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April 14, 2021
Good morning! Washington continues to crack down on Chinese tech — witness last week's announced sanctions of several military-linked supercomputer labs — but as your host has long argued, America can't veto China's rise, it can only reckon with it.
In this week's Protocol | China: Beijing does some reckoning of its own with out-of-control tech giants, the anatomy of an online hate campaign and yet another setback for China's online feminists.
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The Big Story
Beijing is serious about antitrust
Chinese regulators are clearly willing to put tech in its place, a fact most vividly illustrated by the postponement late last year of Ant Financial's IPO. But what's often framed in the West as a battle between swaggering entrepreneurs like Jack Ma on one hand and ruler Xi Jinping and the Communist Party on the other, is actually bigger — and smaller — than that.
- It's bigger because Chinese regulators are looking well beyond fintech, targeting a host of behaviors that has consumers fed up.
- And it's smaller because there's no battle there. The Party has won, and even the richest entrepreneur is merely its subject.
Beijing's big, juicy target: the "platform economy." It was only in February that the antitrust regulator State Administration for Market Regulation finalized guidelines for "the platform economy," punching up older rules for the new internet age. Reuters reported on Sunday that China's antitrust authority is beefing up staff and resources to carefully scrutinize large companies, especially tech firms. Frankly, SAMR is on to something: The Chinese web has been fertile ground for a bevy of shady tactics. Protocol | China's Shen Lu earlier detailed some of the most hated, and now targeted, practices:
- Cross-platform link blocking, intended to lock users into one ecosystem and raise the costs of leaving, also infuriates them. Imagine if Facebook wouldn't let you share a link from Amazon.
- Exclusive partnership agreements, colloquially called "pick one from two" (二选一), means sellers must choose one and only one ecommerce platform to hawk their wares.
- "Big data ripoffs" (大数据杀熟) refer to price discrimination in which regular customers pay more, not less, for the same services than new users (who are costly to acquire).
Exhibit A in proving how serious China is: Alibaba. On Monday, the ecommerce giant got slapped with a record $2.8 billion penalty after China's antitrust watchdog conducted a months-long anti-monopoly investigation.
- The probe concluded that Alibaba badly abused its market dominance by forcing sellers to "pick one from two."
- Most fines by U.S. regulators have lots of zeros in them, but don't make a big dent in a company's bottom line. This one was 4% of Alibaba's 2019 total revenue in China.
- Other companies are next. On Monday, SAMR summoned execs from 34 internet companies to an "administrative guidance meeting" and urged big tech to "be in awe of and abide by the rules."
And no, this really isn't about the whole Jack Ma thing. It's about the practices Alibaba engages in, and making an example of the ecommerce giant.
- Beijing has been redrafting parts of its 2008 Anti Monopoly Law since at least January 2020, long before Ant's pulled IPO and Jack Ma's (brief, much ballyhooed) "disappearance" from public view.
- By the way, the Chinese antitrust law, much like forthcoming privacy regulations, is consciously modeled after regulations in the EU, a decision based on years of consideration.
Big tech doesn't want the rules. But it's rushed to weaponize them. Hours after the SAMR slapped that record fine on Alibaba, Yao Jinbo, CEO of China's online marketplace for classifieds 58.com, called for an antitrust fine of $611 million to be imposed on its competitor Beike, China's leading online real estate platform.
On Protocol | China
- It's gotten much harder to list on STAR. Protocol data scientist Clara Wang joined reporter Shen Lu to dive deep into the history of planned IPOs on Shanghai's tech market. Turns out it's gotten much harder to list there, with "termination rates" for IPOs skyrocketing since late last year. Analysis is powered by our P3 data intelligence platform — learn more about corporate subscriptions here.
- Chinese online propaganda 2.0: It's not about the "wumao" anymore. Time was, Beijing had to pay officials to scrawl a bunch of (unconvincing) pro-Party pablum on social networks to counterbalance dissenting voices; these were the wumao. But those days are past. Video platforms like Kuaishou and Douyin have become "live online laboratories where grassroots nationalists and state media collaborate seamlessly" to create highly shareable stuff — often powering cross-border, ultra-misogynist hate campaigns aimed at whoever has recently said or done something Beijing does not like. Zeyi Yang breaks down this scary trend.
- The quiet war to become China's next WeChat. The stakes couldn't be higher: Which company will build the "mega app" of the future with the potential to transform daily life in China? WeChat shouldn't rest on its laurels: ByteDance's Douyin is already taking aim, and it has a puncher's chance. Shen Lu has the goods.
China Goes Global
- Huawei prepares for an IoT future. 21jingji reports that on April 12, Huawei Chairman Xu Zhijun announced that cloud computing and smart cars will be key "investment targets" moving forward. Huawei seems confident that IoT will be a core part of daily life soon enough, and the company's 5G network speeds will help make this a possibility. Xu also said Huawei's making good progress on 6G, which it plans to bring to market by 2030.
- The new capital of cross-border ecommerce: Guangzhou. The southern Chinese megacity is home to SHEIN, the $15 billion ecommerce empire that's quietly taken over the world, as well as thousands of smaller entrepreneurs building clothing or furniture brands that sell into Southeast Asia, Latin America and Europe, reports tech outlet Chuhai Post. And all those companies are using new social media platforms like TikTok to meet buyers where they are.
- Tencent opened a data center in Indonesia, its first in the region. It's up against big incumbents in the cloud services business: AWS has 31% of the market, followed by Microsoft's Azure at 20% and Google at 7%. Alibaba Cloud ranks No. 5 in the market, accounting for 6% of global spend, according to ParkMyCloud.
On Our Radar
ByteDance's education ambitions grow
ByteDance, which is seemingly expanding into everything, wants a piece of China's massive, 400 million-user ed tech market — even if that means pushing out its own execs. ByteDance education product teams have recently undergone intensive internal reshuffling, according to tech outlet LatePost. At least six of the teams behind ByteDance's educational apps, with audiences ranging from toddlers to adults, have replaced their top execs in the past year. Products deemed not profitable enough are discarded quickly, and their employees are integrated into other teams. ByteDance will pour nearly $2 billion into its education offerings in 2021, another source said.
Straight From China's Web
- China's movie industry and short-video platforms are clashing. It was a matter of when, not whether — particularly given that one popular genre on video platforms Kuaishou and Douyin is two-minute summaries of popular films. Last Friday, over 70 movie production companies, streaming platforms and industry associations released a joint statement that decried short video platforms' unauthorized remixing, rebroadcasting and "distortion" of popular films and threatened to take legal action, reports 36Kr. In 2020, an industry report found over 30 million short videos containing copyrighted content had been posted over a period of just 22 months, with 2.7 trillion collective views.
- A setback for China's feminists. Chinese social media platforms have just implemented a new round of crackdowns on an already beleagured online feminist movement. Since March 31, Weibo has closed at least 11 Chinese feminist activist and organizer accounts. Just this week, Douban shut down nearly 10 groups labeled as "feminist." It's unclear if it's a coordinated effort. China's feminist activists hit by the latest deletions tell Protocol's Shen Lu the moves won't deter them from fighting for gender equality.
- Chinese AI can tell you your future — sort of. For the equivalent of just $6 and your name and birth date, a Chinese fortune-telling AI will let you know your chances of getting into a relationship, making money or advancing in your career. But such services seem to be only an introductory offer to the more pricey manual services, where an experienced real-life fortuneteller can give more detailed guidance for $75, reported Guokr. Protocol's prediction: The two services are equally accurate.
One More Thing
Antitrust memes are a thing in Chinese social media
No, really. Check this one out: It shows Alibaba as first to get stuck with what must be a painful anti-monopoly vaccine. Tencent, next in line, watches nervously, while Meituan, JD.com and Pinduoduo giggle further behind.