Good morning. Labor Day is past us and the fall is in full swing, with Washington and the media that covers it waking up from its late August slumber. Expect the number of headlines about the U.S.-China relationship to proliferate and the bilateral temperature to rise further even as the weather outside cools.
In this week's Protocol China: Gaming bans lead to workarounds, Bilibili cracks down on slang, and a robotic horse could replace the automated horseless carriage.
The Big Story
Gaming rules, meet gaming reality
It's been a week since China announced strict new game time limits for minors nationwide, and they're already getting pushback.
Rules can have unintended consequences, as Beijing has learned the hard way again and again (hello, one-child policy). The PRC's closed-door style of decision making probably makes such outcomes more likely and the gaming limits are no exception.
- During the first weekend after the new policy took effect, Tencent's hit game Honor of Kings was overwhelmed by a sudden traffic increase when children's permitted game hour — 8 p.m. to 9 p.m. on Fridays, weekends and holidays — began.
- A blogger with 6 million followers wrote on Weibo that his daughter actually spends more time on games now, feeling she has to make full use of every permitted minute.
- Esports tournaments in China have started to clear out underage competitors. In light of the ban on gaming for minors, organizers of the official tournaments for Honor of Kings and Peacekeeper Elite (the Chinese version of PUBG) have announced an adjustment to the rules: From now on, only players over 18 can compete, while those who will turn 18 within a year can stay on the reserve team. This can't help places like Shanghai, which hopes to capitalize on the booming industry by becoming an esports capital.
Patience is required with Chinese regulations while the state works out how to actually enforce them. As analysts of Chinese regulations like to tell their clients: "Wait for the implementation."
- A big announcement by a regulator may or may not translate into a strong rule.
- A strong rule on paper may be enforced promptly, belatedly, or not at all. Authorities can take a liberal or a harsh interpretation. Or both; sometimes, rules that have been observed in the breach are revised when it becomes useful to punish a company or industry Beijing doesn't like.
- And there are always workarounds; the only question is how many people will be willing to try them, and what the penalties are for being caught red-handed.
Which means you can expect workarounds. Grassroots citizens can be remarkably clever at skirting the spirit of rules they don't like — especially when it's not clear if there's really any punishment to be doled out — hence the saying, "There are policies, and then there are countermeasures."
- Case in point: Since children can log in using an adult's account, a market has already sprung up on ecommerce platforms allowing adult in-game IDs to be rented for as little as 50 cents an hour.
- Such countermeasures are often the crucial — sometimes untold — story about Chinese regulations. Always ask: How much are people incentivized to break or bend Beijing's rules, and how harsh are the penalties, really, for doing so?
Beijing reacted quickly to the workarounds. On Wednesday, Beijing announced that Tencent, NetEase and other "focal" gaming companies and platforms had been hauled in to speak with authorities including the powerful Cyberspace Administration and Propaganda Bureau. The conversation "emphasized … unstinting compliance" with the youth gaming rules and forbade the rental of adult accounts to junior gamers.
Next? Keep an eye out for stories about how that ban on after-school tutoring as part of Beijing's edtech clampdown is full of exceptions and holes, particularly for wealthier parents.
On Protocol | China
- How big a deal are the new video gaming rules to gaming firms? They're unlikely to hit bottom lines much – but may make it harder to cultivate the next generation of loyal customers. Shen Lu explains.
- An inside look at the carbon credit market juicing EVs. China uses a "dual-credit" policy combining carrots and sticks to make it very lucrative to pump out electric vehicles. Small wonder China leads the world in EV production. But without a liquid centralized market, the actual prices one company pays for another's credits have become jealousy guarded secrets. Not to worry: Zeyi Yang has the deep dive.
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.
China Goes Global
- Chinese-born crypto exchanges still need a home. On Thursday, Singaporean authorities added Binance — the world's largest crypto exchange, and one initially based in China — to an investor alert list. Two days later, South Africa's finance regulator issued a public warning against the same company. And Huobi, the third-largest crypto exchange which also originated in China, shares similar fortunes in Thailand.
- Shanghai is pressing on with global esports plans. To build an "international metropolis of culture," the Shanghai government's 2021-2025 blueprint, released last Thursday, reaffirms the city's goal of becoming "the global capital of esports." With help from private investment, Shanghai plans to build one or two esports stadiums "that can host international top-level competition and attain global recognition." It also plans to nurture an ecosystem that includes "esports tournaments, trading, livestreaming and training."
Straight From China's Web
- Prosecutors dropped the Alibaba sexual assault case. On Monday, local prosecutors in Jinan, China decided to not arrest the Alibaba manager who was accused of sexually assaulting a female Alibaba employee in late July. The manager's "forcible indecency actions do not constitute a crime," the prosecutor wrote. (The other suspect in this case, an employee of the local supermarket company that works with Alibaba, is still in detention following an Aug. 25 arrest.) Alibaba responded with a vaguely worded statement on Weibo, saying it "trusts in judgment and trusts in goodness" and promising to "continue to improve and perfect ourselves."
- Bilibili is taking action against nasty internet slang. It hasn't been that worried about misogyny, but Bilibili drew the line this week at words that "caricature honorable professions [or] use acronyms or distort original meanings for the purpose of personal attacks." One example: "伞兵," which originally means "paratrooper," but has been used to mean "idiot." (The acronym for both is Romanized as SB.) Bilibili's also banning "nmsl," the quintessential internet insult directed at one's mother and a favorite of online nationalists.
Big Brother Beijing
- Seven "game companion" apps are "indefinitely banned" from app stores in China. Unnamed sources told Chinese publication BJ News that these apps, banned for reasons yet unknown, may still come back after "self-rectification." Protocol reported earlier in July on how the paid "game companion" or peiwan industry is creating a unique digital underclass in China, mostly comprised of women.
- Meet your new shareholder: Beijing. Last week, Bloomberg and The Wall Street Journal both reported a Beijing municipal (i.e., not central) government proposal to take an ownership stake in the beleaguered ride-sharing giant DiDi. The deal would mean Shouqi, a state-owned ride-hailing company, and other partners would own a share of DiDi, and together they may seek to acquire veto power and a board seat, Bloomberg reported. Both DiDi and the city government have denied the reports.
- SMIC is building another chip plant in Shanghai. China's largest chip maker is spending around $8.8 billion on a new chip plant that will focus on producing process nodes for 28 nanometers and above, Reuters reported Friday. The production line would have a monthly capacity of 100,000 12-inch wafers. This is SMIC's third new 28-nanometer chip factory announced within a year, the first two being located in Beijing and Shenzhen.
One More Thing
Meet your new favorite toy
Perhaps it's sweet revenge for all those steeds once replaced by Ford Model Ts. XPeng, one of China's leading electric vehicle makers, has announced its latest product: a robot horse. As Chinese publication iFanr reported, this "first intelligent vehicle for kids" will combine autonomous driving (riding?) and interactive human-robot emotion technologies. At this point, it's just a concept, but it's already hard to envision parents getting comfortable welcoming one into their home.