Good morning. Is it really only Wednesday? Checks out. We'll cut to the chase.
In this week's Protocol | China: New antitrust rules signal a new normal, Apple takes mainland censorship to Taiwan and Hong Kong and Lei Jun becomes China's favorite businessperson after the humbling of Jack Ma.
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The Big Story
China's new normal
After months of antitrust investigations against big tech firms, Beijing has just furnished itself with one more regulatory tool. On Tuesday, the powerful State Administration for Market Regulation released a draft regulation curbing "unfair competition in the internet sector." The rules are detailed, and if finalized as expected would ban a variety of anti-competitive practices in Chinese tech ranging from the pilfering of competitor data to paying cash for fake reviews.
- On the same day, ruler Xi Jinping chaired the first public meeting held since Party leaders' major (if secretive) annual conclave in Beidaihe. In what one knowledgeable observer called a "BFD," Xi pledged to "adjust excessively high income" and to "encourage high income individuals and businesses to do more to repay society."
- That's a strong signal to big tech to go above and beyond what the law requires and to make a show of giving back.
This all looks like China's new normal. That's why these types of headlines are getting so common, and why they all relate to one another.
- China's preference for "campaign-style governance" — that is, wave after wave of crackdowns — means we should expect enforcement actions to continue, even as tech firms rush to change their behavior and their images domestically.
- Clear rules about what something like "excessively high income" means — the kind of thing that could be defined and dealt with via a tax code — may be less beneficial to the Party than the kind of fuzzy rules that have allowed Beijing to govern internet speech. Keep it vague, and scare everyone into overcompliance.
- It's clear Xi sees the free market allocation of capital as disorderly, and often contrary to the interests of the Party.
The new rules sent Chinese equities south, but much of Wall Street remains generally bullish.
- BlackRock's research arm told the Financial Times in a Tuesday interview that major institutional investors should consider doubling or even tripling their exposure to the Chinese market.
- The argument is that — regardless of any crackdown — China's markets are huge, and that any diversified portfolio should reflect that.
What will happen next? We don't know, because there's no precedent for this.
- Never before has a $15 trillion economy, much of it built through a sharp turn towards openness, begun to reverse course so abruptly.
- A presentation that recently went viral on Chinese social media says the country is turning away from an American model and toward a German model, with strong antitrust laws, a robust education system and a reliance on manufacturing rather than services.
Of course, there's another model out there: Marxism-Leninism. Xi's a true believer, and appears convinced China's economic success is proving him right. But it's an open question whether he fully appreciates how much of China's current wealth comes from decades of studied deviation from Communist orthodoxy.
On Protocol | China
- Apple has been using PRC political censorship in Hong Kong and Taiwan, areas where it's not legally required. Protocol's Shen Lu unpacks the findings from a recent research report showing that Apple's keyword filters for product engraving have migrated from mainland China. Read the full findings here.
- Chinese ecommerce companies don't need Amazon. In the early aughts, Zhang Jie was a young ecommerce seller in China with small ambitions. Now he's the founder of a Softbank-funded ecommerce SaaS startup. He tells Protocol's Zeyi Yang why Chinese ecommerce no longer relies on Amazon to sell globally, and what makes China irreplaceable in the sector today. Read the full interview here.
- Meet China's new favorite entrepreneur. Lei Jun is plain-spoken, prone to share vulnerable and embarrassing details — and founder of Xiaomi, which has dethroned the beleaguered Huawei as China's no. 1 smartphone seller. With Jack Ma in Beijing's doghouse, Lei has emerged as "China's Steve Jobs." Zeyi Yang shares the key takeaways from Lei's latest viral speech.
A MESSAGE FROM TRELLO
After a year and a half of living and working through a pandemic, it's no surprise that employees are sending out stress signals at record rates. According to a 2021 study by Indeed, 52% of employees today say they feel burnt out. Crisis management is one thing, but how do you permanently lower the temperature so your teams can recover sustainably?
China Goes Global
- Chinese crypto miners, welcome to … Texas? Led by Governor Greg Abbott, Texas' state and local governments have actively courted China's purged crypto miners with cheap power and lax regulation. Rest of World's reporter Meaghan Tobin travelled to Rockdale, Texas, a 5,500-person town that has become the center of bitcoin mining, to hear how China's great miner migration has affected local politicians and businesses.
- Shenzhen's government will pay sellers to ditch Amazon. According to Chinese publication Lieyunwang, it will give out subsidies as high as $300,000 to those who successfully open their own direct-to-consumer websites instead of relying on third-party platforms.
- To get at Israel, Chinese hackers pretended to be Iranians. A recent MIT Technology Review article cites research from cybersecurity company FireEye to show it was actually Chinese hackers who targeted Israel in 2019 and 2020, and that they intentionally led investigators to think their attack originated in Iran. What gave it away? Some technical details, but also the fact the same group lay behind cybersecurity attacks against many targets in the Middle East and Asia — some of which aren't usually targets of Iran.
Straight From China's Web
- Big Tech (appears to) get serious about sexual harassment policies. Following a damning rape allegation at Alibaba, Chinese tech companies are finally starting to establish policies to prevent and address workplace sexual misconduct. Alibaba released detailed plans to make the company a better workplace for women. Sina, which owns Weibo, reportedly added anti-sexual harassment provisions to its employee handbook. And video streaming platform iQiyi had also updated codes of conduct to include rules against sexual misconduct.
- Another big company canceled its overtime regime. Boss Zhipin, an online recruiting platform, has announced an end to its "big/small week" overtime system starting Sept. 1, according to Sina Tech. A slew of other tech companies recently discarded their overtime policies, but workers worried they'd face pay cuts as overtime wages were calculated into their total comp. Kanzhun promises employees to keep paying them for overtime even after the big/small week policy ends, meaning each Kanzhun employee will effectively get a 20% raise.
Big Brother Beijing
- Celebrity downfalls are creating an opening for virtual idols. Several Chinese celebrities have recently been denounced by state media, and businesses are now looking for safer alternatives for brand ambassadors. Enter virtual idols, who work for free, never complain, never do or say anything unapproved and keep companies out of trouble with fans and the government.
- There's a higher R&D bar for a tax break. Caixin Global reported last week that to qualify for a tax break, Chinese tech companies now have to spend at least 7% of their annual revenue on R&D, up from 6% under previous rules. Qualifying Chinese tech companies can enjoy corporate income tax exemptions for the first five years after they turn a profit, after which they are subject to a 10% tax rate, well below the standard 25% burden.
One More Thing
A new function for the smartest of smart cars
Meizu, the Chinese consumer electronics company that has pivoted from making smartphones to building smart cars, recently applied for a new patent. According to enterprise database platform TianYanCha, the technology would work like this: A Meizu smart car would collect image and audio information of a nearby mosquito (or any insect), determine its breed and sex, lure it to fly close to the window, and "open the window or use the air-conditioning to repel it."