the business of trying to figure it out.

Read more

• Full Text: China and the World in the New Era
• China’s military strength guarantees world peace, stability
• China’s Massive Military Parade Shows Beijing is a Missile Superpower
• China’s National Day parade, as it happened
• The ‘Community of Common Destiny’ in Xi Jinping’s New Era
• Are Chinese And Western Perspectives Incompatible In Our Post-Truth Times?

It’s hard not to dislike marketing for its manipulativeness. But, it’s also hard not to admire it for the insights into human behavior it brings.

This past week I’ve been immersed in the digital marketing space, attending three different events on the topic and talking with a variety of stakeholders, service providers, and personalities about what they’re seeing. Here are my takeaways.

Bottom line: We’re still in the early days of digital marketing and retail. Even though China is a first mover in the consumer space, everyone is still trying to figure out how to adapt traditional marketing and sales methods to the digital age. Technology continues to democratize and decentralize the creation and consumption of content, products, and services. Traditional companies, centralized by nature, need to deal with the rapid rise in China of new platforms, mediums, and celebrities.

On top of that, data management—how data is acquired and how insights are mined—is still a surprisingly large pain point for many MNCs in China. Lack of data is increasingly becoming less of an issue, while what to do with it and how to react quickly while a campaign is ongoing are the main challenges. However, while we’re all busy being amazed by the changes and powerful tools available, we’re still not asking the right questions about data privacy and the soon-to-be omniscient, omnipresent, and (perhaps) omnipotent power of AI.

Fragmentation

A brief timeline of major platforms for digital marketing

• Aug 2009: Sina launches Sina Weibo (now just Weibo).
• Jan 2011: Tencent launches WeChat.
• June 2013: Xiaohongshu (aka Little Red Book and Red) is founded by Miranda Qu and Charlwin Mao. Originally a social network for sharing travel tips, it has since become a hub for influencers and influencer marketing.
• 2016: Yixia Technology launches Yizhibo, a live-streaming platform, on Weibo. One of the leading players in the space, Weibo bought the company in Oct 2018. Yixia also operates Miaopai, a short video app used by many influencers.
• Sept 2016: Bytedance launches Douyin, a short video platform.

Content democratization = platform fragmentation: If social media is the canvas, then content is the brushstrokes. Sina won the Weibo wars (against Sohu and Tencent) in part because they were able to attract more influencers. At first, these influencers were media professionals, but the ecosystem quickly attracted movie stars, famous singers, and other high-profile personalities. With more famous people came more users. With more users came brands. With more brands came what we now call key opinion leaders (KOLs): those web celebrities making money purely through their online content. With China speed, of course, Weibo has already been displaced as the primary platform for digital marketing and not just by WeChat.

Here are a few smaller but still very influential platforms:

• Douban: Community-based website similar to Reddit where users discuss books, movies, music, and events.
• Keep: Social sports platform that offers personalized courses from a variety of coaches and personalities.
• Zhihu: Quora-like platform where users ask and answer questions on a variety of topics.
• Bilibili: Video-sharing site focusing on anime, comics, and games. A pioneer of the “bullet screen,” where user comments are directly displayed on top of the video, flowing from right to left, sometimes covering up the actual content.
• Tangdou: Social platform for sharing content related to “square dancing,” amateur dance meetups in public squares and parks, that mainly attracts middle-aged and elderly women.
• middle aged women. Users share tips and tutorials
• Chuman: Social network designed for minors interested in anime and manga idols. Users can make their own comics and share with others and also create custom avatars.
• Meiyou: Originally created as an app to track periods and female fertility; has expanded to include social sharing features.

While most online transactions take place on WeChat, Taobao/Tmall, and other e-commerce platforms, much of the marketing and messaging is done elsewhere. For brands, it’s quite a complicated space, as you can see, but many are learning quickly what to outsource and what to keep in-house.

The power of WeChat: Since its launch in 2011, WeChat has become the primary destination for China’s mobile internet users. However, with the rise of more and more niche platforms and Bytedance’s extremely compelling products, the super app actually saw a dip of 8.4% in average time spent in the app from Dec 2018 to June 2019. But there is a silver lining: average time spent in mini programs (WeChat’s version of the instant app) is up 23% and monthly active users have reached 74 million. For the platform and for brands, this is great news.

Launched in 2017, mini programs took some time to get off the ground, but now are proving to be amazingly effective at creating entry points and engagement channels for brand retailers. After payment, WeChat users are prompted to open the mini program to join the membership program where they can receive personalized recommendations and special offers. Brands can even open their own store on WeChat through a mini program whether that’s through partners like JD.com or developed in house, giving them increased access, engagement, and sales.

Deals with divas: KOLs have been a powerful marketing device since at least the 1950s with the advent of the Tupperware party. With Weibo, KOL marketing really started to take off, but fast forward 10 years from Weibo’s founding and it’s still an immature space. Brands and KOLs are still trying to find the best ways to work together so both can make money, but their interests don’t always align. Both are also constantly challenged by the rise of new platforms, as well as new rules and regulations from both government and the platforms themselves.

Case in point: Xiaohongshu was taken off both Android and iPhone app stores after they failed to resolve fake reviews, artificially boosted page views and purchase numbers, as well as tolerating ads disguised as product reviews. This was after the platform implemented strict new rules that reduced the number of KOLs allowed to operate on the platform from 17,000 to 4,500.

KOLs in some product categories like health and beauty are even competing for brands themselves. As competition increases and individual KOLs see their margins declining, many have branched out into creating their own brands. Many OEMs, struggling with overcapacity, are more than happy to work with a wide range of smaller brands to offload their products.

Data

Data overload: Online or offline, data gathering has been a challenge for brands in China. Offline, the retail supply chain is still very fragmented and, especially in fast-moving consumer goods (FMCG), it can be difficult to track sales. Online, actually figuring out where the data was and creating effective pipelines was difficult. However, many brands have resolved these problems by establishing in-house data collection mechanisms. Combined with second-party data (data shared between two or more parties privately) and third-party data (data bought from outside sources), brands have built powerful and sophisticated dashboards that show real-time engagement and sales performance. However, now the struggle is to move decision-making (in targeting, pricing, and even production) from humans to computers.

Where this is all going

Prepare to be manipulated: AI, as I’ve written previously and as most of you already know, has enormous potential to change the very fabric of economics, politics, and society. However, it is still not sophisticated enough. Sure, you can get “personalized” recommendations based on past purchases and behavior, but dashboards I outlined above are, in the parlance, limited to diagnostic analytics: with the right tools and expertise, data can be mined to understand why a campaign was or was not effective. However, the real power of AI comes in prediction (understanding what will happen) and prescription (making something happen).

Like it or not, marketing is manipulation. Whether that’s for the common good, as Cass Sunstein suggests, or for private gain, as in Google’s experiment with Pokemon Go. And, indeed, this is the end game for AI developers: profiling and segmenting each and every one of us so we behave in the ways according to the plans developed in board rooms and government meeting halls.

The data privacy argument, in this regard, is completely misguided. It’s not about whether or not Alibaba or Apple is listening to your conversations with their AI assistants (they actually have to have a human monitor the machine to make sure the models are correct). The data privacy debate needs to shift to regulating how data is collected in the first place and how it is being used. Right now, almost all human behavior is the raw material, as abundant as the air we breath and expanding every day.

On Tuesday, Jack Ma officially stepped away from his day-to-day role at the e-commerce giant he created in 1999. It surprised no one: Ma telegraphed the move as early as 2013, when he became chairman of Alibaba Group, giving the role of CEO to Daniel Zhang. Never one to shun the spotlight, his retirement ceremony was held at a 80,000-capacity stadium and featured flashy performances from Ma, Zhang, Alibaba technology committee CEO Wang Jian, as well as co-founders Joe Tsai and Lucy Peng.

An oft-repeated Ma-ism, “Alibaba isn’t Jack Ma” is salient at this moment—indeed, this historical moment. Just as Steve Jobs’s vision of consumer electronics changed how we think about technology, so too has Jack Ma’s vision for online commerce changed how we buy things (and not just in China!).

(As an aside, writing this piece does feel like I’m falling into Ma’s hype trap. It’s not hard for me to imagine him regularly checking his Google alert for “Jack Ma retirement” a la Tom Sawyer attending his own funeral just to hear what people say about him.)

Bottom line: Alibaba has a clear path ahead without Jack Ma and just because he’s no longer CEO nor chairman, doesn’t mean he won’t be helping to set the direction of the company.

Ma has been the visionary driving Alibaba’s strategy since its founding in 1999. However, he has long relied on others to execute that vision and, from all accounts including his own, he doesn’t like getting involved in the details. Like Apple after Jobs, Ma’s successor has a clear roadmap ahead of him, but once they company nears the end of that roadmap, it’s unclear how much vision Zhang will be able to bring to bear (like Tim Cook, Zhang is known for execution, not vision). Unlike Apple, however, Ma is still alive and remains a committee member of the Alibaba Partnership, a unique addition to Alibaba’s corporate governance structure featuring senior employees from various departments. While Ma may love the spotlight, he has done a phenomenal job empowering others in the organization.

Gone but not gone: Despite resigning as chairman, it appears that Ma will remain a senior decision-maker indefinitely. Indeed, he doesn’t actually step down as executive chairman until the 2020 shareholder meeting. With 6.2% of Alibaba’s stock, he remains a major shareholder.

After leaving the board, he will indefinitely maintain a role on the Partnership Committee of the Alibaba Partnership, an interdisciplinary group of 38 decision makers that out-ranks the board and is chosen by its own members. The Partnership is a unique feature of Alibaba’s corporate governance structure and was one reason the company listed in the US, not Hong Kong which, at the time, didn’t allow such special controlling shares. According to the company’s website, the Partnership enables “senior managers to collaborate and override bureaucracy and hierarchy.” On top of that, partners have the exclusive right to nominate subject to shareholder approval, and sometimes even appoint, a simple majority of Alibaba’s board.

The Partnership Committee of the Alibaba Partnership is responsible for administering Partnership elections and allocating cash bonuses to Partnership members. It currently consists of founders Jack Ma, Joe Tsai, and Lucy Peng, as well as Alibaba CEO Daniel Zhang and Ant Financial CEO Eric Jing.

Why now: There has been much speculation around the timing of Ma’s departure. 55 is a young age to retire and, at least in China, most tech founder-CEOs have remained in their position, treating their companies like their own fiefdom common to Chinese leaders in any industry or sector.

Two theories prevail, an official version and an unofficial version:

• He wants to keep taking steps back so he can focus on his passion projects of philanthropy and education.
• He was pressured to take a less public role as a business leader by the powers that be (and perhaps from his own team).

Both theories make sense. On the one hand, he is clearly driven by an optimistic view of the world and has an interest in philanthropy. On the other hand, China has a history of “shooting the bird that pokes it head out (qiangda chutou niao).” With Ma less often mixed up in sensitive areas, Alibaba PR hopefully won’t have to strategize as much around explaining to the world what exactly he means by “Alibaba intelligence.”

A (not really) brief timeline: Alibaba isn’t Jack Ma, but Ma’s story is very much Alibaba’s—there isn’t much daylight between a bio of the man and a history of the company.

• 1994: An avid English learner since childhood and English teacher, Ma starts Hangzhou Haibo Translation Agency.
• 1995: With He Yibing, Ma founds com, an online directory and webpage builder for Chinese companies in English. He Yibing would go on to found LianLian, an O2O2O (offline to online to offline) company focusing on lifestyle services in 2012.
• 1998: After China Pages fails, Ma works for China’s Ministry of Foreign Trade and Economic Cooperation. There he meets Jerry Yang, founder and CEO of Yahoo.
• Apr 1999: Ma, with 18 other co-founders, founds com, an English-language wholesale market. Later that year, the team launches the domestic version.
• Jan 2000: Softbank, along with a group of other investors, invest $20 million into the company.
• May 2003: Alibaba launches Taobao.
• Dec 2004: The company launches Alipay, an online payment system that uses escrow to solve the “trust problem” with online shopping: customers pay into an escrow account and merchants would not get the funds until the customer confirms they have received the product they ordered in good condition.
• Aug 2005: Yahoo invests $1 billion into Alibaba to become the largest shareholder with a 40% stake.
• Nov 2007: Alibaba goes public in Hong Kong with an offer price of HKD 13.50 per share. The company raises HKD 13.1 billion (around $1.6 billion).
• Apr 2008: The company launches Taobao Mall, a B2C marketplace. It would later become Tmall, headed by Daniel Zhang.
• Sept 2009: They launch AliCloud, the company’s cloud computing platform, now the largest in China.
• Nov 2009: Pioneered by Zhang, Alibaba holds the first Singles’ Day shopping festival, now the most lucrative shopping event in the world.
• May 2011: Alibaba sells control of Alipay to a group headed by Jack Ma. Alibaba claims this is because of new rules from the country’s central bank. Yahoo contests the sale, claiming it was done without their knowledge. Eventually, a deal is made between Yahoo, Softbank, and Alibaba stipulating that if Alipay went public, the e-commerce company would receive between $2 billion and $6 billion. As part of the deal, Alipay is required to pay license fees and continue serving Taobao.
• June 2012: Alibaba pays $2.45 billion to delist in Hong Kong.
• Sept 2012: The company buys back half of Yahoo’s shares for $7.6 billion, a 7x ROI on the US company’s initial investment.
• Jan 2013: Jack Ma steps down as CEO of Alibaba but stays on as executive chairman.
• Sept 2014: Alibaba goes public on the NYSE for $68 per share. They raise around $25 billion to become the largest IPO in history.
• Oct 2014: Alibaba creates Ant Financial, an affiliate that includes Alipay. It is now estimated to be worth $150 billion.
• Aug 2015: The e-commerce company goes offline with a $4.6 billion purchase of shares in Suning, an electronics retailer.
• Apr 2016: Alibaba takes control of Lazada, an e-commerce platform based in Singapore with a $1 billion investment.
• Jan 2017: Jack Ma visits President-elect Donald Trump before Chinese officials even get the chance.
• Feb 2018: Alibaba buys a 33% stake Ant Financial
• Nov 2018: People’s Daily identifies Ma as a member of the Communist Party in a list of 100 Chinese people who have “made extraordinary contributions” to the development of China over the last 40 years.
• Sept 2019: Ma resigns as chairman of Alibaba’s board, but announces plans to remain on the board until the 2020 shareholders meeting and also remains a leading member of the Alibaba Partnership committee.

What made Ma different: Jack Ma isn’t your typical tech founder. He isn’t even your typical China tech founder. First, he’s no engineer, as he readily points out. His degree was in English and he is quick to remind everyone of his humble beginnings as an English teacher. As a non-technical person deeply interested in technical topics, I find myself wincing at one moment and laughing out loud the next whenever Ma makes statements about technology. Watch his “debate” with Elon Musk and you’ll understand what I mean. While his non-technical platitudes don’t make much sense either, it’s clear that he’s an optimist. He has a compelling charisma and positive outlook that has brought people together to work toward a common goal.

Second, he loves attention. At last year’s annual Alibaba anniversary party, he starred in a kung fu short film and came on stage dressed as Michael Jackson. At his farewell celebration this week, he danced and sang dressed up in gaudy outfits. He even had the hubris to visit Donald Trump just before he took office and before any official visitors from China. For a country led by the public sector, a private individual making a visit first must have been embarrassing.

Contrast this to other leading tech founders like Pony Ma (Tencent), Wang Xing (Meituan), and Zhang Yiming (Bytedance): all three have engineering backgrounds, seem allergic to the spotlight (Zhang Yiming, to my knowledge, has never even accepted a media interview). As they say, “culture runs downhill” and, from where we sit at TechNode, Alibaba is quite different from other tech companies.

While Tencent, for example, is fragmented and media-shy, Alibaba has probably the most proactive—indeed, relentless—PR and marketing apparatus in China tech. Just as the company was celebrating their 20th anniversary and Ma’s “departure,” one day later they are holding their annual “Makers’ Fair” and in a few weeks they’ll have their Cloud Computing Conference.

The road ahead: Ma leaves his company set on an ambitious path for the coming years, with plays into several new industries already underway. Alibaba has become more than just an online marketplace. It is now a services company. Services for consumers include the online marketplace and mall as well as its very successful O2O delivery cum grocery store Hema. However, what will propel the company into the future is its services for businesses. New retail is more than just delivery in 30 minutes; it’s bringing the full power of the online world into the offline. Supporting the digitization of retail and manufacturing is Alibaba’s cloud computing services, currently the largest provider in China (TechNode’s English site was previously hosted on Ali Cloud). On top of that, the amount of online and offline behavioral data they are collecting should allow them to create powerful prediction algorithms, compounding their potential for growth. With or without Ma at the helm, Alibaba is in a great position to continue to dominate for at least the next five years.

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

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

In this episode of the China Tech Investor Podcast powered by TechNode, the guys are joined by Bloomberg’s Zheping Huang to talk about the unique environment of e-sports in China, and why the business models of platforms like Huya and Douyu are not easily comparable to that of Twitch. James and Elliott also go into Meituan’s most recent quarterly earnings.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping

Guest

• Zheping Huang- @pingroma

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

I was mildly surprised last week to hear that Tencent is pulling out of a funding deal with edtech darling Vipkid, known for one-on-one remote tutoring. Sources close to the deal told Reuters that Tencent had already given verbal agreement, but changed course after stricter regulations for online education came into effect. Reuters reported that Vipkid was seeking funding at a valuation of $4.5 billion. The company’s previous round valued them at $3 billion.

The new regulations, issued in July, mandate that not only must all teachers on a platform have teaching qualifications, the platforms must also publish them along with teachers’ work experience. On top of that, over the last year, key management personnel as well as a large number of foreign staff have left as the company struggles to turn a profit.

Companies like Vipkid, however, represent only a small fraction of the edtech market. Similar to verticals like “medtech” and “proptech” (property), edtech is less a known market than a lot of entrepreneurs trying to figure out how to apply existing technology to profit in education. Early learning, K12, STEAM, professional development training, corporate training, as well as schools and classrooms, all look like fertile grounds for disruption. But in many cases, it’s still “solutions searching for a problem.”

A few weeks ago, reporters Tony Xu and Wei Sheng gave a general overview of Bytedance’s edtech endeavors. Intrigued, I decided to take a closer look.

Bottom line: The edtech market is huge. In 2018, Deloitte estimated that the market was then worth RMB 2.9 trillion (about $410 billion) and would be worth RMB 3.4 trillion in 2020. And one of China’s most successful content companies is poised to dominate. With their expertise in UX design and powerful AI recommendation engines, Bytedance is making a lot of different bets in different education areas—their most promising is the application of the recommendation algorithms it uses to keep viewers watching videos to online lessons, and using NLP to teach languages. While all of them are online, Bytedance’s education plays cover an interesting mix of pedagogical methods and design preferences. Of course, just because its Bytedance doesn’t mean they’re automatically successful; it just means that there’s a lot of money being thrown around. However, CEO and founder Zhang Yiming is personally passionate about education and, with his track record, is probably playing the long game.

A brief timeline of edtech at Bytedance

(A version of this section originally appeared in In Focus: Bytedance #12)

• December 2017: Bytedance holds education industry conference to talk about the integration of the sector with technology. The event is the first hint of pedagogical ambition dropped by the Beijing-based unicorn.
• March 2018: Bytedance acquires Openlanguage , an online English course provider.
• May 2018: Launches Gogokid, a one-to-one tutoring platform for Chinese children to learn English online with foreign teachers.
• July 2018: Launches Haohao Xuexi , a knowledge-sharing app that features content covering career advice, parenting, culture, and wealth management.
• August 2018: Bytedance leads $49.5 million Series C funding round for San Francisco-based education technology company Minerva Project.
• December 2018: Launches Aikid, a foreign teacher live-streaming platform.
• January 2019: Bytedance licenses patents from now-defunct smartphone maker Smartisan. The company indicates that they are meant to expand and develop online education business. By this time, Bytedance had reportedly spent over RMB 400 million on Gogokid.
• April 2019: Bytedance lays off half of Gogokid’s staff and reduces sales team to 200 employees. China media also report that Aikid had suspended operations four months earlier.
• May 2019: Launches K-12 online education platform Dali Ketang, which offers courses from primary school to high school. Chinese tech news outlet 36Kr reports that Bytedance acquired another online teaching platform named Qingbei Wangxiao to help with the development of Dali Ketang.
• July 2019: Tech Planet reports that Bytedance is testing short-video-based English-learning app named “Tangyuan English.” The app officially launches in August.

The state of education in China: Education has a high place in East Asian cultures. Japan, Korea, and China all put enormous amounts of pressure on their children to do well in school and on exams. However, for most, graduation does not end the educational journey:

• In a 2019 report, L.E.K, a management consulting firm headquartered in London and Boston, estimated that the children’s education market in 2018 was worth RMB 500 billion, with an average growth rate of 15% from 2013.
• In that same report, the firm estimated that the adult education market, including higher education and professional development training, in 2017 was worth RMB 633 billion with an average growth rate of 7.2% from 2013.
• They predict that between 2017 and 2020, the market for white collar professional training will grow 12.6% from RMB 281 billion to RMB 509 billion.
• Deloitte estimated that online education was 9.32% of the education market in 2018. In 2020, they predict it will be 10.41%.
• By 2020, the consultancy also predicts that K12 and STEAM education will make up 44.7% of the online education market while corporate training and professional development training will account for 10% and 18%, respectively

The tech in edtech: Let’s face it, most of us roll our eyes when we hear about the latest “AI+[insert sector]” or “blockchain+[insert sector]” company. Most of these companies do absolutely nothing with their buzzword tech. At this point, more often than not companies peddling AI aren’t talking about :the textbook definition referring to machine learning-driven algorithmic decision making systems.  Read marketing-speak AI as a colloquial definition meaning anything that has a complex logic path, i.e. the same as “smart.”

Unfortunately for us, there are no word police in the tech industry (Well, almost none—it’s a lonely fight.). Marketing and sales people can walk around linking the latest buzzword with a product that has little to do with it. While there certainly is a lot of room for technology in classrooms, both real and virtual, it is hard to find much of it in publicly described use cases.

The Bytedance play: Bytedance, as a company specializing in developing AI systems, does actually have in-house tech that it can immediately apply to its edtech projects: behavior-driven predictive recommendation algorithms. At least two of their apps, Dubai Bei Danci and Tangyuan English, include content feeds similar to those found in Jinri Toutiao and Douyin/TikTok. Almost all of the giant’s education apps that don’t feature real people are also built with one of the most mature implementations of AI: natural language processing.

Tangyuan English, for example, has you learning spoken English via short and sometimes funny skits. After your virtual instructor, a pre-recorded video, gives you a line, you have to repeat it back. Based on how well you matched their database’s baseline for good pronunciation, your virtual instructor will react negatively or positively. When I tried it, there were a few instances where I was not able to move on because my pronunciation was slightly too far off from a Chinese English speaker, the dataset most English language learning NLP systems in China are trained on.

There is, of course, a lot of room for more sophisticated implementations of artificial intelligence: truly personalized programs and courses that adapt to the needs and learning style of the student. But the technology just isn’t ready to scale and there’s little evidence that Bytedance is exploring this currently. However, they may be the only company doing edtech that can legitimately claim to be using AI in their products.

Holding a bucket in a storm: To paraphrase a piece of economic wisdom, “edtech is recession proof.” The fact that one-on-one tutoring has taken a hit recently (a la Vipkid and Bytedance’s Aikid/Gogokid) doesn’t mean we’re seeing a downturn in the edtech vertical. Rather, they were a combination of over-specialization, poor management, and tightened regulations. Edtech is a huge space and there’s a lot of opportunity inside and outside the app economy. Bytedance is the best placed 2C company to actually apply real technology to education.

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

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

In this episode of the China Tech Investor Podcast powered by TechNode, the guys welcome back Bloomberg Opinion columnist Tim Culpan to discuss Xiaomi’s weak performance, the oversupply of ad inventory on the Chinese web, and general takeaways from Q2 earnings season. Elliott and James also go over the most recent earnings reports of Baidu, iQiyi, and Pinduoduo.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• com
• Pinduoduo
• Meituan-Dianping

Links

• Pinduoduo’s free cash flow conundrum

Guest

• Tim Culpan- @tculpan

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

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

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

In this episode of the China Tech Investor Podcast powered by TechNode, the guys go deep into new retail. In addition to discussing the latest quarterly earnings from Alibaba and JD, James and Elliott chat with Michael Zakkour, VP of Asia Strategy for Thompkins International. Michael fills us in on the phenomenon of “new retail,” why it is so much more than just a buzz word, and how it is changing business and life in China and around the world.

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

Get the PDF of the China Consumer Index.

UPDATE: Alibaba’s USD 2 billion acquisition of NetEase’s cross-border e-commerce site is off, reports say

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping

Guest

• Michael Zakkour

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

After five years of waiting, every futurists’ dream is about to come true. On August 10, the People’s Bank of China (PBOC) announced at a forum that they are “nearly ready” to launch the world’s first digital fiat currency.

Bottom line: China is building out a monetary infrastructure for the 21st century that could leave the USD, and Western systems, behind. While they’re not the only country looking into it, China has all the elements needed to roll it out: an economy rapidly phasing out cash, a banking system in need of more transparency, and a geopolitical strategy to internationalize the RMB.

A brief timeline

• Jun 29 2009 – After the runaway success of QQ Coin, China issues rules stating that virtual currencies can only be used “to trade in virtual goods and services provided by its issuer, not real goods and services.”
• Dec 3 2013 – The PBOC, along with several other ministries and regulatory bodies, issues a Notice on Precautions against the Risks of Bitcoin. The Notice defines bitcoin as a medium of exchange, not a currency. It also banned financial institutions from using or accepting bitcoin in transactions.
• Jan 20 2016 – The PBOC announces the formation of a blockchain research group in 2014 to work on developing a digital currency.
• Oct 14 2017 – China’s central bank announces the completion of trial runs on digital currency supply algorithms.
• Dec 15 2017 – The central bank completes a trial run of a digital bank acceptance exchange.
• Mar 9 2018 – Zhou Xiaochun, then-governor of the PBOC, told media that the currency would be called “digital currency electronic payment” or “DC/EP.”
• Jun 22 2018 – The Digital Currency Research Lab at the People’s Bank of China files for a digital wallet patent.
• Jun 18 2019 – Facebook announces Libra.
• Aug 10 2019 – At a forum in Beijing, Mu Changchun, the deputy chief of the central bank’s payment and settlement, say their virtual currency is “nearly ready.”

What it is:

• It’s being called the “DC/EP” system.
• It’s a centralized digital-only currency meant to supplement, and perhaps one day replace, money issued directly by the central bank.
• It will include mechanisms to ensure the real-name identity of its users as well as measures to prevent money laundering, terrorism financing, and tax evasion.
• Both the central bank and commercial banks will be legitimate issuers.

What it isn’t:

• It’s not blockchain. At the August forum, Mu said that a pure blockchain architecture could not fulfill their requirements for “retail usage.”
• It’s not decentralized. Implementation details are scant, but it looks like the PBOC and other trusted banks will act as super nodes.
• It’s not for consumers, at least not at first. It will first be used by financial institutions to facilitate bank-to-bank transfers and settlements. It could take another five years before we see it used in consumer applications.

Factors behind the creation of DC/EP:

• RMB internationalization: China has been working to internationalize the RMB since at least 2007. The IMF added the RMB to its list of reserve currencies in 2015 before adding it to the Special Drawing Rights list a year later. The Belt and Road Initiative is a key component in encouraging greater international adoption of the RMB. The BRI will probably see the first international tests of China’s digital currency.
• Regulatory mechanisms for a cashless economy: The world’s economies and financial systems are quickly moving away from cash. In some countries, people are using plastic (credit cards, payment cards, etc.). In China, it’s all on the mobile phone.
• Transparent transactions: Shadow banking has been a problem in China since at least the financial crisis of 2008. An alternative to risk-averse banks, shadow banking has been worth up to 87% of China’s GDP and, at one point, exposed China’s economy to massive systemic risk. While cleaned up and less of a threat, it still does exist. A centralized, transparent (to the controllers) digital currency would allow regulators and policymakers to see how money is actually being used.

Sneak peek: Matt and I talked with Zennon Kapron about Libra, QQ Coin, and China’s digital currency in an upcoming episode of China Tech Talk. Take an early listen.

Digital RMB vs Libra: Announced earlier this year, Facebook’s Libra has also been in the works for some time and is closer to a “traditional” model of blockchain: a consortium of private entities share governance rights; its value is determined by a basket of currencies (similar to stable coins like Tether); and all transactions are encrypted.

And, while it has received its share of criticism from US lawmakers, the PBOC’s reaction shows how concerned they are. For good reason, too. Facebook currently has a userbase of more than 2 billion worldwide, 65% greater than China’s population. Around 20% of those users are in Southeast Asia, an emerging region quickly becoming a locus for competition between the US and China models.

Given how often the American public and private sectors find themselves in bed, Facebook’s Libra could be interpreted as a proxy for a US government-backed digital currency, at least until if/when the Federal Reserve releases its own. On top of that, China—including the country and its businesses —still doesn’t have a stellar record for internationalization. If Libra does take off around the world, the uphill battle to be the wallet of choice will get even harder.

China still in the lead: It’s becoming more difficult to argue with an increasingly common sentiment: China is leading the world in innovation. Even though I wouldn’t go that far, it is clear that China is leading in the implementation of innovation and the digital currency is yet another example of this. While the Western world struggles with the breakdown of the post-WW2 order, China is laying down the foundation for its leadership into the future. No matter where you land on the China debate, the implementation of a digital currency is only going to put them that much further ahead.

Go further:

• Cryptocurrency in China: Light-Touch Regulation in Demand
• PBoC Filings Reveal Big Picture for Planned Digital Currency
• The Definition and Measurement of China’s Shadow Banking System from the Perspective of Credit Money Creation

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

Can’t see the player? Check us out on iTunes or Spotify!

Just weeks after Facebook announced their Libra cryptocurrency project, the People’s Bank of China has become quite vocal about their on-going project. Most recently, the PBOC announced that China’s digital currency is “nearly ready.” Following on from our previous conversation about Libra and QQ Coin, this week we’re joined by Zennon Kapron, director of Kapronasia, to look at what Libra means in a global context as well as China’s plans to launch its own digital currency.

Key questions

• What are the biggest implementation and adoption challenges for Libra?
• Why don’t governments like cryptocurrency?
• How does a digital currency affect the RMB’s status?
• What are the downsides of a digital fiat currency?

Links

• China Tech Talk 33: Fintech IPOs and the future of money in China with Zennon Kapron
• China Tech Talk 80: Libra lessons from WeChat and QQ
• China fast-tracks development of national digital currency in response to Libra
• China’s digital fiat currency is ‘nearly ready’ for launch: PBOC official
• WeChat Conference: CHina CHat 2019!
• Become a member of TechNode Squared

Guest

• Zennon Kapron, @ZennonKapron

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @mbrennanchina, ChinaChannel

Editor

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

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

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

In this episode of the China Tech Investor Podcast powered by TechNode, James and Elliott take a step back and look at the broader trends of 2019 thus far. They also take a look at how each of the stocks on their watch list has performed thus far this year, and attempt to determine where credit or blame should be given for each stock’s performance.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

I’ve been a fan of podcasts for a long time. Starting in 2009 (around the time I started at China Radio International’s English service), I listened to shows such as No Agenda, Hardcore History, and This Week in Tech. Back then, I thought the podcast market was pretty mature. At least the production values on these shows were quite high and they all seemed to be making money through a combination of donations and ads. At the time, podcasts were almost unheard of in China.

Fast forward to 2014. Apple’s China operations begin to take podcasting in China seriously. In need of content, they convinced our radio station to upload episodes to their platform. Around that time, we also started uploading our content to local audio platforms like Ximalaya and Lizhi.fm. By the time I left in 2015, we still hadn’t gotten much traction online: podcasts weren’t mainstream and, to tell the truth, we weren’t putting in any extra effort for online listeners.

In 2019, the market for audio content looks quite different. Popular “traditional” podcasts (like the podcasts on our network) are monetizing enough to support full-time teams while audio content platforms are leveraging mobile payments to tap into China’s aspirations for self-improvement.

Bottom line: As with the rest of the world, spoken word content is quickly finding its way into China’s ears. However, like everything else, there are some very unique Chinese characteristics:

• Most of the growth has been in walled gardens.
• The walled gardens monetize through ads, fees for one-off downloads and subscriptions, and e-commerce integrations.
• Most of the content in walled gardens tap into aspirational drives with the highest-grossing content focusing on education and self-improvement.
• “Traditional” podcasting is one of the only bastions of the open web remaining in China. But don’t expect it to stay this way for long.

With its growing popularity, there’s a big opportunity for audio influencers (KOLs) to define their niche and monetize their audience. The audio market may never become as large as the video market (some estimate that up to 30% of the population process information best through listening and speech), but there’s still room for savvy players to make a decent living.

China Tech Talk 83: Podcasting and why the open web is dead in China with Rio Zhan

State of the market: In general, there are two types of podcasts in China: RSS-powered and knowledge products.

RSS-powered

• Using the mechanisms created in the early days of mobile devices, creators distribute their content on a variety of platforms, including Apple Podcasts, Spotify, and Chinese audio platforms.
• There is no way to directly monetize and content is not restricted to a single platform.
• Monetization happens through ads and e-commerce.
• Users listen to topics they are interested in, mostly for entertainment.

Knowledge products

• Creators publish exclusively to a single platform.
• The platform takes care of promotion, subscription management, and payments processing.
• The platform is also responsible for making sure the content isn’t “sensitive.”

The ear economy landscape

• Ximalaya, Lizhi, and QingtingFM are the three largest platforms (in that order). All three host RSS-powered and knowledge podcasts.
• The audio content market grew 22.1% from 2017 to 2018, faster than mobile video (13.6%) and mobile reading (6.2%).
• The video and reading markets, however, were still about twice the size of the audio market.
• As of Q1 2019, 51.5% of audio content users were male. 48.5% were female. 33.5% were 24 or younger.
• The use of audio content apps increases dramatically as the day goes on with usage peaking between 10 pm and midnight, according to data from January 2018.
• Audio content apps were the second most-used app category during that time frame, after music apps.

The opportunity for audio KOLs: In April, Ruhnn Holding, a KOL incubator and MCN, went public in the US. At the opening, they raised $125 million. The IPO of a KOL company opened eyes in the marketing and influencer industry: investments into KOL brands might actually see some return. While not yet public, sources I’ve spoken to predict an uptick in investments into such brands and companies, signaling that the KOL economy is still in its infancy.

For audio content creators, this is nothing but good news: not only is growth in audio consumption showing strong growth, but the entire KOL industry still has lots of room.

BB Park (日谈公园) is much like your typical radio talk show. Through first-mover advantage, great content, and good relationships with audio platforms, they’ve been able to go from a few friends podcasting as a hobby to a ten-person full-time team. While the format may be different, the monetization model is almost the same as other (usually live-streaming or short video) KOLs: sponsored ads and show segments as well as e-commerce. At one point, the show sold over RMB 100,000 worth of coffee packets in one day.

The last bastion of the open web: Started under Hu Jintao and intensifying under Xi Jinping, content and the platforms that host it are in a precarious position. Once surprising, content platforms are being taken off app stores and ordered to “rectify” their content policies often enough that it’s no longer a shock when it happens. As I’ve written previously, content watchdogs regularly use “vulgar” content as a tool to guarantee compliance with content standards.

Apple, hands down, owns the podcast market globally. While Spotify is definitely making in-roads (doubled market share from 2017-2018), Apple had 63% market share as of February 2019. Most hosting services automatically distribute to the largest listening platforms, including Apple Podcasts, Spotify, Stitcher, and others. That means if you’re a podcaster and want to be on Podcasts, you’re also distributing to all the other platforms as well. Many of these don’t have operations in China nor do they have plans to. To put it plainly, audio content creators can easily distribute to platforms that China has no jurisdiction over, effectively bypassing content regulations and controls.

For Apple, however, that is just not the case. A quick search on the Chinese Podcasts app (iOS services differ depending on the country associated with the account), reveals that not only are TechNode podcasts not available, but also podcasts like the Joe Rogan Experience and Hardcore History are nowhere to be found! Surprisingly, WTF with Mark Maron, The Jordan B. Peterson Podcast, and Making Sense (all controversial in their own way) are still available. Also, I’ve heard many stories of people who cannot use the Podcasts app with scaling the Great Firewall first.

The logic behind what is and is not available needs more digging: I’ve submitted a support query about our podcasts, but I’m not optimistic that I’ll receive an understandable or actionable response. At the end of the day, however, it’s clear that the podcasts market is still yet to mature. While it may never be as powerful as video, it is still a powerful medium and I’m glad to see it developing.

With contributions from Coco Gao

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

Can’t see the player? Check us out on iTunes or Spotify!

At the end of 2018, Connie Chan of Andreesen Horowitz wrote about how podcasts in China monetize. However, what she calls podcasts aren’t really what we call podcasts: they’re more like paid-for educational audio content. Podcasting, like what we do at China Tech Talk, is actually still very immature in China. But that doesn’t mean there aren’t content creators following the “traditional” podcasting model.

To talk about this, we’re joined this week by Rio Zhan, early-stage VC and host of the Crazy Capital podcast. We share notes on podcasting and talk about how China’s content models have evolved away from the open web.

Key questions

• Why is the China market different for audio content?
• Why is the open web almost non-existent in China?
• What role does culture play in creating acceptance of paying for content?
• How might Facebook’s Libra enable monetization for Western podcasts?

Links

• Crazy Capital (in Chinese)
• Outgrowing Advertising: Multimodal Business Models as a Product Strategy
• The Dark Forest Theory of the Internet
• WeChat Conference: CHina CHat 2019!
• Become a member of TechNode Squared

Guest

• Rio Zhan, @RioJot

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

Editor

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

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

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

Can’t see the player? Check us out on iTunes or Spotify!

In this episode, recorded August 2nd, 2019 hosts Elliott Zaagman and James Hull look at Bilibili (Nasdaq: BILI). They discuss what Bilibili does, who runs it and are joined by a Bilibili user, Erica Shen, who shares her views as a user of the platform. After the interview with Erica, James and Elliott look at Bilibili’s financials.

The China Tech Investor podcast is powered by Technode.

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

CTI watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping

Guest:

• Erica Shen (Linkedin)

Hosts:

• Elliott Zaagman (@elliottzaagman)
• James Hull (@jameshullx, Hullx.com)

Editor:

• Peter Isachenko

Podcast links

• iTunes
• Overcast
• Spotify
• RSS Feed

Music

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

Scan headlines from the last few months and you’d be forgiven for thinking that China’s Big Brother project is almost complete: cameras everywhere, facial recognition databases, and a punitive social credit system. Not only is reality far from this depiction, but China suffers from an even more insidious problem common throughout the world: idiots with a database.

For years, cybersecurity experts have been warning of unsecured devices connected to the internet (printers, cameras, and pretty much any smart device in your home). That problem hasn’t even been solved effectively and, starting from last year, we’ve seeing more and more databases in China left completely open to those who know how to find them. And if “white hats” are making their discoveries public, who knows what the “black hats” have been getting up to.

Bottom line: China is getting serious about data privacy, but that won’t stop incompetent sysadmins. Since the Cybersecurity Law came into effect in 2017, enforcement agencies have become stricter in their monitoring and enforcement over data privacy. Take a look at our headlines over the last week or so and you’ll quickly see this trend. However, Chinese law, and its historically patchy enforcement, isn’t enough to prevent undertrained and overworked IT professionals from overlooking basic security procedures. As with so many areas—business plans, working conditions, or externalized costs—it’s time for Chinese companies to grow up and slow down a little, trading off some of China’s speed for a little safety.

A brief timeline

• June 1, 2017: China’s Cybersecurity Law comes into effect. It includes requirements that companies take technical measures to prevent data leaks and theft.
• June 9, 2017: Police in Zhejiang Province arrest 22 people with access to Apple user databases for selling user data. According to police estimates, the thieves made up to RMB 50 million (about $7.3 million).
• April 23, 2018: The Beijing News publishes the results of an investigation into data theft from delivery platforms. The data was being sold to telemarketers and included information such as users’ names, phone numbers, and addresses. Most of the data was scraped from unsecured databases, but a surprising amount came directly from merchants and delivery drivers themselves.
• May 2018: The Personal Information Security Specificationcomes into effect. Designed to better define what information can be collected and how, it also defines a data protection framework for third-parties connecting to platforms.
• Jan 2019: Beijing police disclose the theft of up to 5 million people’s personal information from China’s official train ticketing platform, 12306.
• May 28, 2019: Cyberspace Administration of China releases a draft of Measures for Data Security Management. It also stipulates data protection measures, including setting out who should be responsible for data management.
• July 2019: Two disgruntled former employees of recruitment platform Zhaopin assist in the theft and sale of up to 160,000 resumes.

Note: The data theft and leak cases above are only a small portion of reported cases.

If you have an entire world map with red pins in it, and every red pin is an indication that something is wrong, then the most we see are in China.

—Victor Gevers, founder of GDI Foundation, a non-profit organization that addresses security issues through responsible disclosure.

The law heard around the world: Much ink has been spilled about China’s Cybersecurity Law. It came into force in 2017, but, as we can see above, there are still loopholes and ambiguities the government is trying to address with new laws and regulations. Cogent arguments have been made as to why the CSL is intrusive and, from a Western perspective, goes too far. However, it is also trying to solve a real problem: making companies responsible for protecting user data. Like many areas of public interest, companies won’t make significant changes unless someone makes it more expensive not to.

Unsecured databases: Over the last year or so, security researchers and white hats (hackers for good, if you will) have been reporting discoveries of more and more unsecured databases, especially in China. According to Victor Gevers, founder of the GDI Foundation, in 2018, they saw a huge uptick in the number of unsecured databases in China.

Popular for its ease-of-use and scalability, MongoDB, a document-based database system, has become the de facto standard across tech industries. However, it wasn’t until version 2.6, released in April 2014, that MongoDB came with default authentication and security features. Even now, we’re still seeing attacks that are only possible when systems administrators don’t enable basic security protocols. With search engines like ZoomEye, Shodan, BinaryEdge.io, and Censys.io, anyone with a bit of technical ability can identify and exploit user data at will.

The danger: In China, the potential damage an unsecured database can cause goes far beyond the financial and social harm of a ransomed or leaked database. So far in 2019, there have been two at least two documented cases of unsecured government databases exposing more than 90 million people’s personal information, including name, gender, location coordinates, ID number, birthday, address, ethnicity and employer. Imagine how easy it would be to “human flesh search” (人肉搜索, China’s version of doxing) someone or steal their identity with this information and ruin their lives.

The problem with open source: Limits on customizing MongoDB will encourage companies to fork, making it likely that they will fail to implement regular security updates.

In October 2018, in an effort to curb abuse of open source licenses by cloud service providers like Tencent, Alibaba, and Yandex, MongoDB introduced a new license (Server Side Public License) for anyone using the community (i.e., free) version of the software. Section 13 of the SSPL stipulates that if a provider uses the community version of MongoDB source code to provide service, then they must make available the source code and modifications and the source code of applications used to run the service.  If Alibaba or Tencent is using MongoDB, then must make available any changes they’ve made to the source code as well asthe source code of any applications they are running with MongoDB.

It’s hard for me to imagine any tech company in China’s cutthroat market making potentially proprietary software available to the open-source community and therefore to their competitors. If Chinese service providers continue to use MongoDB, and not making their application source code available, then they are either using it in contravention of the SSPL or they’ve forked MongoDB. If they’ve forked it (i.e., made a copy and modified it), they would need to re-fork it every time MongoDB releases a new version to stay up to date, spending more time and money.

Putting the brakes on China speed: In the 996 world, it’s easy to forget the basics whether that’s equitable and fair HR policies, translation and localization of documents and products for overseas markets, or just security basics. Without effective enforcement, of which I’m not optimistic, it’s up to the companies and government agencies themselves to take basic security precautions seriously. Until that time, we can only hope that white hats continue to expose, and publicly report, issues before the black hats do.

With contributions from Chris Udemans and Wang Boyuan

Let’s face it: Pornography is becoming mainstream.

Around the world, adult content is available in almost any medium you can imagine (and perhaps some you couldn’t 😉). However, some countries—like China and many others—have gone to great lengths to ensure that the production, distribution, and/or consumption of erotic media is difficult if not impossible.

But, as the old saying goes: Where there is a will, there is a way.

When Tony Xu first proposed looking into pornography on WeChat for this great article, I was skeptical. With all the reports of how WeChat facilitates China’s control of information, surely porn would be an easy target for the platform’s automated control systems. Well, apparently I was wrong. People in China are watching porn just like everyone else.

Bottom line: The will for sexual content in China is not only there, but it’s growing. Not only do more young Chinese people report that they consume pornography, the consumption channels are also increasing. Like many civilizations, China has a long and complicated relationship with sexuality and its display. In modern times, China’s leaders have tried their best to control its expression. Ostensibly illegal behind the Great Firewall, it is surprisingly easy to find if you know where to look. In the Soviet Union, samizdat literature was distributed on carbon paper and pirate copies of Beatles records on chest X-rays. In China, links to porn float around in notionally private group chats. That doesn’t mean, however, that “vulgar” content is tolerated publicly. Quite the opposite: China’s enforcement bodies increasingly use titillating content as an excuse to force content platforms to offer more politically correct material.

A brief history

• During the Han (206 B.C.–220 A.D.), Tang (618–906), and Ming (1368–1644) dynasties, erotic literature and depictions of sexual acts flourished.
• Under the Qing (1644–1911), state ideology connected chastity with stability and asserted that “the obscene and erotic in literature lead to promiscuity in real life.”
• Under Mao Zedong, sexual activity came under the authority of the state. Labeled as “bourgeois predilections,” pornography, prostitution, extramarital and pre-marital sex, as well as recreational sex, were all banned.
• Under Deng Xiaoping, pornography and obscene behavior were labeled “spiritual pollution,” together with individualism, existentialism, and bourgeois liberalism under the “Anti-Spiritual Pollution Campaign.”
• In 1997, the Chinese government included the production and dissemination of obscene material in the country’s criminal law.
• In 2002, the Ministry of Information Industry ordered service providers to screen e-mail for and delete from public sites” sensitive materials” including state secrets, slander against China’s reputation, incitement to overthrow the Communist Party, ethnic separatism, evil cults, pornography, and violence.
• In 2004, Wang Yanli was jailed for four years for putting on “lewd” webcam shows. She was the first person to see jail time after strict anti-internet porn regulations came into effect.

A golden age long gone: Wind back the clock seven to eight years and you’ll arrive at one of the golden ages of adult content in China—internet connections were becoming better, forums were springing up, downloaders and storage platforms enjoyed lax oversight, and regulators were still figuring out where most sexual content came from.

One of the most useful and possibly most widely used porn-watching tool was the now-defunct peer-to-peer (P2P) video player and downloader Kuaibo. The platform allowed users to view pirated videos—often pornography— and was widely referred to as a kanpian shenqi, or “divine artifact for porn-viewing.” Kuaibo’s glory days didn’t last long. On April 22, 2014, company headquarters were raided by police, and on September 13, 2016, Kuaibo’s CEO was sentenced to 42 months in prison.

Starting around 2012, P2P downloader Xunlei and Baidu Wangpan (Baidu’s cloud service) also emerged as porn repositories. As long as users could find torrents or magnet links to pornography, often hidden in images using compression tools—a technique referred to as tuzhong, or “image torrent”—they could locate copies of porn that were already in the cloud and download them at max bandwidth. It wasn’t long before these cloud storage spaces came under scrutiny, with torrents and magnet links routinely getting flagged or reported for vulgar content. This cleanup gradually escalated, resulting in an almost “barren” cloud storage environment, save for password-protected Baidu cloud links.

As free pornography sources within the Great Firewall died down, paid source began to emerge. Paying for porn used to be just another option, but now people have no choice.

—section by Tony Xu

Sex in society: After restrictive and prudish policies against all manner of sexual activity, China’s sexuality is changing:

• Sex toy shops and prostitution (in the form of barber shops and massage parlors) have become common.
• A 2015 study showed that 30% of respondents aged 18-61 had viewed pornographic material in the past year.
• That same study also showed that from 2000-2015, more women were watching porn: from 37% to 51%
• A different study conducted in 2015 of undergraduates aged 18-25 found that 55.6% had received sexual and reproductive health education.
• Li Yinhe, the famous (or infamous, depending on who you ask) sociologist and sexologist, claimed in 2013 that pornography was the only source of sex ed in China.
• Since then, China has tried to introduce more sexual education into public school curriculum, with many parents scandalized by the material.

Note: All the data above is from 2015 and earlier. I was not able to find more up-to-date information, possibly because it is getting harder to do such research.

Politicized pornography: It’s clear, however, that no matter what people do in private, the government of China takes a hard line against “vulgar” behavior both online and off.

• In 2009, 22 members of a “wife-swapping” chat group were jailed under Article 301 of the criminal law. They were charged with “group licentiousness.”
• In 2014, a Beijing-led crackdown meant to clean up the country’s image was launched against prostitution in Dongguan. However, it seems that the sex trade is alive and well again in the city, albeit in diminished form.
• Since 2011, TechNode has published almost 200 articles about government action against “vulgar” and “obscene” content on China’s internet.
• The specifics of the government actions in most cases of “vulgar” content remain unclear. However, we can see that over time, enforcement bodies have become more proactive and stricter in their treatment of content platforms as they apply a chilling effect to publishers, authors, and platforms alike.

Sex drive: Through millions of years of evolution, our bodies come encoded with certain drives and behaviors. The strongest are the most basic: fight, run away, consume, dispose of waste, and reproduce. For a vivid reminder of this, watch the BBC video “Iguana vs Snakes.” Both animals, with primitive brain structures, behave purely on instinct; the various systems of their bodies are perfectly tuned to react to certain stimuli in a certain way.

The drive towards reproduction (and the pleasure humans receive from the activity) are innate features of the human body. With the internet, more and more people are discovering and exploring their sexuality in ways that were never possible in previous eras. In China, online pornography is not only increasingly common, but it is also more in demand. However, that doesn’t mean it’s easier to find. Much like wall-jumping technology, adult content has joined the “dark forest” of China’s internet where word-of-mouth is the only guide.

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

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

Can’t see the player? Check us out on iTunes or Spotify!

In this episode of the China Tech Investor Podcast powered by TechNode, James and Elliott chat with Matt Sheehan, Fellow at Macro Polo, the in-house think tank of the Paulson Institute. Matt discusses some of his recent research, in which he analyses how US and Chinese firms stack up in various dimensions of data. He also shares his findings on the battle for AI engineers, and how each country’s AI future may rely on Chinese talent, on both sides of the Pacific.

Also, be sure to check out Matt’s upcoming book: The Transpacific Experiment: How China and California Collaborate and Compete for Our Future, out August 13th.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping

Guests:

•  Matt Sheehan – @mattsheehan88

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

Can’t see the player? Check us out on iTunes or Spotify!

In the tech and startup ecosystem, there’s always another conference to attend. The landscape isn’t all that clear, however, with some conferences getting more public hype and others keeping it low-key. After organizing and attending many of them, John and Matt sit down this week to go over what’s out available, what makes certain tech conferences in China different, and which are some of the best to attend and why.

Key questions

• What kinds of conferences are there?
• What should you consider before going to a conference in China?
• How do conferences monetize?
• How much work goes into a successful conference?

Links

• WeChat Conference: CHina CHat 2019!
• Become a member of TechNode Squared

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

Editor

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

Yes, you read the title correctly. As of July 24, 2019, TechNode now has a paywall.

TL;DR: This has been in the works for some time. At launch, the paywall only covers the premium content we create for members of TechNode Squared. As time goes on, we plan to increase what is behind the paywall. Become a member now and get 20% off your yearly subscription. Find more info on TechNode Squared here.

The plan has always been to improve the breadth, depth, and quality of our reporting and analysis. I’m glad to say that in 2019, we’re a lot closer to that vision than we’ve ever been. While improvement for improvement sake is rarely a bad idea (unless it’s not broken har har), but we see the progress we’ve made over the last 2.5 years as a means to something greater.

In May, we launched the first-ever China tech membership program, TechNode Squared. There’s a huge information gap between what is happening in China and what the rest of the world thinks is happening. In general, our coverage is addressing that gap, but we wanted to take that further. With TechNode Squared, we’re able to provide in-depth reporting, analysis, and opinion found nowhere else.

Join TechNode Squared

Since the launch, rather than keeping our premium content confined to the “dark forest” of the internet, we’ve delayed publication by 3-7 days after it goes out in our various newsletters. With the paywall, publication to our site will be almost immediate. As time goes on, we plan on putting more of our content behind the paywall. And, no, this is not a soft paywall where you get free access to a certain number of articles per month or can use Google to circumvent paywall prompts. This is a hard paywall: either you’re a paying member or you aren’t.

So, if you want to maintain access to all our best stuff, you should sign up for TechNode Squared. To celebrate another milestone for TechNode, we’re offering a 20% discount for yearly memberships for a limited time. We’re all looking forward to you joining us.

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

Can’t see the player? Check us out on iTunes or Spotify!

In June, Carrefour sold 80% of its China operations to electronics retailer Suning. The news is representative of a much broader shift in the new retails space. When we first covered new retail in 2018, unmanned stores were gaining traction and it was unclear if Alibaba was going to win. In 1.5 years, unmanned stores are almost dead and Alibaba is a clear winner.

To discuss this shift, we’re happy to welcome Michael Norris, research and strategy manager at AgencyChina.

This episode was recorded on June 25, 2019.

Key questions:

• Why would Suning be interested in Carrefour?
• How did JD lose the new retail battle?
• What makes Hema and the Alibaba model so successful?
• What makes the China market so difficult for non-China retailers?

Links

• New Retail Keynote (Dropbox)
• Carrefour sells 80 per cent of its Chinese retail operations to Suning for 4.8 billion yuan
• Why it’s time to wake up and smell the coffee on Luckin
• WeChat Conference: CHina CHat 2019!
• Become a member of TechNode Squared

Guest

• Michael Norris, LinkedIn

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @mbrennanchina, ChinaChannel

Editor

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

5G is everywhere… or at least talk of it is. At the recently concluded Mobile World Congress Shanghai, we were overwhelmed by the number of companies talking big about their 5G initiatives. We were, however, also struck by the lack of actual real world implementation. But unlike blockchain, 5G is definitely not vaporware and its showcase at MWC Shanghai is a bellwether for things to come.

I was initially taken by this topic because of the amount of hype and uninformed discussion taking place. Skeptical at first, after doing some research (the product of which can be found below), my opinion of 5G has changed to be a bit more optimistic. Indeed, this is the kind of future-thinking that keeps me engaged with the technology industry.

Bottom line: Everyone’s talking about 5G but there’s still a lack of understanding of what it is, and can do, among the general public. While many carriers in the US have already rolled the new networking standard out on a limited basis, we expect major Chinese cities to see substantial coverage during 2020. 5G, like AI, is a critical infrastructure technology that promises better productivity, city management, and connectivity for the consumer mobile internet. 5G is even more fundamental than AI: every other emerging technology will need its speed and ubiquity to be effective. However, like most technology, 5G is value neutral: that is, it’s up to people to decide how to use it and, in China, how it’s going to be used won’t match Western Enlightenment values.

What is 5G: Development of fifth-generation wireless technology began as early as 2008, but what we know as 5G—technically 5G New Radio—wasn’t officially defined by 3GPP, the standards body for mobile communications, until 2017. In concise terms, 5G technology will provide faster download and upload speeds as well as lower latency (the time it takes for data to go from sender to receiver). This is made possible by using three different frequency bands as well as some interesting engineering.

3 different bands

• Low-band spectrum
  • Any frequency below 1 GHz
  • Peak speeds of 100 Mbps
  • Used by many carriers for 4G and LTE service.
  • T-Mobile in the US will use 600 MHz for its 5G services.
• Mid-band
  • Frequencies between 1 and 6 GHz
  • Peak speeds of 1 Gpbs
  • Chinese carriers currently use bands between 1.8 GHz and 2.6 GHz to provide LTE service
  • In December 2018, China’s Ministry of Industry and Information Technology issued the following licenses for commercial deployment:
    • China Mobile: 2.515 GHz to 2.675 GHz and 4.8 GHz to 4.9 GHz
    • China Telecom: 3.4 GHz to 3.5 GHz
    • China Unicom: 3.5 GHz to 3.6 GHz
  • In the US, Sprint will be using mid-band for their 5G services.
• High-band
  • Also known as mmWave
  • Any frequency above 6 GHz
  • Peak speeds of 10 Gpbs and latency as low as 1-4ms
  • Chinese regulators have identified 24.75 to 27.5 GHz and 37 to 42.5 GHz as potential bands, but have not yet granted any licenses.
  • AT&T, Verizon, and T-Mobile will use high-band for their 5G services.
  • Drawbacks: Short range and can’t penetrate walls—meaning more sales of routers, base stations, and repeaters.

Key innovations

• Beamforming: targeted signals
  • In previous generations, cell towers would radiate radio signals in all directions.
  • With beamforming, cell towers can target and track devices as they move, even bouncing signals off other surfaces.
• Massive MIMO: more connections per station
  • MIMO = multiple input, multiple output
• In 4G networks, the maximum number of transceivers (transmitter + receiver) in one base station was four.
  • Huawei and ZTE have demonstrated Massive MIMO cell towers with 96-128 transceivers.
• Small cells: antennas everywhere
  • Low power, short-range base stations used in high- and mid-band deployments to increase coverage area.
  • Can be installed in existing public infrastructure and can be used indoors.

5G in China: Companies providing key hardware for 5G rollout in China are still reliant on US suppliers, creating a vulnerability to US strategic tech policy. However, that doesn’t seem to be slowing overall deployment. Here’s what 5G will look in China:

• Smart devices
  • Users with 5G-enabled devices can expect connections with response times faster than their own reaction times.
  • So far, Huawei, ZTE, Meizu, Xiaomi, Oppo, and Vivo have all announced 5G enabled phones, with some of them already available for purchase in the EU.
  • Samsung has announced a 5G phone and Apple is rumored to plan the release of two 5G phones in 2020.
• AR/VR: With the speeds enabled by 5G, AR and VR will finally be able to come out of the home and onto the streets. Given China’s tech giants ability to gamify pretty much anything, expect some interesting applications in the consumer space.
  • Alipay has already experimented with AR red envelopes.
  • Tencent launched their version of Pokémon Go, “Let’s Hunt Monsters,” in April.
• IoT
  • Effective IoT networks require ubiquitous connectivity.
  • High-band 5G and its supporting technology will finally provide the infrastructure necessary for massive IoT rollout on the streets and inside buildings.
  • Sensor communication networks means potentially better traffic control, more efficient public transportation, and a better understanding of how public and private infrastructure (streets, buildings, etc) are used.
• Autonomous vehicles
  • Testing has started before 5G roll-out, but AV could be made much safer and more efficient through constant communication between cars and streets.
  • With greater connectivity comes potentially greater performance from data collected and delivered to other cars as well as to automakers.
• Smart cities
  • A catch-all term used to refer to cities powered by next-gen technology, China is serious about getting these cities up and running, all powered by 5G.
  • Since the concept’s inclusion in the 12th Five Year Plan in 2010 and their first pilot in 2012, China has gone on to create 500 pilot projects around the country, making up half of the global total and leading in total number of pilots.  President Xi Jinping said at the 19th Party Congress in 2017 that smart cities were part of a “deep integration of the internet, big data, and artificial intelligence with the real economy.”
  • We just published a great breakdown of smart cities in China. Check it out for more details.

Looking past the hype: After covering tech and startups for as long I have, I know better to take the word of 5G companies at face value. In China, any time you see the term “smart city,” remember that these projects are the potential culmination of the government’s vision of how to manage the country.

There are some upsides: more efficient water and electricity use, increased air and water quality, and overall increases in quality of life as citizen needs are rapidly identified and met. The downsides, however, are ones we can read in almost any headline about China: ubiquitous surveillance, immediate punishment for transgressions via social credit scoring, and increased “harmonization” of public behavior. And don’t forget that the West is engaged in a similar project—led by private companies not governments.

As the old joke goes, you put a bunch of engineers in the room to solve a problem and no one is going to ask about the ethics of it. While the tech does have the potential for lasting positive benefits, as is typical in the tech industry, there’s not enough discussion of the downside. That wouldn’t be a good sales pitch.

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, recorded June 27th, 2019 hosts Elliott Zaagman and James Hull are joined by Andrew Polk, Trivium China Partner and Head of Econ. They discuss developments and events in China’s banking system and how they may impact investors. The discussion also covers the recent Baoshang bank takeover, the rise in interbank yield spreads, and more.

The China Tech Investor podcast is powered by Technode.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping

Guests:

•   Andrew Polk — Trivium China

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

On June 21, leaders from the Association of Southeast Asian Nations (ASEAN) met in Bangkok. One large item on the agenda: how to maintain relationships with rivals US and China. Just 2 days before regional leaders met, another, very different, conference was held just a few blocks down.

In its fourth year, TechSauce is the largest tech conference of its kind in Southeast Asia. My second year attending the conference and my second time in Southeast Asia, I found myself discovering firsthand what many had told me before: the region is poised to see its tech industry grow faster than anywhere else in the world.

For many years, entrepreneurs and VCs in China have talked about the opportunities presented by SEA with many saying the region is like China 10 years ago. While we at TechNode don’t cover SEA directly, we have covered the entry of tech giants into the market extensively. That, however, doesn’t quite capture the energy, ambition, and hunger, as well as contradictions, I experienced this year.

Bottom line: Location and history link Southeast Asia equally to China, India, and the West. Now enjoying catch-up growth, the region is both poised for fast development—and gets to start fresh with little infrastructure, or dominant players, set in stone. The region will not follow the same path, or use the same companies, but the way it is like China 10 years ago is that it’s choosing among models that have gone before. So far, we can say Silicon Valley is winning social and search, Chinese-inspired (and funded) local players are winning e-commerce and payments, and transportation—like many other fields—is a local synthesis of both.

By the numbers:

• The OECD predicts the region’s GDP growth will average 5.2% between 2018 and 2022
  • Cambodia, Laos, and Myanmar will grow the fastest
• In 2017, the Southeast Asian internet industry was estimated to be worth $50 billion
  • Expected to be worth $200 billion by 2025
• Singapore has the highest rate of internet use (81%), while Laos has the lowest (22%)

Cultural crossroads: With historical, cultural, political, and economic connections to China, India, and Europe, Southeast Asia is a real meeting point for peoples and cultures. But its history is also one of fragmentation and disunity: Different groups with different cultural backgrounds and religions—Buddhist, Hindu, and Muslim—not only had typical sectarian conflicts, but were also divided amongst European colonizers. However, in 1967, the region came together to form ASEAN.

Turbulent history: Southeast Asia has often been seen somebody else’s chessboard—but it’s the region’s residents who ultimately decide which outsiders stay and which go. First colonized by European powers, then a battleground between Japanese and Allied forces, then a theater for the conflict between communist and capitalist forces, autonomy was hard-won for most states in the region. Even after all that, the region showed steady and strong GDP growth up until 1997 when the Asian financial crisis hit. While GDP growth did rebound, political turmoil ensued as governments transitioned to functioning democracies, territories gained their independence, and the region has had to adjust to a stronger China.

Demographic dividend: Unlike many other parts of the world, including China, Southeast Asia is not looking down the barrel of a grey haired gun. The region looks well positioned to have a strong workforce all the way up until 2030. 68% of the current population will be working age in 2025. As manufacturing moves away from China, many SEA countries are trying to shift their economies to emphasize industry.

As the population becomes better educated, more urban, and more affluent, demand for better (convenient, safe, high quality) products and services increases. In China, the mobile internet filled gaps in the offline world by providing affordable solutions to consumers’ pain points. Local players are applying this lesson to regionally specific pain points like banking.

Fragmented market: Unlike China 10 years ago, Southeast Asia is not a single country nor a single market. Broadly divisible between mainland and islands, the region has 11 distinct and independent countries. While ASEAN has done a great deal to standardize import/export policies, that hasn’t changed the fact that different regulatory regimes exist in countries with uneven development

A choice between two models: The Trump administration would like us to believe that we have to choose between a Cisco world and a Huawei world. This may be true places where market dominance or regulation keep one side out of the race, but in Southeast Asia, giants from around the world compete with local players as people vote with their attention. Facebook, WhatsApp, and Instagram have a place on people’s phones alongside Line (South Korea), WeChat (China), and Grab (Singapore). Southeast Asia does not carry the legacy of xenophobia seen in the West nor are their choices limited to only local players as in China. Instead, the tech industry is a reflection of the regions unique history, mix of cultures, and geographic positioning.

First move, US: More global in DNA, US tech champions Google and Facebook are the top choices for most users in their respective verticals. No one does search better than Google (sorry Baidu) and Facebook provides an easy way to get and stay connected. Instagram, with its visual appeal, has also done quite well, with many using it to supplement their activity on other platforms. Meanwhile, no one cares about WeChat.

Still room for China: In China, many expect easy victories in SEA due to similar culture—indeed, the Chinese diaspora, both ancient and contemporary, exert significant influence—but this hasn’t translated into large scale adoption of consumer solutions outside of payments and e-commerce. Both WeChat and Alipay are available as payment options in more and more places, but still haven’t seen wide-scale adoption outside of global businesses with an existing relationship (e.g., 7-11) or ones catering to Chinese tourists.

A local twist: Chinese players have done best as models—and funders—rather than  competitors. “Copy to SEA,” often with Chinese backing, has created success stories, especially in O2O services like ride hailing and food delivery (Grab and Gojek, emulating the Didi/Kuaidi rivalry) while e-commerce is starting to take off, following a very China model.

While China’s out of the game in social, it’s got a healthy influence in transportation; hina-backed and -influenced apps dominate e-commerce and delivery. Alibaba has invested heavily in both Lazada (Singapore) and Tokopedia (Indonesia). Tencent is backing Lazada rival, Shopee. Both giants have, instead of trying to expand their brand and operations into the region, have invested in companies that started locally. JD and Amazon have taken an opposite approach, expanding with their brand and trying to hire locally. They, however, not only entered the game late but also don’t seem to be having much success, with JD even scaling back their presence.

Looking forward: The region is poised for rapid development and change, especially in the tech industry. Given uneven economic situations in the various countries, however, that development and change will vary. Singapore, while affluent and influential in the financial sector, is already a mature market. Indonesia, on the other hand, is one of the biggest markets in the region and still has lots of room to develop. While TechNode doesn’t have any plans to cover Southeast Asia directly, we will definitely be keeping the region on our radar.

Go further

• A Short History of South East Asia
• Investing in Southeast Asia: What’s Behind the Boom
• ASEAN Investment Report 2018
• Economic Outlook for Southeast Asia, China and India 2018
• From supermarkets to super apps, Southeast Asian tech start-ups are looking to China not Silicon Valley
• The Biggest E-commerce Websites and Apps in Southeast Asia
• This “dividend” will drive growth in ASEAN for years to come

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

Can’t see the player? Check us out on iTunes or Spotify!

On June 18, Facebook announced the Libra cryptocurrency, a solution to their P2P payments conundrum. As to be expected, this move has gotten a lot of attention. In China, that attention has taken the form of comparing Libra to Tencent’s breakthrough Q Coin as well as how WeChat has integrated payments.

Key questions:

• What is Q Coin?
• What’s the difference between a virtual currency and a cryptocurrency?
• What is the relationship between Libra, Calibra, and Facebook?
• Will China ever have something like this?

Links

• Everything you need to know about Libra, Facebook’s ambitious cryptocurrency
• Can Facebook’s Libra replicate WeChat Pay’s digital payment dominance?
• Facebook, Libra, and the Long Game
• FACEBOOK’S CALIBRA IS A SECRET WEAPON FOR MONETIZING ITS NEW CRYPTOCURRENCY
• Become a member of TechNode Squared

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

Editor

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

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

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

Can’t see the player? Check us out on iTunes or Spotify!

In this episode of the China Tech Investor Podcast powered by TechNode, James and Elliott chat with Dev Lewis, Research Associate at Digital Asia Hub and Yanqing Scholar at Peking University. Dev has written and focused extensively on the intersection of US and Chinese tech firms as they compete in India’s rapidly developing digital ecosystem. In this podcast, the guys talk about what makes India unique as a market, and the homegrown businesses, trends, and government policies that are impacting the way that foreign firms, including Chinese tech firms on our watchlist, approach doing business in what will soon be the world’s most populous nation.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping

Guests:

•   Dev Lewis – @Devlewis18

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

I’ve been following the China tech industry on and off for almost ten years. In that time, I’ve seen quite a few booms and busts, but surprisingly, the conversation follows a clear pattern:

• First, people start asking if this is a bubble. While the question nearly always answers itself (yes), VCs and entrepreneurs are wary of answering directly. Instead of “bubble,” they’ll use words like “frothy” or “dynamic.”
• Next, when it’s clear that the bubble is about to pop (or already has), everyone starts talking about a “capital winter,” a very apt metaphor that quickly becomes a cliche. Money, like water, becomes “frozen” and weak startups begin to die.
• Finally, once the macroeconomics stars realign, the entire cycle begins again—with nothing really learned except the old adages of “make hay while the sun shines,” “it’s not that bad,” and “fail fast.”

Looking at this phenomenon, I was struck by how little the public is aware of where VCs themselves get money. Who exactly is funding the funders? What impact do they have on startups?

Bottom line: After 15 years of rapid growth, government money (usually in the form of guidance funds) is drying up and VC firms themselves are finding it harder to close new funds. State-backed guidance funds are becoming pickier about who they work with, while non-government backers are also concerned more with cash flow and less with rate of return.

VCs in China have at most eight years to show returns to their own backers (compared to their US counterparts, who have up to 12 years) and sometimes as few as three. Until recently, RMB funds were preferred by VCs because the backers were less demanding. However, VCs are increasingly looking towards USD backers to keep the lights on. As the market for backing VCs matures—and growth slows—so too will the startups receiving funding.

How VC funding works: Venture capital funds are just another asset class. However, since they operate with risky investments, the total return on investment can be significantly higher than other asset classes like stocks, bonds, and other securities. Typical return rates in China are between 5-14%, but some general partners boast up to a 20% rate of return—a claim met by skepticism by TechNode staff.

From the top down

• Institutional investors and wealthy private individuals need to keep their money working. Government guidance funds, however, are more about making sure investment-led economic growth follows policy priorities or benefits their locality (city, county, province, etc).
• Venture capital firms raise money from institutional investors, wealthy individuals, and guidance funds to invest in startups they believe will provide a successful “exit” (IPO, acquisition, or even equity sale during subsequent funding rounds).
• Startups require money to fuel growth models that put speed over profit.

The role of guidance funds: Since reform and opening-up under Deng Xiaoping, China has transformed from a command economy into a market economy. The government, however, still retains its position as leader. Through policy documents, regulations, meetings, and speeches, the central government sets the priorities. Local governments scramble to figure out what the real priorities are and then how to show results to their bosses.

While the first guidance funds began appearing in 2002, it wasn’t until 2008 that the National Development and Reform Commission created a definition:

“[Guidance funds are] a type of policy fund that is established by the government and managed in market-oriented fashion with the aim of … attracting more capital investment in startups.”

Guidance funds, however, are not meant to invest directly in startups. Instead, they provide partial funding to venture capital firms and other funds with the rest of the total formed by “social capital,” i.e. private money.

According to research done by TechNode’s Financial Advisory team, most guidance funds have a broad mandate to either increase GDP in their local area or focus on specific verticals (AI, e-commerce, manufacturing, etc).

Guiding numbers: According to a December 2018 report by Chinaventure (in Chinese):

• 93.33% of guidance funds are interested in medical treatment, health, or TMT (telecommunications, media, and technology). TMT, in China, covers most of tech.
• 90% want to be on the decision-making committee of their invested sub-funds.
• More than 70% want to work with firms with at least three years of successful exits.
• More than 90% have clear minimum requirements for key people in sub-funds.
• Guidance funds usually provide 15-30% of total sub-fund funding.
• 30% have considered creating funds with overseas LPs and GPs.
• Estimated return rate in 2018 was 10-15%.

Inefficient guidance: Another report, by Qingke Private Equity (in Chinese), found some major problems with how guidance funds operate:

• Since 2008, only 882 out of 2,065 guidance funds have made investments, leaving 57% of aggregate funding still available.
• By the end of 2015, 30% of the RMB 109 billion in central government-backed guidance funds had not been used.
• A random survey of six local guidance funds found that 66% of their RMB 18.75 billion had been deposited in savings accounts.
• 73.51% of all money from guidance funds winds up in companies that are either expanding rapidly or are already mature.
• Only 6.41% of the money is invested in seed stage companies.

RMB drying up: From 2002 to 2016, over 2,000 guidance funds were created. In 2016, guidance fund growth peaked at 572 new funds. In 2017, the number of new funds was only 284. By December 2018, only 264 new funds were created.

Data from Preqin, a financial data provider, shows that the number of VC funds closed peaked in 2015, but aggregate capital raised peaked in 2016. According to our Financial Advisory team, over the last six months, more and more China-focused VCs are seeking overseas LPs, who provide US dollars. While they are usually more demanding and focus on rate of return, the RMB is weakening and the “innovation” sector is seeing less and less support from the government.

Slowing China speed: As TechNode contributors have previously reported, opportunities in the consumer space for companies both large and small are quickly diminishing. Not only is easy growth from demographic and mobile dividends rapidly drying up, but the total amount of money available to fund startups—whether 2C or 2B, digital or physical—is also slowly decreasing. This means boom-bust cycles will be increasingly infrequent while VCs become pickier to hedge their bets. Instead of getting easy money on inflated valuations, founders must start thinking about creating sustainable (or kind of sustainable) businesses.

From our perspective at TechNode, this is a good thing. Rapid growth also means rapid social change. The trade-offs inherent in technology adoption (convenience vs. privacy, for example) often go unquestioned as people race to a “better life.” Slowing startup growth could also mean fewer externalized costs—such as having bikes moved to designated zones by security guards of property management companies instead of bike rental employees—and less value destruction in the form of broken bikes, empty office buildings, and scam artists.

The VC model of economic growth is great for many reasons, but in the last few decades, with the rise of consumer technology, it has gotten out of hand. I, for one, am glad things are slowing down and founders can get back to doing what they should be: creating sustainable businesses that benefit their community and broader society.

On May 28, the Beijing Academy of Artificial Intelligence (BAAI) released the “Beijing AI Principles,” an outline to guide the research and development, implementation, and governance of AI. Endorsed by Peking University; Tsinghua University; the Chinese Academy of Sciences’ Institute of Automation and Institute of Computing Technology; and companies such as Baidu, Alibaba, and Tencent, the principles are the latest global entry in a long list of statements about what AI is and should be. On the surface, a bland and unsurprising take on AI ethics, the document actually pushes forward the global discussion on what AI should look like.

Bottom line: Say what you will about the current tension between the US and China, but the fact remains that the Western-built world order is slowly eroding and China is steadily filling in the gaps. While the principles were not written or endorsed by the State Council (the country’s chief administrative authority), BAAI is backed by the Ministry of Science and Technology which, very likely, approved the statement for publication.

Because it’s not a central government document, it does not carry the full weight of the leadership, but it is a step towards an official stance on ethical AI. It is the first public sector declaration of AI principles to come out of China, bringing Beijing into a conversation dominated by Western voices.

However, like other principles published globally before, it doesn’t do enough to address actual real world development and use cases. Instead of fluffy, feel-good utterances we can all agree on, the global AI community needs to go beyond just words and give us concrete examples of how AI can represent our highest values.

A brief timeline

• October 3, 2017: DeepMind, developers of AlphaGo and AlphaZero, releases “Ethics & Society Principles.”
• April 9, 2018: OpenAI, a non-profit founded by Elon Musk and Sam Altman, publishes its Charter, in English and Chinese
• April 16, 2018: UK’s House of Lords “AI in the UK: ready, willing and able?”
• May 18, 2018: Stanford launches Human-Centered Artificial Intelligence initiative.
• May 26, 2018: Robin Li, found and CEO of Baidu discusses Baidu’s AI principles (Chinese link) at a government data conference in Guizhou.
• June 7, 2018: Google publishes AI principles.
• September 2018: IBM releases “Everyday Ethics for Artificial Intelligence,” billed as a “practical guide for designers and developers.”
• October 12, 2018: Baidu joins the Partnership on AI, founded in 2016 by Google, Facebook, Amazon, IBM, and Microsoft.
• December 3, 2018: Jason Si, chairman of Tencent Research Institution, discusses Tencent’s AI philosophy at 2018 Peking-Stanford University Internet Law and Public Policy Conference.
• March 2019: Stanford upgrades HAI initiative to a university institute.
• May 22, 2019: OECD releases “Principles on AI.”
• May 28, 2019: BAAI releases Beijing AI Principles.

For a full list of statements and position papers on AI principles, check out Linking Artificial Intelligence Principles, a project started by one of the key authors of the Beijing AI Principles, Yi Zeng.

Chinese voices: As with AI research, there has been a substantial asymmetry in statements about AI ethics: many Chinese researchers and practitioners can speak English and know English language statements, but few outside China are aware of Tencent’s and Baidu’s. Neither have published their principles and most statements from their representatives have been made in Chinese for domestic consumption. By publishing in English, the Beijing AI Principles invites the rest of the world to have an open discussion with researchers, academics, and entrepreneurs in China how AI should be developed and implemented.

It’s different this time: While still lacking concrete steps for implementation, the Beijing Principles do have more substance than the recent OECD document. Consisting of five principles (all single sentences) and five suggestions to government (all single sentences), the OECD principles on AI are bland and mirror almost every other government document on the topic. The Beijing AI Principles, on the hand, outlines specific domains (research, use, and governance) and even acknowledges the risks of Artificial General Intelligence and Superintelligence.

The most comprehensive public discussion of AI principles out of China actually comes from Tencent, a company which has been criticized in China for lacking a comprehensive AI strategy. At the 2018 Peking-Stanford University Internet Law and Public Policy, Jason Si gave a speech outlining, in quite specific terms, how Tencent approaches AI development. Even he, however, doesn’t go into enough detail for any reasonable skeptic to believe in their principles without seeing it.

The dark side: The Beijing AI Principles were likely written in good faith, but it is hard to take them seriously given what we know about how China is currently using AI. Domestic policy doesn’t give much credence to either Western notions of limiting the power of the state over the individual or avoiding systems of variable rights by race.

As has been widely covered by Western media outlets, the Chinese government has been paying special attention to people of certain ethnicities living in certain regions. Afraid of losing control, the government has created mass surveillance systems in a bid to ensure stability in these areas.

In August 2018, researchers funded by the National Natural Science Foundation of China and China Education & Research Network Innovation Project published a paper in English detailing AI models that could identify ethnicity. China’s facial recognition companies have had a hard time with non-Han Chinese due to lack of data, but this goes far beyond just wanting to verify someone’s identity. Indeed, the application of AI here isn’t about who someone is, but rather which group they belong to for the purposes of profiling. But it’s not just here, but also in China’s smart city push that we can see AI’s power to monitor individual citizens.

The government’s Skynet and Sharp Eyes programs make it clear that policy prioritizes watching, tracking, and monitoring people inside China’s borders. Anytime you hear “smart city” in China, you can guarantee that video surveillance and facial recognition is a key component.

Almost every single tech giant is involved too.

Alibaba has long been developing their own smart city solutions in Hangzhou and in May 2019, brought that system to Shanghai, including 1,100 biometric facial recognition cameras. Huawei has been developing smart city hardware for many years, including smart cameras used for image and facial recognition. Baidu is helping to build Xiong’an, China’s high-tech powered “second capital.” PingAn, an insurance company that’s pivoted into tech, is working with the Hong Kong government to help build the city’s e-ID system.

End of the fluffy cycle

We’ve got enough [AI principles]. We need to start getting into the details. We need to get real about the conversations we should be having.

—Chris Byrd, research fellow at the Future of Humanity Institute at Oxford University

The bad news is that the Beijing AI Principles is yet another list of feel-good sentiments about problems in AI development. The good news is that almost everyone and their mother has published one by now: the territory is marked and it’s time for some real exploration. What all AI principles lack to-date are concrete and technical details about how to create artificial intelligence systems that actually adhere to our stated values. Not only is this possible (contrary to popular belief, non-engineers can understand how technology works if they take the time to ask), but becoming increasingly necessary as AI quickly becomes integrated into the fabric of our societies.

The Beijing AI Principles are written by a team with a good track record and there’s every reason to believe they mean what they say. AI ethics is another area where China could set the global agenda if they wanted to. There is a real gap currently in the discussion that China could try to bridge, not just because they want the power, but also because the country’s leadership recognizes that there are real problems that need to be solved. Say what you will about their domestic policies, with AI, like carbon, if you don’t have Chinese buy-in, you don’t really have an effective norm. The world should be eager to have China contributing to the conversation.

Read more:

• To make AI ethics work, we need Chinese companies to lead
• The Future of Surveillance
• Cross-sector collaboration is key to achieving ethical AI: Chris Byrd
• Linking Artificial Intelligence Principles

At our Emerge conference last week, we featured discussions on AI, blockchain, digital marketing, and corporate innovation in China. Of all the discussions, it was the one on the 2B shift that surprised me the most because of the reaction to it and the amount of explanation I had to provide to attendees and partners.

Bottom line: Enterprise, which includes everything from bringing rural convenience stores online to upgrading China’s factories, isn’t sexy and doesn’t get the attention it deserves. Even with significant restructuring announced late last year by the BAT as well as government policies prioritizing industrial upgrades, not enough China tech watchers and participants are aware of what could be the biggest shift in China’s tech industry. Too often we focus on the consumer space and the Luckins of the world, but it’s changes on the backend that are transforming how business, across all verticals and industries, is being done.

A brief timeline:

• 2014: Alibaba launches Ling Shou Tong, an inventory management platform for convenience stores and parcel delivery
• Jan 2015: Alibaba launches a beta version of its enterprise messaging service DingTalk
• Oct 2016: Jack Ma coins the term “New Retail” in a speech at the 7th Alibaba Computing Conference
• Mar 2018: Meituan-Dianping, via Longzhu Capital, leads the RMB 205 million (about $30 million) Series B of FCMG B2B platform Zskuaixiao.com
• Sep 2018: Jack Ma, in another opening speech for Alibaba’s annual Computing Conference, coins the term “New Manufacturing”
• Oct 2018: Tencent announces restructuring to focus on industrial internet with the creation of a new business solely for cloud computing and smart industry
• Nov 2018: Alibaba announces restructuring that will upgrade their cloud business to be overseen by CTO Jeff Zhang. This restructuring also saw the integration of Tmall’s e-commerce platform, Tmall Supermarket, and Tmall’s import-export business into one business unit.
• Dec 2018: JD.com says they will restructure JD Mall, their revenue center, into three different departments: 2C platforms, business support services, and infrastructure control and risk management.
• Mar 2019: Alibaba acquires Teambition, a local enterprise collaboration app
• Apr 2019: Bytedance, the world’s most valuable private company, launches Lark (Feishu in Chinese), an enterprise messaging app aimed at both domestic and international markets
• May 2019: Chinese media reports that Baidu has dismantled its education business unit and begun offering cloud-based teaching management solutions to schools and tutoring agencies.

“The 2B shift is a win-win-win. The government wants to digitize their industry very quickly. At the moment, Chinese industry lags behind other countries. For the internet giants, this is best opportunity for growth. For Chinese SMEs, they don’t have the ability to be at the cutting edge. They are ready to use the platforms that already exist … The shift is really driven by the B2C internet.” —Francois Candelon, senior partner and managing director at Boston Consulting Group, at Emerge by TechNode on May 23, 2019

The power of the Chinese consumer: Unlike Silicon Valley, whose name comes from its roots in enterprise-focused hardware development, the Chinese tech industry is firmly rooted in providing better, cheaper, and faster for the country’s consumers. Chinese companies, especially SMEs, have relied on the demographic dividend for growth and did not pay much attention to employee productivity or efficiency. However, China has already passed the Lewis turning point (where wages for unskilled industrial labor exceed real agricultural wages); some estimate it happened as early as 2010. As companies, especially in manufacturing and retail, are finding it harder and harder to squeeze value out of employees, their need for technological solutions is growing. Let’s look at some of the areas where 2B has the biggest opportunities in China.

B2B2C: Smart mom-and-pops. First, it was online-to-offline (O2O), which filled in the gaps where “traditional” businesses couldn’t meet demand for both convenience and price. Now that O2O business models are proven and mature (i.e. many have died after a Cambrian explosion), China’s tech giants are helping shops that didn’t reap the immediate benefits. Services for convenience stores, traditional retailers, and restaurants are now the next area of growth for traditionally 2C tech giants. By going online, offline SMEs without their own technical infrastructure can better understand how their own business actually operates; they can take advantage of data analytics and payment systems, predict key demand profiles, and keep better track of their inventory and customers. Both Kuaishou and Pinduoduo, with their main demographic in poorer areas, offer technical infrastructure as well as a platform for rural small business to sell their goods.

C2B: With smart factories and rapid iteration, customer-to-business platforms allow manufacturers and brands to keep up to date on consumer preferences. Instead of investing in market research and complex factory lines, small batches of targeted—and even localized—products are now possible.

Industry 4.0: As I’ve outlined previously, Made in China 2025 is the plan to bring the country’s light and heavy industry into the modern age with cutting-edge technology, including robotics, IoT, AI, AR/VR, and even blockchain. For tech companies large and small, this represents massive opportunities for new business and growth. For example, almost all the tech giants are making their own robots and some of the most valuable AI startups are in robotics. Blockchain is another burgeoning technology that, while still immature, can be used in factories, supply chains, and even customer endpoints to increase efficiencies.

Not much room for productivity suites: In the US, productivity suites and extensible productivity platforms have enabled countless startups, tech and otherwise, to immediately reap efficiency benefits. By providing ways to assign and share tasks, cut out email, and collaborate on important documents, these apps can provide mountains of value right out of the box, often with free or affordable pricing tiers. China’s offices, however, haven’t been all that welcoming. Not only does WeChat allow for the unrestrained crossing of work-life boundaries, many Chinese managers and employees I’ve worked with do not intuitively get the point of these Western offerings. Teambition, founded in 2011 and one of the only independent productivity apps until its acquisition, tried to create a Trello-Slack-Asana mashup for the Chinese market, but it never really took off. Their last funding round before they were acquired was a Series B in 2016. Both Teambition and DingTalk aren’t pretty either. For all their ability to create compelling customer experiences, Alibaba obviously put their second- (or even third-) string designers on the UX of DingTalk. While its admin and HR functionality are powerful, employees hate it. It’s not easy on the eyes, its core function (messaging) isn’t that easy to use, and managers can easily see if people are “working.” The only company to nail messaging UX is Bytedance (sorry Tencent, WeChat for Work ain’t great). Clearly taking a page out of Silicon Valley’s success, Lark is a pleasure to use. However, I don’t expect as much traction domestically:

• It lacks some of the great admin and HR abilities that DingTalk has.
• Without pressure from higher-ups, many workers won’t feel the need to switch away from using WeChat for nearly everything.

Opportunities for startups: As with much of China’s development, some of the biggest opportunities are to be found in government priorities. Both consumption upgrade (to a lesser degree) and industrial upgrade (to a greater degree) policy priorities create a lot of blue ocean for young companies to play in. However, if they want to go up against the big companies, the key will be vertical specialization and domain expertise, as this is something difficult to replicate for competitors big and small. Black Lake, for example, provides software and management methodologies tailored to the needs of manufacturers. Because they are relatively small, they can not only better service their customers, but also iterate faster than their lumbering cousins.

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

Can’t see the player? Check us out on iTunes or Spotify!

Facial recognition has taken off in China. Perhaps the most widely implemented use case, facial recognition is used to deter jaywalkers, track attention and behavior in schools, catch criminals, monitor live streamers, and more. Unlike Western countries, China’s privacy protection laws are almost non-existent, but that is changing with draft legislation soon to be released

Key questions:

• What is China’s plan for facial recognition?
• How is facial recognition being used now?
• What are the local attitudes toward the technology?

Links

• Video: Facial recognition is on the rise in China
• Upgraded AI surveillance helps nab student suspected in mother’s murder
• Inside China Tech podcast
• Become a member of TechNode Squared

Guest

• Zen Soo, @zensoo, SCMP

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

Editor

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

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

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

Can’t see the player? Check us out on iTunes or Spotify!

In this special *live* episode, recorded May 23rd, 2019 at TechNode’s inaugural Emerge event, hosts Elliott Zaagman and James Hull are joined by Paul Mozur, a technology reporter with the New York Times who covers tech companies, cybersecurity, censorship and the intersection of geopolitics and technology in Asia. What better to discuss with him than the “elephant in the room:” US Commerce Department adding Huawei to the Entities List?

The discussion around Huawei covers whether Huawei can survive being on the Entities List, Huawei’s consumer devices versus networking equipment, CFIUS, which companies are impacted, which companies could benefit the most, Google & Android OS, and features live Q&A from the audience.

The China Tech Investor podcast is powered by Technode.

Note: the hosts and guest do not claim ownership of the truth in the matters discussed. This was recorded before President Trump tweet that suggested Huawei is on the table in the trade deal negotiations.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping

Guests:

• Paul Mozur – The New York Times

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

After a lull, the trade war is back on. From new moves to lock Huawei out of the US to tightening visa regulations for Chinese nationals, from new tariffs to new Trump tweets, both China and the US are ramping up for another battle after the March cease-fire. While many are still crossing their fingers in hopes of a quick resolution, leadership in both countries show no signs of backing down.

Bottom line: China has determined that to become a world power it must also become a leader in the technology industry. AI, chips, advanced manufacturing, and “innovation” are all among China’s highest policy priorities and, indeed, their declared core interests. The ongoing trade war is the most visible part of the increasing friction between the two countries. The Trump White House now agrees with China that the economy and industry are strategic assets that must be protected by policy. Western tech companies, entrepreneurs, and VCs who are hoping for a quick fix need to wake up. This issue is not going away. Deal or no deal, the way the world works is changing, and a struggle over values and global preeminence means politics will shape who you can raise money from, market your product to, and sell your company to for a long time.

A brief timeline: Rather than try to come up with a concise timeline, let me point you to others who have done a great job keeping track of the ongoing trade conflict:

• The US-China Trade War: A Timeline
• Trump’s Trade War Timeline: An Up-to-Date Guide

A Chinese retreat: The gusher of Chinese capital in the US is drying up, driven both by a slowing economy at home and stricter rules in the US. According to the Rhodium Group:

• Foreign direct investment (FDI) from China into the US fell by 84% from 2017 to 2018
• Net Chinese FDI fell to negative $8 billion as Chinese investors sold off $13 billion worth of US assets
• VC activity from China hit a new record high of $3.1 billion in 2018, but began to slow down in the second half of the year under increasing restrictions from the US and China’s slowing economy

Data from MergerMarket shows that Chinese purchases of US companies fell by 94.6% from 2016 to 2018.

Enter CFIUS: Silicon Valley VCs love Chinese money; willing to pay top dollar for US-developed tech and brands, it offers a great exit for many early stage investments. But the US government is becoming increasingly skeptical of these deals.

With the introduction of the Foreign Investment Risk Review Modernization Act in August 2018, the oversight powers of the Committee on Foreign Investment in the United States (CFIUS) expanded to include non-controlling investments by foreigners in US companies that have critical and/or emerging technologies.

In control of the review process is the Bureau of Industry and Security (BIS) of the Department of Commerce. As of November 2018, BIS lists 14 categories of technology as “essential to the national security of the United States,” including AI, microprocessors, and biotech.

Since 2012, CFIUS has been used to make it difficult for China to achieve parity in many areas, blocking deals or forcing divestitures of many Chinese investors in the US, including:

• 2012: Ralls Corporation, owned by Sany Group, had to divest itself from four wind farm projects deemed too close to a US Navy weapons training facility.
• 2016: A Chinese company was blocked from buying German Aixtron SE, a manufacturer of key material for semiconductor production.
• 2016: The US blocked a group of Chinese investors from purchasing a controlling stake in Lumileds, Philips’ light-emitting diode components business.
• 2017: A group of investors including China Venture Capital Fund Corporation, owned by state-backed entities, was blocked from buying Lattice Semiconductor.
• 2018: Broadcom, a Singapore-based semiconductor maker, was blocked from purchasing Qualcomm. Aimen N. Mir of the Treasury Department stated that they blocked the deal because a “[r]eduction in Qualcomm’s long-term technological competitiveness and influence in standard setting would leave an opening for China to expand its influence on the 5G standard-setting process.”
• 2019: Chinese medtech company iCarbonX was ordered to divest from PatientsLikeMe, a healthcare startup that claims to be the world’s largest personalized health network
• 2019: A Chinese gaming company was ordered to divest itself from Grindr, a popular LGTBQ dating app, after completing the purchase in 2018.

It’s not just CFIUS. With a May 15 executive order empowering the US Commerce Department to block foreign telecoms equipment companies on national security grounds, the White House intervened to pave the way for a formal ban on Huawei components, as a well as a possible export ban on critical integrated circuits.

Clash of civilizations?

• At a security forum in Washington DC on April 29, Kiron Skinner, the director of policy planning at the US State Department, compared the current tension between China and the US as “a fight with a really different civilization and a different ideology and the United States hasn’t had that before.”
• When asked whether she views this as a “clash of civilizations,” a la Samuel Huntington, Skinner said the current view was “a little different.”

“There is no way in hell China can meet those criteria because of the way they’re governed,” Senator Lindsey Graham, the South Carolina Republican who chairs the Judiciary Committee, said in a hearing of the panel. “The only way China can meet the criteria is to stop being China.”

—US Senator Lindsey Graham, speaking of Huawei’s efforts to demonstrate compliance with US security

Don’t forget the China Dream: Beijing really is out to change the world. Introduced by Xi Jinping shortly after taking power in 2012, the Chinese Dream is “the great rejuvenation of the Chinese nation” that includes becoming a “moderately well-off society” by 2021 and a fully developed nation by 2049.

In May 2013, Qiushi, a political theory magazine published by the Central Party School and the Central Committee of the CPC, published an editorial which made the argument that, after hundreds of years of failed experimentation with political models, “[o]nly the path of Socialism with Chinese characteristics found through untold hardships extensively experienced by the Chinese Communist Party, is the correct path in the human world to realize the Chinese Dream.”

Robert Kuhn, author of How China’s Leaders Think: The Inside Story of China’s Reform and What This Means for the Future, claims that the Chinese Dream has four parts:

• Strong China (economically, politically, diplomatically, scientifically, militarily)
• Civilized China (equity and fairness, rich culture, high morals)
• Harmonious China (amity among social classes)
• Beautiful China (healthy environment, low pollution)

In the introduction to his 2018 translation of Sun Tzu’s Art of War, Christopher McDonald describes the Chinese Dream as:

• A narrative describing the future world overseen, but not bullied, by a virtuous and non-hegemonic China, including the modification or replacement of current international norms by a more “multipolar” one as well as the replacement of English by Mandarin and the USD by the RMB as international standards
• Potentially dark, where China can only achieve its goals “in the teeth of bitter opposition from status quo powers” who use everything at their disposal to stymie “China’s peaceful rise”

Kai-fu Lee syndrome: One of the most internationally famous venture capitalists in the China market, Kai-fu Lee has had great success marketing his new book, AI Superpowers: China, Silicon Valley and the New World Order, to Silicon Valley. And for good reason: KFL, as he’s affectionately known by Valley readers I’ve spoken with, does an amazing job summarizing and explaining how China’s tech companies have been able to grow so big, so fast.

KFL then goes beyond his great account of the history to imply that Silicon Valley firms can model themselves on the Chinese giants. This implication is preposterous. Anyone who has spent time trying to understanding China quickly realizes how little the China experience is applicable outside the country. Certainly, there is room for inspiration, but that inspiration can only go so far.

Beyond dollar politics: To many investors, the trade war looks boneheaded. As Steve Hoffman, CEO of Founders Space, told me:

China is America’s largest trading partner, and if tariffs rise too high, we could wind up in a global recession. It’s my belief that it’s in the best interest of the US and China to have strong, mutually beneficial trade policies. There’s no reason we can’t reach an agreement without resorting to extreme tariffs … Most people I know in Silicon Valley sincerely hope that we can set a better course for the future, increase our ties, decrease misunderstandings, and reduce the level of fear and mistrust.

It used to be that business interests had the last word on US China policy. Bill Clinton came into office promising to isolate the country over human rights concerns—but concerted lobbying from businesses eager to enter China’s market helped it retain Most Favored Nation trade status and won Washington’s support for its entry into the WTO.

But governments on both sides of the Pacific are thinking about civilizations, not dollars. Countries that believe they’re in a long fight over world order—or dominance—may not be swayed by short-term arguments.

Tech in the crossfire: I don’t have a crystal ball, but a world with two huge countries in a no-holds barred struggle for control of technology is going to look pretty different. Here are the questions that are keeping me up at night—and that TechNode will be following:

• How many Huawei’s? “National security” restrictions have extended from military technology to “influence on 5G standards-setting” to building telecoms networks in Europe. As the White House becomes more directly involved in decision-making, how many more sectors will be subject to bans? Will raising money or exiting to China remain viable for US firms?
• How does China react? Market access in China is already restricted or prohibited in many consumer-facing digital services, and China is still hoping to end the trade war with a deal. If China gives up on compromise, what will happen to US firms here?
• How much can individuals act as a bridge between competitors? I’ve been living and working in China since 2008. In that time, I’ve seen and experienced China’s evolution. China was the first country I ever visited outside of the US and on my first trip here, the main challenge was to reconcile my expectations with reality. My conclusion then, and now, is that a country’s government is not the same as a country’s people. While Trump and Xi duke it out, it is still real human people, living their “small” lives, that can influence the direction our future takes.

While simple to state, the task itself is gargantuan and requires hard work on both sides to recognize the commonalities we all share and reserve judgment of those elements that make us different. Is it reasonable to expect individuals on both sides to take this responsibility seriously?

Read more:

• A trust not trade deficit lies at the core of US-China tech tensions
• Shanghai tech board to push semiconductor independence
• The Chinese dream infuses socialism with Chinese characteristics with new energy
• The US-China trade war should prompt American firms to take a US Inc approach to doing business
• How to read China’s new foreign investment law
• Google’s former China head Kai-Fu Lee retreats from US investing amid trade dispute
• Another days, another US company forced to divest of Chinese investors

With additional research by David Cohen.

Can’t see the player? Check us out on iTunes or Spotify!

• Shanghai tech board to push semiconductor independence
• Why Huawei’s ‘wolf culture’ will help telecom titan fight off attacks and thrive
• Halt and Catch Fire (TV series about making an OS)
• Become a member of TechNode Squared
• Get your tickets to the first annual Emerge 

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

• Peter Isachenko

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

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

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

Can’t see the player? Check us out on iTunes or Spotify!

In this episode, recorded May 9th, 2019 hosts Elliott Zaagman and James Hull are joined by Shai Oster, Asia Bureau Chief of The Information, to discuss SoftBank, the potential Vision Fund IPO and what may be the top of the tech-infused market cycle.

The hosts also briefly touch on the ever-fluid trade rift, Trump tweets and discuss how gaming regulations, which prohibit blood in games, have turned Tencent’s mobile game, the Battle Royale shooter PUBG, into Game of Peace (or Peace Elite) and the funny reactions on Weibo.

The China Tech Investor podcast is powered by Technode.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping

Guests:

• Shai Oster – The Information

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

On April 25, an Indian state court reversed an earlier decision to ban TikTok from app stores that serve Indian users. The April 3 decision in question, handed down by the Madras High Court, had cited pornography and safety risks for minors when ordering the Indian federal government to ban downloads of TikTok. This is not the first time that TikTok, or other Bytedance products, have had run-ins with local law in other countries.

Bottom line: Bytedance learned a key lesson in Madras. Unlike other Chinese companies that have enjoyed success abroad, such as smartphone makers, Bytedance creates products that have the potential—if not managed well—to create considerable social harm. Especially in India and Indonesia, which have strict laws against pornography and blasphemy, the company needs to apply the content-control best practices they have honed in China. Given the mounting pressure on Chinese companies as they seek new markets abroad, Bytedance cannot afford to trip over their own feet as they continue their meteoric growth.

Recent events

• September 2017: Bytedance launches TikTok in Indonesia. In the initial announcement, the company conflates TikTok and Douyin. Since then, however, they have made it clear that the two are separate apps with separate teams. However, most of the content positions listed on the company’s website are based in Beijing, as of May 9.
• November 2017: Bytedance buys Musical.ly, also headquartered in China, for an estimated $1 billion.
• April 3, 2019: The Madras High Court orders that TikTok be banned from app stores in India based on concerns about “pornographic and inappropriate content.”
• April 22, 2019: The Indian Supreme Court orders the Madras High Court to review its judgment within a week, threatening to vacate the judgment otherwise.
• April 24, 2019: The Madras High Court reverses its ban but warns if any “controversial” videos violating their conditions appear in the app, Bytedance will be found in contempt of court.
• April 30, 2019: TikTok reappears on app stores in India.

David vs Goliath: The original suit was brought by one man, Muthukumar Sankaran. This was Sankaran’s 147th lawsuit involving public interest litigation, whereby an individual files suit against the government to force them to take action against possible public harm. In the case of TikTok, Sankaran filed the suit against Madras and included Bytedance as a respondent. He decided to sue after a young girl approached him saying that people were inserting sexually explicit content into her TikTok videos that suggested she was a prostitute.

Missed opportunities: App analytics firm Sensor Tower estimates that the ban cost Bytedance up to 15 million new users. In a blog post, Oliver Yeh estimated TikTok’s global installs in April to be 33% lower than in the previous month. The ban also reportedly cost Bytedance $500,000 a day. According to Sensor Tower, TikTok rapidly returned to its former status in the Top 10 on India’s iOS App Store. To make up for lost time, the app is offering cash prizes of up to 100,000 rupees (around $1,445) daily for three users who share the hashtag #ReturnOfTikTok.

Typical positioning: According to Indian media, Bytedance’s lawyers claimed the company was only an “intermediary” and couldn’t be held responsible for user-generated content. Both Facebook and Twitter make the same claims: Since they do not curate content, they are not publishers responsible for the content found inside their website and apps. This is a legal maneuver meant to take advantage of a legal loophole that allows it to skirt legal responsibility. It is also demonstrably false as both platforms regularly ban users and remove “harmful content.” Indeed, Facebook has a content moderation team of at least 4,500 people. The Information estimates that Bytedance has 10,000 people dedicated to content moderation.

Not the first time

• In December 2017, Chinese regulators crack down on Jinri Toutiao, Bytedance’s founding and flagship product, claiming it was spreading “pornographic and vulgar information.”
• The potential for abuse of minors was first brought to our attention by YouTuber PayMoneyWubby in July 2018 after a Bytedance representative tried to have the same video taken down over copyright violations. (Warning: This video can be quite vulgar at times and features strong language.)
• That same month, Indonesia temporarily banned TikTok for containing “pornography, inappropriate content and blasphemy.”
• In February 2019, Bytedance settled with the US Federal Trade Commission for illegally collecting personal information from children.

Foreign invasion

• Bytedance is leading the charge into the Indian app ecosystem.
• In 2018, Chinese apps dominated India’s app rankings, occupying five out of the top 10 slots.
• That same year, both TikTok and Helo were both in the top 10.
• As of May 8, TikTok is the #1 free app on iOS, according to AppFollow.io.
• China and India have long had their geopolitical differences in relation to allies as well as ongoing disagreement about borders. In April 2019, India politicians accused Bytedance’s Helo of interfering in elections.

A young user base: The most recent publicly available data from Jiguang shows that as of February 2018, Douyin’s users in China were:

• primarily female (66.4%),
• relatively young (<19: 20%, 20-24: 32.8%, 25-29: 27.9%)
• located in less affluent areas (Tier 1 cities: 8.23%, Tier 2: 34.39%, Tier 3: 21.51%, Tier 4+: 35.87%)
  Note: Douyin is only available on Chinese app stores.

• Data from GlobalWebIndex shows that as of January 2019, 41% of Tiktok users were in the 16-24 age range.
• According to our sources, TikTok’s user base in the US is not very affluent nor well-educated.

Monitoring content

• Around 10,000 people, or 25% of Bytedance’s workforce, are devoted to content monitoring.
• 15 out of 31 positions posted in 2019 under Operations/Editing on the company’s China jobs site are for international markets.
• 1 out of 81 positions on TikTok’s LinkedIn jobs search page is content-related. The position is at Bytedance HQ in Beijing.
• After the ban in India, Bytedance said they pulled 6 million videos from TikTok.
• The company also introduced three new content moderation features for the India market: Filter Comments, Anti-Bullying Guidelines, and integration with cVIGIL, a mobile app allowing citizens to report violations of the election code of conduct.

Protecting minors: According to statements provided to us, the company has a wide range of protection features:

• Safety Center, a page with tools and resources “to promote a positive and safe environment for our community”
• Parents Portal, an overview of the app’s privacy settings and tips for parenting in the digital age
• Anti-Bullying, a special page in the Safety Center
• Parental Guardian Platform (currently piloted in Japan), similar to Apple’s Screen Time feature. Parents can set limits on usage and content presented to their children.

An uphill battle: While seemingly innocuous, even content and entertainment companies like Bytedance will have to answer difficult questions as geopolitical tensions increase. Not only are data privacy and data jurisdiction increasingly important national security issues, but I wouldn’t be surprised if foreign products like TikTok are somehow implicated in the upcoming US presidential election.

With contributions from Tony Xu, Bailey Hu and David Cohen

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

China’s online peer-to-peer lending industry has been in turmoil for the last three years as financial regulators have clamped down as part of “de-risking” efforts. Tuandai.com, a top P2P lender, collapsed in March due to turnover problems. As of February, the platform had more than 220,000 investors with RMB 14.5 billion ($2.15 billion) in outstanding loans. The company is under investigation for illegal fundraising, leading to the arrest of 41 people so far, including co-owners Tang Jun and Zhang Lin.

This week, Andrew Polk, partner at Trivium China, joins us to discuss what’s happening with the P2P lending industry in China.

Key questions:

• What role has the government played in the growth and death of P2P lending?
• How is the crackdown on cryptocurrency different from the tightening regulations around P2P lending?
• Are P2P companies really tech companies, as many claim?
• Can we expect companies like Dianrong to survive this round of government scrutiny?

Links

• 22: P2P lending, retail banking, and the future of online services with Ling Kong
• The Trivium Tip Sheet
• Become a member of TechNode Squared
• Get your tickets to the first annual 

Guest

• Andrew Polk, @andrewpolk81

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

Editor

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

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

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

Can’t see the player? Check us out on iTunes or Spotify!

In this episode of the China Tech Investor Podcast powered by TechNode, our hosts welcome back Technode contributor Michael Norris to discuss the IPO of Luckin Coffee.

Luckin is hardly free of controversy. From a CMO who spent time in prison to a rapid expansion financed by an equally rapid cash burn, there are a lot of reasons for skepticism. However, their upside is still bound to draw the attention from investors who don’t want to miss out on what could very well be Starbucks’ most formidable competitor in China.

Read Michael’s previous work on Luckin:

Why it’s time to wake up and smell the coffee on Luckin

From jail to java: How Luckin’s CMO is hacking China’s coffee market

Luckin may not last, but its model will

As well as TechNode Editor-in-Chief’s analysis of their IPO:

Is Luckin’s rushed IPO a path to sustainability or a pig in a poke?

At the beginning of the episode, James and Ell briefly discuss UXIN’s response to the damning accusations levied against them by Anne Stevenson-Yang and J Capital Research. Anne discussed her report on episode 22 of the podcast, and also issued a rebuttal to UXIN’s response. Listeners can read, and decide for themselves

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping

Guest:

• Michael Norris

Hosts:

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

Podcast information:

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

On April 22, 2019, Luckin Coffee, the darling of new retail boosters, filed their IPO prospectus with the US SEC. Just 18 months old, the coffee delivery and pickup company has forced reigning champion Starbucks to reconsider its China strategy. With big name celebrities and tons of discounts, Luckin has created an online to offline coffee empire spanning over 2,000 stores by 2018 and aiming for an extra 2,500 in 2019.

Bottom line: The company’s gone from zero to hero in a year and a half and is cruising for a big IPO. But it’s bleeding money to buy size. The rise and IPO of Luckin follows a similar pattern of UCAR which listed on the Hong Kong Stock Exchange only 18 months after its founding. Given the recent behavior of UCAR and Luckin backers, are its managers building a business—or selling the markets a pig in a poke?

A (relatively) brief history:

• October 2017: Luckin Coffee is founded in Beijing by former Car Inc COO Qian Zhiya and former CMO Yang Fei.
• June 11 2018: The company raises a $200 million Series A from Joy Capital, the Government of Singapore Investment Corporation (GIC), Legend Capital and Centurium Capital. Joy, Legend and Centurium all have connections to Car Inc.
• August 2 2018: Starbucks announces partnership with Alibaba to deliver coffee.
• September 7 2018: Tencent via WeChat Pay announces partnership with Luckin.
• September 19 2018: Ele.me starts delivering Starbucks coffee.
• December 12 2018: Luckin raises $200 million in a Series B, led by GIC and China International Capital. This round gave them a $2.2 billion valuation.
• April 18 2019: The company raises $150 million in a Series B+ from BlackRock and an unnamed investor. The round put them at a $2.9 billion valuation.
• April 22 2019: Luckin Coffee files for an IPO with the US SEC. To be listed on the Nasdaq under the symbol “LK,” the company set a placeholder amount of $100 million to be raised in the filing. Rumors from February put the IPO at $300 million.

Burning cash: According to their prospectus, Luckin isn’t doing well. Revenues growth is slowing considerably. Net losses remain large, but are growing more slowly.

• In 2018, net losses were RMB 1.6 billion (about $240 million). Revenues were RMB 840 million with operating expenses of RMB 2.4 billion.
• In Q1 2019, they recorded net losses of RMB 551 million. Revenues were RMB 478 million with operating expenses of RMB 1 billion.
• Quarter to quarter, revenues are stagnating.
  • At its peak (Q1 2018 to Q2 2018) revenues grew by 10x
  • From Q4 2018 to Q1 2019, however, revenue only grew by 1.03x
• However, net loss growth is slowing down as well.
  • Latest quarter on quarter net loss growth was only 0.8x.

Loans on a limb: Burning cash, as you might imagine, brings significant cash flow problems. Right before the IPO, the company and its chairman use their own assets to ensure continued operations.

• April 3 2019: Luckin Coffee registered RMB 45 million worth of movable assets as collateral to Zhongguancun Technology Lease Co., Ltd.
• April 12 2019: Luckin Chairman and UCAR CEO Lu Zhengyao sought a loan of at least $200 million from Goldman Sachs, Morgan Stanley and others. Sources told Reuters Lu offered the banks a mandate in the upcoming IPO in exchange for the loan, which was reportedly to be backed by Lu’s Luckin shares. Reuters’ sources commented that “it is not uncommon for Chinese companies to raise loans from banks hoping for a mandate on an IPO, [but] it is rare for executives or shareholders to request such personal financing.”

A roasted silver lining: Luckin’s SEC registration statement lays out a plan to build a roastery JV with Louis Dreyfus Company Asia. As part of that agreement Louis Dreyfus BV will purchase Class A shares equal to $50 million at the IPO price.

• Why this is important:
  • This could be the only clearly profitable venture that Luckin will have in the near-term.
  • The coffee market in China is extremely fragmented, with coffee passing through up to eight middle men before it reaches the consumer.
  • Louis Dreyfus BV is in the top three green coffee sellers globally. A tie-up with them would give Luckin direct access to a consistent supply of beans that they can use in their own operations or expand to sell to other merchants.

Shifting strategy:

• China’s coffee market is only growing. According to a 2018 report by CBNData (in Chinese), online consumers of coffee products grew by 70% from 2015-2017. Offline, the “convenience store” model (cheaper, faster and targeting white collar workers) is gaining traction.
• Luckin started as delivery-focused company, but by Q1 2019 91.3% of all stores were pick-up stores.
  • Customers can use the Luckin app to “book” a coffee. They show up around the time it’s supposed to be ready, show a QR code, and walk away.
  • Pick-up stores can also serve as general fulfillment centers, delivering products within 30 minutes within a two kilometer radius.
• Following the convenience store model, Luckin is positioned to take advantage of high traffic office buildings, commercial areas and university campuses.
• However, traditional convenience stores already offer coffee drinks. Usually these are of the instant variety, the most popular of all coffee drinks in China. According to CBNData, 84% of coffee consumed in China is some variety of instant.
• Their only direct competitor in the delivery/pick-up space is Coffeebox. They, however, closed up to 40% of their pick-up stores (in Chinese) in February.

Once consumers are habituated to ordering from Luckin, the idea will probably be to stack other food/ beverage categories onto the stores, which become a dense chain of mini fulfillment/distribution centers for orders taken online, resulting in higher revenue per square foot (sort of like how Alibaba talks up Hema’s 50% higher revenue per store due to online orders).

—overheard on TechNode Squared Slack group

Pig in a poke? Luckin has been and continues to be a fascinating company. It’s clear their management is very effective at growing a company and the model has a lot of potential. However, there are still big questions that need to be answered:

• Can the company survive?
  • Personal loans for the chairman and physical assets as collateral for a lease suggest a company teetering on the edge.
• How long will it take to actually generate a profit?
  • The “lose until you win” approach has been the standard tech startup model. Amazon was able to do it, but more recent tech startups are having a hard time, including Didi and the infamous Ofo.
  • JD.com, who went public just barely out of the red, still has ever-growing costs and their position in the market is already quite large.
• Is the IPO just a way for early investors to cash out?
  • This isn’t the first time Luckin founders have brought a company from zero to IPO in 18 months.
  • Funded and operated by the same network as CAR Inc, the company hasn’t had enough third-party due diligence.

Questionable claims: Luckin’s prospectus cites two reports by consulting firm Frost & Sullivan, a firm associated with questionable numbers in past IPOs.

• Their reports claim Luckin is the second largest firm in its market and the fastest, that 70% of coffee consumed in China in 2018 is pickup or delivery, and that 82.4% of participants claimed they started drinking coffee more often after becoming Luckin customers.
• Yicai Global has reported that Frost & Sullivan has repeatedly worked on IPOs for companies later suspended from trading on suspicion of fraud, or shown by later data to have less market share than claimed.
• In a statement to Technode, Frost & Sullivan dismissed Yicai’s reporting as “seriously inaccurate.” It also denied participating in its clients’ alleged financial fraud.
• Frost & Sullivan claims of market size have also been repeatedly questioned:
  • An August 2017 Frost & Sullivan Report claimed that Secoo, a online luxury retailer, had a 25% market share in 2016 and called it Asia’s biggest online integrate upscale products and services platform in terms of GMV. Motley Fool analysis shows that in that same year, Secoo had RMB 3.47 billion GMV while Alibaba had over RMB 3 trillion and JD.com had RMB 658 billion. Frost & Sullivan told Technode that Secoo was not comparible to Ali and JD because of its exclusive focus on luxury products.
  • Huya, in their April 2018 prospectus filed with the US SEC, claimed to be the largest game live streaming platform with 86.7 million monthly active users in Q4 2017, based on Frost & Sullivan market research. However, data from Jiguang Big Data (in Chinese) shows that Douyu has consistently had a higher market penetration rate than Huya, starting as early as February 2017, as well as significantly higher DAU from September 2017 to February 2018. 30 day user retention was also higher for Douyu than Huya.

Go further:

• Why it’s time to wake up and smell the coffee on Luckin
• From jail to java: How Luckin’s CMO is hacking China’s coffee market
• Luckin may not last, but its model will
• 2018 China Coffee Industry Insight Report (in Chinese)
• 5 Reasons I’m Selling Secoo Ltd. (Implicating Frost & Sullivan)
• What Luckin Coffee’s IPO might mean for Starbucks
• *China Coffee Market Analysis: China’s coffee boss isn’t Starbucks! (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.

Can’t see the player? Check us out on iTunes or Spotify!

It’s crossover episode time! Ell and James sit down with Jordan Schneider from the China Econtalk Podcast to discuss livestreaming fashion in China, Facebook vs Wechat, and the risks of stock-picking.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping

Guest:

•   Jordan Schneider – @jordschneider1

Hosts:

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

Podcast information:

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

At the end of March, a challenge to overtime-heavy working conditions at China’s tech giants appeared in an unlikely place. Github repositories are usually used by developers to share, contribute and test code, but the 996.ICU repo and official site are protests against “996” culture—the expectation that employees will work from 9 a.m. to 9 p.m., six days a week. The viral repo contains materials encouraging others to raise awareness of overwork in China’s tech companies, including a blacklist of 996-requiring companies and a whitelist of 955 (9 a.m. to 5 p.m., five days a week) companies. Tech leaders, including Alibaba’s Jack Ma, and JD.com’s Richard Liu have all come out in support of the grueling work schedule. They have, however, been met with scorn and censure in both online discussions and official state media for being tone-deaf and uncaring.

Sogou founder Wang Xiaochuan took to social media to dismiss claims made by some company employees that they were required to work longer than normal hours, adding that if people didn’t agree with the company’s culture, they were free to leave. Separately, a statement from Sogou said it “strictly complies” with Chinese labor laws.

Bottom line: China’s workforce is changing. As younger generations enter the labor force, they are no longer willing to trade their personal lives and health for a paycheck. Industry leaders, government officials and managers need to realign expectations and inefficient management systems to adapt to evolving employee demands for better work-life balance. As wages rise, Chinese productivity is lagging behind global averages. 996 schedules are an ad hoc solution for companies that don’t know how to manage workers effectively.

A brief history:

• 2015: 996 is publicly adopted by 58.com and Xiaohongshu. The term 996 becomes associated with China’s startup and tech culture, linking “hard work” with China’s broader success.
• January 2019: At Youzan’s annual meeting, the CEO announces the company will officially adopt 996 as their official working hours.
• March 2019: It is revealed that JD.com is implementing 996 and 995 in certain departments as company begins a painful contraction period.
• March 2019: The 996.ICU Github repository goes viral.
• April 2019: Jack Ma, Richard Liu and Wang Xiaochuan defend the 996 practice, prompting rebukes in social and official media.

What the law says (paraphrased for clarity):

• Constitutional guarantee: Workers have the “right to rest,” including vacation time.
• Workers should work for no more than eight hours a day and no more than 44 hours a week on average.
• Employers should not force workers to work overtime.
• If workers do work overtime, employers must provide overtime pay, performance bonuses and welfare benefits.
• After consultation with and approval from the relevant trade union, workers and government departments, employers may extend working hours, but not beyond one extra hour.
• If employers require more than one additional hour, they must safeguard the health of the worker; extra hours shall not exceed three hours, with total extension not to exceed 36 hours per month.

Enforcement, expectations and corporate culture:

• The Labor Law has been rarely enforced effectively. China’s employers do not often require overtime, but are notorious for creating workaholic cultures where working extra hours is implicitly mandatory in order for an employee to succeed.
• Workers that we talked to were not optimistic about change. They expressed a sense of powerlessness and felt that companies and government hold most—if not all—the power.

What companies say:

I personally believe 996 is good luck. Many companies and people don’t even have a chance to 996. If you can’t 996 when you’re young, when can you 996? If you haven’t done 996 in your life, should you feel proud? If you don’t wish to expend extra effort, how can you achieve the success you want?
— Jack Ma, founder of Alibaba, in an April 12 WeChat post

When I started working in e-commerce, I had to save every penny. I slept on the office floor just so I wouldn’t have to pay rent. For four years, I didn’t sleep for more than two hours in a row … These days, there are fewer hard workers and more lazy people … Those lazy people are not my brothers. My brothers are the ones who fight together, the ones who take responsibility and pressure together, the ones who share our success together… JD.com has never forced any employee to work 995 or 996.
— Richard Liu, founder and CEO of JD.com, in a WeChat Moments post

That’s bullshit. There’s enough on Maimai [a popular professional social network] to prove the contrary.
— overheard on the Friends of TechNode WeChat group, in response to Richard Liu’s claim that JD.com has never forced employees to work a 995 or 996 schedule

Changing demography, higher expectations: No longer fighting for survival, China’s young workers want meaningful employment. The post-’90s generation was the first to be born in a post-Mao, post-Tiananmen and one-child China.

• Smaller: From 2011 to 2018, the population between 16 and 59 years old (working age, according to the National Bureau of Statistics), shrank 2.8%.
• Younger: Those born in the ’90s and ’00s are entering the workforce, with the post-’90s population becoming mature workers.
• Greater expectations:
• Raised in affluence: In 2012, nearly 70% of China’s working population made between $9,000 and $34,000. In 2012, it was just 4%.
• Higher education: Chinese universities saw enrollment rates of 42.7% in 2016, a 12.7% increase from 2012. Graduation rates are as high as 90% at some universities, likely indicating lax standards.
• Less loyal: In 2016, only 40% of post-’90s respondents reported that they stayed at their job for more than two years, while 8% reported having four or more jobs within a three-year period.

Deeper productivity problems: While the speed of China’s growth has been stunning, it has resulted not from greater productivity, but because of low wages and the practice of throwing people at the problem. As the country leaves its impoverished past behind, companies need to break their reliance on cheap labor.

• In 2017, workers spent 44.7 hours a week at work on average.
• China reached the Lewis Turning Point in 2013, according to Standard Chartered, pushing up wages for unskilled workers.
• Wages, on average, doubled between 2010 and 2017, from RMB 3,100/month (about $461) to RMB 6,200/month.
• China’s professional culture is still lacking. Hours-long meetings, ad hoc communication and reliance on informal networks are the norm. While this may mean more flexibility, it also means longer hours as priorities change rapidly.
• Longer hours do not equate to high efficacy or efficiency. Many employees find nonproductive ways to fill up their time, including eating breakfast while they “work,” chatting with colleagues and taking extended after-lunch naps. Huawei, in fact, encourages napping, but then also demands adherence to tight delivery schedules.
• As businesses grow, they not only demand longer hours but also staff up faster, hiring for perceived needs instead of examining organizational structures and habits.

Go further:

• Research on Initiative Turnover Rate of the Post-90s Workforce―Taking Labor-Intensive Enterprises as an Example —Journal of Human Resource and Sustainability Studies, 2014, 12-25
• China Labor-force Dynamics Survey: Design and practice
• Fast and furious: Chinese unicorns to overtake American counterparts, says BCG report
• 2018 in review: China incubates 25 new unicorns worth $58 billion
• Github gives Chinese developers censor-proof forum
• A Chinese tech giant’s message about layoffs shows it won’t be easy to fight crazy working hours
• Facing Challenges: China’s Post-90s Generation and Their Employment Market Conundrum

Clarification: This story has been amended to reflect that Wang Xiaochuan, founder of Sogou, did not “come out in support” of the 996, as originally stated. He has neither confirmed nor denied such practices at his company. The story also adds a statement from Sogou that says the company complies strictly with the relevant Chinese labor laws.

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

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

Can’t see the player? Check us out on iTunes or Spotify!

In this episode of the China Tech Investor Podcast powered by TechNode, our hosts talk with the one and only Anne Stevenson-Yang, co-founder and research director at J Capital Research. Anne and her team at J Cap recently made headlines when they released a report accusing US-listed Chinese second-hand auto sales platform UXIN of fraud, recommending a short on their stock.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping

Guest:

Anne Stevenson-Yang – @doumenzi

Hosts:

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

Podcast information:

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

English-language media coverage of China and its rapidly emerging technology industry is at best superficial and at worst plain wrong. Take, for example, the country’s social credit system. The narrative in the Western world is that China is building an Orwellian dystopia based on AI and big data. The reality, however, is much more complex.

TechNode has the largest team of English-language reporters and editors on the ground in China. Allow us to bridge the disconnect between myth and reality and be your window on tech in China so you can make informed decisions.

What is TechNode Squared?

We’re calling it TechNode Squared because, much like a town square, our membership program brings together audience and journalists to share information and insights on China’s booming tech sector. The fruits of these exchanges are greater than the sum of their parts, truly tapping into the potential of collaboration.

Why should you join us?

• Full access to our best-in-class quality journalism
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TechNode Squared is a vibrant and insightful community that facilitates the exchange of meaningful, actionable information on China tech. We pledge to spur and nurture meaningful conversations between TechNode Squared members and our editorial team as well as among TechNode members. Our entire offering is based around building an informed China tech network and empowering TechNode Squared members to invest in the production of the stories and information they find most meaningful.

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

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

Can’t see the player? Check us out on iTunes or Spotify!

In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull talk about Xiaomi’s Q4 earnings report, as the company is selling more smartphones but experienced a jump in inventories at year end and more.

This episode also features an interview with Wall Street Journal’s Jacky Wong, where they discuss China’s new technology board and the implications for investors, companies and China’s capital markets.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping

Links:

• Xiaomi Q4 earnings notes
• INSIGHTS: Shanghai tech board to push semiconductor independence

Guests:

• Jacky Wong – Wall Street Journal

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

Announced by President Xi Jinping at the first China International Import Expo in November 2018, the Shanghai Stock Exchange’s Science and Technology Innovation Board focuses on companies in high-tech and strategic emerging sectors. Of the nine companies first slated to go public on the board, three are chipmakers: Hejian Technology, Amlogic and Raytron Technology. On top of that, three other companies have scrapped plans to list in Hong Kong in favor of Shanghai’s new tech board.

By launching the new board, the state is in fact providing venture capital with a smooth exit option, and stimulating more funds to flow into the high-tech sectors.
—Dong Dengxin, director of the Financial Securities Institute at the Wuhan University of Science and Technology

Semiconductors not only top the list of sectors recommended for the board by the China Securities Regulatory Commission, but also feature as a top 10 priority sector in the Made in China 2025 plan.

Bottom line: China is still reliant on imported semiconductors—but probably not forever. Long-term state support is driving independence in more categories of semiconductors, especially emerging chip types like application-specific integrated circuits (ASICs).

Deadline 2025: First proposed in 2015, the Made in China 2025 (MIC 2025) initiative is superficially about higher-value manufacturing. But it goes much deeper than production by getting at the core of China’s most recent push: innovation. MIC 2025’s guiding principles include the following: that manufacturing should be innovation-driven, emphasize quality over quantity, achieve green development, optimize the structure of Chinese industry, and nurture human talent.

Long-term effort: MIC 2025 is the third document issued by China’s State Council to address innovation and the need for industrial upgrading. In 2006, the central government issued the National Medium- and Long-Term Program for Science and Technology Development (2006-2020), which emphasized “indigenous innovation.” In 2010, the “Decision on Accelerating the Fostering and Development of Strategic Emerging Industries” named seven strategic industries. However, MIC 2025 differs in key ways, according to Scott Kennedy, senior adviser of the Freeman Chair in China Studies and director of the Project on Chinese Business and Political Economy (my emphasis):

Made in China 2025 is different in multiple respects:

1. It focuses on the entire manufacturing process and not just innovation;
2. It promotes the development of not only advanced industries, but traditional industries and modern services;
3. There is still a focus on state involvement, but market mechanisms are more prominent than in the [Decision on Accelerating the Fostering and Development of Strategic Emerging Industries]. For example, instead of focusing on top-down, unique domestic technical standards, the attention is on self-declared standards and the international standards system;
4. There are clear and specific measures for innovation, quality, intelligent manufacturing, and green production, with benchmarks identified for 2013 and 2015 and goals set for 2020 and 2025.

The chip connection: China has been striving for technological independence since the founding of the People’s Republic. Chips are essential not just for those cool devices you hold in your hand, but also for weapons systems, cryptography and supercomputers. When the Trump administration almost killed ZTE with a semiconductor export ban, chips—always an industrial policy priority—became part of a much bigger discussion.

Not spending enough:

• Taiwan Semiconductor Manufacturing, the world’s largest contract chipmaker, spent almost $2.9 billion on R&D in 2018
• Semiconductor Manufacturing International, China’s chip manufacturing champion, only spent $550 million on R&D in 2018 (Financial Times)

Only a matter of time: Velu Sinha, a partner at Bain & Company in Shanghai, says China will eventually be a competitive chipmaker: “It is not a question of if, it is a question of when. But we are not talking a year or two, we’re talking five to 10 [years] before those technologies [in China] get caught up.”

AI to the rescue: While China may lag behind in general-purpose CPU and GPU manufacturing, ASICs are gaining steam, especially with the rise of AI applications, including facial recognition, voice recognition and autonomous driving.

Heavy hitters

• Bitmain—makers of bitcoin ASICs, now making ASICs for AI applications
• Cambricon—makers of Huawei’s Kirin NPU chip. They have received funding from the Chinese Academy of Sciences, iFlytek, Alibaba and Lenovo. In June, they were valued at $2.5 billion in their Series B.
• Horizon Robotics—founded by the former head of Baidu’s Institute of Deep Learning. Backed by Intel and SK, their latest funding round in February 2019 values them at $3 billion.
• Alibaba—In September, the e-commerce giant established “Pingtouge,” an AI chip company that integrates the chip business from their own Damo Academy with C-Sky Microsystems, which they acquired in April 2018.
• Huawei—The telecoms and smartphone giant revealed its AI chip ambitions in October with the announcement of the Ascend 910 and Ascend 310.
• Baidu—The search giant announced its Kunlun AI chips in July for edge and cloud computing.

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

Can’t see the player? Check us out on iTunes or Spotify!

With the number of English speakers around the world, it’s no surprise that Chinese AI experts and engineers are keeping up with developments across the Pacific. However, the same is not true when it comes to the Chinese language. Indeed, Andrew Ng, former Chief Scientist at Baidu and co-founder of Coursera, made this exact point years ago when interviewed about China’s AI progress. Jeffrey Ding, China lead for the Center for the Governance of AI, is trying to change that information asymmetry with his ChinAI newsletter featuring translations of Chinese thought leadership in AI.

Links

• ChinAI newsletter
• How I learned to stop worrying and love surveillance capitalism
• 62: AI Superpowers with Kai-Fu Lee
• TechNode Podcast Network

Guest

• Jeffrey Ding, @jjding99

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

Producer

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

Can’t see the player? Check us out on iTunes or Spotify!

Free cash flow is cash a company can use for whatever they want. If Pinduoduo is free cash flow positive they’ll likely be able to continue their growth spend and get even larger. If its free cash flow negative, the growth plan will put too much strain on their cash position and, it will eventually fail. To say it simply: the stakes are high.

This week, we’re joined by James Hull, professional investor and co-host of the China Tech Investor podcast, to take a look at Pinduoduo’s actual financial health.

Links

• Pinduoduo’s free cash flow conundrum
• 43: The e-commerce platform becoming a threat to Alibaba with Thomas Graziani
• China Tech Investor podcast
• TechNode Podcast Network

Guest

• James Hull, @jameshullx

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

Producer

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

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

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

Can’t see the player? Check us out on iTunes or Spotify!

In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull talk about Tencent’s Q4 earnings report, as the company attempts to prepare investors for their shifting business model.

This episode also features part 2 of an interview with AgencyChina’s Michael Norris, as they discuss future growth opportunities for companies such as Pinduoduo, Meituan-Dianping, and Didi.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping

Guests:

• Michael Norris – LinkedIn

Hosts:

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

Producer

• Peter Isachenko

Podcast information:

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

There are two dominant narratives about China: “China is awesome and we need to learn as much as possible from the country” or “China is super-scary and we have to make sure it doesn’t take over the world.”

Each of these narratives has a simplicity and emotional appeal that makes them extremely seductive, but ultimately both are inaccurate. That’s why “China hands”—those of us tied to China, its language, people, and culture—feel compelled to explain how the idea of China is so different from the reality on the ground.

Given the volume of exaggeration and hyperbole surrounding the conversation about China, those efforts are laudable, but they usually do not go far enough. We must wake up to the fact that almost all the current issues around technology are global—not regional or national—in nature. Not only is there a need to dial back the xenophobic hawkishness or, alternately, the manic enthusiasm for China’s rise, but we also have to look with clear eyes and an open mind at what is actually happening. And that begins at home.

In her book The Age of Surveillance Capitalism, Shoshana Zuboff draws back the veil on what American companies have done to create a pervasive, and unethical, understanding of human behavior.

Bound by practically zero legal restrictions, operating in near-total opacity, and benefiting from consumer ignorance, companies like Google and Facebook have built business empires on the collection and rendering of a practice known as “behavioral surplus.”

By using behavioral data unrelated to product or service improvement, these companies have created sophisticated behavioral futures markets where our predicted behavior is sold to buyers seeking improved margins.

Invoking utopian ideals such as increased leisure time, decreased social friction, and effortless decision-making, Google, Facebook, and increasingly Amazon have insidiously inserted themselves into our phones, our homes, and our cars—all to secure and protect precious supply lines.

Learning from robust psychological research (primarily behavioral and personality), these companies have discovered how to manipulate consumer behavior to deliver increasingly guaranteed outcomes.

Chinese companies, however, are much less sophisticated in this regard. Having emerged from an extremely different political, economic, and social history, Chinese companies had neither the technical know-how nor the broader environment to build businesses solely with behavioral surplus.

The country’s first-generation tech giants were all born in a very low-tech world, where the most direct way to monetize was through manual—as opposed to automatic—transactions. Alibaba had e-commerce, Tencent had virtual items (including profile decorations, in-game items, and stickers), and Baidu employed a large sales force.

This same logic still applies today, where the most effective way to monetize content, for example, is to sell it directly to users or incorporate it into a larger e-commerce offering.

I haven’t seen enough evidence yet—although I will continue to look and welcome any tips—that suggests companies like Xiaomi or Huawei, with their smart home product lines, even come close to the breadth and depth of Google and Amazon’s ambition to collect and monetize behavioral surplus.

Perhaps the only company approximating the Valley’s engineering-centric approach to consumer products is also the only company making headway outside of China. With their elite-level engineers who have created a content platform that only needs behavioral data and no initial social graph, Bytedance’s internal culture approaches a level of experimentation and data-driven “play” similar to Facebook’s.

Given the amount of justified concern over Facebook’s general lack of regard for user sovereignty, we should also be very concerned about Bytedance’s ability to understand and leverage user preference and behavior.

Unlike in the US, where surveillance technology has been driven by market forces and the government has furtively worked through tech companies to ensure “national security,” the entire surveillance technology ecosystem in China has been explicitly supported by the state.

As with many points of difference and friction, markets and companies in China are subordinate to the state and the Party. Most of the AI applications being developed are exactly in line with government needs; that includes surveillance and security, but also medicine, autonomous driving, and education.

And, as always, there are some very big questions about whether the country can ever fulfill its ambition of a complete social management system.

I am friends with many “China hands,” and definitely count myself among that group. We are inextricably tied to this country, its people, its language, and its culture for a myriad of reasons. We recognize the significance of China’s rise and choose not to be fearful. However, many do not go far enough, beyond the surface reality. I will not be the one to judge them or even China’s social management project. There is a lot that we can learn from each other, but we need to do so without glasses of any tint.

In China, AI will be used in ways antithetical to Western values—if not now, then definitely in the future. Whether that’s ultimately a good or bad thing, I’m honestly not sure.

What I can say is that the other end of the spectrum, a hawkishness verging on xenophobia that focuses on what China is doing (or can do) with AI, is just a distraction from us asking the important questions about how we want AI to be used in our own home countries.

The logic behind surveillance capitalism’s encroachment into our daily lives may differ in each country, but the outcome will be the same—an elite class separate from general society who shape and manage our behavior for goals only they can know.

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

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

Can’t see the player? Check us out on iTunes or Spotify!

In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull discuss live streaming, Pinduoduo’s results and cash flow conundrum and Meituan’s 2018 performance.

Michael Norris joins to share his insights on the companies we follow and his article “Growing in a mature market: Six directions for China’s tech giants”. Michael Norris is research and strategy manager at Agency China and a Technode contributor.  This is first of two parts of the interview.

The discussion should not be construed as investment advice or a solicitation of services. Please note, the hosts may have positions in the companies discussed.

Links

• Growing in a mature market: Six directions for China’s tech giants
• Check out TechNode’s network of podcasts

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan

Guests:

• Michael Norris – LinkedIn

Hosts:

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

Podcast information:

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

Amy Webb, the much-revered founder of the Future Today Institute, released her annual report on emerging tech trends for the year ahead on March 9.

China features heavily in the report, as it should, given its increasing impact and presence on the world stage, especially in technology.

However, as is typical with broad reports like these, many sections reveal a blinding bias. In the introduction, Webb makes a token reference to China as she tries to make sure readers know that the country will be in the report:

“It’s time to get comfortable with deep uncertainty. As I’m writing this annual letter to you from my office, we still do not know whether the UK will Brexit, if the special council investigation will incriminate President Trump or whether the 30th anniversary of the Tiananmen Square massacre will incite protest or apathy in China.”

While the first two examples could be innocuous statements of fact, the very structure of the third uncertainty reveals her bias, presuming that there will be—or should be—any reaction whatsoever.

Deeper into the report, in the section discussing artificial intelligence, she mixes the worst of China boosterism with shrill anti-China jingoism, claiming that China is on track “… to become the world’s unchallenged AI hegemon.”

The report even goes so far as to imply that China’s data surplus and investments in the sector are enough to allow the country to pull ahead of the rest of the world with “concentrated force and velocity.”

Love, hate

Opinions on China, rather like those of Donald Trump, tend to be extreme. Some love, others hate, few are in between.

In the case of tech, China is either turning into a “high-tech dystopia” where robots are taking over jobs and the government can track and punish you automatically.

Alternately, it’s about to win the tech Cold War because the country’s government and people are more “practical.”

The AI hegemon narrative is particularly popular.

In terms of AI readiness, China might be better off, but not by much. Sure, the country might lead in total investment into AI, and, while the country still ranks only seventh in the global AI talent pool, many estimates see them pulling ahead over the next decade. The government has certainly made many positive noises about the importance of AI, signalling support for the industry. The Made in China 2025 plan as well as a 2017 roadmap all place AI as a top priority.

A recent report by the China Institute for Science and Technology Policy at Tsinghua University, called the China AI Development Report 2018, highlights key trends in China’s AI industry. The report ranks China in the lead not only for AI research paper production (between 35,000 and 40,000 in 2017, compared to slightly less than 25,000 for the US) but also in the number of “highly cited” (the top 1% of citations received) and “hot papers” (papers published within the last two years that make up the top 0.1% of citations).

A 2017 McKinsey Global Institute report on AI in China shows that in 2015, Chinese research papers came in first for absolute number of citations, but quickly fell behind the US when accounting for self-citations (when a journal cites another article in the same journal).

The numbers are impressive—until you remember the many issues China has had with academic publishing fraud. For example, between 2012 and 2017, China retracted more scientific papers due to fake peer reviews than any other country.

We should be scared, but not because China is going to win the “AI race.” Rather, we should be very concerned about how unprepared governments the world over are regarding how AI will change society and the economy. While China’s legal system is still developing, Western democratic systems, especially in the US, have proven inadequate to deal with our current technological revolution.

In particular, politicians in the US continually show their ignorance. When Mark Zuckerberg danced around issues of privacy, his congressional interlocutors did not even recognize that he was doing so. More recently, Elizabeth Warren has called for the breakup of Google, Amazon, Facebook, and Apple. While there have been very compelling arguments as to why Google and Facebook should be considered monopolies, Warren’s targeting of Apple and their App Store shows how little she understands Apple’s true antitrust behavior(their rent-seeking via control of the platform).

While from a distance China’s progress in AI may seem enviable, the reality is that the country faces its fair share of challenges, too. Ambitious education projects and state-media that make sure the whole world knows the country’s AI goals will not actually solve China’s real problem of the forgotten heartland.

Missing in the heartland

As I have joked with friends on many occasions, Beijing and Shanghai are not China. The country’s coastal regions continue to reap the benefits of market reforms, innovation, and globalization with high GDP per capita. However, provinces such as Gansu, Yunnan, and Guizhou still lag far behind.

Even in more developed parts of the country, educational curricula still fall short of what many businesses need when it comes to talent. Some Chinese companies cannot wait for the education system to catch up, and are instead looking for ways to secure a pipeline of suitably qualified employees by designing and building their own courses.

SenseTime, in collaboration with the MOOC Center of East China Normal University, published China’s first-ever textbook on AI in 2018. The company promised that the textbook would be introduced to high schools around the country. However, as we’ve documented, the Chinese education system, both offline and online, is woefully underprepared to help train the next generation of workers, much less the current one. Cheap labor in China is already becoming more expensive, but very soon those jobs that in other countries helped push people into the middle class will no longer even exist.

The promise of artificial intelligence is already clear and visible: increased efficiency and productivity, fewer mistakes in critical areas of decision-making and diagnosis, and even perhaps greater efficacy in what the Chinese would call “social management.”

It appears neither China nor the US is ready for the real impact of AI—the coming dearth of meaningful work, and what that means for our societies.

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

Can’t see the player? Check us out on iTunes!

One of the earliest companies to get into bitcoin mining, Bitmain makes and sells mining equipment and manages one of the world’s largest bitcoin mining pools. A controversial company in the space (as are most), Bitmain backed the Bitcoin Cash fork as well as the subsequent fork into Bitcoin Cash ABC.

This week we are joined by Nishant Sharma, International PR and Communications Director at Bitmain, to talk about the company, some of their tech, as well as their future plans.

This episode was recorded on January 31, 2019.

Links

• How the world’s largest bitcoin miner is taking on AI’s most powerful players
• Bitmain co-founder Wu Jihan may be departing from core business
• TechNode Podcast Network

Guest

• Nishant Sharma, @nishantsharma87, LinkedIn

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

Producer

• Peter Isachenko

Podcast information

• iTunes
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

Vaguely akin to the Oscars, with the rich and famous showing off their loyalty to the Communist Party of China on the red carpet, China’s Two Sessions, or lianghui, can be bewildering for the uninitiated: lots of bold pronouncements, wacky ideas from celebrities, and a virtual (pun intended) isolation from the rest of the world as the government gets serious about unlicensed VPNs.

Previously the realm of economists, policy wonks, and seriously hardcore China watchers, the noises made at the Two Sessions are increasingly relevant for us China tech watchers, as more and more attention is paid to the sector both by entrepreneurs, billionaires, and governments.

The annual meeting of the Chinese People’s Political Consultative Conference (CPPCC) and the National People’s Congress (NPC) kicked off last earlier this month in Beijing.

Unlike the National Congress of the Communist Party, the most important political event in China, which is held every five years (usually in October), the Two Sessions is the perfect place for the famous and elite of all stripes to show off their pet projects. With a density of celebrities unavailable at any other time of the year, journalists from China’s state-run media are known for swarming delegates for an interview, soundbite, and even sometimes a selfie.

This year, missing from the lineup of prominent tech heads was Richard Liu, CEO of JD, who was accused of sexual assault last year in the United States.

For the eagle-eyed and stalwart China tech watcher, most of the platitudes and policies should come as no surprise.

Political status

The NPC is the de jure legislative body of the People’s Republic of China. In the West, it’s known for being a “rubber stamp” body; for many of the delegates, membership is more about status than actually passing legislation.

If the NPC is more about ceremony than substance, then the CPPCC is even more so. With even less actual power than their NPC counterparts, CPPCC delegates like to introduce policy proposals—some relevant to China’s needs, but many not—that are unlikely to go any further than this session.

For our purposes, what’s most interesting is examining which CEOs belong to which body:

• Pony Ma, founder and CEO of Tencent
• Dong Mingzhu, chairwoman of the consumer electronics giant Gree
• Li Shufu, chairman of Geely, one of the biggest Chinese carmakers
• Lei Jun, founder and CEO of Xiaomi

• Robin Li, founder and CEO of Baidu
• Wang Xiaochuan, founder and CEO of Sogou, China’s second search engine
• Zhou Hongyi, co-founder and CEO of the Chinese internet security company Qihoo 360

• Pony Ma: Greater Bay Area development, including a bank for fintech and a university; data privacy; manufacturing; “smart retail”; 5G; protecting minors;
• Robin Li: AI, specifically applied to transportation, medical records, as well as AI ethics; data privacy; US-China trade war;
• Li Shufu: methanol fuel and vehicles;
• Dong Mingzhu: robotics and chips;
• Wang Xiaochuan: healthcare reform and data transparency;
• Zhou Hongyi: cybersecurity, especially in AI and IoT. Zhou went so far as to call for a “national defense system”
• Lei Jun: 5G, IoT

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

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

In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull discuss JD’s surprisingly positive earnings report, and invite Bloomberg’s Tim Culpan on to discuss Alibaba and Tencent’s power struggle at the “Goldman Sachs of China,” and get deep into the balance sheets of Chinese tech companies.

The discussion should not be construed as investment advice or a solicitation of services. Please note, the hosts may have positions in the companies discussed. 

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan Dianping

Guests:

• Tim Culpan – @tculpan

Hosts:

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

Podcast information:

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

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

The party is over for China’s second-generation tech giants. Fueled by easy money, new markets, and lower transaction friction, they have fought for their market share, burning money as they went. Now it’s time to pay the piper. While economists are still undecided about the exact figures, it is clear that the Chinese economy isn’t doing very well. In 2018, according to official data, China’s GDP (gross domestic product, a measure of the market value of goods and services in a country) grew by a sluggish 6.6%, the lowest since 1990.

When first encountering the Chinese tech ecosystem, many people are surprised by the scale and speed. Amazed by the work ethic, pragmatism, and ambition, their attention is drawn away from the risks that such scale and speed entail. Too much, too fast has been the downfall of many a Chinese tech entrepreneur. From Ofo to LeEco, China’s tech is littered with the bodies of the fallen, both big and small. China tech entrepreneurs, as Kaifu Lee has put it, are best compared to gladiators: locked in a life-or-death battle for survival. Growing up in a scarce but rapidly developing environment, they’ve learned not only to move fast and be aggressive, but also to build their moats by any means necessary.

At TechNode, we’ve written quite a bit about the “2VC” model, the many restructurings, and the existential challenges that established players are currently facing. There’s a lot going on and I recommend you read those pieces to get a full understanding.

Meituan is experiencing its own contraction pains, but like many who came up in the mobile and O2O (online-to-offline) revolution, it’s the offline component that is causing it the most headaches. However, it’s the latest in technology that could solve most of their growing pains.

Meituan’s moat

CEO Wang Xing is perhaps the most representative example of China’s “fake it until you make it” copycat culture. All of his companies (except perhaps ticketing platform Maoyan) were directly copied from already established Valley darlings, including Facebook and Twitter. It wasn’t until Groupon took off that Wang finally found a model that worked. Backed by Tencent, Meituan was the only survivor of the 2010’s group-buying boom-bust cycle. Groupon’s Achilles heel, however, turned out to be Meituan’s greatest strength.

In the pre-mobile internet era, merchant information online was extremely unreliable. Many Chinese friends would ask me, naive American that I was, why I trusted the information on websites. If I wanted to actually get reliable information, I had to talk with a real human on the phone (quite difficult, given my Chinese language ability at the time). Nowadays, Dianping may be a rich repository of merchant information, but back then—long before it was bought by Meituan in 2015—it was still merely a platform for user-generated reviews. Investors in the Valley and in China saw group-buying as a chance to finally collect all that “last mile” data about local businesses. However, the difference between the markets and business models ultimately came down to one of China’s greatest discoveries: monetizing a network through shopping. By leveraging an aggressive but relatively cheap workforce, they were able to lock in merchants, offer competitive discounts, and continually improve the benefit to both consumers and businesses. Since then, it has become the “Alibaba” of O2O, connecting users with a plethora of services ranging from food delivery, travel, entertainment, car maintenance, and even furniture. Now, you can also access cab and private car rides as well as some of the best bike rentals in China.

The deliveryman in the room

O2O and the “sharing” economy have been great for Chinese consumers and workers. Not only have consumers gotten increased convenience at very bearable prices, but the boom has also encouraged small business growth in the form of contractors and novel business models as well as providing well-paid jobs in the service sector. However, people just aren’t scalable or sustainable in the same way as software.

In order to build their moats, the two delivery giants, Meituan and Ele.me, have spent incredible amounts of money. Last year, Ele.me promised to spend up to $400 million to increase its market share. As of June 2018, Meituan Dianping reported in its IPO prospectus that they spent almost RMB 7 billion on sales and marketing, around 54% more than in the same period in 2017. As of the third quarter of 2018, the last financial report Meituan Dianping has published, it spent a little under RMB 5 billion on the same, putting it on track to exceed the 2017 total of almost RMB 11 billion. According to the IPO prospectus, sales and marketing costs were mostly attributed to user incentives, promotion, advertising, and employee benefits expenses tied to sales and marketing staff involved in expanding its delivery network. According to the prospectus, it costs around RMB 7 per order to pay the delivery driver. However, as large cities like Beijing and Shanghai aim to curb migration, that labor force will soon start to dry up, creating a lot of room for doubt around the cost of labor in the future.

Under the hood

O2O champions Didi and Meituan are experiencing similar problems with scalability, and given China’s AI boom, they also have a similar solution. Both companies have invested significant amounts in order to apply the latest technology to their scaling problem and it seems to be working. While overall costs are high, Meituan reports sales and marketing expenses as declining as a percentage of revenue “driven by improving economies of scale.” Much of this derives from the application of AI to its logistics, efficiently matching drivers with orders. I’ve seen this firsthand. I once placed two separate orders for merchants located not far from each other. Meituan’s system automatically assigned the same delivery person for both orders and I still got them within the promised time. Didi, for their part, made a lot of noise in early 2018 about their “AI Brain,” which was designed to use its big data stores to help the government solve traffic problems. Given its larger challenges, it’s not clear how many problems it has actually solved to date, but I can say anecdotally that its driver assignment and navigation systems have improved dramatically.

Didi, Meituan Dianping, Ele.me, and the myriad other O2O niche services will probably never be known as AI companies, at least not like Baidu or Bytedance. However, these are indisputably the companies at the forefront of applying AI to real operational problems. As the Chinese economy slows, this approach may not be a choice for them. Their dominance, and their very survival, depends on whether they can create effective AI algorithms to optimize how they use the increasingly expensive and scarce offline resources.

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

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

(Can’t see the player? Check out the podcast on iTunes)

In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull discuss ByteDance allegedly asked to IPO on Shanghai’s tech board, gaming regulations (again!), Blackrock upping its stake in JD and Baidu & iQiyi’s Q4’2018 earnings.

Emma Lee joins to discuss and add Meituan-Dianping (HKEx: 3690) to our watchlist. Emma Lee is a Shanghai-based tech writer, covering startups and tech happenings in China and Asia in general.

The discussion should not be construed as investment advice or a solicitation of services. Please note, the hosts may have positions in the companies discussed. 

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan Dianping (new!)

Guests:

• Emma Lee – @EmmaLee12345

Hosts:

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

Producer

• Peter Isachenko

Podcast information:

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

(Can’t see the player? Find us on iTunes!)

Early last year, the central government put a freeze on gaming approvals, shutting out many big titles from making money, including PUBG and Fortnite. However, in December, they reopened approvals only to find themselves with a 6-month backlog, leaving giants Tencent and Netease still unable to monetize their biggest hits.

Daniel Ahmad, analyst at Niko Partners, joins us again to talk gaming regulation in China, the role of mini games in the WeChat vs Douyin battle, and how Steam is faring in the Middle Kingdom.

Links

• Niko Partners
• China Tech Talk 18: China’s gaming and e-sports industry with Daniel Ahmad

Guest

• Daniel Ahmad, @ZhuGEX

Hosts 

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

Producer

• Peter Isachenko

Podcast information

• iTunes
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

Last year was a rough one for the rental economy and mobility industries in China. With long lines of disgruntled customers outside Ofo’s Beijing office looking for refunds, sexual and physical assaults inside Didi’s cars, and the veil pulled away from Mobike’s numbers, 2018 saw the rubber hit the proverbial road.

No longer could marketers, PR armies, and executives continue to paint rosy pictures about the future of private transportation in China’s cities. For anyone on the ground, many of the claims had already inspired a mix of awe, confusion, and incredulity. If 2018 marked a breakdown in the industry, then 2019 is the year in which we’ll see if their attempts at repair will actually work.

A short ride down memory lane

Both Ofo and Mobike have been around for some time, but it wasn’t until the ride-hailing war was resolved that the industry was able to pick up speed.

Before 2012—when Didi and Kuaidi were both founded—getting around in a Chinese city was not easy. The intrepid intracity traveler had various options: bus, subway, cab, or unlicensed and illegal private cars (heiche, literally “black cars”). None were convenient.

Back then, the subway was less developed and stations were sparse. Deciphering bus maps required intimate knowledge of the city and its neighborhoods. Hailing a cab required a certain finesse as well as an utter lack of regard for other commuters as everyone jockeyed for position on the road; cab drivers, for their part, cared little for fairness, only concerning themselves with the direction and duration of the ride. Black cabs were even worse: overpriced and potentially dangerous. The demand for transport was exponentially higher than the supply and the suppliers knew it.

One night, as my wife and I were leaving a bar at Chaoyang Park’s west gate—a formerly hip and happening place—we discovered it had snowed quite heavily while we were inside. The subway was too far away by foot and most buses had already stopped service. Cab drivers in Beijing are notorious for abandoning the roads during inclement weather. We were stuck. It wasn’t until a good Samaritan gave us a ride to a busier road that we were able to find a cab home.

With the increasingly ubiquitous mobile internet—Xiaomi had launched their first smartphone in 2011, one of the first affordable ones in the country—the mobility industry was ripe for disruption. Unlike Uber, however, both Didi and Kuaidi started not as disruptors of regulation. In countries like the UK and France, Uber’s biggest challenge lay in regulatory frameworks that protected cab drivers but disadvantaged passengers. The American company became notorious for flouting their disregard for regulators and developed a reputation for being hard to deal with. In China, however, Didi and Kuaidi disrupted the cab market by working with cab drivers directly, then signing agreements with cab companies—some of which were state-owned—and then only later launching their private car-hire services.

Fast-forward to 2015: Didi and Kuaidi together controlled much of the market, but after a protracted subsidy war—offering discounts for riders and extra cash for drivers—the companies combined forces in order to face off against the foreign invader, Uber, who had entered China in 2014. After yet another subsidy war, subsequent fraud by drivers, new laws requiring government access to data, increasing compliance costs, and the rising barrier of regulatory approval, Uber raised the white flag in 2016 and sold their China operations to Didi.

Bike rental’s flight of fancy

Founded in 2014, Ofo launched in 2015 as a bike-sharing company on Beijing’s Peking University campus. China’s universities tend to be quite large and inconvenient to travel through. Ofo created a platform where students could share their idle bikes—for a fee—with classmates who needed to get across campus.

Mobike, on the other hand, launched in Shanghai in 2015 as a one-sided rental platform. Unlike Ofo, which had been co-founded by students, Mobike was established by seasoned professionals, including a former executive at Uber China.

After the ride-hailing war had been decided, investors and tech giants alike were looking for the next mobility play, with media dubbing both Ofo and Mobike as the “Uber of bikes.” The money poured in and, just as with any boom cycle in China, both companies competed fiercely for users, suppliers, and mindshare. Unlike in previous booms, however, these products were all offline and required significant investment to manufacture, deploy, and maintain. This didn’t stop both companies from claiming stellar numbers for both user numbers and rides. They remained coy, however, about the number of bikes on China’s streets, in order to conceal the true cost of their operations and to avoid potential dust-ups with municipal regulators over the externalized management costs.

We now know that these numbers were actually quite far from the truth. In 2018, Meituan Dianping went public in Hong Kong. As they had just purchased Mobike in April of the same year, we got a glimpse of the real story: Mobike’s previous claims were 70-75% higher than what was reported in Meituan Dianping’s IPO prospectus. We don’t have that kind of visibility into Ofo’s operations because they are not a public company and have chosen to remain opaque, but we can assume that they are much worse.

Didi in danger

The year 2018 was also a rude awakening for Didi. Established players from other industries began encroaching on the market. Local governments began making noise about the company’s effective monopoly. Worst of all, the public lost most of its trust in the company. The first murder of a Didi passenger was a tragedy but widely seen as a fluke for a company with few previous problems. The second was a wake-up call.

The mask was pulled off to reveal a company completely unequipped to deal with safety issues, especially for female passengers. Not only did they outsource all customer service—with the safety-reporting mechanism between the call center and Didi operations a complete failure—but the service where both murders occurred had been advertised as a place for male drivers to pick up female passengers, literally and figuratively. The former head of Didi Hitch, the carpooling service which saw the most problems, even went on record as calling it a “sexy application scenario.” On top of that, investigations revealed that assaults by drivers on Didi’s platform were much worse than previously thought.

Chinese companies, in a regulatory environment where many rules go unenforced, do not have a good track record of protecting their customers. In order to eke out margin, stay competitive and grow, companies in both tech and traditional sectors have skimmed and cut as much as possible. For a company like Didi, this degree of negligence has pushed them to the brink. As of now, the company is rumored to face losses of RMB 11 billion (around $1.6 billion) for 2018 and looks to be laying off up to 2,000 people. However, unlike Ofo, they actually have a chance to pull out of their current nosedive.

Didi claims to be implementing strategies that will allow it to do a U-turn and get out of the dead-end in which it finds itself. The company has announced that not only will they hire an additional 2,500 people for core business units, but that they will also increase their efforts in South America and bolster their efforts to improve rider safety. They’ve even gone so far as to call it an “existential” moment for them, one that could make or break the entire industry— referring to themselves, one would assume, since they make up most of the ride-hailing industry in China.

Being on top definitely does have its perks: better access to talent, funding, and regulators. However, it also means bearing the brunt of criticism, scrutiny, and the cost of reform. Didi, like other “sharing economy” startups, did not take safety seriously until it was too late, and even then the problem proved to be much deeper than we thought. Didi’s leadership, a pedigreed bunch of Alibaba, Goldman Sachs, and Uber alumni, have shown they know how to weather serious storms. We’ll just have to wait and see whether they make it through this one while also protecting the public at the same time.

In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull talk about Tencent’s investment in Reddit and the potential for China’s adoption of common reporting standards to pay the way for more open capital flows. They also discuss Xiaomi’s continued success in India, Pinduoduo raising more cash, and Chinese tech giants’ big spring festival hongbao giveaways.

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

Watchlist:

· Tencent

· Alibaba

· Baidu

· iQiyi

· Xiaomi

· JD.com

· Pinduoduo

Hosts:

· Elliott Zaagman – @elliottzaagman

· James Hull – @jameshullx

Podcast information:

· iTunes

· RSS Feed

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

China has long been ambivalent about technological change, attempting to reap the rewards of innovation while also protecting existing traditional structures. In the 15th century, the treasure fleet commanded by the eunuch admiral Zheng He that brought riches and territorial expansion to the Yongle Emperor was destroyed, some historians theorize, after it threatened the Confucian hierarchy by allowing merchants to become very rich, very quickly. The first railroad in China, just outside Shanghai, was dismantled in 1877 because it threatened Confucian social order, not to mention the steamships used to navigate the canals surrounding Shanghai.

Nowadays, this ambivalence manifests itself as a strained relationship between the market forces of entertainment and an older generation wary of things they don’t understand. However, unlike in the past, China not only recognizes the importance of embracing change, but also the capability to shape how it impacts the broader culture, putting it on the path to become a gaming powerhouse.

In 2018, the country had an estimated 463 million mobile game players, according to a report by China’s Game Publishing Committee and Gamma Data. That’s almost 60% of all mobile phone users in China and 44% of all mobile game players worldwide, according to Statista data; around 33% of all Steam users come from China, based on calculations via publicly available figures about the platform’s user base. In 2019, data from Statista shows that the country is projected to lead the world in mobile game revenue, and just recently, the central government recognized gaming as an official profession.

However, since PC and console games first became popular, governments, teachers, and parents have warned that video games will not only cause nearsightedness but also may lead to antisocial behavior and even addiction.

Just as Honour of Kings—aka Arena of Valor—was taking off in 2017, the People’s Daily—a publication referred to by some as the “mouthpiece of the Chinese Communist Party” and frequent host to moralistic opinions—ran an opinion piece comparing the top-grossing game to poison.

After the July 3, 2017 piece, titled “Honour of Kings: Is it entertainment for the masses or a lifetime trap?”, asserted that the game was a carrier of “negative energy,” Tencent lost $17.5 billion in market value. Even before the scathing piece sent shockwaves through the market, the content and entertainment company had already been responding to negative feedback by introducing methods to limit minors from playing its most popular game.

Intoxication

Much as the US and most of the Western world have grappled with the implications of violence in games, China finds itself continually debating the place in society of one of the most entrancing uses of technology. That intoxicating sense of reward, accomplishment, and achievement—gained by earning badges, acquiring virtual items, and actually completing something—keeps people coming back for “just one more level,” the holy grail of game design.

While the attention economy incentivizes ease of player reward, it wasn’t always that way. Dwarf Fortress, Rogue, Ghosts ’n Goblins, Battletoads, and the many point-and-click adventure puzzle games were all designed to be extremely hard. As the entire games industry expanded, developers and publishers toned down the difficulty to attract more “casual” players, culminating in the mobile game revolution with infinitely playable hits like Candy Crush, Clash of Clans, and Honour of Kings.

The basic stance of China’s guardians of culture, however, has remained consistent: fostering the “healthy” development of gaming in China.

“The Chinese government has had youth gaming protection policies for as long as there has been digital gaming in China, or at least for as long as Niko Partners has covered the market, which is now 17 years,” Daniel Ahmad, an analyst at Niko, a research firm that focuses on gaming in China and Southeast Asia, told TechNode.

Anti-addiction policies for PC games have been in place since 2007, when online game operators were required to implement timers for minors. However, when mobile games were taking off in 2014, regulators specifically stated that anti-addiction systems were not needed. It wasn’t until after gaming regulation was put under the remit of the Publicity Department of the Central Committee of the Communist Party of China (aka the Propaganda Department or zhongxuanbu in Chinese) in 2018 that Tencent and Netease began to seriously implement anti-addiction measures for minors.

And yet, while Tencent’s cash-cow may be “poison,” these protections actually have limited impact on margins, according to Ahmad. Jiguang, a Chinese internet research firm, says that 3.5% of Honour of Kings’ user base is 14 or younger, while 22% are between 15 and 19 years old.

Moreover, it’s not just the games themselves, but a whole new industry around games that is proving extremely lucrative. In 2017, Niko Partners predicted the professional e-sports market in China would grow that year to $1.26 billion, not including revenue from regular gamers playing the games themselves.

Another report in 2017, by Chinese research firm iResearch, estimated that the overall e-sports market was worth $13 billion. That same year, Tencent announced an agreement with the government of Wuhu in East China’s Anhui province to build an e-sports “village.” In 2018, the company said they would invest $150 million a year in e-sports. On top of that, the only live-streaming model to grow after the sector cooled off was e-sports and gaming.

Douyu, backed by Tencent and leading the live-streaming industry, is rumored to go public in the US to raise $500 to $600 million. The company is currently valued by CBInsights at around $1.51 billion.

Economic goldmines

Realizing that gaming and e-sports are not only economic goldmines but also vehicles to achieve other goals, including greater prominence on the global stage, the Chinese government has spearheaded initiatives to capitalize on the rapidly growing industry.

In November, Hangzhou unveiled its own e-sports town, built at a cost of RMB 2 billion ($280 million). It is expected to attract more than 10,000 e-sports professionals and RMB 1 billion in tax revenues. The city also plans to invest RMB 15.45 billion ($2.2 billion) in 14 additional e-sports facilities.

In December, Xi’an held a “summit” dedicated to e-sports and signed partnership agreements with prominent teams and event organizers, all of whom will move part of their operations to the city. At the conference, the Xi’an government also announced they would support individual companies up to RMB 100 million (around $14.52 million).

Given that many boom-bust cycles in China are fueled—at least in part—by government support, “smart money” tends to follow where government money flows. If the improving performance of Chinese teams is any indication, including the stunning wins at the 2018 Asia Games (the first Olympic Council inclusion of e-sports), China’s dominance of gaming will soon stretch beyond Asia.

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

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

In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull discuss Vancouver real estate, Wang Qishan in Davos, make a prediction about Baidu and discuss other updates on the watchlist.

Shlomo Freund, the host of the China Business Cast, who has spent 15 years as a cross-border entrepreneur, joins the guys to talk about entrepreneurship in China and managing personal finances to achieve life goals. Shlomo is currently a speaker and mentor, helping individuals eliminate money as a source of financial stress and achieve financial freedom.

The discussion should not be construed as investment advice or a solicitation of services. Please note, the hosts may have positions in the companies discussed.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo

Guests:

• Shlomo Freund from FreeFinancialSelf.com and host of China Business Cast podcast

Hosts:

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

Producer

• Peter Isachenko

Podcast information:

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

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

While everyone is talking about China’s expansion into Southeast Asia, China’s largest neighbor has become the real target for China’s tech companies. This week, Shadma Shaikh, writer at Factor Daily, joins us to discuss the takeover and what Indian entrepreneurs are learning from their Chinese counterparts.

Links

• The Chinese takeover of the Indian app ecosystem

Guest

• Shadma Sheikh, @ShadmaShaikh, LinkedIn

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

Producer

• Peter Isachenko

• iTunes
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

Download this episode

Huawei finds itself in an unenviable position. Absent proof that it doesn’t have deep ties to the Chinese intelligence apparatus is not enough to prove an absence of the same.

Perhaps one of the most aggressive companies in the world, Huawei’s greatest strengths—dedication to customers and products, relentless expansion, and a work-first culture—just aren’t applicable to its current situation. The company’s greatest weaknesses—opacity and an insular culture—are working directly against it.

But just because Huawei is the scapegoat of choice in the ongoing tension between the US and China, doesn’t mean it won’t survive this rough period.

Huawei has been under a harsh spotlight since 2012 when the US Congress released a report naming Huawei and ZTE as potential threats to US national security. Since then, this bugbear has hung over both companies—Huawei more so than ZTE, however—and it came to the forefront again almost two years ago with the formal implementation of China’s National Intelligence Law.

In previous eras, access to information from the outside about China was severely limited, sometimes intentionally so. However, in the Information Age, Chinese domestic policy has a direct impact not only on foreign policy but also on issues related to market access.

The National Intelligence Law is a case in point. Passed on June 27, 2017 by the National People’s Congress and effective just one day later, the Law has been cited by foreign governments as a primary point of concern for any Chinese company operating abroad. Media and experts mostly cite the clauses in Article 7 that mandate cooperation with China’s national intelligence work.

Indeed, the whole issue around Huawei raises much bigger questions about global security and intelligence. In 2013, Edward Snowden revealed to the world a global surveillance initiative led by the US National Security Agency and three other Five Eyes partners (the UK, Australia, and Canada). The Snowden revelations offered direct evidence that not only were the fears officially stated by the US government valid, but that the US government was also engaged in similar activities.

Hungry Huawei

As TechNode contributor and China Tech Investor co-host Elliott Zaagman has pointed out elsewhere, much of Huawei’s problems stem from them being “stubbornly Chinese.” While not incorrect, this could be said about almost any Chinese company. Huawei is getting so much attention more for being the “tallest tree to catch much wind” (shuda zhaofeng) due to its stunning success outside of China and that it operates in telecommunications, a sector considered potentially sensitive.

Huawei is a fierce company, but one that’s always shown a deep dedication to its customers and products, favoring intense competition over dirty marketing tactics common in the Chinese market. From what I have seen and experienced—I previously worked for a vendor that serviced Huawei—the company’s culture puts productivity over everything else and creates a meritocracy around very aggressive KPIs.

As a service provider, this can make it very difficult to work with, but as a customer the company is the epitome of a customer-centric company, breaking the “choose cost, speed, or quality” rule that governs most businesses. Their customers routinely praise Huawei for its low price, high quality, and dedicated customer service.

The recent public relations push from Huawei’s founder has little to do with market access, however. The company’s biggest areas of growth lie in emerging markets and developing countries while even in the EU, UK, and Japan, customers are still looking to Huawei for upgrades, maintenance, and new equipment.

Ren Zhengfei’s recent media roundtable certainly won’t be enough to convince skeptical policymakers. The US has made it clear that it will neither present evidence tying Huawei to the Chinese state nor does it believe they have to prove their claim. The real issue for Huawei, however, is whether it will face similar punishment as ZTE did, cutting it off from licensing US patents and perhaps even a full export ban of chips.

Unlike ZTE, however, Huawei is in a much better position to deal with these repercussions. Not only do they have their own chips in development and production—the Ascend 910, Ascend 310, the Kirin 980, and Kunpeng 920—but their culture has been intentionally designed to survive in a hostile environment. The oft-cited “wolf culture” of Huawei has been incorrectly equated with a dog-eat-dog culture when actually it refers to the tendency to act as a group to fight off threats.

Ren Zhengfei’s recent letter to staff, interpreted by many as a sign of weakness, was, in fact, a call to continue what they’ve always done: set extremely ambitious goals and strive fiercely to achieve them. Huawei may be set for a very rough patch, but the company’s not going away any time soon.

Node Worthy is the official podcast of TechNode. Each episode features conversations with our reporters about the interesting stories they’ve written, interviews of people in the TechNode community, or edited audio from one of our live panel discussions.

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

This week David Lancashire from Saito.tech joins us to talk about how to build a viable business on the blockchain, how the scaling challenges are not technical, and the importance of understanding economics and game theory when it comes to blockchain.

Links

• TechNode newsletters
• The TechNode podcast network

Guest

• David Lancashire, LinkedIn, Saito.tech

Podcast information

• iTunes
• RSS feed
• Music: “Taking the Day Off” by Lee Rosevere, Hold Music

Download this episode

The multitude of messaging announcements this week has raised some interesting questions about the future of social networks in China in general and the fate of WeChat in particular. The WeChat team—and Tencent as a whole—should be worried about Bytedance products taking more and more user attention, but Bytedance’s platform play just isn’t enough to topple the reigning champion.

To say that WeChat is the Chinese internet is certainly an exaggeration, but it’s still pretty darn close. But the Chinese internet is hungry, perhaps even starving, for something new. In the era of rapid heating and cooling consumer tech cycles, China’s young mobile users expect their experience to constantly improve and seek out new forms of “play” that hold their attention.

WeChat has changed dramatically since it was first released in 2011. From simple messaging formats like Kik and WhatsApp at the beginning, to voice and video messages, short videos (aka WeChat’s Sights), QR codes, a Facebook-like feed Moments, to mini programs and now the WeChat version of Stories and UI overhaul in 7.0, which launched two days before Christmas.

While the overall change seems dramatic in hindsight, the development cycles are glacial with major updates coming with more than one year between them—6.0 was released in 2014. WeChat is a mature product with more than 1 billion users. It’s not surprising that the youthful appeal of new arrivals such as Douyin and Bullet Messenger is strong.

WeChat may be reliable, but it’s also ordinary. Douyin, on the other hand, is flashy and seductive. Started in September 2016, the app known as TikTok internationally allows users to record, view, and share short videos. It has already reached 250 million daily active users (DAU) and is playing in the rapidly growing short-video market. WeChat only grew 11% in 2017.

With the launch of its Stories-like Time Capsule in version 7.0, WeChat is certainly trying to carve out its piece of the short-video market, too. But its 24-hour lifespan videos won’t be enough to make a dent.

Duoshan at the door

Enter Duoshan, the messaging app from Bytedance released in Beijing on Jan. 15. Its name translates as “many sparkles” or “very shiny.” It’s perhaps the only product Bytedance has gone out its way to announce. From all accounts it is very close to Snapchat. I have yet to try it as it’s still in testing on iOS. However, members of the TechNode team tell me that it’s very similar to Douyin and that it feels like a video-based messenger app crossed with Vine.

First impressions of DuoShan: Yet another Snapchat clone. Built on the pretty much nonexistent TikTok social graph, with no iOS version. You can imagine the sighs of relief at Tencent head office. pic.twitter.com/ocpIy4qdha

— Matthew Brennan (@mbrennanchina) January 15, 2019

Leveraging brand strength in short video, Duoshan is a messaging app that allows users to upload short videos that disappear in 72 hours, as well as stickers, and text to chats.

Chen Lin, chief executive of Bytedance-owned Jinri Toutiao, said that Duoshan is only for  “… intimate communications, letting people with close relationships communicate with each other without any pressure,” a clear dig at the tendency for WeChat users to mix their personal and professional contacts.

The problem for Douyin is that it’s never been a social network. Sure, you can leave comments and interact with the content creator or other commenters, but that’s a social network of weak ties and less valuable users. Much more valuable is a platform that combines social networking and connects to the offline world, in other words, WeChat.

Bytedance has had its eyes on WeChat for some time. Toutiao launched its mini programs last September, Douyin followed suit in October, and Duoshan already has a wallet feature out of the box. While statements from Bytedance executives play down the competition to WeChat, it’s clear that Duoshan is Bytedance’s platform play.

Bytedance’s core strength is the application of artificial intelligence. AI is great for understanding and recommending content, but doesn’t seem relevant at all in the context of a messaging platform. On top of that it has no track record for social networks, unlike Tencent whose entire business was built understanding how users want to interact and then providing services on top of that.

Tencent should tremble

Bytedance isn’t the only major company to have gone up against WeChat. Alibaba tried and failed once with Laiwang and decided to pivot into enterprise chat with their DingTalk instead of taking on WeChat head on. Smartisan is backing a messaging developer and infamous QVOD founder has launched Matong, an anonymous messaging platform. While none of these has a chance to topple WeChat, Tencent should be worried about these new apps, and not because they compete with WeChat.

QQ, WeChat’s older sibling, is China’s Number 2 social network after WeChat. While its user numbers have declined, QQ has been doing its best to stay relevant, in particular by appealing to a younger demographic. In November, it announced it would be adding in more content channels, including e-sports, live streaming, gaming, and beauty, as well as QQ Lite Games, casual games existing only in QQ. And QQ is where Tencent monetizes its network. Users are incentivized to purchase a wide variety of virtual goods, from gifts to decorations for their profile page. Duoshan is a direct threat to this.

Both Douyin and QQ have a similar demographic profile: under-30s who live in China’s smaller cities and towns. Duoshan most likely will appeal to a similar user base as well. While Douyin was a tangential threat in the sense that it siphoned user time away from other products, Duoshan has the potential to steal much of the QQ user base. While QQ has tried to stay with the times, the UI is still not that modern whereas Bytedance has absolutely killed it when it comes to the design of Douyin and Duoshan.

While Duoshan may not be the platform play Bytedance wants it to be, it will certainly be giving QQ a run for its money. Maybe this threat will force Tencent to rethink its social strategy even as it pivots into the enterprise—with Bytedance hot on its heels in that market too with Lark, its enterprise messaging app.

Tencent has been dominant for too long in this space. I’m glad to see some competition.

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

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

In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull discuss the statements of Huawei founder and figurehead Ren Zhengfei, as his company becomes embroiled in controversy.

The guys also cover the battle for India’s smartphone users, WeChat vs Bytedance’s new messaging app, and how some of China’s richest businesspeople are attempting to protect their wealth.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• com
• Pinduoduo

Guest:

Hosts:

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

Podcast information:

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

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

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

This week saw a multitude of messaging app announcements. First was WeChat’s Open Class PRO featuring a four-hour speech from Allen Zhang. Then, on the same day, Bytedance announced their own messaging app (Duoshan 多闪), what appears to be a clone of Snapchat, and Bullet Messenger announced their upgrade and rebrand to Liaotianbao (聊天宝). All three events, and the recent update to WeChat 7.0, raise interesting questions about the messaging market, WeChat’s primacy, and the ascendancy of Bytedance.

Links

• WECHAT FOUNDER’S 4 HOUR TALK: FULL NOTES
• WeChat pins future on Chinese users’ growing penchant for video, photo
• Bytedance takes on WeChat with new video messaging app
• Bullet Messenger creators developing new messaging app
• WeChat blocks three social networking challengers within one day

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

Producer

• Peter Isachenko

• iTunes
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

Download this episode

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

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

In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull discuss Xiaomi’s stock slump, problems in the smartphone market, and the wave of layoffs in China tech.

They are also joined by Masha Borak, a reporter for Abacus News and former reporter at TechNode. She recently spent a week immersed in content on 19 different Chinese short video apps, and lived to write about it! All joking aside, Masha shares her observations from her time on the apps and helps the guys understand their draw in China and abroad, as well as how they might be impacted by new regulations.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• com
• Pinduoduo

Guest:

• Masha Borak, @mashaborak

Hosts:

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

Podcast information:

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

It’s been 189 days and we’ve still seen no substantive progress in the so-called trade-war between the US and China.

However, even if a deal is reached, and no matter how satisfying it may be for both sides, it will still not be able to solve a fundamental problem between the two superpowers—or indeed between China and the West. The two countries have assumptions about the world that are fundamentally different, including varying ideas about the role of the state.

Like great tectonic plates, the US and China have been constantly rubbing up against each other and it is only recently that the friction has become enough to be felt. Ultimately, the two sides just do not understand each other well enough to trust each other. For example, look at China’s strong reaction to the arrest of Meng Wanzhou in Canada while “experts” in the US consistently oversimplify China’s economic and political situation.

So while an eventual trade deal may be positive, it won’t address underlying problems, especially those related to technology and investment. Last week we saw a surprising announcement from Apple: they were going to miss their projected revenue targets by a significant margin (8% to be exact). Apple blamed it on the trade war. Apple bears blamed it on the company.

China hawks in the US took it as a sign that trade pressure on Beijing by Washington was working to weaken the overall Chinese economy. And indeed, the economic outlook does not look great for China with pessimistic economists predicting GDP growth as low as 5.9% in 2019.

Heating and cooling cycles are a natural part of any economy and, in China, it’s particularly obvious in the tech sector where regulation is a bit looser and users are hungry for the new and improved. So it’s easy to look at the tech cycles in China and assume rapid die-offs of swathes of startups presage economic doom. That assumption, however, only shows a startling ignorance and neglects the equally rapid growth of whole industries, such as O2O and the entire rental economy, from nothing to mainstream adoption.

Many of these discussions, however, don’t focus enough on the real drivers of economic growth: small and medium-sized businesses, aka startups.

Level playing field for startups?

For startups, though, the situation is still very much the same: a mixture of risks and rewards. Doing business in China has always been a challenge for the smaller players, especially those that are foreign-owned.

It’s harder for non-Chinese founders to raise money from local venture capitalists. Oftentimes, VCs have little confidence that foreign founders understand the market well enough, or are willing to do what it takes to scale at the necessary speed. In addition, opaque regulations and restrictions make it difficult for entrepreneurs to navigate Chinese bureaucracy.

For international startups, the trade war might actually be a boon, however, allowing them to leverage their advantage while avoiding much of the uncertainty local players have to endure.

“Whether they want to or not, foreign startups will have to partner with some kind of Chinese affiliate or partner for marketing purposes,” Sam Mosca, a business development executive with Beijing startup Mass Medical International, told TechNode.

But foreign entities have their own advantages too, Mosca says, such as being able to develop their product nimbly in the Chinese business environment but then use foreign marketing channels and social media to develop overseas markets. “Chinese startups rarely have this flexibility and must struggle and suffer in a stifled and regulated business environment,” he says.

What’s clear, however, is that China and the US have a responsibility to deal with each other. While the lack of clear resolution is certainly painful in the short-term, the fact that both sides are actively talking and seem to take this seriously has positive implications for the future.

China’s Trump wager

It’s going to take real action, however, to improve what is a fundamental lack of trust around technology investment.

“It really annoys people that Tencent or Alibaba can make investments in the United States, but Amazon and Google can’t do the same in China with the same degree of flexibility and freedom,” Matthews Asia investment strategist, Andy Rothman, told TechNode on the sidelines of a recent finance event in Shanghai. “I think the Chinese government is going to have to pay more attention to that.”

Both China and the US have to make practical steps to address the trust gap, including concessions around investment and market access, said Rothman. The key for China, he said, is the country’s lack of transparency on key issues such as technology transfers and intellectual property protection.

While the central government has certainly made a lot of progress with intellectual property, technology transfers remain a grass-roots issue. Local officials are very protective of home-grown players to the detriment of foreign and domestic companies and are reluctant to do anything that makes their champions less competitive.

As always, these proscriptions are easy to say and hard to do. I remain skeptical as to the long-term impact of any deal. China may decide to make concessions now in the belief that in the next presidential election, Donald Trump would be voted out of office. But in the absence of any meaningful change, the US will continue to remain suspicious of companies it perceives to be close to the Chinese government.

With contributions from Colum Murphy. 

Node Worthy is the official podcast of TechNode. Each episode features conversations with our reporters about the interesting stories they’ve written, interviews of people in the TechNode community, or edited audio from one of our live panel discussions.

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

We’re joined this week by Vijay Govind, former IT and technology strategist at Ford based in China. We cover a lot of ground, including working in China for an American company, dealing with the fast pace of change for a traditional automotive company, as well as the EV and AV markets and Tesla’s future in China.

Links

• TechNode newsletters

Guest

• Vijay Govind, LinkedIn, WeChat: vijaygovind

Podcast information

• iTunes
• RSS feed
• Music: “Taking the Day Off” by Lee Rosevere, Hold Music

Download this episode

Apple CEO Tim Cook’s letter to investors certainly has come as a surprise, admitting as it did that global sales are weak and that revenue is likely to be $5 billion less than originally projected.

By pointing out that the company’s sales in China are declining and by providing the financial proof that the company has failed to localize effectively, the letter served up even more material to Apple bears.

Clearly, Apple is facing a dire situation—but not for the reasons many people assume. Contrary to what’s widely cited as a reason, including from Cook himself, Apple’s hard time in China is not because of the trade war that’s raging between the US and China. Instead, the company’s woes have been a long time coming.

Cook, and many outside of China, have placed too much emphasis on the trade war for the decline in sales. In the Apple letter and in recent media interviews, Cook blamed the trade war for having a negative impact on China’s economy, and linked this macroeconomic situation to the fall in sales in the market. But this fails to consider the real situation in China’s smartphone market.

The Chinese smartphone market is mature and saturated. To date, most of the growth has come from first-time smartphone buyers. As more Chinese people get onto the mobile internet, and phone quality improves, the total number of purchases will inevitably decline as new purchases and replacement rates decline as well.

There are also so many options on the market. While globally, Apple and Samsung continue to lead (third and first respectively with Huawei coming in second), the amount of competition in China has grown exponentially. And we’re not just talking about budget phones either. Every serious smartphone player, including Huawei, Xiaomi, Oppo, and Vivo, have released their own mid-range and high-end phones.

Apple is no longer the status symbol it used to be in China. Having the latest iPhone is still a big deal and can certainly engender status envy where “keeping up with the Joneses” is still a thing, but Apple products in general have become more ubiquitous. This demonstrates not only Apple’s success in the market, but also the increasing affordability (yes, you heard me right) and ease of access.

As I pointed out in 2017, Apple has not done a good job responding to local expectations. While the US and EU markets may be similar, the China market is full of locally developed hardware and software that do a really good job of solving Chinese pain points.

China also has a thriving second-hand market, not only for used products, but also refurbished electronics and battery replacements, which Cook did mention in the letter.

In addition, the country has a thriving installment-finance market. Almost all the fintech IPOs we saw this past year were companies who built their business on the “not-quite-affluent-but-want-to-spend-like-I-am” set.

Apple has faced these headwinds for some time—even before the current tension over trade. As much as the leaders of both countries would like to take responsibility for such dramatic changes, this just isn’t the case.

That doesn’t mean, however, that the trade war won’t play an increasing role in their declining sales in China. Apple’s American citizenship is now a hindrance. Previously, the Chinese fetish for foreign products helped push Apple to its success, but now the trade war and domestic political situation is beginning to turn people away from American brands in favor of Chinese ones.

Chinese smartphones, for example, not only provide services Chinese consumers now expect, but also produce models of similar build quality to Apple’s at a fraction of the price.

Still, if Apple hopes to reverse its fortunes in China, Cook and senior management need to face up to an uncomfortable reality—that they’ve dropped the ball in China and failed to localize fast enough. Getting it back may be harder than they, and investors, could imagine.

In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull take a look back at some of the big events of 2018, the deluge of China tech IPOs in 2018, and make some predictions about 2019, including the much-rumored Ant Financial IPO.

They are also joined by Paul Triolo, the Head of Global Technology Policy at Eurasia Group, to talk about the tech “Cold War.” He has spent the better part of the past three decades focusing on China, the US, and the geopolitics of technology.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo

Guest:

• Paul Triolo, @pstAsiatech

Hosts:

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

Podcast information:

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

This week, Matt and John take a look at the stories and trends of 2018, including gaming restrictions, Tencent’s restructuring, the delivery and coffee wars, WeChat mini programs, and Bullet Messenger. This is the second of two parts.

Links

• The relevant episodes:
  • Gaming:  18: China’s gaming and e-sports industry with Daniel Ahmad, 39: PUBG and the future of Steam in China with Charlie Moseley
  • Tencent: 45: Tencent vs Alibaba – The battle for China’s offline retail with WSJ’s Liza Lin, 61: How technology has changed music in China
  • Delivery and O2O: 42: China’s mobility and transport market gets all mixed up
  • Luckin and the coffee wars: 46: Internet business models disrupt China’s coffee market: Luckin Coffee, 56: China coffee wars revisited: Luckin vs Starbaba
  • Mini programs: 35: A change in WeChat is a change in Chinese society, 65: Walmart China: Ted Hopkins live from TechCrunch Shenzhen
  • Bullet Messenger: 58: Is Bullet Messenger a WeChat killer?

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

• iTunes
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

Download this episode

This is a live recording of a panel discussion held on Dec 18, 2019.

2018 has been a dynamic year for blockchain practitioners starting off with the $100 million record-breaking financing on Chinese blockchain-related projects in January and emergence of many ICOs. Private industries, the central government, local governments, and academia are all invested in the technology and cover sectors from finance, energy, and medical to supply chain, entertainment, and social media. But as we got closer to the end of the year, fortunes have begun to turn, leaving solutions without problems out in the cold.

How will blockchain technology continue disrupting innovative industries in such a dynamic space in China? Can we pick back up the strong momentum from 12 months ago?

Speakers

• Sarah Zhang, founder of Points
• Rohan Malhotra, Business Development at TokenInsights
• Richard Parris, found of Saito

Podcast information

• iTunes
• RSS feed
• Music: “Taking the Day Off” by Lee Rosevere, Hold Music

Download this episode

This week, Matt and John take a look at the stories and trends of 2018, including ZTE/Huawei, AI in China, Bytedance, blockchain, and the death of bike rentals. This is the first of two parts.

Links

• The relevant episodes:
  • Huawei/ZTE: 47: Shenzhen style innovation: IP protection, ZTE, and manufacturing standards with Benjamin Joffe of HAX
  • AI: 62: AI Superpowers with Kai-Fu Lee
  • Bytedance: 66: The next Facebook will be Chinese
  • Blockchain: 38: Trends in early-stage Chinese startups and blockchain with Edith Yeung
  • Bike rentals: 42: China’s mobility and transport market gets all mixed up, 25: Mobike goes global with Florian Bohnert

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

• iTunes
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

Download this episode

The number one and number two most spoken languages make for an interesting couple: Mandarin Chinese has the most native speakers while English has the most non-native speakers. While this certainly does cover a large portion of the planet, there’s a significant number of native speakers who don’t have access to the latest on what’s happening in Chinese tech… that is, until now.

With the hard work of Luis Wong, a China tech watcher and game developer based in Peru, we have some of the best parts of TechNode now in Spanish, including selected Daily Briefings, feature stories, and videos.

As always, if you have any feedback or would like to help out, please don’t hesitate to reach out to us.

Merry Christmas!

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

Elliott Zaagman and James Hull discuss the upcoming China Economic Work Committee, central banks, Smartisan, Samsung factory closing, Baidu’s RMB 1B investment in mini-programs, and Xiaomi’s pivot back to China.

They also get into the gritty on relocating a factory with East West Associates’ Alex Bryant and Mark Plum: what goes into deciding to relocate, how the ASEAN countries compare with China, and more.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Luckin Coffee

Hosts:

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

Editor

• Peter Isachenko

Podcast information:

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

We’re joined this week by Thibault Genaitay, Head of China for Le Wagon, a global programming bootcamp. We talk hacking in China, why making Mobike clones are good for budding programmers, and differences in training inside and outside China.

Links

• Le Wagon

Guest

• Thibault Genaitay, LinkedIn, Medium, @tgenaitay

Podcast information

• iTunes
• RSS feed
• Music: “Taking the Day Off” by Lee Rosevere, Hold Music

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This week, John and Matt talk with Shai Oster, Asia bureau chief for The Information, about the rash of Chinese IPOs in a down market, looking at Tencent Music, Xiaomi, Pinduoduo, Meituan Dianping. We also talk about the possibilities for Bytedance and Ant Financial IPOs in 2019.

Links

• China Tech Talk 49: The Xiaomi IPO with The Information’s Shai Oster
• What China’s history of overseas tech IPOs says about the current wave
• TechNode IPO coverage
• Sign up for TechNode newsletters
• Subscribe to The Information

• Shai Oster – The Information author page, @beijingscribe 

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @mbrennanchina ChinaChannel

• iTunes
• RSS feed
• China Tech Talk.com
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

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In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull discuss Huawei, the SEC, the Tencent Music arbitration, Alibaba Pictures, Video Games Ethics committee, Baidu & iQiyi’s recent fund-raising activity, and possibility of mainland investors being able to buy Xiaomi’s shares through the HK stock connect.

The discussion should not be construed as investment advice or a solicitation of services. Please note, the hosts may have positions in the companies discussed.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• com
• Pinduoduo

Hosts:

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

Podcast information:

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

Bytedance, formerly known as Jinri Toutiao, is on deck for discussion this week. Beginning from pure textual content and recommendation, Bytedance has seemingly found the key to human attention. While this makes for a great product, and compelling business, whether they can make it in the US market is still unclear.

Links

• Toutiao’s overseas platform is delivering fake news, but its problems run much deeper than that
• Tencent and ByteDance founders argue on WeChat Moments about Douyin
• ByteDance rumored to reach $75 billion valuation after closing pre-IPO financing round
• Bytedance’s teen protection problem

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @mbrennanchina ChinaChannel

Podcast information

• iTunes
• RSS feed
• China Tech Talk.com
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

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In the 6th episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull discuss the G20, how Trump likes his steak, party committees, and look at the cash burn (negative free cash flow) at four watchlist companies. Here’s the cash burn spreadsheet.

They are also joined by Fulbright University professor and Bloomberg Opinion columnist Christopher Balding to discuss the Trump-Xi G20 meeting and party committees in Chinese companies.

The discussion should not be construed as investment advice or a solicitation of services. Please note, the hosts may have positions in the companies discussed. Full disclosure: James is currently considering a long position in JD.com.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo

Guest:

• Chris Balding – Bloomberg Opinion – @baldingsworld

Hosts:

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

Podcast information:

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

Ted Hopkins, Senior Director of Walmart Ecommerce, joins us to talk about mini programs, eliminating lines in stores, and the future of retail in China.

Links

• Briefing: Walmart’s mini program “Scan to Buy” has attracted over 10 million users

Guests

• Ted Hopkins — LinkedIn

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @mbrennanchina ChinaChannel

• iTunes
• RSS feed
• China Tech Talk.com
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

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Node Worthy is back… well, kind of. Instead of a weekly podcast, this will be for interesting content we find either at events or in our conversations with reporters.

This episode we talk with Bailey Hu, our reporter based in Shenzhen, to get an inside look at her recent Faraday Future story

Links

• Faraday Future: How a “Tesla-killer” became a zombie company
• More Faraday coverage here and here

Podcast information

• iTunes
• RSS feed
• Music: “Taking the Day Off” by Lee Rosevere, Hold Music

Download this episode