Protocol | China
The people, power and politics of Chinese tech, every Wednesday.
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Why Chinese companies don't want to be 'Chinese'

Why Chinese companies don't want to be 'Chinese'

Good morning! Beijing must be reeling after learning that the EU has "suspended," for now, efforts to ratify its fair trade deal with China. The two had reached agreement after exhaustive negotiations completed right before Joe Biden took office. It looked like a major diplomatic coup for Beijing, one that could put daylight between the U.S. and its EU allies. Now it's in peril. A China seeking to deepen partnerships and rescue strained friendships may need to look elsewhere.

In this week's Protocol | China: the murky national identity of your favorite companies, smart TVs snooping on their owners and a new Chinese smartphone champ that's dethroned Huawei.

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The Big Story

Lessons from TikTok's PR disaster

TikTok named a new CEO late last week: Shouzi Chew, the company's former CFO. Press commentary honed in on his Singapore location as a signal the company no longer feels quite so pressured to present itself as purely American — once an imperative given widespread (if unproven) concerns about data-sharing with Beijing.

  • Trying to please both Beijing and Washington has been so thorny up to this point that TikTok's parent company ByteDance indefinitely postponed its highly anticipated, multibillion-dollar IPO.

Avoiding being seen as Chinese is a trend among companies with major operations, investors, execs or other equities in China that also operate Stateside. And it's worked remarkably well, even for companies like Lenovo that sell hardware devices into the U.S. and are based in China. A few things that seem effective:

  • Choose a name that sounds American. "Lenovo"? Check. "Huawei"? Nope.
  • Avoid any media mentions linking a company name to China in any way. (And push back when it happens — even if the reports are accurate.)

But TikTok's fate is an unlikely one for most companies with China ties that operate in the U.S. TikTok found itself at the center of a perfect storm: It was a massively successful, consumer-facing product whose users (claimed to have) executed a social-media masterstroke aimed at undermining a politically fragile president with a penchant for singling out companies he didn't like — traits the new administration does not seem to share.

  • Everyone had already heard of it, meaning it didn't take much for it to dominate headlines.
  • As a content business, it inevitably got caught between the values that Beijing espouses — mostly, fealty to its censorship orders — and American free speech.

It still makes sense to lay low for many global companies with links to China.

  • Bilateral tensions remain high, and Beijing's hopes for a "reset" under the Biden administration have been dashed.
  • In Congress, China is a target for both parties and there's no political benefit to being seen as "soft" on Beijing. So companies want to stay off the radar of ambitious representatives and senators.

But this widespread silence, born of fear, isn't sustainable.

  • Chinese firms are occupying ever more slots in the Fortune 500 while making major inroads in U.S. markets and selling stock on the NYSE and Nasdaq. Those dynamics are unlikely to change, despite talk of "decoupling."
  • Details about the Chinese provenance of many companies are readily ascertainable, and "hope no one notices" is a poor long-term strategy.

So what needs to change for companies with China ties in the U.S. to breathe again?

  • If the U.S. adopts a genuine comprehensive personal data privacy regime — meaning consumers learn to trust their data isn't being piped pell-mell all over the place and sold to the highest bidder — it becomes less important to identify "bad guys" in the tech sphere one by one.
  • Put another way, if American consumers could protect their data and knew where it was going all along, TikTok might never have appeared in the headlines in all the wrong ways.

On Protocol | China

  • China's smart TVs are snooping on their owners. Hundreds of millions of Chinese consumers have been turning over data about their TV streaming habits — even the devices they are using while they sit in front of their smart TVs. It's caused a social media firestorm on Weibo. Zeyi Yang has the story.
  • China's biggest audio content platform is going public. Ximalaya FM doesn't make money yet, but it's got big market share in the huge, fast-growing podcasting space — and carmakers are installing Ximalaya-ready IoT devices nationwide. Shen Lu has everything you need to know about its upcoming NYSE IPO.
  • China's Big Tech legal teams are unbeatable — literally. Meet Tencent's "Nanshan Indominables," Huawei's "Longgang Invincibles" and other legal teams that virtually always win in court — at least, in courtrooms closest to home. Shen Lu tells you what's happening behind the scenes.

Straight From China's Web

  • Meet China's newest propaganda platform. Bilibili is one of China's most popular video platforms — it even used to be cool. But on Sunday, it released a video that features two teenagers reciting a script that sounds like it was written by a propaganda official generations older, pledging to become "ideal" grownups who aren't, say, "divisive" or "unpatriotic." Bilibili co-produced the video with a host of state media outlets, state-backed social media accounts and conservative nationalist publications. Once home to quirky subcultures, Bilibili is trying hard to become a mainstream site. And that means keeping Beijing happy.
  • Tencent announces a "Business to Society" plan. On April 19, the behemoth announced its new $70 billion "Sustainable Social Value Innovation" plan, creating a corresponding business unit within the company to focus on investments in technology infrastructure, education innovation, rural revitalization and other "social good" initiatives. As popular tech commentator Pan Luan recently noted, Tencent's announcement comes during a global crackdown against big tech companies. A good time, in other words, to try to look like a good corporate citizen.

A MESSAGE FROM KOBRE & KIM

Kobre & Kim is a conflict-free Am Law 200 global law firm focused exclusively on disputes and investigations, often involving fraud and misconduct. From shareholder disputes and patent litigation to U.S. government enforcement and regulatory investigations, the firm is recognized as the premier choice for addressing high-stakes, cross-border legal and commercial challenges.

Learn more

Big Brother Beijing

  • Alibaba and Meituan land in hot water. There's been a lot of coverage and social chatter on harsh working conditions of China's delivery workers. But last Thursday, the Financial Times reported, a Beijing TV channel featured remarks from a senior municipal government official named Wang Lin who had gone undercover for 12 hours as a Meituan delivery worker. In what appeared to mark the first official government response to the gig economy's borderline inhumane labor practice, Wang told the show he earned just over $6 for his efforts and left the experience "feeling aggrieved."
  • Another antitrust smackdown. Last Friday, Beijing's antitrust regulator, SAMR, fined seven tech companies for failing to report past mergers and acquisitions in advance for antitrust review, a mandatory rule that's been treated as a mere suggestion for years. Tencent — which has been fined at least five times since December for failing to report acquisitions to antitrust regulators for review — accounted for one-third of the nine listed offenses.

One Company You Should Know

You'll never guess who makes China's best-selling smartphone.

China's top seller in Q1 was not from Huawei or Xiaomi — it was Vivo, according to a new report by consultancy firm Canalys. It shows Huawei losing the throne to Vivo, which shipped 21.6 million units, surging a record 79% compared to the same period in 2020. OPPO took second place, with 20.6 million shipments. Huawei, which has faced harsh U.S. sanctions, dropped to third place, shipping just 14.9 million units, a 50% year-over-year decline.

China Goes Global

  • How China's chipmakers are de-Americanizing their supply chains. Nikkei Asia has a fascinating profile of how Wuhan-based semiconductor company Yangtze Memory is removing American tech from its supply chains: It's assigning geopolitical risk scores to every supplier and sending engineers to audit them, all while mobilizing hundreds of engineers to work around the clock rebuilding their operations from scratch. The (wildly ambitious) goal is not to reduce Chinese reliance on U.S. chips, but to end it altogether. The result has reportedly been an "unprecedented flourishing of chip-related companies within China."
  • Chinese founders fight for Southeast Asia's "last mile." Shipping companies are fighting hard and spending plenty in the "last-mile delivery" market in Southeast Asia. According to The Ken, the major regional competitors are J&T Express, Ninja Van and Lalamove — all helmed by founders who are either from China or part of the Chinese diaspora. They are taking China's leading logistics practices to a new market where customers are adopting ecommerce fast.
  • OPPO's already conquered China. Now it looks to Latin America. On April 30, OPPO announced expansion plans into the Chilean and Colombian mobile device markets. OPPO made its first entry into Latin America by way of Mexico in 2020.

A MESSAGE FROM KOBRE & KIM

Kobre & Kim is a conflict-free Am Law 200 global law firm focused exclusively on disputes and investigations, often involving fraud and misconduct. From shareholder disputes and patent litigation to U.S. government enforcement and regulatory investigations, the firm is recognized as the premier choice for addressing high-stakes, cross-border legal and commercial challenges.

Learn more

One More Thing

Is AirDrop becoming China's Tinder?

It was once just a file transfer tool for Apple users. But China's Gen Z has turned AirDrop into messaging software, according to the WeChat account "Letter List." On the subway, at restaurants and in theaters, young Chinese iPhone users are receiving prompts requesting to share images, QR codes or emojis from other iPhone users nearby. Some have used AirDrop as a tool to meet strangers, some have gotten job interviews through it and some even use it as a dating app, hitting on strangers and flirting with them in public spaces — all without having to approach the object of their desire directly.

Recent Issues

Lobbying, China style