Photo: Noel Celis/Getty Images
September 1, 2021
Good morning. The end of August is usually a slow news spell, but no one thought to tell Beijing: Its leaders have kept busy rolling out new rules every week that have the country's tech industry reeling. Buckle up, because there's no indication this ends any time soon.
In this week's Protocol | China: new rules keep the young from "addictive" gaming, suppliers diversify away from Apple, and Bytedance makes a bid for the metaverse.
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The Big Story
Chinese companies rush to please Beijing. Don't call it lobbying.
Two weeks ago, Protocol told you China's big, rich tech firms were likely to be "scare[d] … into overcompliance" by big but fuzzy statements by Chinese ruler Xi Jinping and his government about the need for things like "common prosperity." That's already started to happen, with tech giant Meituan and others bending over backwards to show they take Xi's talk seriously.
CEOs are looking for (cheap) ways to please Xi. So far that is largely words, not action.
- Meituan CEO Wang Xing reportedly said in its Monday earnings call to analysts that "common prosperity" (共同富裕) is in Meituan's DNA because Meituan (美团) means "better together." (Meituan's Chinese name basically means "enjoyable group-buying.") Wang also said in the call that the internet industry will benefit from strict regulations, which he considers necessary for achieving "common prosperity," according to Sina Tech.
- Not to be outdone, the CEO of 58 Tongcheng, China's Craigslist, posted on his WeChat timeline on Tuesday that "58" means "we are getting rich together." (Chinese characters can have many different meanings, so it's not strictly wrong, but it's … a big stretch.)
Meituan certainly has good reason to play nice. The company faces antitrust probes and public as well as regulatory pressure about its treatment of delivery workers.
- The company is reportedly facing a $1 billion fine as a result of the country's antitrust watchdog's April probe into the company. In May, Wang made some social media remarks interpreted as a veiled shot at the antitrust investigation, sparking a firestorm and sending the company's shares down nearly 10%.
- The State Administration for Market Regulation announced Monday a separate investigation into Meituan's 2018 acquisition of the bike-sharing company Mobike, which wasn't reported for an antitrust review back then, as required.
But it isn't alone under regulatory scrutiny. There's a growing list of unreported acquisitions across Big Tech that officials are poring over.
- Alibaba, Tencent, Baidu, ByteDance and DiDi Chuxing are among big tech firms fined since last December for failing to disclose past acquisitions and investments.
- The situation has created a Damoclean sword for virtually all of China's big tech companies — most of them didn't take required antitrust clearance of new acquisitions seriously, and now they're all vulnerable.
Problem is, China doesn't exactly have a lobbying industry. So what can these companies do, exactly?
- They can't donate big money to a campaign or super PAC, and there is not much of a revolving door between industry and government.
- So beyond doing what regulators say (taking notes, DiDi?), firms try to anticipate what the government wants and make a show of giving it. The goal isn't to shape policy; it's just to avoid being caught in Beijing's crosshairs.
So get ready for a rush into charitable giving. Giving back, literally, is going to grow as a way to stay in Beijing's safe zone. (It's already a way to keep nationalists at bay.) Expect to see a jump in corporate charitable giving as companies realize it's not enough to pay the taxes due — and that Xi likely won't be satisfied by cheap talk about what your company name means.
On Protocol | China
- Why doesn't China have a video game rating system? With Beijing issuing draconian rules on who can play mobile video games, when — more on that below — it's worth asking why China doesn't just rate its video games like many other countries. Protocol's Zeyi Yang tells you why.
- China's ed-tech crackdown hits home. Shen Lu spoke to teachers in the U.S. who lost their remote work — and meaningful cultural connections to Chinese students — after Beijing effectively shut down for-profit online tutoring and answer-matching platforms. Shen Lu also translated the first-person account of a laid-off programmer at an ed-tech company in China. Find the interviews here and translation here.
- Everything you need to know about the SenseTime IPO. The largest of China's four "AI dragons" has filed a prospectus to go public at what can only be called an interesting time for Chinese tech companies. Hong Kong listings lead to less regulatory scrutiny than their U.S. counterparts, but it's still a risk for the "AI-for-everything" company to try to raise billions of dollars while remaining out of Beijing's doghouse. Zeyi Yang breaks down the company and its prospects.
A MESSAGE FROM CHAINALYSIS
The key to tackling ransomware is disrupting the ransomware supply chain — developers, affiliates, infrastructure services providers, launderers and cashout points — and the blockchain is the only data source that ties these actors together. So while it may seem counterintuitive at first, ransomware groups' use of cryptocurrency for ransom payments is actually beneficial to ransomware investigations.
Big Brother Beijing
- Children can only game for three hours a week. Beijing's cultural watchdog announced Monday that minors were prohibited from playing mobile games Monday through Thursday and could play for just one hour on Saturdays, Sundays and public holidays. Coupled with a ban on much private after-school tutoring, it's looking like China's children will increasingly be left to do little but study Xi Jinping's speeches and go to bed early. Might be a good time to invest in console (i.e., non-mobile) game makers selling into the Chinese market.
- Tencent probably won't miss its underage gamers. The world's largest gaming company by revenue has revealed in its earnings reports that during Q2 2021, gamers under age 16 accounted for only 2.6% of its in-game revenue, with players under 12 accounting for 0.3%.
- Xi Jinping is apparently happy with the tech crackdown. The Chinese ruler said at a central leadership meeting on Monday that the central government's antitrust campaign against China's technology sector was "beginning to bear fruit," according to the South China Morning Post. Xi called on the Party to do more to "guide and supervise" internet companies with "clear rules, effective regulations and greater policy transparency."
- China's market regulator comes for ecommerce. The powerful State Administration for Market Regulation pledged to hold online marketplaces like Taobao, Pinduoduo and JD.com accountable for failing to tackle violations of IP rights on their platforms. According to a draft revision to China's ecommerce law that the market watchdog published on Monday, serious offenders could get their business licenses revoked.
- In Beijing vs. celebrity fans, Weibo chooses its side. On Monday, Weibo released a statement that it has temporarily suspended over 150,000 accounts for spamming comment sections with messages favoring certain celebrity idols. The practice has been common in recent years ever since fans figured out the best way to kill negative press is to drown it in positive messages. But as this phenomenon spreads to the comment section of Chinese government bodies' accounts in the wake of government action against celebrities like Kris Wu, Weibo can't avert its eyes anymore. In the statement, Weibo called the practice "illegally picking quarrels and starting troubles under government or media accounts" and pledged to punish such acts faster and more severely.
China Goes Global
Apple's Chinese suppliers struggle to diversify their businesses
Time was when many Chinese manufacturing companies earned their industry stripes by becoming a long-term supplier to Apple. But Chinese firms are increasingly wary of being over-dependent on the biggest company in the world, reported Chinese publication All Weather TMT. With Apple cutting off its deal with Chinese supplier Ofilm over the latter's involvement of forced labor, and Lingyi iTECH instituting a massive layoff because Apple removed its chargers from new iPhone boxes, suppliers have realized they need to diversify their businesses. Among them, Goertek is one of the most successful. Once a major supplier of earphone parts to Apple, Goertek now also manufactures VR headsets for Sony and Oculus.
On Our Radar
- Alibaba sacked workers for publicizing rape allegations. Alibaba employees told Bloomberg that the ecommerce giant cited a violation of the company's policies against leaking content on internal forums as grounds for the dismissal of 10 staffers who publicized a female employee's sexual assault accusations.
- Nervous Alipay users withdraw funds in the wake of celeb's ban. Last week, Zhao Wei (also known as Vicky Zhao), one of China's most famous actresses, was recently scrubbed from China's internet for reasons speculated but as yet unknown. Nervous Alipay users connected the banning of Zhao Wei's works to her close friendship with Jack Ma, according to The Technology Daily, and some users incurred transaction fees of over $1,200 (8,000 RMB) in their rush to withdraw funds from Alipay, fearing Beijing will turn its gaze to Alipay next.
- Tencent will waive all exclusive music-streaming rights following a July order by the State Administration for Market Regulation to do so. SAMR fined Tencent about $77,000 for acquiring China Music Corporation without first notifying the antitrust regulator. After Tencent announced the change on Tuesday, Ding Lei (William Ding), CEO of NetEase — whose music-streaming platform will benefit the most from this result — responded in the company's earnings call: "We certainly hope…[Tencent's] not going to be saying one thing and doing another."
One More Thing
ByteDance wants to join the metaverse
Chinese publication Tech Planet reported Tuesday that ByteDance is developing what Tech Planet calls an "immersive social media platform" called "Pixsoul," while another company called Reworld backed by ByteDance's investment has just released its own metaverse app. Earlier this week, ByteDance also acquired Pico, a VR headset company. All signs suggest that ByteDance is getting serious about embarking on a metaverse journey. It won't be lonely, as ByteDance's long-time nemesis Tencent has also made its interest clear by publishing Roblox in China.