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February 10, 2021
Good morning and happy Year of the Ox (almost). This week in Protocol | China: Clubhouse's too-soon China swan song, anti-monopolists sharpen their swords and a tech giveaway of nearly $2 billion for the Lunar New Year.
In case you're new here: Welcome. We're making the largest-ever Western newsroom investment in covering Chinese tech so we can tell you what's next at the intersection of technology, policy and business in the world's largest country. As part of that, each Wednesday the Protocol | China newsletter will bring you news and analysis on the major companies, trends and people you need to know in China. And throughout the week, you'll find our stories and research on the Protocol | China site.
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The Big Story
Clubhouse reminds us the Great Firewall isn't inevitable
Protocol broke the story last week that Clubhouse was blowing up among a subset of Chinese elites. Six days later, it was blocked in the mainland, fulfilling every pessimist's prediction about Beijing's Great Firewall of Censorship. But mainland Chinese users who got on quickly are still there, for now.
The last-minute scramble to enjoy an uncensored space tells us a lot about the desires of users — and the fears of the government.
- Some users were from the "inside" of China's state system, including members of the security bureau. That may have spooked Beijing into acting sooner.
- Chinese-speaking users roasted Hu Xijin, China's top propagandist, in a special chat room. I joined for about an hour and it had the punch-drunk feel of a good open mic night: Users from China, Australia and Japan presented elaborate roasts, wrapped in sarcastic praise for "Old Hu." Hu responded on Weibo that an uncensored internet is "in conflict" with China's system of governance.
Now, users are nervous about their privacy. Clubhouse is built on technology from a company called Agora, a Nasdaq-listed Chinese tech company with operations in both China and the U.S. The company insists it doesn't store user data, but users say they fear that the Chinese government could lean on it to collect user bios and acoustic fingerprints.
Remember: The Great Firewall is not inevitable. And it probably won't last forever, because it's a series of hacks maintained at great effort.
- Removing those artificial borders would bolster Chinese soft power and bring China, and the world, closer together — something Beijing frequently says it wants.
- Of course, that doesn't mean the Chinese government will decide the costs and risks of the GFW outweigh the benefits anytime soon; it still sees control over public opinion as a national security issue. But the benefits of lowering the wall may become more evident, or the costs of maintaining the complex apparatus, technically or politically, may rise.
We're just wrapping up our first, massively well-attended Protocol | China Mandarin-language chat on Clubhouse, this one with China tech insiders discussing the big stories English-language tech media is missing. TL;DR: a lot. We can't tell you more, since it was off the record. But don't worry: Just keep reading Protocol's coverage. We got you.
Want a Clubhouse invite? Email us at firstname.lastname@example.org and tell us one big story about China that you think tech media is missing. The best response gets the code.
Up Now at Protocol | China
- Microlending in China is getting weird and dangerous, with aggressive push notifications from a bevy of Chinese apps urging users to borrow money, even if the apps have nothing to do with fintech. Zeyi Yang describes why it's happening, and why it can't last.
- Meet the social shopping app that's three times as sticky as Pinterest. Xiaohongshu (小红书), or "Red" in English, began as a humble series of PDFs and is now a $5 billion platform every young fashionista loves. The secret: It's obsessed with keeping users on the platform. It's become the quickest way to street cred for foreign firms entering China, and some are paying intermediary agencies 100% of their profits just to master its secrets. Shen Lu reports.
- Forget Clubhouse: China's biggest global platform is Steam. The gaming platform with 30 million Chinese users has somehow remained uncensored in China, despite the government's normally rigorous review process for new games. It launched a local version on Tuesday, but to the relief of Chinese users, the global version is still accessible. Zeyi Yang breaks it down.
Big Brother Beijing
- The new wave of antitrust crackdowns begins. China's powerful monopoly regulator, the State Administration for Market Regulation, issued rules on Sunday aimed at the "platform economy," widely understood to target tech.
- The SAMR claimed its first scalp under those rules when it issued Vipshop, an ecommerce company valued at about $22 billion, with $464,000 worth of fines this week for anti-competitive practices. Vipshop was found to have suspended, blocked or shadowbanned suppliers to prevent them from selling on other platforms. Nikkei Asia wrote that Taobao, JD.com, Pinduoduo, Meituan, Alipay or WeChat Pay could be next on the list.
- Chinese tech insiders admire Elon Musk, but their government doesn't. On Monday, the SAMR — busy week for this regulator! — summoned Tesla over quality issues with the company's cars, according to The Wall Street Journal. This likely traces back to two high-profile Tesla accidents in January: One car caught fire by itself; the other lost control and ran into a building. On Feb. 5, Tesla announced it would recall over 36,000 of its vehicles sold to Chinese owners.
- Your friend list isn't "private information," at least according to a Shenzhen court. A Jan. 22 ruling held that a man's 2019 lawsuit against Tencent for selling his WeChat friend list to third parties didn't violate his privacy, because private data is information you don't want others to know about — and that doesn't apply to your "friend" network. The suit was originally brought in the northeastern province of Harbin but then transferred far south, to Shenzhen — the city where Tencent is based, with courts more friendly to the tech giant.
A MESSAGE FROM PHILIPS
One thing we have realized is that COVID-19 has accelerated three transformational trends that already existed before the pandemic, but are now dramatically reshaping healthcare: the concept of a networked healthcare system, the increasing adoption of telehealth, and the idea of virtual care and guidance. At the same time, we have seen consumers becoming much more engaged in their personal health and that of their families.
One Company You Should Know
Long before Clubhouse, there was YY. The (ephemeral) success of Clubhouse in China reminded many Chinese fans of YY, a company that made its name by offering real-time audio chatrooms. YY later transitioned to video livestream showrooms, where fans could pay real money to buy digital gifts for their favorite influencers. Baidu announced its purchase of YY in November for $3.6 billion; shortly thereafter, short seller Muddy Waters accused YY of fabricating traffic and revenue. But the purchase is still on.
China Goes Global
- Huawei is trying to de-Americanize its supply chain. On Feb. 2, Huawei's patent application for optical computing chips became public. The new technology might be a step forward for computing: Optical chips could be about 50% faster than the current standard of semiconductors. Huawei applied for the patent in August 2019, three months after being added to the U.S. Department of Commerce's dreaded entity list.
- China's Renminbi takes a major step towards internationalization. Reuters reported last week that SWIFT, the global interbank network for cross-border payments, has formed a joint venture with the digital currency research institute at China's central bank. Beijing wants its centrally-backed digital currency to become an international platform, which could reduce the power of the U.S. dollar and give China greater visibility into international cash flows.
- Anti-China sentiment hasn't stopped Chinese smartphones from selling like hotcakes in India. According to the Indian outlet Financial Express, Chinese companies still controlled over 75% of India's smartphone market in 2020, a year when deadly border disputes and app bans dominated bilateral relations. Xiaomi, the Chinese brand that has been pushing hard into the Indian market, reclaimed the top-selling spot in India last quarter after briefly falling behind Samsung.
Straight From China's Web
- A weak link in the creator economy? The creators. Ruhnn, the first ecommerce influencer company to list on Nasdaq, has reportedly signed a deal to go private at just one third of its April 2019 IPO valuation. The company was founded by Zhang Dayi, once one of the top influencers on shopping site Taobao and a rising star in China's "creator economy." But in April 2020, Zhang was involved in an extramarital affair scandal with Taobao executive Jiang Fan, hurting sales, and the company was never able to mint a new influencer as popular as Zhang.
- Facial recognition is everywhere. People don't like it. A new report in The Beijing News reviewed 78 popular apps, and found that 67 of them have a facial recognition function; 46% of them do not have a clear agreement on the use of facial recognition and do not seek users' consent. About 70% of Chinese users surveyed said they don't like it when apps collect their biometric data.
One More Thing
Happy Lunar New Year! China's tech giants have $1.9 billion for you.Douyin, Kauishou, Baidu and Pinduoduo are among the apps that will collectively give out about $1.9 billion via digital red envelopes over the upcoming Lunar New Year holiday. WeChat pioneered this user acquisition play in 2014 to great success. But Big Tech beware: In 2019, Baidu gave away about $300 million in red envelopes, but users didn't stay after receiving the money. The campaign directly resulted in a first quarter loss.