Good morning. The Chinese megacity of Zhengzhou is experiencing horrific (likely climate-change related) flooding, with harrowing footage of subway riders struggling to survive making the rounds right now on social media. These images should remind us that we're all vulnerable to the same great forces on this planet. We may care a lot about our respective national borders, but disaster and disease don't.
In this week's Protocol | China newsletter: Chinese gaming's new underclass, Xiaomi dethrones Apple, and Tencent cuts ties with "China's Harvey Weinstein."
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The Big Story
A regulatory scramble shows China isn't a monolith
China's Cyberspace Administration announced Friday that no fewer than seven Chinese regulatory agencies came knocking at DiDi's door to conduct a cybersecurity investigation in the wake of its IPO fiasco. The list included the nation's securities regulator, its transport ministry, tax authorities and the public security bureau. DiDi brass must have been feeling deep trepidation, if not sheer terror. But the regulators involved might be warily eyeing the other half-dozen ministries with a seat at the same table.
Chinese regulators engage in turf wars too as they jostle to expand their influence.
- For example, the cabinet-level Financial Stability and Development Committee was created in 2017 in part to avoid turf wars among financial regulators. China's powerful State Administration for Market Regulation was likewise established in 2018 to end rivalries among three antitrust agencies.
- Major regulatory moves are frequently announced without visibility or buy-in from every part of government.
- DiDi may itself have been a victim of regulatory confusion. Reports have stated that it received a green light from some regulators and a yellow, not red, light from the Cyberspace Administration, leading DiDi's powerful government relations execs to think they could talk their way past CAC.
Ultimately, Xi Jinping is in charge, but he can't referee everything. He's certainly signed off on the current DiDi crackdown, but there's no way he can keep regulators from doing what they do in any political system — jockeying for influence.
What does this mean for companies operating in China? They'll have to closely watch the whole alphabet soup of regulators, and how other firms are being dealt with.
- Big tech companies like DiDi implicate the jurisdiction of multiple ministries, all of whom must be feeling increasingly empowered to stand between a tech company and public markets at home or abroad.
- From the outside, Beijing looks like a powerful monolith. From the inside, it looks like a messy bevy of powerful regulators. Some are technocrats, some are more ideologically driven and most want to expand their reach, not shrink it. Trying to please each of them is an exhausting — but clearly very necessary — task.
On Protocol | China
- Meet China's new gaming underclass. They're called peiwan, or "gaming companions." They're mostly women, and they work exhausting hours to play video games alongside their mostly male "bosses." Shen Lu has the story you won't find anywhere else about a digital underclass unique to China.
- Beijing aims for "self sufficiency" in cybersecurity. The world is busy accusing Beijing of hacking, but Chinese authorities just announced plans for a massive growth spurt in China's multibillion-dollar domestic cybersecurity industry — so they don't have to rely on foreign tools to keep their own data safe. Contributor Dave Yin unpacks what this means.
A MESSAGE FROM VAST DATA
Every day the global financial markets create incredible amounts of new data that we need to consume. Our success is reliant upon our ability to make this data available to researchers — and available quickly. The most productive quants have the competitive advantage, and a huge amount of that productivity relies on fast access to massive amounts of data.
Join Protocol's Jamie Condliffe for a conversation with Zoox's Ashu Rege, Qualcomm's Alex Vukotich, Luminar Technologies's Christoph Schroeder and Verizon's Jyoti Sharma during our upcoming event:
Sense, Perceive, Locate:
How Robots Can Find Themselves
July 21 at 9 a.m. PT / 12 p.m. ET
Big Brother Beijing
- U.S. and allies called out China for global cyberattacks. The U.S. and NATO allies on Monday accused the Chinese government of hacking Microsoft Exchange. Chinese Ministry of Foreign Affairs spokesperson Zhao Lijian denied what he called "groundless accusations" and asserted that the U.S. announcement "smears and suppresses China out of political purpose." Analysts stateside told Protocol's Ben Brody that the joint statement doesn't mean much unless it's backed up with concrete actions like sanctions.
- A peek at the Digital Yuan's progress. China's central bank issued a white paper on the country's Digital Yuan developments last Friday, revealing that the token had been used at over 1.3 million "trial sites" with a total transaction value exceeding 34.5 billion RMB, or about $5.3 billion, since launch. The paper didn't include an official Digital Yuan release schedule.
China Goes Global
- IPO-ready companies hit the emergency brakes. Maybe this section should be retitled "China went global." We predicted two weeks ago that the DiDi saga would deter China's hot new tech startups from listing stateside. So far, that prediction is holding up quite well: According to Bloomberg, breakout social media platform Xiaohongshu (or "Red," which we profiled here) and home service platform Daojia have both paused their U.S. IPO plans.
- Xiaomi dethrones Apple. For the first time, Chinese brand Xiaomi is the second best-selling smartphone brand in the world, replacing Apple and now second only to Samsung. According to a quarterly market report by Canalys, Xiaomi's total phone shipments in Q2 2021 jumped 83% against the same quarter last year. Much of this can be attributed to the company's strong growth in overseas markets, Chinese tech media Huxiu reports, where Huawei has lost market share due to limited phone production capacity brought about by U.S. sanctions.
On Our Radar
- Tencent cut ties with "China's Harvey Weinstein." Tencent Video announced Monday it would end its brand partnership with Kris Wu, an A-list celebrity in China, after an 18-year-old woman, Du Meizhu, accused Wu of sexually assaulting her. Du also accused Wu of enticing young women like her, many of whom are minors, with career promises in showbiz and then pressuring them into having sex. Wu has denied all the accusations. The recent #MeToo storm has sparked overwhelming support from female web users toward Du and it has led businesses, including Tencent, to cut ties with the pop star. Tencent Video may suspend a drama it invested in heavily that stars Wu. Tencent's parent company stock fell nearly 3% on the news, according to Sina Tech.
- ByteDance is moving into food delivery. On July 14, TechPlanet reported that TikTok parent ByteDance had established a new food delivery team within the company and had started testing out food delivery functions in its Douyin application. ByteDance isn't seeking to directly compete with food delivery giants like Eleme or Meituan, but instead may operate as a platform, forming collaborative partnerships with existing food delivery companies. China's food delivery market skyrocketed during the pandemic with the estimated market size of online food delivery increasing by 15% year-over-year from 2020 to 2021.
One More Thing
Drones were banned for one month in China … for some reason
The drones have returned as quietly as they left. From mid-June to mid-July, the Chinese government had secretly suspended the sales of high-speed drones on any ecommerce platforms, documents show. The ban was lifted last week, but the reasons for it remain a mystery. Some suspect it was to prevent accidents from happening at the ruling Communist Party's massive 100th anniversary celebration on July 1. As of July 16, drones have come back to all Chinese shopping platforms.