The upside to China’s tech crackdowns
Good morning. With Thanksgiving in the rearview mirror, there’s lots of China news to catch up on. In this week’s Protocol | China: what tech crackdowns mean for new founders, DiDi is asked to de-list (already), and the hard “lives” of B-list virtual idols.
There's an upside to China's crackdown on Big Tech
As your host said during an Oct. 19 panel held by the University of San Francisco's School of Management, Beijing’s current hardline approach to its private sector risks scaring off future entrepreneurs.
- Witness not just the fate of capitalist icon-turned-running dog Jack Ma, but also the abrupt exit of ByteDance founder Zhang Yiming from his role as CEO, then as Chairman shortly thereafter.
- In the West, Zhang would be lauded as a genius; in China, now he’s seemingly trying to disappear, lest his prominence anger Papa Xi.
- This dynamic could push ambitious young people into safe, staid government enterprise rather than risky startups.
But the crackdowns aren’t all negative. Sure, Western media often focuses on the opacity, suddenness and severity of Beijing’s decision-making process, lending reports on tech crackdowns the hue of thunderbolts thrown from Mount Olympus. But as this publication has outlined, there are upsides.
Just think of the startups. Checking Big Tech and curbing monopolistic practices could open the way for new entrants, say participants in Protocol | China’s latest Braintrust.
- “On the positive side of the regulatory intervention is the fact that we now have a more open and fair playing field,” writes Qiming Ventures’ Gary Rieschel.
- “China's entrepreneurial fervor is at an all-time high,” writes Tech Buzz China’s Rui Ma.
- “The general effect is to break down monopolistic practices by big internet companies that have made it difficult for startups and large companies to compete,” writes SOSV’s William Bao Bean.
And there are already some clear winners and key sectors that stand to benefit from the government's actions.
- “The opportunities created by the new emphasis on the 14th Five-Year Plan on so-called ‘hard tech’ will appeal to a group of younger, tech-savvy entrepreneurs, as will the continued development of the capital markets in China, particularly the high-tech STAR board in Shanghai and the Beijing Stock Exchange for small and medium-sized enterprises,” writes Eurasia Group’s Paul Triolo.
- “We are seeing record investments into core technology and health care sectors,” writes Rieschel.
- “Chinese automakers will likely never dominate, but Chinese EV makers will have a much better chance,” writes Ma.
The big picture: If Beijing thinks it can consolidate its power while also juicing its next generation of entrepreneurs, don’t expect it to ease up on the crackdowns anytime soon.
On Protocol | China
China’s sixth plenum really was different. Protocol’s AJ Caughey compared the latest communique from China’s major conclave to two decades’ worth of precedents, spotting new key terms we’ve never seen before. Read his analysis here.
Shanghai launched a data exchange. It’s another bet from local governments that big data can become a tradeable commodity to juice economic growth. Zeyi Yang has more.
Singles’ Day is now a thing in the U.S. China’s (big, long) version of Cyber Monday is increasingly another reason for retailers to start those “can’t miss” deals in mid-November. Shen Lu has more on the Chinese shopping holiday that’s gone global.
Protocol | China event
RSVP to an exciting virtual event this Thursday, Dec. 2 at 10 a.m. PT / 1 p.m. ET where we’ll discuss China’s fintech future.
China is where you’ll find ubiquitous payment via QR codes, credit ratings built from whole cloth by Big Tech using Big Data and a central bank digital currency with use cases well beyond China’s borders. So How will China shape the future of fintech in the medium and long term — and what does that mean for the existing financial system?
To find out, join David Wertime, who will moderate an expert panel with Eurasia Group’s Xiaomeng Lu, Skuchain’s Rebecca Liao and Carnegie Endowment’s Robert Greene. RSVP here.
A MESSAGE FROM PROEDGE, A PWC PRODUCT
Developing an employee's digital and technical skills is an attractive way for employers to generate capabilities that will be vital for the future. Also, levelling up employee skills can be felt beyond the company's physical (and remote) walls.
Big Brother Beijing
Big brother is watching you … journalists. U.S.-based surveillance intelligence company IPVM on Monday published findings that show the provincial Public Security Bureau in central China’s Henan province in September awarded a surveillance contract to the Chinese tech company Neusoft to that tracks “key personnel” — including journalists, foreign students and women from neighboring countries — who stay in China illegally. Based on their perceived threat levels, the system can send warnings about their travel information when they visit the province. The bidding call specifically mentioned Huawei Cloud services and Huawei’s FusionInsight as “key technologies” used to operate the system.
Three million WeChat burner accounts go poof. A gang that wrote programs to automatically register burner WeChat accounts for profit just got busted by local police in China’s Shandong province, state media Xinhua reported Tuesday. Since 2019, the gang has registered over 3 million WeChat accounts then sold them off, mostly to scammers and illegal gambling platforms.
A WeChat wallet operator was fined for breaching forex rules. China’s State Administration of Foreign Exchange recently imposed a $438,000 fine on Tencent’s digital wallet operator, TenPay — which dominates China’s mobile payment market along with Alibaba’s Alipay — for violating foreign exchange regulations, according to The South China Morning Post.
China goes global
DiDi was asked to de-list from the United States. Chinese regulators have asked DiDi’s top executives to de-list their company from the New York Stock Exchange, Bloomberg reported last Thursday. DiDi is still going through a domestic cybersecurity review in China, triggered by the company’s June U.S. IPO. Proposals for DiDi’s fate after de-listing including a secondary listing in Hong Kong.
Surviving Clubhouse in the Middle Eastern market. Clubhouse comes and goes, but Yalla stays. The voice-based networking app was developed in 2016 for the Middle East and Northern Africa region by a Chinese company. It’s accumulated over 9.4 million users and is getting more with its portfolio of mobile games. In a recent interview with the Chinese tech publication 36Kr, Yalla’s founder and CEO Yang Tao reflected on what caused Clubhouse’s failure: too much emphasis on elite users and too little content moderation. As for Yalla, Yang said, “a social media and entertainment platform needs to stay away from the sensitive macro issues if it wants to survive long.”
Huobi finds a new home in Singapore. China’s largest crypto exchange, Huobi, has picked Singapore to become its new Asia headquarters, Bloomberg reported Tuesday. Huobi announced its intention to fly the coop in September. As Protocol | China has reported, Chinese crypto businesses are swarming to Singapore following regulatory crackdowns at home, while the city-state is seeking to cement its role as global crypto hub.
Straight from China's web
Life is hard for virtual idols too. The increasing political risks for human influencers and the development of AR technology have culminated in a Chinese virtual idol boom. But a tick below the headline-grabbing stars, the B-list virtual idols aren’t doing all that well financially, Chinese publication Yule Yingtang reports. Those idols can end up becoming club promoters and even DJs, often selling what resembles softcore porn fantasies to young clubgoers.
China’s mobile internet gets interconnected, again. On Monday, Tencent finally announced it would open up full access to external links on WeChat, allowing users to open them in chats, after years of blocking external links from rival platforms like Alibaba. Tencent had taken an incremental link-opening revamp in the past few months, responding to regulators’ September order to remove bricks from the internal walls within China’s own (globally firewalled) internet.
Douyin doubles down on China’s tutoring ban. Less than four months after China’s abrupt ban on after-school academic tutoring, Chinese social and ecommerce platforms have amended their rules to comply with Beijing’s strict requirements, with Douyin being the latest. The short-video platform published new rules Nov. 19 banning any video selling tutoring services for children. According to Chinese publication Caixin, similar services or videos are also nowhere to be found on other platforms like Taobao, JD and Kuaishou.
Hoped for better Black Friday sales?
You should have tried praying to the god Bezos. Chinese Amazon sellers have had a bad year, with hundreds of them banned from the online marketplace for customer review fraud. No wonder, then, that China’s internet recently featured viral images that mixed traditional, IRL tributes to the God of Wealth with pics of Jeff Bezos. The result: images showing tables full of incense, food and beverages in front of a portrait of Amazon’s founder.