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China accounts for nearly half of ASML’s Q2 revenue despite Dutch export restrictions

Thu, 18 Jul 2024 10:03:29 +0000

On Wednesday, ASML released its financial report for the second quarter and stated that the period’s sales of 6.24 billion euros ($6.82 billion) exceeded the company’s expectations, even though overall net sales declined compared to the same period last year.

Despite geopolitical uncertainties and restrictions on chip-related exports from the Netherlands to China, demand for ASML equipment in the Chinese mainland market remained strong, accounting for 49% of the Dutch company’s net system sales in the second quarter.

Why it matters: ASML’s revenue was impacted in the previous two quarters after the Dutch government’s chip-making equipment export restrictions took effect last September, and ASML’s export license expired at the end of 2023. Demand in the Chinese mainland market has now primarily shifted to unrestricted DUV (deep ultraviolet lithography) equipment.

Details: ASML reported mixed financial results for the second quarter, with a 7.6% year-on-year decline in net sales but an 18% increase from the previous quarter. On the same day, their US-listed shares dropped 13% due to reports that the US is considering even stricter rules around chip-related exports to China.

In the second quarter of 2024, ASML achieved net sales of 6.24 billion euros ($6.82 billion), a decrease of around 7.6% from the 6.75 billion euros ($7.38 billion) it reported for the same period last year, though the figure marked an increase of around 18% compared to the first quarter of 2024’s 5.29 billion euros ($5.78 billion), according to the report.
In terms of regional breakdowns, mainland China continues to be ASML’s largest market, with mainland Chinese net system sales accounting for 49% (2.33 billion euros, equivalent to 2.55 billion dollars) of the company’s total. This proportion remains consistent with the first quarter, reflecting a 20% increase from China’s 1.94 billion euros ($2.12 billion) in the first quarter of this year.
“Gross margin for the quarter came in at 51.5%, which was above our guidance, primarily driven by more immersion systems than planned,” CFO Roger Dassen said on an ASML investor call. Dassen added that the company expects total net sales for the next quarter to hit between 6.7 billion euros ($7.32 billion) and 7.3 billion euros ($7.98 billion), with R&D expenses estimated at around 1.1 billion euros.
“Although macro uncertainty remains, overall semiconductor inventory levels continue to improve, trending towards more healthy levels,” ASML CEO Christophe Fouquet said during the same investor call. The company’s outlook for the full year is unchanged with revenue expected to be similar to last year, he added.
US-listed shares of ASML slumped 13% following a Bloomberg report on Wednesday that the Biden administration is considering tougher restrictions to limit companies exporting critical chip-making equipment to China.

Context: On June 30, 2023, the Netherlands announced new export controls on the sale of advanced chip-making equipment to China, which took effect on September 1 that year. The rules require Dutch manufacturer ASML to apply for a license to ship some of its deep ultraviolet lithography (DUV) systems to China.

In the first quarter, ASML sales revenue was 5.29 billion euros ($5.78 billion), down from 6.7 billion euros ($7.32 billion) during the same period last year.

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Qinglong, China’s first full-sized general-purpose humanoid robot, unveiled at World Artificial Intelligence Conference 2024

Fri, 05 Jul 2024 08:59:05 +0000

“Hello, I will arrange the bread and fruit separately.” Upon hearing the command from the host, the humanoid robot Qinglong extended its arms and gently picked up a piece of soft bread with its steel fingers, placing it down into the basket on the table.

At the World Artificial Intelligence Conference (WAIC) 2024 in Shanghai, one of the most influential AI events within the global tech ecosystem, the National Local Joint Humanoid Robot Innovation Center on Thursday unveiled the open-source general-purpose humanoid robot Qinglong for the first time. The event marks the debut of China’s first full-sized general-purpose humanoid robot model, along with the release of its related open-source technologies.

Why it matters: The unveiling of Qinglong marks China’s entry into the advanced field of full-sized general-purpose humanoid robots. Its open-source initiative is intended to accelerate innovation, collaboration, and development within the global robotics and AI communities, potentially driving advancements in a range of industries.

Details: During the Summit on Humanoid Robots and Embodied Intelligence Development Forum at WAIC 2024, the National Local Joint Humanoid Robot Innovation Center demonstrated Qinglong’s operation and design concepts on site.

Qinglong has been independently developed by Humanoid Robots (Shanghai) Limited, a new R&D institution established by leading industry enterprises with a registered capital of one billion RMB ($140 million). The company was designated as the National Local Joint Humanoid Robot Innovation Center by the Ministry of Industry and Information Technology of China in May 2024.
Qinglong stands at 185cm tall and weighs 80kg, according to the company. It features a highly bionic torso and anthropomorphic motion control, supporting multi-modal mobility, perception, interaction, and manipulation. With 43 active degrees of freedom, Qinglong achieved a maximum joint peak torque of 400 N·m (Newton-meters) and 400 TOPs (Tera Operations Per Second) of computational power.
The humanoid robot combines mobile lower limbs for agile walking with lightweight, high-precision upper limbs for operations, the on-site presentation stated. The company claimed that the model supports rapid walking, agile obstacle avoidance, stable incline and decline movement, and resistance to impact interference, making it an ideal platform for developing general artificial intelligence software and hardware.
“In the Year of the Dragon this year, we named our humanoid robot Qinglong [meaning green dragon in Chinese] and initiated an open-source community for humanoid robotics,” said Jiang Lei, Chief Scientist of the National Local Joint Humanoid Robot Innovation Center. “Through open-sourcing, our goal is to introduce a new humanoid robot model annually, each named after one of the Chinese zodiac animals, to foster a humanoid robot innovation community unique to China,” he announced at the forum.
Jiang also announced the launch of the OpenLoong open-source community website, developed by the Innovation Center. The website includes the release of the robot’s hardware structure and parameters, with the embodied intelligence software package set to be open-sourced soon.

Context: On the same day, Tesla debuted its second-generation humanoid robot Optimus at the Shanghai World Expo Exhibition Hall during WAIC 2024. According to Tesla booth staff, compared with the first generation, Optimus has improved its walking speed by 30% while maintaining upright posture. Its fingers have also evolved to perform delicate tasks such as gripping eggs and handling heavy objects.

Tesla plans to start limited production of humanoid robots next year, with over 1,000 Optimus units expected to assist in production tasks at Tesla factories, according to CEO Elon Musk.

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EU anti-subsidy EV probe: What Chinese automakers have done in Europe and what’s next

Fri, 14 Jun 2024 10:36:38 +0000

The European Union announced on Wednesday it has taken a case-by-case approach to deciding how much tariffs could increase on Chinese electric vehicles. In a move that surprised many industry professionals, the preliminary duties set to hit Chinese EV imports will rise from the general 10% basis on all of them to between 27% and 48%, with SAIC and those deemed incompliant with EU standards facing the hardest hit. The tariff hikes are relatively moderate for the likes of BYD and Geely, which have either committed to growing deep roots within the EU or have already done so in the past.

Broadly speaking, the additional duties are still in line with what many analysts had expected, despite the possibility of a massive but temporary plunge in China’s EV exports to Europe. Chinese battery EVs are priced in general around 80-100% higher in Europe than in their domestic market, creating room for price adjustments, said Jefferies analysts led by Johnson Wan. There could be very limited benefit for major European players, as the high-volume EV segment would remain intensely competitive with subdued margins, said Patrick Hummel, Head of European Autos Research at UBS.

Although Bernstein analysts expect the provisional tariffs to be a serious turn-off to smaller Chinese brands, prompting them to focus on other export markets, bigger Chinese players are likely to step up their localization efforts. Paul Gong, UBS’s head of China Autos Research, also wrote in a note to clients, “Localization of production may become an increasingly appealing option over longer run compared to direct shipping from China for exporters to take shelter from trade conflicts and geopolitical tensions.”

Below, we take a look at what the key Chinese players have been doing in Europe and their respective prospects in a continent home to some of the world’s most important automakers.

BYD

China’s top EV maker is widely considered the least affected by the newly announced tariffs, with the strength to still break even on an import model thanks to its significant cost advantage versus peers. BYD’s EVs would still be priced lower than the similar models launched by European rivals, even if the company raises prices by 17.4% to fully pass on the additional tariff to customers, although the measure could effectively prevent its dominance in destination markets.

The leading Chinese player would also have a 25% cost advantage over European counterparts even after localizing the production of its popular sedan in the region, according to UBS’s previous findings. Set to be the first major Chinese automaker with a production base in Europe, BYD expects its Hungary plant to begin operation before 2026, with an annual capacity of 150,000 units. Although exports to Europe only account for a single digit percentage of its total sales, it aims to “be in a leading position” in the regional market by 2030.

SAIC

China’s biggest car manufacturer got relatively unfavorable treatment, and analysts expect the measures will significantly curb its competitiveness in Europe. The European Commission will impose tariffs of nearly 50% on EVs from the Chinese state-owned automaker, along with those deemed to be the least compliant with the nine-month anti-subsidy investigation announced last September. The company, which owns the iconic MG brand of British origin, said earlier it had “fully cooperated” with the investigation and hinted that the EU regulators misused their investigative powers in order to view sensitive business information related to its supply chain.

SAIC responded on Thursday by saying, “As SAIC MG’s sales in Europe continue to grow, we are planning to introduce China’s new energy vehicle (NEV) technologies and green factories to the continent” (our translation). The firm also called for more cooperation between China and the EU. China’s top car exporter to Europe, with shipments of nearly 243,000 units to the region last year, revealed plans last July to build a manufacturing facility plant on the continent.

Geely, Chery, and Dongfeng

Volvo parent Geely was among the three Chinese companies selected for further scrutiny and saw a relatively moderate tariff increase of 20%, another individually calculated duty rate. The impact is likely to be very marginal to China’s third biggest car exporter, thanks to its ownership of Volvo and the currently limited scale of its own brands in the region. Geely’s EV brand Zeekr said on Tuesday it is looking to establish a presence in six to eight European countries by year-end.

Chery, as well as its state-controlled peers such as Dongfeng and Chang’an, faces an extra 21% charge in a category for those cooperating with the probe but not sampled. Jaguar Land Rover’s Chinese manufacturing partner in April reached a joint venture deal with Spain’s EV Motors to produce cars at a former Nissan plant in Barcelona later this year, Reuters reported previously. Meanwhile, Dongfeng’s Voyah brand, previously planning to enter Germany, France, and Italy, has for now been selling EVs mainly in Nordic countries.

NIO, Xpeng Motors, and Leapmotor

Like their bigger peers, Chinese EV makers NIO, Xpeng Motors, and Leapmotor are also set for extra charges of 21%. NIO, which currently sells four models from more than €60,000 ($64,361) in Europe, higher than most domestic competitors, said on Wednesday its commitment to the regional market remains unwavering and it will continue to explore new opportunities within the EU despite protectionism.

The company is still looking to introduce its lower-priced vehicles, including an upcoming third brand codenamed Firefly, in Europe, but the plan is now being adjusted based on the current situation. Delivery of the first model, a well-designed boutique car, will begin in the first half of 2025 in China at a price cheaper than the BMW Mini, CEO William Li recently told investors during an earnings call.

Zhejiang-based Leapmotor, which has Stellantis as its largest shareholder, is also making pivots. Chief executive Carlos Tavares said on Thursday the European auto giant will shift the output of some Leapmotor products to Europe due to the tariff hikes, having reportedly explored the potential of building EVs jointly in Italy. A similar scenario could unfold for Xpeng Motors and its European ally Volkswagen. President Brian Gu last September revealed plans to enter Germany, Britain, and France, with Italy also being included earlier this year.

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China’s GAC to use NIO’s battery swap network

Thu, 09 May 2024 10:08:55 +0000

An increasing number of automakers are looking to make their vehicles compatible with the battery swapping standard NIO is pushing for in China, as GAC Group said on Wednesday it will partner with NIO to expand swapping infrastructure for electric vehicles across the country.

Why it matters: The collaboration highlights increasing efforts by carmakers, along with various stakeholders such as battery suppliers and energy firms, to tackle the issue of range anxiety – fear of an EV running out of power – which has hindered greater EV adoption. The move is also expected to allow NIO to cut expenses further as it opens the money-losing power network to other automakers.

GAC and NIO have a collaborative history that dates back several years. They set up a joint venture for EV manufacturing in April 2018 with a registered capital of RMB 2.5 billion ($350 million), although the following few years brought lackluster sales results for their joint brand Hycan. NIO completely retreated from the JV in the summer of 2022.

Details: According to a Wednesday release, the two automakers plan to develop a standardized battery module that would facilitate the roll-out of swap station-compatible passenger EVs from both sides.

They also expect to establish scale advantage by creating an extensive, unified power infrastructure network, as well as capture more value from repurposing used EV batteries throughout their lifespans.
Although a detailed timeline has not yet been released, owners of both brands’ vehicles will be able to use their own apps to access and pay for charging at a fast charger from either company by the end of this month.
”With this as a starting point, we hope to build more battery swap stations with which our GAC Aion users will have a better swapping experience,” said Feng Xingya, president of GAC Group.

Context: Guangzhou-headquartered GAC is the latest Chinese automaker to announce that its EV owners will have access to NIO’s nationwide infrastructure network, following deals with Changan, Geely, JAC, and Chery, as well as the company’s link-ups with state-owned utilities Wenergy Group and China’s Southern Power Grid.

State-owned manufacturer GAC, a manufacturing partner of Toyota and Honda in China, said it operated a network of roughly 1,000 battery refueling facilities nationwide as of December, of which dozens were swap stations. It has sold an undisclosed amount of Hyper-branded EVs with swappable batteries.
NIO operates 2,413 battery swap facilities as of Wednesday, already the country’s biggest network of its kind, and 3,828 charging outlets mostly for non-NIO cars. The company’s upcoming brand Onvo, with plans for an official debut on May 15, will share its latest-gen battery swap stations with those partners.
Battery heavyweight CATL and ride-hailer Didi are also jointly building battery swap stations in a move to answer Beijing’s call to further increase EV penetration, especially in lower-tier Chinese cities and the country’s rural areas. International carmakers are reportedly embracing Tesla’s EV charging system or forging their own alliances meanwhile.

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China opens door wider to Tesla as local giants disrupt the EV sector with AI-defined vehicles

Tue, 30 Apr 2024 10:41:03 +0000

(Screenshot: Li Yang)

Tesla claimed on its Chinese app on Monday that it would be rolling out its full self-driving (FSD) system “very soon” rather than the previously stated “a bit later” (our translation). The development comes as the US automaker reportedly received tentative approval from Chinese authorities to deploy its advanced driver assistance systems (ADAS) in the world’s most competitive electric vehicle market following a surprise visit to Beijing by chief executive Elon Musk.

Local customers have expressed mixed views about the potentially game-changing technology finally coming to their country, although many Tesla owners and loyal fans welcomed the long-overdue launch on social media. The technology may not yet work well in Chinese urban driving scenarios, despite costing RMB 64,000 ($8,838); most competitors such as Xiaomi promise to offer similar functions free of charge, Li Yang, a Model 3 owner in Shanghai, told TechNode on Tuesday.

Major Chinese EV players Huawei and Xpeng Motors, who specialize in autonomous driving, have responded in a relaxed way to what is seen by many as a major win for their US rival.

“We are confident that Huawei’s intelligent driving system is the best in the world,” Richard Yu, Chief Executive of Huawei’s Consumer Business Group, said at a press event last week as the company introduced the redesigned Aito M5 crossover. Aware of Tesla’s release last month of the no-longer-in-beta FSD software, Yu said the company has closely studied its competitor’s technology by taking test rides in San Francisco, among other US cities.

A long-awaited battle: Experts told TechNode that the US and China have been in a neck-and-neck race to develop “end-to-end neural network” technology, seen by experts as the biggest difference between Tesla’s FSD v12 software and earlier versions.

Tesla chief executive Elon Musk stated publicly in November that its most updated, end-to-end FSD uses machine learning rather than rules crafted by programmers to absorb driving behaviors from large datasets. The approach reduces the carmaker’s reliance on coding, expensive sensors, and high-precision maps for exact road information.
“It is more of a 1,000 flowers blooming type of situation here in China, while the US market is guarded by a sole player,” Paul Gong, head of China autos research at UBS, told reporters on Monday in Beijing, referencing a Chinese idiom. Both the US and China are at the forefront of the technological trend, followed by Europe and the rest of Asia, Gong added.
Although Tesla has huge amounts of data, Chinese firms have the potential to quickly catch up by ramping up their test fleets, according to Song Chaozhong, CEO of Chinese self-driving car startup eCHIEV. Song cautioned that real, “human-like” autonomous cars are still far away, despite the technology likely being a positive driver for vehicle sales.

A booming segment: Analysts expect Tesla’s imminent launch of the FSD software in China to not only help restore Beijing’s image among foreign investors in general, but also help China extend its lead in the adoption of driver-assist technologies worldwide, and enhance its reputation as a rising powerhouse of next generation cars.

China has become a source of innovative engineering for global automakers, as they are now leveraging the capabilities of Chinese companies to design global vehicle offerings, Gong said when asked his view of this year’s Beijing Auto Show. He added China’s push to open its industries to greater foreign investment and competition has been “underestimated.”
Tech-literate Chinese EV makers are poised for explosive growth thanks to growing interest from Chinese consumers in intelligent driving features, as Elon Musk earlier predicted a “ChatGPT moment” was coming for his company. Huawei on April 24 estimated that more than 500,000 cars on Chinese roads will feature its advanced driving system by year-end.
Xpeng is scheduled to launch its affordable brand MONA in June with the first model expected to feature an autonomous driving system without the integration of lidar and aiming for annual sales of 100,000 units. Global shipments of vehicles with ADAS features, known as Level 2 plus autonomy, could more than double to 4.5 million units this year, with China leading the game, research firm Canalys wrote in December.

Context: Tesla’s China breakthrough comes after US Secretary of State Anthony Blinken on April 25 called on China to provide a level playing field for American businesses during his second visit to China in less than a year, Reuters reported.

The US automaker has reached a deal with Baidu to localize its driver assistance solution with map and geographical information from the Chinese tech giant, according to Bloomberg.

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Super Micro, Dell, and Gigabyte suspected of illegally exporting advanced Nvidia chips to China: report

Wed, 24 Apr 2024 10:27:56 +0000

Chinese universities and research institutions were still able to purchase servers equipped with the restricted GPU (Graphics Processing Unit) chips as of Feb. 28, despite US export restrictions on the chips being in place since October 2022 and tightened in November 2023, according to an exclusive report by Reuters.

Why it matters: The Reuters report reveals loopholes in the US export restrictions on high-performance GPU chips to China. The findings have raised concerns within the US government about the efficacy and enforcement of these regulatory measures.

Details: Ten Chinese entities acquired advanced Nvidia chips integrated into server products produced by Super Micro Computer, Dell Technologies, and Taiwan’s Gigabyte Technology after the US tightened licensing rules for chip exports on Nov. 17 2023, the Reuters review of tender documents revealed.

In China, trading in GPU chips coming from the US is not illegal. Chinese retailers may have fulfilled orders using stockpiles acquired before the US tightened chip export restrictions in November.
The buyers included the Chinese Academy of Sciences, the Shandong Artificial Intelligence Institute, Hubei Earthquake Administration, Shandong and Southwest universities, a tech investment firm owned by the Heilongjiang provincial government, a state-run aviation research center, and a space science center.
Nvidia responded by stating that the relevant tenders were for products exported and widely used before Nov. 17 2023. Sales may have included inventory previously exported to Chinese distributors, and the documents did not indicate that any of its partners violated export control regulations, Nvidia said. The US chip giant added that it would conduct further investigations into the matter.
Dell told Reuters it had not seen any evidence of servers containing restricted chips being shipped to China after the embargo was implemented. “If we become aware of a distributor or reseller that is not complying with these obligations, we take appropriate actions, including termination of our relationship,” a Dell spokesperson said.
Gigabyte said in an email to Reuters that the company consistently complied with related laws and international regulations. It did not reply to inquiries regarding tenders that identified its products as a source of banned Nvidia chips.

Context: Last October, the US government announced new export regulations to prevent the sale of advanced artificial intelligence chips to China, impacting on sales for US companies such as Nvidia, Broadcom, AMD, and Intel.

Last December, Nvidia unveiled a Chinese version of the RTX 4090 graphics card to adhere to US regulations, in an effort to maintain its market presence. The Chinese version of the graphics card has a 12.8% smaller CUDA core (down to 14,592 from 16,384) and consumes 5.9% less power (425W from 450W) compared with the standard RTX 4090.

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Intel reveals modified-for-China Gaudi 3 AI chips, with a 92% performance drop compared to original

Mon, 15 Apr 2024 09:37:36 +0000

Intel is preparing to launch modified Gaudi 3 chips for the Chinese market when it releases the new generation AI accelerator chip this year, according to British technology media outlet The Register. Intel has disclosed the existence of the two China-exclusive models in its Gaudi 3 white paper, with HL-328 set to launch on June 24 and HL-388 on September 24.

Why it matters: Intel’s launch of customized Gaudi 3 chips for China is part of the American chip giant’s efforts to work within US sanctions on chip exports to China.

Details: Based on the information provided in Intel’s Gaudi 3 white paper, the Chinese editions of the Gaudi 3 models may ultimately require a reduction of around 92% in AI performance to comply with US export controls.

Due to US export restrictions, high-performance AI chips need a computing performance below 4,800 TPP (total processing power) to be eligible for export to China. This implies that the 16-bit performance of the Chinese editions of the Gaudi 3 chips will not exceed 150 teraflops.
Similar to the Nvidia’s Chinese-edition H20 chip, the two modified Intel chips will offer a 148 teraflops of FP16/BF16 performance, just below the permitted limit.
According to Intel, the original version of the Gaudi 3 chip can achieve 1,835 teraflops in FP16/BF16, formats used in computing to represent a balance between accuracy and efficiency for chips commonly used for AI to process large amounts of data quickly and efficiently.
Compared to the original version, the HL-328 and the HL-388 versions have the same 96 MB cache, 128GB of HBM2e memory with a bandwidth of 3.7TB/s, PCIe 5.0 x16 interfaces, and decoding standards. However, both models are capable of just 450 watts of thermal design power (TDP), while the original versions of respective models have a higher TDP of 600 watts and 900 watts.

Context: In the first quarter of 2024, Nvidia strategically re-entered the Chinese market with the H20 AI chip. In terms of performance, the modified-for-China H20 chip’s AI computing power is slightly less than 15% of the H100, the original version of the chip available in the rest of the world.

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China’s trade minister meets car executives in Paris as EU trade probe continues

Thu, 11 Apr 2024 10:26:56 +0000

China’s commerce minister Wang Wentao talked with the heads of major car manufacturers including BYD and Geely on April 7 in Paris, as the companies scramble for solutions to an ongoing probe by the European Commission that could result in substantial tariffs on their imports of electric vehicles into the EU.

Why it matters: The meeting comes as the EU prepares to publish its findings on whether Chinese automakers have benefited unfairly from state subsidies. Brussels could raise tariffs from the current 10% to at least 25% according to an estimate by European environmental lobby group Transport & Environment (T&E).

Chinese automakers have called for government support to push for a reduced tariff hike and to counter increased international political involvement in the industry, sources with knowledge of the matter told financial media outlet Caixin (in Chinese). Representatives of BYD, SAIC, and Geely were said to have accompanied Wang during his trip.

Details: At a roundtable discussion with the business leaders, Wang stressed the importance of Chinese automakers expanding overseas markets “in an orderly fashion” and embracing competition, according to a Twitter post by the China Chamber of Commerce to the EU (CCCEU)

China also expects its manufacturers to bolster the integrated development of investment and trade, and maintain their commitment to technological innovation, Wang said. He added that claims that China’s EV competitiveness stems from state subsidies and comes with overcapacity issues in China are false and baseless.
During the April 7-9 trip, Wang also met with Franck Riester, France’s foreign trade minister, state broadcaster CGTN reported, as well as Renault chief executive Luca de Meo, acting chairman of the European Automobile Manufacturers’ Association. De Meo suggested that Chinese automakers establish their supply chain locally, sources told Reuters.

Context: France has backed the Commission investigation, according to Reuters, and has recently changed subsidy rules in a way that effectively excludes Chinese EV models.

China has in return requested French cosmetics giants including L’Oreal and LVMH comply with its data security rules by reporting details related to manufacturing processes and ingredients. It also launched an anti-dumping investigation into EU brandy exports in January.
Wang’s trip comes ahead of Chinese President Xi Jinping’s expected visit to Paris and discussions on trade tensions with French counterpart Emmanuel Macron, scheduled for May. This will be Xi’s first trip to Europe in five years, as tensions grow between China and the EU.
The Commission reportedly carried out visits to BYD, SAIC, and Geely for verification work early this year, followed by the launch of a special custom registration process for China-made EVs, as imports rose by 14% year-on-year since formal investigations began last October.
Major Chinese automakers, including BYD, SAIC, and Chery, are also planning to construct their own car factories in Europe while also building vessels for shipments, as they look to capture a significant market share in the region with their affordable EVs.

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TSMC secures $6.6 billion US government subsidy for Arizona semiconductor expansion

Tue, 09 Apr 2024 09:26:44 +0000

The US Department of Commerce and the semiconductor foundry TSMC jointly announced on Monday that they have reached a preliminary agreement to provide the Taiwanese manufacturer with up to $6.6 billion in subsidies under the US CHIPS Act to support the construction of advanced semiconductor manufacturing facilities in Phoenix, Arizona. As part of the agreement, TSMC will also construct its third fab in Phoenix, bringing its total investment in the US to over $65 billion.

Why it matters: The agreement supports TSMC’s expansion in the US while also demonstrating a strategic partnership to strengthen advanced semiconductor manufacturing in the country as it concurrently looks to limit China’s development in the field.

Details: Following the subsidy announcement, TSMC revealed plans for a third fab in Arizona to introduce 2nm process chip technology or more advanced processes, with production beginning by the end of the decade.

TSMC Arizona’s first fab is set to gear up for production of 4nm chips by the first half of 2025, while the second fab will produce both 2nm and 3nm chips in 2028.
TSMC Arizona will establish a cutting-edge cluster, generating 6,000 direct manufacturing roles, over 20,000 construction jobs, and tens of thousands indirect employment opportunities in the next decade, according to the US Department of Commerce.
With this new funding, TSMC’s total investment in the US has increased from $40 billion to $65 billion. This investment represents the largest foreign direct investment in Arizona history, and the largest foreign direct investment in a greenfield project in US history, TSMC said in the statement.
“Our US operations allow us to better support our US customers, which include several of the world’s leading technology companies. Our US operations will also expand our capability to trailblaze future advancements in semiconductor technology,” said TSMC Chairman Dr. Mark Liu.
TSMC is the fifth company to receive public subsidies from the US government since the enactment of the CHIPS Act in 2022, and the only foreign entity to date, according to Chinese media outlet Jiemian. The other four companies are BAE Systems, Micron, Qualcomm, and Intel, which received subsidies of $35 million, $162 million, $1.5 billion, and $8.5 billion respectively.
TSMC holds over 60% of the global orders for advanced process chip manufacturing, with nearly 70% of its clients coming from the US, the same Jiemian report said. According to TSMC’s previous financial conference calls, the focus of the Arizona factory is to serve clients in the US.

Context: The current construction of two fabs by TSMC in Phoenix is experiencing delays due to issues such as a shortage of skilled workers, as revealed by Chinese media outlet Icsmart.

Fab 1’s production of 4nm technology has been delayed from 2024 to 2025, while Fab 2’s 3nm production, initially planned for 2026, is now scheduled for 2028. The two fabs are intended to produce over 600,000 wafers per year, potentially generating a market value exceeding $40 billion annually.

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Chinese automakers post sharp annual profit drops as international partners hit by domestic competition

Mon, 08 Apr 2024 10:35:12 +0000

Major Chinese car manufacturers, including SAIC and BAIC, saw double-digit declines in annual profits as the industry was hurt by slowing growth in new fossil fuel car sales and aggressive price cuts for their electric vehicles amid rising competition from the likes of BYD and Tesla.

Why it matters: The latest financial results coincide with the rising momentum of plug-in hybrid electric vehicle (PHEV) sales in China. BYD, Geely, and Li Auto, all with a broad PHEV lineup, are among the few that reported both revenue growth and margin improvements, while traditional automakers and battery electric vehicle startups have been put under pressure to sacrifice profits for growth.

The figures also signaled potential growing challenges for international carmakers as Chinese EV manufacturers take a stronger position at home. The market share of their joint venture brands with Chinese partners will fall from 40% to 10% over the next three to five years, BYD chairman Wang Chuanfu forecast at an investor meeting on March 27, reported Reuters.

Details: China’s biggest car manufacturer SAIC reported revenue of RMB 744.7 billion ($102.9 billion) in 2023, an increase of just 0.1% from the same period last year, with net profit declining 12.5% year-over-year. Sales of its joint ventures with Volkswagen and General Motors last year fell 8% and 14.5% to roughly 1.2 million and 1 million units, respectively.

BAIC Motor, a Hong Kong-listed unit of BAIC Group, also disappointed investors with a slower pace of revenue growth of just 3.9% in 2023, marking a slowdown from the brisk 8.3% rate notched a year earlier. Mercedes-Benz Group kept China sales flat with its joint venture partner last year, having slashed car prices by as much as a third over the last three months of 2023.
Revenue of GAC Group grew at a solid clip last year partly thanks to strong sales of its Aion EVs. However, Toyota and Honda’s main China partner revealed a 45.1% nosedive in net profit to RMB 4.4 billion, which it blamed on an RMB 2.9 billion one-time loss due to charges tied to restructuring, as well as shrinking revenue at its joint venture with Mitsubishi.
Great Wall Motor’s annual results also offered a mixed picture as it struggles to ramp up EV sales profitably. Revenue grew a more robust 26.1% year-on-year to RMB 173.2 billion, but its profits fell 15.1% to RMB 7 billion. Some of its PHEV models such as Lanshan and Gaoshan fell short of expectations, Bernstein analysts wrote in a March 28 note.
Dongfeng Motor Group posted a loss of nearly RMB 4 billion for 2023, compared with a profit of almost RMB 10.3 billion, marking its first annual loss in nearly two decades since going public in Hong Kong in 2005. Sales of its two joint ventures with Nissan plunged 21.5% and 10.2%, while deliveries of its proprietary passenger EVs declined 5.1% to roughly 303,900 units.

Context: Beijing is planning to unveil new measures to boost the performance of FAW, Dongfeng, and Changan, three automakers directly under the leadership of China’s State-owned Assets Supervision and Administration Commission (SASAC), by giving them more leeway and independence in EV operations. Local government-owned businesses, including SAIC, BAIC, and GAC, are also expected to benefit from the policy in the coming months.

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GoPro files complaint against Insta360 for alleged patent infringement: report

Wed, 03 Apr 2024 09:30:23 +0000

US sports camera firm GoPro has filed a complaint against Chinese camera maker Shenzhen Arashi Vision (Insta360) with the United States International Trade Commission (USITC) under Section 337 of the Tariff Act of 1930, according to information obtained by Chinese media outlet Jiemian. GoPro is claiming patent infringement and asking USITC to investigate the matter and halt the US sale of certain Insta360 cameras, software, and accessories.

Why it matters: GoPro is seeking intervention from USITC to investigate and prevent the sale of the disputed products in the US.

Details: GoPro has submitted evidence of patent infringements to the commission covering nearly all the consumer products sold by Insta360 in the US.

The products mentioned by GoPro are Insta360’s ONE X, ONE R, ONE R1-inch, ONR X2, ONE RS, ONE RS 1-inch 360, X3, GO3, Ace, and ACE Pro, according to the Jiemian report.
The Section 337 investigation initiated by GoPro, also known as an “unfair import” investigation, is an administrative inquiry conducted by USITC under the provisions of the Tariff Act of 1930 and its amendments. It targets intellectual property infringement and other unfair competitive practices by goods importers.
Compared to normal patent litigation in the US, which can last over two years, 337 investigations generally resolve faster. However, they require companies to swiftly gather evidence, hire lawyers, and bear costs that can total millions of dollars.
The Jiemian report suggests that GoPro’s market share has declined due to the rise of Insta360, which was founded in 2015. By the end of 2021, Insta360 held a leading market share of 41% in the global market for panoramic cameras, followed by Japan’s Ricoh at 22%, while GoPro ranked third with 19%, according to consulting firm Frost & Sullivan.
Established in 2002, GoPro’s latest market value is $331 million, over 97% lower than its peak market value of $13 billion in June 2014, when GoPro listed on the NASDAQ. Insta360’s overseas markets account for nearly 70% of its overall revenue, which were around $280 million in 2022.

Context: In 2023, USITC undertook investigations into 72 Chinese companies, of which 48 chose to respond, the Jiemian report said.

California-based GoPro manufactures action cameras and develops its own mobile apps and video-editing software. The company focuses on the connected sports genre, developing action cameras and video editing software for outdoor activities.
Arashi Vision, better known as Insta360, is a camera company headquartered in Shenzhen, with offices in Los Angeles, Tokyo, and Berlin. It makes action cameras, 360-degree cameras, editing software for mobile and desktop and 180-3D cameras.

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Hong Kong to provide $25.6 million subsidy to China EV maker Hozon Auto

Thu, 21 Mar 2024 10:11:59 +0000

Hong Kong will provide a subsidy of up to HK$ 200 million ($25.6 million) to China’s Hozon Auto, which could alleviate the financial pressure on the electric vehicle startup and facilitate its expansion in overseas markets.

Why it matters: Hozon Auto is the latest mainland-headquartered company to establish a base in Hong Kong as China hopes to create a high-tech megalopolis in its southern Greater Bay Area to rival California’s Silicon Valley.

The news comes just months after CATL, the world’s biggest EV battery maker and a backer of Hozon, announced plans to set up a research and development facility in Hong Kong as part of a $128 million investment plan to make the city its international headquarters.
Chinese auto tech unicorn Horizon Robotics has recently partnered with Hong Kong Science and Technology Parks Corporation (HKSTP) with plans to expand its local research team and invest a total of HK$ 3 billion in the territory by 2028, according to an announcement published in December.

Details: In addition to providing a $25.6 million subsidy, the Hong Kong government will also “provide assistance” (our translation) for a $200 million cornerstone investment for Shanghai-based Hozon, the company said on Wednesday in a statement, without giving further details.

“Hong Kong serves as a super-connector and super value-adder […] for mainland Chinese companies willing to expand their global presence,” Hong Kong Chief Executive John Lee said on Wednesday at a signing ceremony attended by Hozon chairman Fang Yunzhou, the South China Morning Post reported.
Hozon had announced plans in August to locate its global headquarters in the Asian financial hub in a partnership with HKSTP while promising to invest RMB 3.2 billion ($444 million) and hire 600 research staff locally over the next few years. It is also looking into the possibility of operating a production plant in Hong Kong.

Context: In December, Hozon forged a partnership with local dealership DCH Motors to begin selling Neta-branded EVs in Hong Kong in 2024 and began trial production at its first overseas car plant in Thailand, which has an output of up to 20,000 EVs annually.

The company has reportedly hired several major investment banks including Morgan Stanley for an initial public offering in Hong Kong that could raise to $1 billion, a development that took place soon after the firm secured RMB 7 billion in a funding round last summer.
Hozon delivered roughly 127,500 EVs last year, representing a 16% decline compared with 2022 and around half of its sales target of at least 250,000 units, and has been offering a price cut of between RMB 8,000 and RMB 22,000 on its vehicle lineups since mid-February as competition heats up in the Chinese EV market.

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Chinese officials reaffirm commitment to EV ambitions and promise raft of support measures amid industry doubts

Tue, 19 Mar 2024 10:31:12 +0000

China will stick to its plan of becoming an electric vehicle powerhouse on the world stage despite recent signs of weakness in the industry, and will fine-tune policies to deal with challenges including slowdowns and overcapacity, government officials said over the weekend.

EV skepticism: The comments came after a slew of international carmakers, including Volkswagen, Mercedes-Benz, and Ford, moved to either cut production of electric models or delay their electrification goals as global demand growth fell short of their lofty expectations. Meanwhile, 2024 kicked off with a new round of price cuts in the Chinese auto market, putting loss-making EV makers under further pressure.

“It is untrue to claim vehicle electrification is a trap set by the West,” Ouyang Minggao, an academician at the Chinese Academy of Science, commented in response to doubts raised in the industry about the affordability and practicality of EVs at an annual forum organized by the EV100 think tank on March 16 (our translation).
Ouyang, also a vice chair leading the think tank and a standing committee member of the Chinese People’s Political Consultative Conference (CPPCC), said China‘s pursuit of new energy vehicles (NEVs) came after “great deliberation with due concern for oil security, air pollution, and industrial transformation,” according to a video clip seen by TechNode.
China could consider being more open to foreign companies, according to Ouyang, who proposed that the government should remove tariffs on EV imports, which could also help to offset geopolitical tensions. “We missed the opportunity to excel in making fossil-fuel cars, but I am confident about China becoming a powerhouse in the era of NEVs,” Ouyang added.

New measures: China will announce comprehensive measures in the coming days to boost domestic demand, facilitate consolidation in the industry, and broaden mass adoption for battery cars, according to several vice ministers who attended the forum.

China will enforce stricter oversight on the requirements pertaining to investments for manufacturing NEVs, curb blind expansion in NEV projects, and release specific guidance and regulation for merger and reorganization activities, said Shan Zhongde, a Deputy Minister of Industry and Information Technology.
The Commerce Ministry will look into the possibility of reducing insurance premiums on NEVs to help improve maintenance services and alleviate customers’ concerns, according to Vice Minister Sheng Qiuping. Meanwhile, Beijing will introduce new incentives to encourage buyers to trade in their old vehicles for greener ones, especially NEVs and hybrid vehicles.
The central government is also aiming to renovate 50,000 old urban residential communities this year, which will include the installation of public chargers for EVs, said Qin Haixiang, a Deputy Minister of Housing and Urban-Rural Development. The National Energy Administration will concurrently push for the sufficient availability of charging points in the country’s vast majority of rural areas, said director Du Zhongming.

Rising PHEV usage: China expects the rising adoption of plug-in hybrid vehicles (PHEV) to offset the slowing growth of battery EVs in the short to medium term. BYD reported sales of roughly 1.57 and 1.44 million BEVs and PHEVs respectively last year, prompting a growing number of Chinese carmakers to follow suit in producing more of the battery EV alternatives.

Ouyang described the dual strategy of making both PHEVs and BEVs as “a wise move.” He expects PHEVs to grab significant market share from internal combustion engine cars in the coming years, especially in the price segment between RMB 70,000 and RMB 100,000 ($9,724 and $13,891), while envisioning a more widespread adoption of BEVs over the next decade.
Sales of BEV and PHEVs in China rose 11.7% and 72.8% respectively in the first two months of this year, according to figures from the China Association of Auto Manufacturers (CAAM). Overall NEV sales increased 29.4% to 1.2 million over the period, and the industry group expects growth to further slow down to 21.1% in 2024 from last year, when the market grew by 37.9%.

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CCTV investigation reveals illegal motherboard production in China for mass manipulation of smartphones

Mon, 18 Mar 2024 09:21:43 +0000

On March 15, the annual 315 Evening consumer rights TV broadcast co-hosted by state media China Central Television (CCTV) and a number of national government departments, exposed an illegal industrial chain producing motherboards for the mass manipulation of smartphones. In the undercover journalists’ secretly recorded footage, manufacturers boast that their motherboards can be used to assemble multiple smartphone mainboards, allowing one person to control multiple phones to perform identical operations on one computer. These motherboards are touted as being able to participate in and control all the network functions of the connected smartphones via the computer.

Why it matters: CCTV’s 315 show has been broadcast since 1991 and has regularly created headlines with its high profile investigations into companies undermining consumer rights. This latest scandal could have implications for China’s e-commerce, gaming, and social media sectors.

Details: According to CCTV’s exposé, specialized motherboard manufacturers assemble dozens of smartphone mainboards to integrate them into a single motherboard that can be controlled by connecting it to a computer, enabling a single user to control multiple devices, each with its own IP (Internet Protocol) address.

“You can become a king of controlling everything in the online world,” a company executive told an undercover journalist at one point during the broadcast. Buyers can manipulate various IP addresses for purposes such as placing fake orders, posting fake comments or likes, and manipulating online voting through a large number of motherboard devices.
Undercover journalists discovered that clients using motherboard devices engage in various online activities, such as promoting advertisements, gaming and e-commerce related behavior, faking active interactions from different users in livestreaming rooms, and boosting traffic for certain public relations articles.
The report also mentioned a company planning to build a facility with tens of thousands or more motherboards, which would equate to having hundreds of thousands of fake IP addresses.
The price of the motherboard devices ranges from RMB 3,000 ($417) to RMB 6,000 ($834), with each set containing 20 smartphone mainboards. In the secretly recorded footage shown on CCTV, an employee of a motherboard manufacturer even invited the undercover journalist to experience the powerful device on-site.
The customized version of the motherboard violates article 12 of the Anti-Unfair Competition Law of China, which states: “Business operators shall not use technical means to hinder or disrupt the normal operation of network products or services provided by other operators through influencing user choices.”
The CCTV report mentioned three companies: Yunji Xia Technology, Shenzhen Yuncheng Future Technology, and Hunan Yundou Technology. The data agency Tianyancha indicates that 320 companies are currently engaged in motherboard production in China, according to a report by local media outlet Jiemian. In terms of regional distribution, Guangdong, Jiangsu, and Jiangxi have the highest concentration of companies related to motherboard business, with 230, 14, and 12 companies respectively.

Context: The 315 Evening this year also exposed a range of other illegal activities and disreputable business practices, including fire-resistant glass that isn’t fireproof, fire extinguishers that cannot put out fires, tainted preserved pork, deceptive practices on matchmaking platforms, unsettling sounds from BMW transmission shafts, and the installment of loan lending platform scams via gift cards.

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TSMC hauled in subsidies of $1.51 billion from China and Japan in 2023, nearly six times 2022 figure

Thu, 07 Mar 2024 10:07:09 +0000

Semiconductor giant TSMC has revealed that subsidies obtained from the Japanese and Chinese governments reached NT$47.545 billion ($1.51 billion) in 2023, marking a 5.74-fold increase year-on-year, according to Taiwanese media outlet Economic Daily News. With its ongoing expansion of overseas facilities, TSMC anticipates further subsidies from Japan this year, along with potential new subsidies from the US and Germany.

Why it matters: As nations compete to enhance their domestic semiconductor manufacturing sectors via subsidies, TSMC has become a key target for government investment in local facilities.

Details: In 2023, TSMC’s Japanese subsidiary JASM and its mainland Chinese counterpart in Nanjing secured subsidies from the respective governments of Japan and China, which primarily for real estate, building factories, purchasing equipment, and funding production facility costs.

In 2022, subsidies from the Japanese and Chinese governments reached around NT$7.051 billion ($220 million), soaring 574% to NT$47.545 billion ($1.51 billion) in 2023. Although TSMC did not specify the exact breakdown of the subsidies, previous data indicates that the Japanese government decided to grant TSMC’s Kumamoto Fab 1 JPY 476 billion ($3.2 billion) in phased subsidies, as reported by Chinese media outlet Icsmart.
TSMC’s 2023 subsidies from mainland China primarily originated from the expansion project at its Nanjing plant, the Icsmart report added. In April 2021, TSMC announced a plan to invest $2.88 billion in expanding its 28nm process manufacturing at the Nanjing facility, to meet a rising demand for automotive chips and the global chip shortage.
TSMC is currently investing $40 billion to construct a semiconductor fab in Arizona, with plans to manufacture 4nm and 3nm chips. A recent Bloomberg report suggests that Intel may receive around $10 billion in subsidies under the US’s CHIPS Act. According to analysis by Icsmart, using Intel’s investment and estimated subsidy amount as a reference point, TSMC could potentially receive nearly $10 billion in subsidies as well.
TSMC is also collaborating with Infineon, NXP Semiconductors, and Bosch to invest €10 billion in constructing a semiconductor factory in Dresden, a city in eastern Germany. The German government is also expected to give about €5 billion in subsidies, according to news agency Focus Taiwan.

Context：TSMC’s Kumamoto Fab 1 started operations on Feb. 24 and is aiming to mass-produce 28/16/12nm chips in the fourth quarter of 2024. By the end of this year, TSMC plans to establish a second fab in Kumamoto, targeting production by late 2027, with a focus on 7/6nm processes.

After the opening ceremony of Kumamoto Fab 1, Japan’s Minister of Economy, Trade and Industry, Ken Saito, announced that the government will subsidize TSMC with JPY 732 billion ($4.94 billion) for the construction of Kumamoto Fab 2 on the site.

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TSMC opens first majority-stake plant in Japan

Tue, 27 Feb 2024 09:59:44 +0000

TSMC’s first Japanese plant began operations in the southern prefecture of Kumamoto on Feb. 24, as the company confirmed plans for a second factory in the country within the year. TSMC’s 92-year-old founder, Morris Chang, attended the opening ceremony in Kumamoto, and Japan’s Prime Minister Fumio Kishida sent a congratulatory video message.

Why it matters: TSMC’s decision to build factories in Japan was hastened by incentives provided by the Japanese government, aiming to accelerate the growth of the local semiconductor industry by fostering collaborations with international foundries. Additionally, TSMC was enticed by Japan’s abundance of water resources and concentration of related tech companies that the firm needs to thrive in the sector, as suggested by industry analysis.

Details: TSMC founder Morris Chang, Chairman Mark Liu, CEO C.C. Wei, and other senior executives attended the opening ceremony of its majority-owned subsidiary JASM (Japan Advanced Semiconductor Manufacturing), according to a company announcement.

Japan’s Prime Minister Kishida said in his video message broadcast at the event that the Japanese government has chosen to support the expansion of JASM in the context of the Domestic Investment Promotion Package announced in December 2023. Other distinguished attendees included Japanese Minister of Economy, Trade and Industry Ken Saito, and Chairman of the Liberal Democratic Party’s group on semiconductor strategy Akira Amari.
Representatives from key partners such as Sony CEO Kenichiro Yoshida, Denso President Shinnosuke Hayashi, Toyota Chairman Akio Toyoda, and Kajima President Hiromasa Amano also leant their support to the chip-maker’s Japanese subsidiary by attending the factory opening.
In his speech, TSMC founder Morris Chang recalled being invited to establish the chip factory in Japan back in 2019. Five years later, he said, the factory was a reality, with JASM expected to enhance the resilience of the chip supply chain and contribute to the revitalization of the local semiconductor industry, he said.
The first plant, backed by a JPY 476 billion ($3.16 billion) subsidy from the Japanese government, will produce chips using 28/16/12-nanometer processes, while the second plant will specialize in 7/6-nanometer processes, according to Taiwanese media outlet Economic Daily News. JASM is expected to start construction of the second plant by the end of this year and be making chips there from the end of 2027.
TSMC claims that the Japanese government’s investment in JASM will surpass $20 billion, and the establishment of the two fabs will provide at least 3,400 jobs.

Context: Sony, Denso, and Toyota also invested in JASM. Building of the first plant in Kumamoto began in April 2022, as reported by the media outlet Jiwei.

TSMC holds around a 70% stake in JASM, with Sony, Denso and Toyota as secondary investors. The plant expects to ramp up to a planned monthly production capacity of 55,000 12-inch chips.

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Nvidia to mass-produce modified AI chips for China in Q2: report

Thu, 04 Jan 2024 09:30:52 +0000

US chip giant Nvidia is gearing up to mass produce a range of AI chips including its H20 model for China in the second quarter of 2024, with Taiwanese electronics manufacturer Wistron picked as the major supplier of these GPU (graphics processing unit) substrate orders, according to US media outlet Wccftech.

Why it matters: Despite the US government’s ban on high-performance AI chip exports, Nvidia has developed modified AI chips for the Chinese market and is ready to ship limited sales of less powerful AI chips to China as long as they adhere to regulatory standards.

Details: Nvidia is modifying its latest AI chips specifically for the Chinese market, including the HGX H20, L20 PCle, and L2 PCle. The three chips are based on the Nvidia H100, but allow the company to comply with the latest US export control policies announced last October.

Nvidia originally planned to start selling a modified version of these AI chips by the end of 2023, but postponed the launch to early 2024 as the China-US chip war escalated, the Wccftech report said.
Since then, the US government has adopted a softer stance on commercial sales in China, and Nvidia has assured the government that their chips will fully meet compliance guidelines established by US trade and commerce authorities. Last week, Nvidia launched its China-exclusive GeForce RTX 4090D, a less powerful version of the flagship RTX 4090 GPU it sells elsewhere.
The H20 AI chip is a scaled-down version of the H100 GPU, equipped with 96 GB memory capacities that operate at speeds of up to 4.0 Tb/s, according to Nvidia. It offers computing power of 296 TFLOPs and a performance density of 2.9 TFLOPs/die, in contrast to the H100’s 1,979 TFLOPs and 19.4 TFLOPs/die.

Context: Last October, the US government issued a new ban, further restricting the export of high-performance AI chips by Nvidia. Subsequently, the chip giant announced an immediate halt to the shipment of its A100, A800, H100, H800, and L40S products.

In December 2023, during an interview with Reuters, US Secretary of Commerce Gina Raimondo stated that the government was in discussions with Nvidia about allowing the chip firm to sell AI chips to China under certain conditions. Raimondo emphasized that the government would stop Nvidia from exporting its most complex and powerful AI chips, but would not curb its chip sales to China altogether.

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China’s chip-making equipment imports from the Netherlands surge tenfold in value in November: report

Thu, 28 Dec 2023 09:51:06 +0000

China imported 42 lithography systems (chip-making equipment) with a total value of $8.168 billion in November, mostly from the Netherlands and Japan, according to South China Morning Post. Included among them were 16 lithography machines imported from the Netherlands valued at $7.627 billion, representing a year-on-year increase of 1,050% in value of such equipment from the European chip machinery powerhouse.

Why it matters: Lithography machines are a core type of equipment in chip manufacturing, with advanced models available only at extremely high cost. The Chinese demand for lithography machines is increasing rapidly as the domestic semiconductor industry is being boosted in an effort to offset the impact of tighter US chip export controls. At the high end, only a few companies worldwide are capable of producing them.

Details: China aims to stock as much advanced lithography equipment as possible before the Netherlands’ export restrictions come into full effect in January 2024.

Among the 42 lithography machines imported by China in November, 16 are from the Netherlands’ ASML, the world’s largest lithography machine manufacturer, as reported by SCMP. 15 machines are from Japan’s Canon and Nikon, while the remaining 11 are reported to have come from second-hand equipment dealers in other countries.
Although the quantity of lithography machines imported from the Netherlands in October was higher at 21 units, the total value was only $672.5 million, significantly lower than the total value of $7.627 billion for the 16 lithography machines imported in November, an average 46% more.
The monthly unit price difference suggests that Chinese companies are continuing to acquire more advanced chip-making systems despite the US’s attempts to limit such purchases, according to SCMP.
Most of the equipment shipped in November obtained approval from the Dutch government by the end of 2022 or early 2023, said Jan-Peter Kleinhans, director of technology and geopolitics at Stiftung Neue Verantwortung, a German non-profit think tank based in Berlin. ASML’s lead time in 2023 was around 18 months, indicating that equipment shipped in the fourth quarter of 2023 would have been ordered in either the second or third quarter of 2022, he added.

Context: In June this year, the Netherlands announced export controls, placing restrictions on the shipment of ASML’s chip-making machines to China. Starting from September 1, ASML has been required to acquire a license for the export of its deep ultraviolet (DUV) lithography systems to China.

Following the new rules, ASML announced that its existing licenses allowed it to continue shipping DUV lithography machines to China until the end of 2023, despite export restrictions in the Netherlands taking effect from September.
ASML’s export licenses necessary for shipping these systems to Chinese customers will become invalid from January 1, 2024, and are unlikely to be renewed.
As of 2021, domestically manufactured lithography systems made up less than 5% of those used in Chinese fabs, according to SCMP’s report.

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Tesla China restarts factory expansion, readies for Megapack battery sales: report

Thu, 07 Dec 2023 09:58:38 +0000

Tesla is preparing for a major expansion of the Gigafactory Shanghai, its core electric vehicle production facility in China, in a move that looks set to enable the US automaker to bring out its long-rumored budget compact hatchback, local media has reported.

The company is also said to be readying to supply Chinese clients with its large-scale utility batteries known as Megapacks from next year, having begun searching for a head of local sales. The availability of the Megapack in China will step up the pace of Tesla’s entry into the country’s energy storage market.

Why it matters: The news comes after Tesla CEO Elon Musk had dinner with Chinese president Xi Jinping, alongside other American company executives, on the sidelines of the Asia-Pacific Economic Cooperation Summit in San Francisco on Nov. 15.

In a statement published on the Chinese Twitter-like platform Weibo the next day, Tesla said it looked forward to joint developments with China in areas such as green energy vehicles, energy storage, and artificial intelligence, citing Xi’s support for Tesla’s operations in the country.
The moves are expected to help Tesla almost double its local production capacity and diversify its revenue sources at a time when the EV giant sees slowing sales due to growing competition from domestic players.

Details: The so-called phase-three expansion could facilitate the production of Tesla’s upcoming car, dubbed the “Model 2” or “Model Q” with a price tag as low as RMB 150,000 ($21,800), people with knowledge of the matter told LatePost on Wednesday.

The expansion was put on ice early this year, according to a Jan. 12 report by Bloomberg, after apparent concerns from the Chinese government over data security issues related to Starlink, the satellite internet unit of SpaceX, Elon Musk’s rocket company.
Details of the plan remain unclear, but if it proceeds, Tesla is expected to be able to nearly double its manufacturing capacity in China to 2 million EVs a year. Analysts expect volume production of the lower-priced, next-gen Tesla vehicle no earlier than 2025.
Meanwhile, Tesla in April announced plans to build a new facility in Shanghai – capable of making 10,000 large-scale, energy-storage battery systems, or 40 gigawatt-hours-worth (GWh) of the Megapack – scheduled to commence operations in the second quarter of 2024.
Sources told LatePost that the China-manufactured Megapack batteries will be delivered locally and overseas.

Context: Tesla sold 771,171 China-made EVs in the first 10 months of the year, up 39% from a year ago, of which 308,816 were overseas exports, according to figures compiled by the China Passenger Car Association (CPCA). The annual growth rate saw a drop compared to 50.3% last year.

The US firm said in January that it deployed 6.5 GWh of energy storage in 2022, representing year-on-year growth of 64%. It estimated that the world requires a total capacity of 2,310 GWh per year of electric-chemical battery storage systems such as the Megapack in order to achieve a 100% global clean energy transition, according to estimates from the EV maker’s Master Plan 3.

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Chinese automakers drive strong November sales as they look to hit end of year EV targets

Mon, 04 Dec 2023 10:32:41 +0000

Major Chinese electric vehicle makers from BYD to Xpeng Motors have collectively posted strong delivery figures in November as they attempt to hit their annual targets and as competition shows no signs of subsiding in the world’s biggest auto market.

Why it matters: Jefferies analysts wrote in a Dec. 1 note that they estimated sales of China’s new energy vehicles (NEVs), mostly all-electrics and plug-in hybrids, to reach 1 million units in November with a solid month-on-month growth rate of 10% from a high base.

However, analysts warned of an intensified price war as 2023 comes to a close, as major EV brands including BYD and Li Auto have either cut prices or increased the royalties for customers since late November to boost year-end sales.

Details: BYD on Dec. 1 revealed monthly sales figures of its premium Fangchengbao and Yangwang marques for the first time following their launches earlier this year, announcing it handed over 626 and 408 units to customers, respectively. Delivery of the RMB 1 million ($150,000) Yangwang U8 and the Bao 5, with a price range of RMB 289,800 to RMB 352,800, began in late September and November separately. Overall, the EV giant outsold its October figures by 70 units in November.

Geely’s NEV sales increased 4.7% month-on-month to 65,034 units last month thanks to a wide product portfolio under a multi-brand strategy. Volvo’s parent said it delivered 13,770 units under the Galaxy marque and 13,104 Zeekr-branded battery EVs, while sales of its Lynk & Co 08 extended-range hybrid EV surpassed the 10,000 mark over the month. The numbers of GAC’s Aion and Great Wall Motor rose 0.15% and 0.23% from a month previously, respectively.
Huawei-backed Aito posted its best-ever month by delivering 18,827 units, which is nearly 50% higher than its deliveries in October and surpassed the top end of the guidance provided by Huawei’s head of consumer business group a week ago. The number is expected to exceed 23,000 this month and to hit 30,000 in January, as the EV maker said it has secured more than 100,000 non-refundable orders for the revamped M7 crossover over the last two months or so.
Growth momentum has been sustained for both Li Auto and Xpeng Motors which once again reported record-setting deliveries of 41,030 and 20,041 vehicles last month respectively. Li Auto’s founder Li Xiang said it is aiming for deliveries of 50,000 EVs this month, while Xpeng on Nov. 15 forecasted the fourth quarter delivery of up to 63,500 units. NIO‘s November delivery of 15,959 vehicles is basically flat from the previous month.

Context: China’s NEV sales were partly boosted by the opening of the annual Auto Guangzhou show on Nov. 17 with dozens of debuts of all-new cars, as major players try to enhance their presence among a crowded field.

More than 5.9 million NEVs were sold during the first ten months of this year, representing a year-on-year growth of 34.2% and accounting for 34.1% of total car sales in China, according to figures from the China Passenger Car Association.
Miao Wei, former minister of Industry and Information Technology, expects the NEV penetration rate to exceed 50% of all new car sales as early as 2025. That would be 10 years ahead of Beijing’s schedule. Miao made the comment on Nov. 29 during this year’s China Automotive Industry Forum, reported media outlet The Paper.

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Chinese company Nexperia to take over Dutch chip startup Nowi

Wed, 29 Nov 2023 09:34:26 +0000

Chinese-owned semiconductor company Nexperia announced on Monday that the Dutch government has approved its acquisition of Nowi, a Dutch semiconductor startup. Previously, the Dutch government had been investigating the transaction on the grounds of national security.

Why it matters: In June, the Dutch government introduced the Act on Security Screening of Investments, Mergers and Acquisitions (Vifo Act), which includes the scrutiny of sensitive technologies such as photonics, quantum technology, and semiconductors. However, despite the influence of export sanctions led by the US, the Dutch government’s approval of Nexperia’s acquisition indicates that the Netherlands may still be open to business with China.

Details: The Dutch Minister of Economic Affairs Micky Adriaansens stated in a letter to the Dutch parliament on Nov. 27 that there are no legal objections to the acquisition of Nowi by Nexperia, according to Bloomberg.

Established in 2016, Nowi, is a semiconductor startup based in Delft, in the western Netherlands. The company specializes in manufacturing power management chips capable of harnessing ambient energy sources such as light or vibrations, offering a promising solution to eliminate the reliance on batteries in basic electronic devices. In November 2022, the company announced that it would be acquired by Nexperia.
In June of this year, the Dutch government initiated an investigation into the Chinese firm’s takeover of Nowi, based on the Vifo Act that came into effect on June 1. The Dutch government stated at the time that it would order the cancellation of the transaction if the deal was found to affect national security.
On Monday, Nexperia issued an announcement in response to the Dutch government’s final decision. The retrospective effect of the Vifo Act is applicable only to military or dual-use items, and it is evident from the government’s assessment that Nowi’s products do not fall within this category, the company said. After a “period of uncertainty,” Nexperia and Nowi are “able to further realize their ambitions in the Dutch chip ecosystem,” the announcement added.
In the current climate, it is crucial to establish a well-defined policy that enhances the investment environment in the Netherlands, said Charles Smit, director of Nexperia Netherlands. A transparent and fact-based communication channel between the government and businesses is essential during these times, he asserted.
Having access to the production, sales and marketing infrastructure of a leading chip manufacturer allows Nowi to bring products to market faster and therefore have a greater impact, according to Simon van der Jagt, co-founder and former CEO of Nowi.

Context: Based in the Netherlands, Nexperia is a subsidiary of the partially state-owned Chinese company Wingtech Technology. The semiconductor firm has a workforce of over 15,000 spread across Europe, Asia, and the US. Nexperia’s components are used in automotive, industrial, mobile, and consumer industries.

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Images of debut Xiaomi EV leaked on Chinese government site

Thu, 16 Nov 2023 09:34:40 +0000

Images of what could be Xiaomi’s first electric vehicle model have leaked online ahead of the car’s expected launch next year. The photos from the Chinese Ministry of Industry and Information Technology show a large sedan with styling similar to the Porsche Taycan, adorned with a Xiaomi logo.

Why it matters: Automakers are required by Chinese regulators to apply for registration before officially selling vehicles in the country, and the government ministry’s post indicates that the debut of the first Xiaomi car is approaching.

Xiaomi has begun trial production of its first EV at its facility on the outskirts of Beijing, with the vehicle expected to hit the market as early as February, a person with knowledge of the matter told Chinese media outlet National Business Daily on Wednesday.
A Xiaomi representative declined to comment when contacted by TechNode on Thursday, but in late October, chief executive Lei Jun reaffirmed the company’s plan for the car to go on sale in the first half of 2024, according to an Oct. 25 post published on the Twitter-like platform Weibo.

Xiaomi’s SU7 Max combines a lidar unit on the roof to measure the distance and the speed of moving objects on the road, according to an image published by China’s Ministry of Industry and Information Technology on Nov. 15, 2023. Credit: Xiaomi

Details: The Xiaomi SU7 is around five meters long and spans a 3,000-millimeter-long wheelbase, making it bigger than many mid-size sedans such as Tesla’s Model 3. It has a total mass of 2,430 kg and a curb weight of 1,980 kg, based on the registration details revealed by the MIIT on Wednesday.

The car features a sleek, athletic low profile with Xiaomi’s logo on the front and its name on the rear hatch, similar to the Porsche Taycan, a likeness brought to light by a Chinese auto influencer. The images also show a couple of wheel options and a choice of yellow brake calipers.
The SU7 will be able to reach a top speed of 210 kilometers per hour on a relatively affordable, iron-based lithium-ion battery from BYD. The top speed of the premium SU7 Max will be 265 km/h, with the higher-end model equipped with a more expensive, nickel and cobalt-based battery pack from CATL.
An electric motor will provide a power output of 275 kW and 220 kW respectively, while the top-end version will integrate laser sensor units on the roof to enable partially autonomous driving capabilities, according to images released by MIIT.
The five-seater sedan will be manufactured at Xiaomi’s factory in the Beijing Economic and Technological Development Zone, which has an initial annual capacity of 150,000 units, although its production application was filed in the name of a subsidiary of state-owned automaker BAIC.
This appears to confirm speculation that BAIC, a manufacturing partner of Mercedes-Benz in China, has joined hands with Xiaomi, meaning the smartphone maker is still waiting for final approval to begin manufacture from the Chinese authorities.

Context: Xiaomi and Huawei are among the Chinese technology giants with the potential to become major players in the EV space with advanced intelligent capabilities and a broad sales network, which remain difficult for many carmakers to replicate, Morgan Stanley analyst Tim Hsiao commented on an earnings call held by Xpeng Motors on Wednesday.

Huawei said on Oct. 6 that it had secured over 50,000 non-refundable orders for the revamped M7 sports utility vehicle less than a month after its launch. The number was updated to more than 90,000 as of Wednesday, local media outlet IT Home reported.
The telecoms giant started pre-sales of the first electric sedan under the new Luxeed brand with automaker Chery on Nov. 9, followed the next day by the launch of the Avatr 12, a premium crossover co-developed with partners Changan Automobile and CATL.

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China’s imports of chip-making equipment rose by 93% in Q3: report

Wed, 15 Nov 2023 09:48:13 +0000

In the third quarter of 2023, the import of chip-making equipment by China surged by 93% compared to the same period last year, reaching a total value of RMB 63.4 billion ($8.75 billion), according to data from China’s customs authorities, as reported by Japanese media outlet Nikkei. In terms of product categories, the import of lithography equipment, a key part of the chip-making process, skyrocketed nearly fourfold.

Why it matters: The US began attempts to control the export of advanced chip-making equipment to China last October, with Japan and the Netherlands following suit this year, but these new figures show the issues with enforcing such controls rapidly. As the lead time for chip-making equipment from order placement to delivery is between six months to one year, many Chinese manufacturers had already placed a large number of orders for chip-making equipment from the latter two countries last year, likely in anticipation of a ban.

Details: Although the Netherlands has implemented policies restricting the export of advanced semiconductor equipment to China, imports of semiconductor equipment by China from the country in the third quarter nevertheless increased rapidly.

According to data presented by Nikkei, the US accounted for only 9% of semiconductor equipment imported into China in the third quarter, significantly lower than its 17% share during the same period in 2021. Japan’s share also decreased from 32% to 25%, while the Netherlands saw an increase from around 15% to 30%.
The data from China’s customs authorities reveals that the import value from the Netherlands skyrocketed by over six times in the third quarter compared to the same period last year, rising to 2.44 billion euros. A significant portion of this increase is attributed to lithography machines produced by Dutch market leader ASML. Imports of these machines from Japan grew by approximately 40%, while lithography equipment imports from the US increased by 20%.
Compared with the second quarter of 2023, ASML’s sales revenue from China doubled from 24% to 46% of the firm’s total in the third quarter, amounting to 2.44 billion euros, according to the company’s financial report. In the first quarter of this year, ASML’s proportion of sales revenue generated by China was only 8%.

Context: According to the Netherlands’ new regulations on semiconductor exports, ASML’s lithography systems require an export license from the Dutch government for shipment. However, a statement from ASML indicated that the company believes its existing licenses still allow it to continue delivering lithography machines to China until the end of 2023, despite the export restrictions taking effect in September.

ASML dominates the lithography market with an 82.9% market share followed by Canon and Nikon. It holds a market share that is over eight times greater than second-place Canon.

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Tencent to sell Meta VR glasses in China next year

Mon, 13 Nov 2023 09:19:53 +0000

Following a year of negotiations, Tencent and Meta have made a deal for Tencent to exclusively sell Meta’s VR (virtual reality) glasses in China from late 2024, The Wall Street Journal has reported.

Why it matters: As social media platforms Facebook and Instagram are banned in China, the return of Meta to the Chinese market is unexpected. It remains unclear if Tencent requires government approval to sell Meta’s devices due to the absence of VR-related government regulations in China.

Details: The agreement provides Meta with a fresh opportunity to tap into China’s expansive consumer market, a door that closed when access to Facebook was restricted in China in 2009.

The VR glasses will offer consumers more affordable lenses compared to Meta’s existing Quest 3 headset, which is currently priced at around $500 in the US, according to The Wall Street Journal. The less expensive device is scheduled for sale in various international markets in addition to China in 2024.
Insiders told the WSJ that Meta will receive a larger share of hardware revenue, while Tencent will obtain a higher proportion of revenue from content and services. The Chinese version of the VR headset will offer games and apps distributed by Tencent.
Meta’s current lineup of VR headsets includes the 2023-released Quest 3, the 2022-unveiled Quest Pro, and the Quest 2, which went on sale in 2020. The upcoming VR device from Meta may be named Meta Quest 3 Lite, with an estimated price of $199 for the basic model, according to Chinese media outlet Cailian Press. This new product may feature a modified chip that will impact upon its performance due to its low cost.
In its third-quarter financial report on Oct. 25, Meta disclosed that its Reality Labs unit, which develops metaverse-related technologies, experienced an operating loss of $3.74 billion. Revenue in the virtual reality and augmented reality division dropped 26% during the reporting period, falling to $210 million from $285 million a year earlier.

Context: Global shipments of augmented reality and virtual reality headsets went through a decline for the fourth consecutive quarter in the second quarter of 2023, dropping by 44.6% year-on-year, according to data from market research firm IDC.

Meta emerged as the dominant player in the headset market during this period, occupying an approximately 50% market share, according to the same report from IDC. Sony and Pico (the headset division of TikTok parent ByteDance) secured second and third places, respectively.
On Nov. 7, in response to a decline in global demand for VR headsets, Pico reportedly initiated a significant round of job cuts, marking its most substantial overhaul since being acquired by TikTok’s owner two years ago.

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Chinese GPU maker Moore Threads cuts staff due to US sanctions

Tue, 07 Nov 2023 09:22:21 +0000

The CEO of Chinese GPU (graphics processing unit) maker Moore Threads, Zhang Jianzhong, sent an open letter to staff on Monday, stating that the company would begin layoffs within a week, according to a report by local media outlet Icsmart. In the letter, which comes just weeks after the company was added to the US government’s restricted Entity List, Zhang also said “There are no darkest hours for Chinese GPU makers, only boundless possibilities.”

Why it matters: On Oct. 17, the US government implemented a series of new restrictions, limiting the export of more advanced AI chips and semiconductor equipment to China. As one of 13 Chinese companies now added to the Entity List, Moore Threads and its subsidiaries have been substantially impacted by the policy.

Details: In his letter, Zhang directly blamed the impact of US sanctions on Moore Threads’ personnel cuts. The company will now undergo a restructuring, with plans to establish two new divisions: an AI strategy group and a metaverse computing strategy group.

The exact number of employees facing layoffs at Moore Threads has not been disclosed, and the size of the company’s total workforce before the job cuts remains unknown. However, the company’s LinkedIn page shows a range of 500 to 1,000 employees.
In the open letter, Zhang claimed that the entire domestic GPU and AI chip industry has been severely impacted by the new limits, but that nothing could deter the company’s determination to move forward. Moore Threads will continue to build high-quality GPUs in China at the juncture between challenges and opportunities, he stated.
To address the challenges brought by the external environment and policy changes, Zhang announced a three-year plan. The company will focus on four key areas: accelerating independent research and innovation, refining high-quality products, promoting application implementation, and building efficient teams.
On Oct. 31, the spokesperson for the China Council for the Promotion of International Trade, Zhang Xin, stated that the US measures violate market economic principles and international trade rules, exacerbating fragmentation and risks in the global semiconductor supply chain.

Context: Established by Zhang, the former global vice-president of Nvidia and general manager of Nvidia China, in October 2020, Moore Threads is a Chinese technology company specializing in graphics processing unit design. The firm has developed two consumer-grade cards for China’s domestic gaming segment, including the MTT S80 and the MTT S70.

Chinese retailers are currently offering promotions for the annual 11.11 Singles’ Day shopping festival. Among these deals, the MTT S80 and MTT S70 GPUs are available at their lowest prices ever. The MTT S80 has been reduced from RMB 2,999 ($412) to RMB 1,199 ($165), while the company has cut the original price of the MTT S70 from RMB 2,499 ($343) to RMB 899 ($124).

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China sets ambitious plans to mass-produce humanoid robots by 2025

Fri, 03 Nov 2023 09:42:19 +0000

On Thursday, China’s Ministry of Industry and Information Technology issued guidelines on developing humanoid robots, stating that the robots may be the next groundbreaking products to reach consumers after computers, smartphones, and new energy vehicles. The government’s “Opinions on the Innovation and Development of Humanoid Robots” outlines goals and timelines for the new sector in China.

Why it matters: Humanoid robots incorporate advanced technologies, including artificial intelligence, high-end manufacturing, and new materials. With the potential to be a new competitive frontier in future industries, the government plans to promote innovation in key technologies by strengthening policies and mobilizing resources, given that China’s humanoid robot industry is in its budding phase.

Details: According to the guidelines, China expects to have a domestic ecosystem for humanoid robots established by 2025. By that time, robotic products are likely to be in mass production, fast catching up with international contenders.

The ministry’s guidelines outline ambitious goals. By 2025, the country aims to nurture two to three world-beating companies, establish a cluster of specialized small- and medium-sized enterprises, and create two to three industrial development hubs.
By 2027, China is expected to establish a reliable industrial supply chain, with products from this sector seamlessly integrated into the real economy, as stated in the guidelines.
The guidelines propose promoting artificial intelligence technologies with a focus on breakthroughs in key areas such as the “brain”, “cerebellum” and “limbs.” The “brain” encompasses core technologies of humanoid robots based on large AI models, while the “cerebellum” involves the robot’s environmental perception, behavior control, and human-machine interactive abilities. The “limbs” refers to humanoid mechanical arms, hands, legs, and feet. The emphasis is on addressing key technologies, including lightweight skeletons, high-strength body structures, and high-precision sensors.
The guidance also outlines measures for expanding the application of humanoid robots in specific areas, including electronics, automotive, healthcare, services, agriculture, logistics, and even specialized industrial environments where humans currently undertake dangerous tasks in harsh conditions.

Context: The global market for humanoid robots, valued at $1.11 billion in 2022, is projected to experience a compound annual growth rate (CAGR) of 21.1% from 2023 to 2030, according to a report by Grand View Research. There is already rising demand from public and corporate subsidy funds for specific goals, guiding research in humanoid robotics, as well as progress in various fundamental aspects of this field like improved AI, natural language processing, and robot dexterity.

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US tells Nvidia to immediately cease AI chip exports to China

Thu, 26 Oct 2023 09:52:33 +0000

On Tuesday, US chip giant Nvidia revealed that the US government has instructed it to immediately halt the export of certain high-end artificial intelligence chips to China, as regulators have expedited the enforcement of new restrictions, which were originally scheduled to take effect from Nov. 16.

Why it matters: The US withdrew Nvidia’s 30-day exemption period for chip exports to China on Oct. 23, implementing the new regulation 24 days earlier than expected. Currently, Chinese customers, such as Tencent and ByteDance, can no longer obtain any AI-related products from Nvidia.

Details: The US government notified Nvidia of the immediate implementation of export restrictions on AI chips starting Oct. 23, as per Nvidia’s announcement to the US Securities and Exchange Commission. The affected products include five GPUs (graphics processing units): A100, A800, H100, H800, and L40S.

On Oct. 17, the US Department of Commerce announced a series of new restrictions on chip exports, addressing loopholes identified after the US imposed export limitations on chips last October. These new regulations broaden the definition of advanced AI chips and impose additional licensing requirements on chip products destined for over 40 countries and regions, aiming to prevent resale to China. According to the regulations, the new restrictions will take effect from Nov. 16.
Following the implementation of the new regulations, Nvidia must cease shipping A800 and H800 chips to China unless it has express permission from the US government. A800 and H800 chips are alternative solutions Nvidia offered in place of the originally prohibited A100 and H100 chips, following the initial AI chip export restrictions imposed by the US last October. The Nvidia L40S, an advanced GPU for data centers, will also be affected by the new restrictions.
Due to the widespread global demand for these products, the sudden acceleration of US restrictions is not expected to have a short-term impact on the company’s financial performance, Nvidia said in its announcement.
However, Nvidia CEO Jensen Huang earlier stated that the new ban is expected to significantly impact Nvidia’s sales in the Chinese market, though he added that the company remains committed to complying with US regulations.
Several AI industry professionals in China have voiced concerns and doubts over the new measures, according to a report by local media outlet TMTPost. They worry about the potential impact of the new restrictions on the future training of large-scale AI models in China, which could result in a tech gap compared to US-based AI companies like OpenAI.

Context: In August, Nvidia reported a fourfold increase in its Data Center revenue over the last two years, establishing itself as a leader in AI chips with a market share of over 70%. Nvidia’s stock continues to rise, as the company achieved a market cap of $1 trillion earlier in 2023.

The data center sector comprises processors such as central processing units (CPUs), data processing units (DPUs), and graphic processing units (GPUs). GPUs are favored for AI applications due to their ability to handle multiple tasks simultaneously.

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Changan to construct $242 m plant in Thailand as Chinese EV brands rush to SEA

Thu, 19 Oct 2023 10:05:06 +0000

China’s Changan Automobile on Tuesday signed an agreement with Thailand’s Board of Investment in Beijing to build a $241.7 million electric vehicle factory in the country’s coastal Rayong province, the latest development by Chinese automakers to expand their reach in the global car market.

Changan’s move to Thailand: The announcement was made during the two-day Belt and Road Initiative Summit which ended Wednesday as the Chinese government celebrates the 10th anniversary of its massive global transportation and infrastructure project in an effort to consolidate relations with Asian, African, and Latin American countries.

The deal is part of an ambitious plan by the state-owned manufacturer, also a Chinese partner of Ford, to sell 1.2 million vehicles annually in overseas markets by 2030, which would represent a fivefold increase from last year’s 250,000 units.
The plant will consist of approximately 600 acres of land and is located in the Eastern Economic Corridor Special Zone. It will be able to produce 100,000 units of battery EVs and plug-in hybrids annually once construction is completed next year and allow further expansion to 200,000 units to meet demand.
The carmaker expects the 8.8 billion Thai Baht ($241.7 million) facility to become a regional production hub from which right-hand drive EVs will be shipped to nearby Southeast Asian countries, as well as Australia, New Zealand, and the UK, among others.
Changan in April pledged to invest a total of RMB 4 billion ($550 million) in the facility in the next few years, according to chairman Zhu Huarong, while planning its entry to Europe next year with an annual sales goal of 300,000 units in the region.

Thailand, an emerging battlefield: Thailand, a premier trade ally of China, has been promoting the adoption of green energy vehicles, currently offering each EV with a subsidy of up to 150,000 Baht along with other incentives such as import tax reductions. It is positioning itself as a regional hub for EV manufacturing and has attracted investment from some of China’s biggest automakers.

BYD last September revealed plans to establish a 17.9-billion-baht plant in Rayong with the country’s industrial estate developer WHA Group, which will have a maximum output of 150,000 vehicles annually and is scheduled for operation in 2024.
SAIC, China’s biggest automaker, in April began constructing a 500 million baht component factory in the Bay of Bangkok, having produced MG-branded cars with local conglomerate CP Groups at a factory in Chon Buri with a capacity of 100,000 units per year since 2014.
Chery Automobile, China’s second biggest car exporter, is readying for entry to Thailand with an electric car model in the first half of 2024, while planning to establish a facility in the country, one of its strategic markets other than Malaysia and Indonesia.
Great Wall Motor opened a factory in the country in mid-2021, which it acquired from General Motors a year earlier, and can churn out up to 80,000 hybrid and electric cars annually. It has targeted a 50% annual growth rate to sell 18,000 cars this year in the country, Nikkei reported.
Aion, the EV unit of state-owned automaker GAC, began exporting cars to Thailand in August, SCMP reported, after reaching a partnership with local dealership Gold Integrate in June. The company said it would set up its regional headquarters in Thailand this year and look to build a plant in the near term.
Hozon in March broke ground at its first overseas plant on the outskirts of Bangkok. Mass production is set to begin next January with an annual capacity of 20,000 units. Hozon’s Neta V was the country’s third best-selling EV model last month, and the startup aims to sell 10,000 units in Thailand this year.

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Chinese Vivo employee arrested in India

Thu, 12 Oct 2023 09:47:23 +0000

The Indian financial enforcement agency Enforcement Directorate (ED) has arrested four executives involved in the smartphone industry, including a Chinese citizen working at Vivo India, on charges related to illegal remittances, Reuters reported on Tuesday.

Why it matters: Since the border conflict between China and India in June 2020, Indian authorities have increasingly targeted Chinese companies, particularly smartphone manufacturers. The recent arrests, coupled with previous actions such as surprise raids and freezing of funds, indicate a gradual escalation of restrictions on Chinese businesses in India.

Details: Vivo responded to the arrests by expressing deep concern and stating that it will take all available legal measures to address the matter, according to the report. The company said in a statement on Tuesday that it firmly abides by the law at all times.

Earlier on the same day, two sources told Reuters that four employees from Vivo had been arrested. However, during a court hearing, it was revealed that only one Vivo employee, identified as Guanwen Kuang, a Chinese national, had been arrested. Additional information regarding the investigation remains unclear. The ED’s counsel, Manish Jain, requested a ten-day custody period for the arrested individuals, but the judge granted only three days.
On Wednesday, the foreign ministry of China stated that it was closely monitoring the alleged money laundering case involving Vivo in India, Reuters reported. The ministry also expressed China’s hope for India to provide a fair, transparent, and unbiased business environment for Chinese companies.
On July 5, 2022, the Indian ED announced in a statement that it had conducted surprise inspections at Vivo India, covering 23 affiliated companies and 48 business locations. During the search operation, employees of Vivo India, including some Chinese citizens, did not cooperate with the search procedure and attempted to remove the digital devices found by the search team, according to the ED.
In the statement, the ED mentioned a company related to Vivo India called GPICPL (Grand Prospects International Communication Pvt. Ltd.), which was registered and established in India in 2014 by three Chinese citizens named Zhengshen Ou, Bin Lou, and Zhang Jie. The ED accuses the shareholders of GPICPL of using forged identification documents and addresses during the establishment of the company. After its establishment, Bin Lou registered approximately 18 companies across various states in India, it is claimed.
GPICPL allegedly transferred a significant amount of funds to Vivo India, according to ED. Vivo India then allegedly transferred approximately 50% of its local sales revenue ($7.87 billion) to overseas destinations, primarily mainland China. The ED states that these transfers were made to create substantial losses for the registered company of Vivo India, in order to avoid taxation in India.
The ED accuses Vivo of violating India’s Prevention of Money Laundering Act (PMLA). As a result, the authority has frozen 119 bank accounts belonging to Vivo in India, with a total value of approximately RMB 390 million ($53 million).
On July 13, 2022, the Delhi High Court in India allowed the unfreezing of Vivo’s bank accounts, provided that Vivo provided a guarantee of RMB 800 million ($110 million) to the banks, according to Icsmart. The court also instructed Vivo to maintain a balance of 2.5 billion rupees ($30 million) in the accounts.

Context: In July 2023, the Indian government requested Chinese mobile phone manufacturers to induct Indian equity partners in their local operations. The companies, including Xiaomi, Oppo, and Vivo, have also been asked to appoint Indian executives in key roles such as chief executive officer, chief operating officer, chief financial officer, and chief technical officer.

In July 2023, the Indian Ministry of Finance told the Indian parliament that major Chinese smartphone manufacturers, such as Xiaomi, Vivo, and Oppo, had evaded tariffs and illegally transferred at least 80 billion rupees ($980 million) out of India.

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China’s Didi sets new target for ride-hailing as crackdown ends: report

Tue, 10 Oct 2023 10:00:28 +0000

China’s Didi has recently set new growth targets in the three years to 2025, with new incentives for drivers and riders, in its latest move to recapture lost market share in the country’s ride-hailing sector, LatePost reported Monday.

Why it matters: The move comes after Didi received a permit in January to resume new user registration and downloads through Chinese app stores for its ride-hailing service, marking an official end to a long-running regulatory crackdown on the company.

The development also puts competitors such as Meituan and Alibaba’s Amap under pressure, although industry insiders warn of a bumpy road ahead for Didi in the face of softening market demand due to weakening economic conditions, according to the report.

Details: Didi recently informed investors that it is aiming for a 45% year-on-year growth in daily orders in 2023 and expects to keep the pace between 10% and 15% over the next two years, individuals familiar with the matter told Chinese media outlet LatePost.

This implies that the company is expected to complete more than 29 million rides per day for the full year, rebounding from its lowest point of around 20 million last January, and increasing the number to nearly 40 million by the end of 2025.
The annual target for this year is achievable, according to company insiders, with Didi starting from a low base in 2022 when major Chinese cities were repeatedly placed under Covid-19 lockdowns, dealing a blow to the country’s ride-hailing sector.
The company delivered roughly 28.2 million rides per day on average in the first quarter of 2023, representing a 42% growth from a year ago, and increased its average number of daily rides to 29.4 million in the second quarter, according to its filings.
However, Didi’s ambitious objectives for 2024 and 2025 may face significant hurdles amid shrinking demand. By the end of 2022, ride-hailing app users in China totaled 437 million, down around 15.5 million on the total from the year before, according to figures compiled by the China Internet Network Information Center.
China’s biggest ride-hailing platform has increased its efforts to subsidize drivers and riders in recent months. A source estimated that the overall amount of subsidies could reach RMB 26.6 billion ($3.6 billion) this year, which would be equivalent to 14.8% of its total revenue at home, surpassing its previous level of 14%.
Didi did not respond to TechNode’s request for comment.

Context: Didi has been scaling back its efforts in developing cash-bleeding, emerging new businesses, and refocusing on its core business over the last two years after the Chinese government launched a cybersecurity probe into the company in July 2021.

Chengxin Youxuan, Didi’s community group-buy grocery unit, reportedly shut down more than 60% of its service locations shortly after the probe began, only a year after the launch of the service.
The company announced the sale of its smart electric vehicle business to Xpeng Motors in August. It had previously launched an all-electric hatchback for ride-hailing with BYD in November 2020.
Chinese authorities announced a RMB 8.02 billion fine for Didi last July, closing its 18-month crackdown on the mobility giant, which was initiated following its mega public listing in New York in June 2021.
Didi had previously set big targets back in 2020. Notably, it had set its sights on overall daily orders surpassing 100 million globally for the next three years, with its four-wheel businesses in China, including ride-hailing and private chauffeurs, intended to account for half of this figure.

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ASML’s export of chip-making machines to China valid until year-end

Mon, 04 Sep 2023 09:54:37 +0000

ASML, the Netherlands-based producer of the world’s most advanced lithography systems (chip-making equipment), has asserted that it is capable of fulfilling its contracts with Chinese customers before the end of this year, according to Bloomberg, despite the Dutch government’s new export control measures for chip-manufacturing equipment coming into effect on September 1. Under the new regulations, Dutch companies need to apply for export licenses from Dutch customs in advance if they intend to export certain high-end semiconductor-related items outside the EU. A spokesperson from ASML added that the company cannot obtain export licenses to export these products to China in 2024.

Why it matters: ASML’s commitment to fulfilling its China orders up to the end of the year will help ease some of the pressure on the country’s chip sector, which has been the subject of a series of stringent export control measures on semiconductor-related items from first the US and subsequently Europe and Japan. From January next year, the export ban on ASML’s advanced DUV (deep ultraviolet) equipment is expected to have a far-reaching impact on China’s domestic semiconductor industry chain.

Details: On June 30, the Dutch government officially introduced new semiconductor export controls, with the measures set to take effect on September 1, 2023. Prior to this date, ASML was permitted to submit export license applications to the Dutch government.

On August 31, ASML said that the company owned licenses to ship restricted chip-making machines to China until the end of the year, despite the new export restrictions coming into effect in September. Industry observers have therefore speculated that ASML had already applied for export licenses in advance.
ASML is the exclusive EUV (extreme ultraviolet) lithography supplier for chip-making below 7nm, according to a report from TMTpost. The company’s most advanced EUV products were already banned from being exported to China even before the Dutch government’s new regulations. Instead, ASML mainly exports DUV lithography for chip-making above 7nm. However, in 2024, the firm will discontinue the export of DUV equipment to China since it is unlikely that new licenses will be approved by the Dutch government beyond the end of this year.
On July 19, ASML announced its second-quarter financial report for 2023. Sales to China accounted for 24% of ASML’s total revenue in the second quarter, representing an increase of 200% year-on-year, according to the company’s financial report.
CEO Peter Wennink stated on an earnings call that the new export control measures were unlikely to have a significant impact on the company’s revenue performance in 2023.

Context: At present, China’s import of lithography equipment depends heavily on the Netherlands. In response to new restrictions in 2024, China may increase its imports in the remaining four months of this year. However, this is clearly not a long-term solution.

China’s lithography imports reached $3.96 billion in 2022, with the Netherlands accounting for 64.3% ($2.54 billion) of this total, according to data from China Customs. From January to July in 2023, lithography imports from the Netherlands amounted to $2.58 billion, marking a significant increase of 64.8% year-on-year.

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China proposes limiting kids’ mobile device screen time in new draft regulations on protecting minors online

Fri, 04 Aug 2023 08:59:12 +0000

The Cyberspace Administration of China (CAC), the national internet regulator, on Wednesday issued new draft regulations aimed at preventing minors from becoming addicted to their phones. The rules seek to create a healthy online environment for minors by broadening the scope of supervision to include smart terminals and app stores. The draft is open for public comment until Sept. 2, 2023.

Why it matters: Safeguarding the online experience of minors is a key concern of authorities overseeing China’s entertainment and internet industries. In 2019 and 2021, CAC introduced laws that curbed the amount of time young people could spend playing video games. If approved, the new regulations would impact a range of industries, including gaming, streaming, hardware, and other internet-connected sectors, confronting companies with a wave of challenges as the government sets increasingly stringent rules for mobile terminals and internet content providers.

Details: The draft regulations require internet companies to create customized designs for minors on different mobile platforms, including mobile smart terminals, apps, and app stores. Content and functions will need to be tailored to different age groups.

The minor protection mode, initially focused on video, live broadcasts, and games, will soon be an essential built-in setting for mobile phones, smart watches, learning machines, and VR/AR wearable devices. When users set up their mobile devices for the first time, they will be prompted to activate a minor mode based on their ID information.
Internet content providers will be required to modify their offerings according to different under-18 age groups. The customized designs for minors will be divided into five age ranges: under 3 years old, 3 to 8 year-olds, 8 to 12 year-olds, 12 to 16 year-olds, and 16 to 18 year-olds.
Minor mode settings should be easy for parents to locate, the draft regulations state. Users will be able to access minor mode via a power-on reminder, desktop icon, and system setting. To exit minor mode, parents will need to verify their ID information by using their password, fingerprint, or facial recognition.
Mobile terminals are required to provide differentiated time management for minors of different age groups. By default, mobile devices will limit usage to 40 minutes each day for those under 8 years of age, and allow a maximum of two hours for those between 8 and 18 years of age. In minor mode, access to mobile devices will be restricted between 10 pm and 6 am. However, parents will be able to exempt their children from the restrictions if they prefer.

Context: In recent years, the Chinese authorities have implemented strict measures to limit minors’ game-playing time.

In 2019, CAC passed a law restricting minors to less than 1.5 hours of online gaming time on weekdays and three hours on weekends, with no game playing allowed between 10 pm and 8 am. Additionally, the amount minors could spend on virtual gaming items each month was limited, with maximum amounts ranging from RMB 200 to RMB 400 ($28 to $56), depending on age.
In 2021, CAC further limited minors to an hour of gameplay from 8 pm to 9 pm on Fridays, weekends, and public holidays.

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China restricts exports of high-performance drones in blow to DJI

Tue, 01 Aug 2023 10:24:05 +0000

China said on Monday that it will impose export controls on certain high-performance drones with both commercial and military potential applications to prevent their use by armed forces, in a setback for strong exporters such as Shenzhen-based drone maker DJI.

Why it matters: The measure is an extension of an existing export ban on unmanned aerial vehicles (UAVs) for military use imposed on drone makers by Chinese regulators since August 2015.

It comes after Beijing faces accusations from the US that China may supply Russia with military technology for its conflict against Ukraine, Reuters has reported.

Details: Drones with radio power exceeding the limit set for civilian products globally, will be subject to export controls from September “to protect national security and interests,” China’s Ministry of Commerce said in an announcement on Monday (our translation).

This will also apply to drones that are equipped with sensors such as multispectral cameras in a wide wavelength range, and those that can determine their position and navigate beyond certain distances using lasers, as well as those capable of carrying “unauthorized” payloads.
The two-year order requires drone exporters to apply for an export license with the submission of proof documents that show how their products will be used and who will be the end users.
The ministry will also impose export controls on drone components ranging from engines to radio equipment, according to another document published Monday. It has not specified when the restrictions will be lifted.
China is concerned that certain high-end civilian drones could be repurposed for military use, and insists that its proposed measures are not against any specific country or region, China Daily cited a ministry spokesperson as saying.
DJI has always opposed the use of its products for war-related purposes and will strictly adhere to the temporary export control policy to ensure full compliance, Zhang Xiaonan, a senior director at DJI, posted on the Twitter-like platform Weibo.

Context: DJI, with the lion’s share of the global consumer drone market at over 70%, suspended sales and after-sales services in Russia and Ukraine in April 2022. Its products have, however, been available from third parties in the two countries, Chinese media outlet Caixin cited industry insiders as saying.

Beijing on July 3 released restrictions on exports of gallium and germanium, two precious metals used in making chips and radars. Earlier this year, Japan and the Netherlands decided to limit the sale of certain types of chip making equipment to China.

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Indian authorities accuse Xiaomi, Oppo, and Vivo of tax evasion totaling approximately $1 billion

Tue, 25 Jul 2023 09:53:18 +0000

The Indian Ministry of Finance informed the Indian parliament that prominent Chinese smartphone manufacturers, including Xiaomi, Vivo, and Oppo, evaded tariffs and illegally remitted a minimum of 80 billion rupees ($980 million) in India, according to a CNBC report on July 21. The report also stated that the Indian tax authorities were able to retrace only 18% of the total amount evaded by these companies.

Why it matters: With its vast population and rapid economic development, India has become an attractive destination for numerous international enterprises seeking to enter the local market. In recent years, Chinese mobile phone manufacturers have achieved significant success in the Indian market. However, the issue of tax evasion has gradually emerged as a prominent concern, drawing the attention of Indian authorities.

Details: According to the CNBC report, Chinese mobile phone brands are accused of evading taxes by manipulating financial data, engaging in fictitious transactions, and overpaying fees to affiliated companies.

India’s Ministry of Finance reported that the combined turnover of Chinese phone brands in India, which also includes Transsion, Realme, and OnePlus, amounted to 15 billion rupees ($180 million) from 2021 to 2022, leading to the creation of 75,000 employment opportunities for local citizens. Furthermore, these companies have employed 80,000 sales and operation staff across India.
Xiaomi’s total tax evasion reached 11.37 billion rupees ($140 million) during 2019-2023, while Oppo evaded tariffs to the value of 44.03 billion rupees ($540 million), according to Indian authorities.
The Indian Ministry of Finance claimed that there have been a total of 13 similar cases involving tax evasion on goods and services by these companies from July 2017 to June 2023. Specifically, Xiaomi was reported to have paid interest amounting to 3.17 million rupees ($39,000) and a fine of 1.33 million rupees ($15,000) from 2019 to 2020.
In April 2022, Indian authorities accused Xiaomi of illegally transferring money to foreign entities in the form of royalty payments since 2015, freezing the company’s funds of 55 billion rupees ($680 million) in the bank accounts of its Indian subsidiaries. Xiaomi refuted these allegations and stated that these royalty payments were made for the licensed technology and intellectual property used in the Indian versions of its products. Despite Xiaomi’s re-appeal to address the situation, the Indian government rejected the firm’s demand to unfreeze its funds.
In July 2022, India’s financial crime agency blocked 119 bank accounts linked to Vivo’s India business, which collectively held 4.65 billion rupees ($58.76 million). This move came as part of an investigation into alleged money laundering activities. The Indian authorities conducted raids at 48 locations belonging to Vivo and 23 entities connected to the company. The allegations suggested that the proceeds of Vivo India’s sales were being transferred out of the country to evade taxes. While Vivo presented arguments in their defense and managed to recover access to the bank accounts, they were required to pay a guarantee of $119 million to the Indian government.
In July 2022, the Directorate of Revenue Intelligence (DRI) stated that Oppo’s Indian subsidiary had improperly obtained tax-free benefits amounting to 29.81 billion rupees ($360 million) through false declarations of certain imported goods.

Context: According to market analyst firm Canalys, four Chinese phone brands entered the top five by market share in India in the second quarter of 2023, behind Korean brand Samsung. Vivo was second, shipping 6.4 million units, and Xiaomi held the third spot by shipping 5.4 million units, while Realme and Oppo (excluding its sub-brand OnePlus) ranked fourth and fifth by shipping 4.3 million and 3.7 million units respectively.

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China’s CATL mulls bid for two lithium mines in Sichuan: report

Wed, 19 Jul 2023 09:52:19 +0000

China’s battery giant CATL is considering a bid for exploration rights to two domestic lithium mines in the southwestern Sichuan province. The electric vehicle battery maker recently established a new mining subsidiary to comply with the bidding process, a local media outlet has reported.

Why it matters: CATL’s interest in two new lithium mines signals its intention to further integrate upstream resources amid already-volatile battery supply chains.

However, CATL may find it hard to extract the abundant lithium resources in a safe and cost-efficient way due to poor geological conditions in the plateau areas, the report added, citing a Jan. 12 research note on lithium supply by Guosen Securities.

Details: CATL set up a new mining company called Maerkang Times Mining (our translation) through a subsidiary, with a registered capital of RMB 300 million ($42 million), according to the Chinese enterprise database Tianyancha.

The new firm has listed its main business interests as mineral resource exploration, development of new raw materials, as well as mineral washing and processing. CATL set up the entity with the intention to bid for two local lithium mines, state-owned media outlet The Paper reported on Monday.
This comes just days after China’s Ministry of Natural Resources kicked off bidding for exploration rights to two lithium mines in Maerkang city and nearby Jinchuan county on June 20. The two licenses will be put up for an unreserved auction at a combined starting price of RMB 3.76 million early next month, according to government filings.
Industry watchers expect the two mines to hold an impressive amount of lithium, as the China Geological Survey reported “significant findings” related to mineral resources in Maerkang during 2019-2020, with an estimated lithium oxide equivalent content of over 1.8%. Jinchuan reserve is expected to hold oxide content reaching 1.3%, the report said.
CATL did not respond to TechNode’s request for comment.

Context: China’s surging adoption of EVs has in turn created more business moves in the mining space.

CATL in January reportedly secured regulatory approval for a massive RMB 6.4 billion acquisition of Sinuowei Mining Development Co. Ltd, a bankrupt lithium mining firm that has exploration rights to a local mine with an average grade of 1.18% lithium oxide in western Sichuan. This translates into a reserve of around 24.9 million tons of lithium ore.
Zhite New Materials, a lithium miner formerly backed by CATL, in February won an RMB 6.1 billion bid to develop lithium reserves in China’s Xinjiang Uygur Autonomous Region, Yicai reported. However, the firm failed to complete the transaction on time and in April was barred from upcoming auctions for three years by local regulators, Caixin reported.
Battery-grade lithium carbonate prices reached a peak of nearly RMB 600,000 per ton late last November before sinking to around RMB 180,000 in China in April. Lithium remains a wild ride for commodity investors as prices then bounced back to around RMB 300,000 on May 18, according to figures from industry consultancy Mysteel Group.

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TSMC to construct second chip plant in Japan, aims to start production in 2026

Tue, 11 Jul 2023 09:50:13 +0000

Chip giant TSMC plans to construct a second chip plant in the Kumamoto Prefecture of Japan to manufacture 12nm chips by the end of 2026, Japanese media outlet Nikkan Kogyo Shimbun reported on Tuesday. TSMC will reportedly invest 1 trillion yen ($7.1 billion) for the second plant, which is expected to start construction in April 2024.

Why it matters: In recent years, the Japanese government has gradually realized the limitations of its own chip industry, especially with the world transitioning to EV and the automobile industry’s increasing demand for advanced chips. TSMC’s further expansion in Japan may make it eligible to receive huge subsidies from the local government, and improve the company’s production capacity by utilizing local water and power resources.

Details: In June, TSMC’s chairman Mark Liu revealed that the company was evaluating the possibility of another plant aimed at producing mature-process chips in Kumamoto Prefecture, near the company’s first facility.

On June 9, Yasutoshi Nishimura, the Minister of Economy, Trade and Industry of Japan, responded to the news by saying that the Japanese government would consider providing financial aid to a potential second TSMC plant in Japan.
In June, Sony CEO Terushi Shimizu told a round-table conference that TSMC’s first plant in Japan had been unable to fulfill an order for his firm, after receiving a large order from electric vehicle makers such as Honda. He also said that Sony has not yet decided to invest in the second plant.
On June 30, at a press conference held in Yokohama Japan, Kevin Zhang, TSMC’s Senior Vice President, said the company did not rule out the possibility of manufacturing advanced process chips in Japan in the future.
Last year, TSMC and Sony invested approximately $7 billion to build the first semiconductor factory in Kumamoto Prefecture, while the Japanese government decided to provide 476 billion yen ($3.38 billion) in subsidies.
TSMC has already started the construction of its first plant in Japan and is targeting local production in 2024, according to the Nikkan Kogyo Shimbun report. Japan Advanced Semiconductor Manufacturing, a joint venture with TSMC, is in charge of Japan’s business operations, with Sony, Honda, and Denso all investing. According to TSMC, the first factory will produce 55,000 wafers a month by the end of 2024, using 12nm, 16nm, 22nm, and 28nm process technologies.

Context: Last December, TSMC announced it would increase its planned investment of $12 billion to $40 billion for two new factories in Arizona, US. For its US factories, the company plans to start producing 4nm chips in 2024 and 3nm chips in 2026, respectively.

The US passed the CHIPS and Science Act last August to offer around $52 billion in incentives for US-based chip manufacturing.

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China details tax-breaks for EVs, plans to allow partially autonomous cars

Sun, 25 Jun 2023 09:52:39 +0000

China’s government on Wednesday announced a detailed plan to provide a full exemption of electric vehicles from purchase taxes in the next two years, an exemption that will be gradually rescinded from 2026. Beijing is also planning a pilot scheme to regulate passenger cars with partially and highly autonomous functions for potential large-scale operation, according to a deputy minister.

Why it matters: Industry players have responded positively to Beijing’s recent efforts to stabilize the EV market, where competition has heated up significantly in recent months.

The extension of the EV purchase tax credit is “a big positive” from the market perspective, since automakers will be able to plan for new models and cost control going forward following Beijing’s early disclosure, BYD said on Wednesday (our translation).
The government also underscored its strong support for EVs with swappable batteries, as battery prices will not be included in the dutiable value if a customer purchases an EV with a battery lease scheme, Nio’s chief executive William Li said on microblogging platform Weibo.

Analysts’ take: Bernstein analysts have voiced cautious optimism about the prospects for the world’s biggest EV market, as consumer confidence and credit impulses could be supportive of auto demand in the next few months after a slow recovery in car sales early this year.

The long-term growth outlook for EVs “remains intact” as demand has shifted from government policy-led to consumer-driven, although EV sales growth is set to decelerate amid growing competition and overcapacity issues, Bernstein analysts wrote in a June 21 note.
Jefferies analysts also hailed Beijing’s longer-than-expected tax credit as a positive sign, on Thursday forecasting China’s new energy vehicle sales, including all-electrics and plug-in hybrids, will reach 830 million units this year, up 27% from the 654 million units sold last year.

Details: EV buyers will be entitled to a 10% purchase tax exemption, or a credit of up to RMB 30,000 ($4,178) until the end of 2025. From 2026 to 2027, they will be taxed by 5% of the purchase price of their EVs, and the reduction amount will not exceed RMB 15,000 per vehicle, according to a government filing published Wednesday.

The move is intended to maintain Beijing’s efforts to sustain the development of the EV industry and underpin China’s advantage in green car technologies, Xu Hongcai, deputy minister of finance said during a media briefing on Wednesday in Beijing.
The Chinese authorities have put a limit on the amount of EV tax relief in an aim to ensure fair play and avoid luxury EVs, with some priced as high as RMB 1 million, taking extra resources, Xu said. He estimated total tax breaks to reach RMB 520 billion by 2027, up from RMB 200 billion as of last year.

L3 deployment: Meanwhile, the central government is planning a pilot scheme to officially lift the barriers to entry of passenger cars with semi-autonomous functions, or with the so-called Level 3 automation, said Xin Guobin, deputy minister of industry and information technology.

Regional government authorities will also issue more permits for the commercial adoption of highly autonomous cars to operate in pilot projects, according to Xu, an endeavor that has been undertaken by a number of Chinese tech companies such as Baidu.
Automakers are currently not allowed to market cars with L3 capabilities by Chinese regulators. In Level 3, or the partial autonomous level, the driver is required to take over the vehicle in emergencies, according to the definitions set by the Society of Automotive Engineers (SAE).

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India asks Xiaomi to hire Indians for exec positions

Thu, 15 Jun 2023 10:03:46 +0000

Major Chinese phone brands operating in India including Xiaomi, Oppo, Vivo, and Realme, are being required by Indian authorities to appoint Indian nationals in executive roles such as chief executive officer (CEO), chief operating officer (CPO), chief financial officer (CFO), and chief technical officer (CTO), according to Indian media outlet ET Telecom.

Why it matters: In light of ongoing geopolitical tensions, India and China have increased scrutiny of each other’s businesses, causing significant economic turbulence in recent years. The Indian government has again tightened restrictions on Chinese technology companies in the last few months, with experts predicting this will inevitably dampen investment by Chinese companies in the Indian market.

Details: The tussle between Indian authorities and Xiaomi has been escalating since the former launched an investigation into the latter last year. On June 9, the Enforcement Directorate (ED), an Indian financial law enforcement agency, issued a show-cause notice to Xiaomi India chief financial officer Sameer Rao, former global vice president Manu Kumar Jain, and three banks for alleged illegal remittances of 55.51 billion rupees ($673.2 million), according to a report by Indian news agency Press Trust of India.

On June 13, the Indian government requested major Chinese phone brands involve local companies in the manufacturing process and develop local distributors for exports, according to Indian media outlet ABP News.
On the same day, Xiaomi India responded to this announcement by saying that the company’s operations were compliant with local laws and regulations, according to Chinese media outlet National Business Daily.
Last April, the ED summoned former Xiaomi global vice president Jain, who resigned this January, to cooperate with the federal investigation, alleging that the company had made illegal remittances by falsely presenting them as royalty payments to foreign entities. Xiaomi has since claimed that the royalty payments were for in-licensed technologies and intellectual property applied to Indian phone products.
As part of the investigation, it is possible that the substantive frozen funds from three banks – Citibank, HSBC Bank and Deutsche Bank AG – may be confiscated by ED.

Context: In the first quarter of 2023, the top three phone brands in India were Samsung (with 20% of the market), Vivo (18%), and Xiaomi (17%), according to research platform TechInsights. Chinese phone brands account for about 50% of sales in the Indian phone market.

Last December, a Vivo shipment of 27,000 cellphones from India to neighboring markets was detained by Indian officials. The shipment, worth nearly $15 million, was delayed for over a week because of an alleged misdeclaration of the device models and their value.
Last June, the Indian government issued a show-cause notice to Oppo for allegedly evading customs duty of $550 million. Oppo says it has cooperated with the investigation since then; a final ruling in the case has not yet been announced.

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Four die in Volkswagen EV fire after crash, fueling safety debate

Wed, 07 Jun 2023 09:45:24 +0000

Volkswagen has made headlines in China following an incident on Monday in which a VW electric vehicle crashed into a motorway toll station and caught fire in Hangzhou, resulting in the death of four people, according to a report in financial media outlet Caixin.

Why it matters: Video clips that show firefighters working near the burning car have drawn social media attention, with comments voicing concerns about EV safety that may cast a shadow over VW vehicles sold in China.

Details: A passenger vehicle hit a barrier at a Hangzhou toll station in the eastern Chinese city early on Monday, catching fire immediately, and killing the four men in the vehicle, the city’s traffic police confirmed in a post on Chinese microblogging platform Weibo.

The local authorities did not provide further details about the incident or specify a cause of the blast. Several video clips have gone viral on the Chinese internet showing a VW-branded battery-powered EV at the center of the fatal crash.
SAIC-Volkswagen, a joint venture between the German automaker and SAIC Motor, is cooperating with investigations, Caixin reported, citing someone close to the company. The firm did not respond to TechNode’s request for comment.

Context: China requires EV battery systems to be designed so as not to catch fire or explode for at least 30 minutes after a crash at 50 kilometers per hour (31mph) or under, an expert from the China Automotive Engineering Research Institute Co., Ltd told Caixin.

Sales of VW’s battery-powered EVs in China dropped 25.4% year-on-year to around 21,500 units for the first three months of this year, as the German auto major faced growing pressure from Tesla and a slew of Chinese firms led by BYD.
VW currently sells three models under its purely electric ID. series in China, namely the ID.4 crossover, the ID.3 hatchback, and the seven-seater ID.6, covering the mainstream luxury car segment with a price range of between RMB 150,000 and RMB 350,000 ($21,045-$49106).

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Face-swapping fraud sparks AI-powered crime fears in China

Wed, 24 May 2023 11:53:33 +0000

China’s biggest deepfake scam to date has led to warnings of a rise in fraud cases using AI tools such as face-swapping and voice mimicking. In the widely-discussed case, a Fuzhou tech firm’s legal representative was allegedly defrauded of RMB 4.3 million ($610,000), after receiving a video call from a “friend,” who turned out to be a fraudster using AI face-swapping technology. The case became a hot topic on social media after police confirmed its details, highlighting how AI can be used to con well-educated adults within minutes.

Why it matters: AI regulation is still a developing subject in China. In mid-April, the country’s internet regulator issued a draft regulation on the use of generative AI and sought public feedback on the proposed measures. Initial excitement around the potential of ChatGPT and similar AI products in China has given way to concerns over how AI could be used to supercharge criminal activity.

Details: According to disclosures by police in the eastern Chinese city of Fuzhou, on April 20, a fraudster stole an individual’s WeChat account and used it to make a video call to a businessman, an existing contact on the individual’s WeChat app. They used AI to deepfake the individual’s face and told the businessman they needed to make a bank transfer. The businessman subsequently transferred RMB 4.3 million to the fake friend’s bank account without verifying their true identity.

After the fraud victim alerted the authorities, Fuzhou and Baotou police helped intercept some of the stolen funds, however multiple media outlets have reported that around RMB 1 million is yet to be recovered and that the case is thought to be biggest such scam to date. The police’s investigations are ongoing.
The fraudster utilized tools that could steal audio visual information to generate convincing AI voice and image material, police said.
The fraud sparked widespread discussion on Chinese social media. On Tuesday, the trending hashtag #AI crime overwhelms the country#, which had a total of 180 million views, was seemingly removed from the social media platform Weibo amid fears that the case may inspire copycat crimes.
China Youth Net, a Communist Youth League of China-backed media outlet, was among those to later post a warning to the public about the dangers of AI scams.
Face-swapping technology has also been used by online livestreamers to produce deepfakes of popular celebrities, according to local media outlet China Economic Network, raising related issues around fraud and intellectual property rights.

Context: The global buzz surrounding the launch of ChatGPT has seen a spate of AI-related product launches in China, with the country’s tech majors rushing to prove they can offer similar technology. However, the Fuzhou fraud case has combined with other high profile deepfake incidents to remind people of the potential downsides to such advances in artificial intelligence.

In a much-reported incident that is testing the boundaries of China’s copyright laws, famous Mandopop singer Stephanie Sun has seen an AI version of her voice used to produce new covers of popular songs in recent weeks. “AI Stephanie Sun” has nearly a thousand videos on Chinese video-sharing platform Bilibili, with the Singaporean star’s voice being used on everything from folk songs and nursery rhymes to anime theme tunes. Some covers, like ‘Rainy Day’ and ‘Hair Like Snow‘, have garnered over a million hits.
On Monday, Sun responded on Chinese social media by asking fans to stay true to themselves and recognize the futility of “arguing with someone who releases an album every minute.” AI “poses a threat to thousands of jobs, such as the legal, medical, accounting, and other industries, as well as the one we are currently discussing, singing,” Sun added.

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Chinese government makes big push for EV adoption in rural areas, lower-tier cities

Mon, 08 May 2023 08:59:59 +0000

The Chinese government has approved an action plan to push for the buildup of charging infrastructure across the country, a move Beijing says will step up the adoption of electric vehicles especially in the country’s vast rural regions, state broadcaster CCTV has reported.

Why it matters: The plan could pave the way for a sales boost of green energy cars in Chinese lower-tier cities and rural areas where EV penetration has so far remained low, according to Cui Dongshu, secretary general of the China Passenger Car Association (CPCA).

China’s countryside is expected to provide a new source of growth for what is already the world’s biggest EV market, Cui wrote in a May 7 article (in Chinese). Less than 20% of new car sales were EVs in small-sized Chinese cities and towns in March, compared with 34% in first-tier cities, official figures showed.

Details: The plan will adopt a “forward-thinking and moderately progressive” (our translation) strategy to scale up the number of charging stations for EVs across the country, state broadcaster CCTV reported on May 5, citing a meeting of China’s top executive body, the State Council.

The cabinet said it would also release measures that would facilitate businesses’ expansion of their EV sales and service networks in less developed regions, as well as boost the training of technical workers for EV maintenance from vocational schools.
The Council said these efforts would allow it to step up its focus on removing the major bottleneck for EV popularity in rural areas. Policymakers expect a nationwide charging network to sustain at least 20 million EVs traveling on Chinese roads by 2025.

Context: China’s EV market has seen slower growth this year, after being partly disrupted by a major price war amid fierce competition and Beijing’s scrapping subsidies for EV purchases in December.

Sales of new energy passenger vehicles, mainly all-electric cars and plug-in hybrids, increased 22.4% year-on-year to 1.3 million units during the first three months of 2023, significantly slower than the 93.4% growth last year, CPCA data shows.
China operated an EV infrastructure network of more than 1.9 million public chargers as of March, of which nearly 60% were less powerful AC chargers with the rest being DC ones, according to figures from the Chinese Electric Vehicle Charging Infrastructure Promotion Agency.
Multiple automakers have pledged to expand their EV charging networks. Nio and Xpeng Motors have set goals of making 2,300 swap stations and 500 fast charging stations available nationwide this year, respectively, while Li Auto opened its first batch of charging facilities last month.

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China’s MEMS Industry: A large market with room to grow

Thu, 20 Apr 2023 08:57:16 +0000

The semiconductor industry can, on a basic level, be split into parts based on function — sense, transmission, computing, and storage. We tend to focus on news and developments on the latest processor, CPU, or communications chip, but what about the simpler chips at the very edge like MEMS (Micro-Electro-Mechanical Systems) sensors instead of advanced AI edge processors? Not all sensors are MEMS and not all MEMS are sensors, but MEMS sensors are everywhere from smartphones to cars, from smart factories to medical apps. So, what are they, how is China progressing in them, and are US sanctions playing a role?

MEMS involves the miniaturization of mechanical and electro-mechanical devices, with dimensions ranging from micrometers to millimeters. MEMS devices are created using microfabrication techniques like those employed in the semiconductor industry. The devices contain tiny moving parts that sense, measure, and control things such as acceleration, pressure, temperature, and light.

China’s MEMS market

China is the largest MEMS market in the world, worth as much as $14.4 billion in 2022, and potentially as much as $24.6 billion by 2025. Today most MEMS feed into the consumer electronics and automotive electronics industries, almost 77% of sales. There is one problem though: foreign companies dominate the Chinese market, as most Chinese players are extremely small. Over 60% of MEMS are imported, with the figure moving above 80% when just counting high-end MEMS products.

Goertek, at 2%, is the only Chinese company with any significant market share. Broadcom (11%), Bosch (8%), STMicro (4%) are some of the larger players in the Chinese market. The industry as a whole is rather fragmented though, with 54% being ‘other’ companies that are too small to make up even 1% of the market share.

I have counted at least 70 Chinese MEMS companies, ranging from design, to IDM, to manufacturing. Products range from audio, MEMS mirrors, microfluidics, optical, radio frequency MEMS, gas sensors, pressure sensors, and more. Most of these companies are found in Shanghai, Jiangsu, and Zhejiang, with Suzhou in Jiangsu province as a major production base.

Investments in MEMS grow every year, from 43 different investments in 2017 to 144 investments in 2022. Investments focus on consumer electronics MEMS, automotive MEMS, bio-medical MEMS, and industrial MEMS. Bio-medical MEMS companies have seen the most investments but consumer electronics have brought in the most in monetary terms.

So why the growth in MEMS imports and how is it going with boosting domestic know-how and production? First, let’s consider market drivers, and second, government policy.

Market drivers and policy

The need for high-end imported sensors has constantly increased along with growth in China’s consumer electronics assembly industry, as this has started to flatten out, new industries have stepped in to help continue this growth in demand for MEMS sensors. Big data coupled with IoT means more and more sensors are being used to gather data for processing. These sensors may be applied to smart cities and factories and become prevalent in EVs. In EVs some of the most common sensors are inertial sensors like accelerometers and gyroscopes; optical MEMS like mirrors for driverless solutions, pressure sensors for airbag deployment or inside batteries; and thermal sensors to monitor subsystems like BMS. More than 100 MEMS sensors are now used in every car, and this figure will increase.

Automation and safety, whether it be in a vehicle, a factory, or a city, require these sensors.

China’s 14th Five-Year Plan, the 2021 Development Plan for Basic Electronic Components, and the 2021 Three-Year Action Plan for IoT Infrastructure all mention MEMS, the second of which even calls for targeted support of temperature, gas, motion, photoelectric, velocity, and biochemical sensors. The private industry has taken note, and that’s why we are seeing more and more companies entering the field, and local governments adding support initiatives of their own.

US sanctions

While the majority of US sanctions have focused on high-performance semiconductor manufacturing equipment and computing chips, sensors have been caught in the political crosshairs, and the February China balloon incident might mean the sector comes under more scrutiny. Since 2018, I can count at least six MEMS-specific companies that have been placed under some form of US sanction. Including sensors in general this may be over 16 companies. Chinese companies that directly describe themselves as MEMS companies include, MTMicrosystems, Shanghai Nova Instruments, North (Tianjin) Microsystems, Shenyang Institute of Instrumentation Science, Beijing Yanjing Electronics, and Hangzhou Haikang Micro Image Sensor. Only one company sanctioned after the balloon incident is sensor-focused, Dongguan Lingkong, specializing in long-range sensors. Further information is hard to find because its website seems to be down, as is the website of its major 80% controlling shareholder Eagles Men Aviation, also on the list.

Conclusions

Despite these sanctions, most Chinese MEMS companies face no restrictions. The market is dominated by foreign players, but I see no technical reason why Chinese firms can’t compete with the big boys. Right now, though, most lack the economies of scale to compete globally. Government interest in this area could help but we seem to see more local help, from municipalities like Suzhou, rather than central government help, as there are fewer barriers in this space compared to other parts of the semiconductor industry. I expect in the coming years we will see China’s larger players like GoerTek, SMEI, and MEMSRight gradually grow, even into foreign markets, while foreign firms continue to dominate in the foreseeable future. Automotive, bio-medical, and industrial sectors all show strong growth potential in China, which is good for the MEMS industry, and despite a weaker consumer electronics industry and some factories moving away from China, the fact is it is still the largest electronics manufacturing center in the world, and so China’s appetite for MEMS solutions in this space will stay strong.

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Chinese carmakers showed up big time at Auto Shanghai 2023

Tue, 18 Apr 2023 11:55:42 +0000

The biennial Auto Shanghai Show is traditionally a time for global automakers to flex their muscles and woo Chinese consumers. Yet this year’s edition, China’s first major auto exposition since the country reopened after Covid, has been very much dominated by local manufacturers.

The growing presence of Chinese brands reflected the mounting pressure on traditional global carmakers and also new makers such as Tesla, a notable absence at this year’s event. The US electric car pioneer launched one of its biggest-ever price cut campaigns this January, sparking a price war in China’s competitive EV market.

Below, TechNode highlights new releases and updates from major Chinese EV makers at the Auto Shanghai Show 2023, including BYD, Geely, Nio, Xpeng, and Li Auto, which all displayed an impressive portfolio of electric vehicle models.

BYD: Song L concept, Chaser 07, and Seagull

As China’s best-selling new energy vehicle brand, BYD came to the exposition with a wide range of updates covering all major price points, from budget-friendly compact cars to luxury off-road sports vehicles, as well as everyday SUVs.

BYD’s main brand focused on three car models. The first one is the Song L concept car, a pure electric sports SUV equipped with an electric rear spoiler and BYD’s e-platform, and DiSus electric body control technology. BYD said it will be launched within the year but did not specify the exact model that will be made available or a launch time. The Song L may be a new supplement to BYD’s best-selling Song Plus SUV.

BYD showcased the Song L concept at Auto Shanghai 2023 on Tuesday, April 18, 2023 (Image credit: TechNode/Qin Chen) Credit: TechNode/Qin Chen

The brand also showcased the Chaser 07, a medium-sized plug-in sedan that is a new model in the Ocean family. It will be priced at RMB 200,000 to RMB 250,000 ($31,000-$39,000) and will be launched in the third quarter of this year. It is BYD’s effort to attract young car owners with an everyday hybrid.

At the same time, BYD also announced the start of pre-sales of its entry-level mini car Seagull, which is priced at a budget-friendly RMB 78,800 to RMB 95,800 ($12,200-$14,800), and has two driving ranges of 305 km or 405 km. The car is equipped with four safety airbags, an ESP electronic vehicle stability system, and a fast charging capability of 30kW or 40kW.

BYD showcased the Destroyer 07 sedan at Auto Shanghai 2023 on Tuesday, April 18, 2023 (Image credit: TechNode/Qin Chen) Credit: TechNode/Qin Chen

BYD’s luxury car brand Yangwang unveiled new versions of its U8 and U9 models at the auto show on Tuesday.

The U8, a new energy off-road vehicle with 1100 horsepower and the ability to accelerate from 0 to 100 km/h in 3.6 seconds, has officially started pre-sales and comes in two versions: the luxury edition and the off-road player edition. The official pre-sale price for the luxury edition is nearly RMB 1.1 million($170,000) and the model is expected to be delivered in September. The off-road player edition will be delivered later, with no specific timeframe announced yet. This high-end off-road vehicle will use BYD’s independently developed core technologies, E4 technology and DiSus (Yunnian) intelligent hydraulic body control system.

Meanwhile, Yangwang also unveiled a new look for its luxury sports car the U9, which now features a rear wing design that was not present in the version unveiled in January this year. The delivery time and specific price of the U9 have not yet been announced.

Geely: Zeekr X, Lynk & Co 08, and overseas plans

Zeekr X, the first SUV model launched by the Geely-affiliated brand Zeekr, made its public debut during this year‘s Auto Shanghai. The vehicle is aimed at attracting the country’s growing young and affluent population with a price tag of RMB 189,800 ($27,590). This is lower than what one of the firm’s executives projected early this year, considered a reaction to a months-long price war first launched by Tesla and now engaged in by dozens of automakers.

Zeekr also announced detailed plans to expand into Europe. Regional CEO Spiros Fotinos announced on Tuesday that the company will open proprietary showrooms and begin delivering the X along with its 001 sedans in the Netherlands and Sweden later this year. The brand is expected to enter most western European countries by 2026, Fotinos added.

Spiros Fotinos, CEO of Zeekr Europe spoke at its press event at Auto Shanghai 2023, where the company showcased its newest Zeekr X compact crossover on Tuesday, April 18, 2023 (Image credit: TechNode/Jill Shen) Credit: TechNode/Jill Shen

Geely on Tuesday also focused on the Lynk & Co 08, the first model equipped with its in-house produced in-car software co-developed with Meizu after the carmaker completed its acquisition of the Chinese smartphone maker last July. The plug-in hybrid will have a maximum driving range of 1,400 km and a power output of up to 400 kW, with vehicle delivery scheduled during the second half of this year, according to Lin Jie, a senior vice president at Geely Auto.

Volvo’s parent expects its Flyme digital cockpit system not only to offer a connected and seamless experience to users across devices with its latest crossover but also to provide additional computing power to existing vehicle models from Meizu smartphones. The mainstream luxury brand, jointly unveiled to the public by Geely and Volvo in 2016, plans to innovate its current dealership model by opening direct sales stores in major Chinese cities, Lin told the Economic Observer earlier this month.

Geely debuted the Lynk & Co 08 midsize crossover publicly at Auto Shanghai 2023 on Tuesday, April 18, 2023. (Image credit: TechNode/Jill Shen) Credit: TechNode/Jill Shen

Nio: 2023 ES6 crossover and ET7 sedan

Nio unveiled a new version of its popular ES6 sports utility vehicles, which the company boasts can hit a speed of 100 km/h (62 mph) within five seconds. The models also feature a supercomputer that can perform over 1,016 trillion operations per seconds (TOPS). Current Nio cars have a maximum driving range of 900 kilometers equipped with a 150 kilowatt-hour (kWh) battery pack. The EV maker has not yet revealed the driving range of the updated vehicles.

The five-seat crossover has been the company’s most popular vehicle model since it was first introduced in December 2018, with total deliveries of more than 120,000 units at the time of writing. Official release dates and pricing details have yet to be announced, though the EV maker has now begun taking orders for the latest version of its ET7 sedans priced from RMB 458,000, which was first launched in January 2021.

William Li Bin, founder and CEO of Nio spokes at a press event at this year’s Auto Shanghai expo on Tuesday, April 18, 2023. Credit: Nio

Xpeng: G6 crossover

The G6 is Xpeng’s first offering built upon its latest SEPA vehicle architecture and is expected to be a key test of the company’s efforts to return to a leading position in the country’s crowded EV race. With an estimated price range of between RMB 200,000 and RMB 300,000, the midsize SUV is set to be a mainstream, high-volume model compared with its more premium-oriented G9 sibling.

The electric coupe SUV will be capable of traveling up to 300 kilometers (186 miles) on a 10-minute charge, empowered by an 800-volt silicon carbide power module. Meanwhile, the EV maker boasted of its assistant driving tech, claiming drivers will only need to control the car once per 1,000 kilometers in complex traffic environments with the latest version, which it will roll out later this year.

Xpeng co-founder and president Henry Xia introduced the G6 crossover at this year’s Auto Shanghai expo on Tuesday, April 18, 2023. (Image credit: Xpeng Motors)

Li Auto: details of first all-electric model

Li Auto shared further details regarding its all-electric strategy at this year’s Auto Shanghai Show, co-announcing with CATL that its upcoming battery vehicle will be the first in the market to install the latter’s next-iteration Qilin battery that could provide a 4C charge rate. Charging at a 4C rate normally means that the battery could be charged from 0 to 100% in just 15 minutes, according to Quantumscape, a Volkswagen-backed battery startup and a spinout company from Stanford University.

Set to go on sale later this year, Li Auto’s first battery EV will also be built upon an 800-volt architecture for a range of up to 400 km after 10 minutes of fast charging. Chief engineer Ma Donghui added that the company is rushing to build 300 supercharging stations on Chinese highways by year-end and expand the number to 3,000 in three years, by which time it will have a lineup of at least five battery EVs. Li Auto currently has three plug-in hybrid crossovers on sale.

Li Auto president and chief engineer Ma Donghui shared details about the company’s plan for all-electric vehicles and charging facilities at this year’s Auto Shanghai expo on Tuesday, April 18, 2023. (Image credit: TechNode/Jill Shen) Credit: TechNode/Jill Shen

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As China’s car price war rages, Nio and Li Auto buck the trend by resisting cuts

Thu, 16 Mar 2023 09:24:46 +0000

Nio and Li Auto this week reaffirmed plans to stick to their pricing strategy, bucking an industry-wide trend of significant price cuts in China initiated by Tesla and followed by dozens of auto majors from Toyota to Volkswagen. The young electric vehicle makers are looking to protect their superior brand images and achieve profitable growth despite concerns of a slowdown in sales in the short run, according to industry observers.

Why it matters: The ongoing price war in the Chinese auto market has created an unhealthy situation, as it might cause a growing number of consumers to wait on the sidelines in anticipation of further price reductions, UBS analysts told investors in a Wednesday note.

Sales in provinces with local subsidies such as Hubei could see a temporary boost, wrote analysts led by Paul Gong. However, they also cautioned that for many companies, their brand premiums could be negatively affected, making it more difficult to sell their cars at normal prices in the future.
China’s passenger EV sales increased 9% year-on-year to around 131,000 units during March 1-12, while total retail sales of passenger cars declined 17% against the same period last year to around 414,000 units, according to figures published Wednesday by the China Passenger Car Association.

No price cuts planned: Nio has no plans to cut prices for, or release affordable versions of, its flagship models to counter recent price cuts by competitors, Pu Yang, assistant vice president of sales operations, told Chinese reporters on Tuesday. A Nio spokesperson confirmed the report.

In-store visits to Nio showrooms over the past weekend rose to a new three-month high, according to Pu, who added that some potential customers are holding off on purchases and waiting for prices to stabilize, which has affected order intake.
Nio will compete for a larger market share by offering competitive prices in the premium car segment and shoring up services with the expansion of its battery swap facilities, Pu said, citing the strength of its products and brands.
Nio’s domestic sales declined to 2,170 units during the week of March 6-12 from 3,345 units a week earlier, according to figures compiled by Chinese auto trade media outlet EV Observer. In comparison, Li Auto’s sales grew by 32% to 4,243 units during the same week.

Protection against price cuts: Li Auto also made a related move on March 11 by offering a price guarantee on its EVs until the end of the month to reassure customers that no price cuts are on the horizon. CEO Li Xiang said on March 2 that the company would stand by its pricing strategy.

Four car brands are following suit. On Monday, Denza, BYD’s premium EV brand, announced an upfront price protection program through which it will give customers a rebate if there is a price reduction for its D9 multi-purpose vehicles within 90 days of purchase. This comes soon after the company slightly raised the price of its electric minivan to RMB 395,800 ($57,302) on March 1.
Lynk & Co, owned by China’s Geely Auto Group, as well as younger makers Hozon and Leapmotor, had made similar moves as of Thursday. However, on Feb. 27, Lynk & Co began selling a cheaper version of its 01 models, which will be available until the end of April at a price of RMB 159,900, an 11% reduction compared to the 2023 version of the hybrid crossover.

An all-out price war: China’s car price war was in full swing last week when state-owned manufacturer Dongfeng Motor slashed the prices of some models, such as the Citroen C6, by up to RMB 90,000, with the help of incentives from the government of the central Hubei province.

At least 30 domestic and international carmakers have joined the fight, Bloomberg reported. SAIC-Volkswagen on Monday announced a massive cut of up to 20%, or RMB 40,000, for EVs under the German automaker’s ID family, SCMP reported. Meanwhile, some local BMW dealers reportedly offered a discount of as much as RMB 100,000 on its i3 sedans.
Experts cited excess inventory of gas-powered vehicles, waning competitiveness of joint brands by Chinese makers and their overseas partners, and Beijing’s full implementation of new emission rules this July as reasons for the price reductions. Analysts from China’s Huatai Securities expected most price campaigns to last until the end of March.
Multiple EV makers have been tempted to follow Tesla’s lead and reduce the prices of their vehicles since late last year when the US carmaker launched price promotions to boost sales. This was followed by a reduction of up to RMB 48,000 on select models early this year, forcing rivals from BYD to Xpeng Motors to lower their prices to stay competitive.

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Two Sessions 2023: Increase consumption at all costs

Tue, 07 Mar 2023 08:07:19 +0000

As China and its economy regain momentum after three years of strict Covid control policies, the country’s top lawmakers and political leaders are meeting in Beijing this week to discuss the country’s governance, economy, budget, and various key issues. The meeting is part of a week-long annual gathering known as the “two sessions,” or lianghui.

Increasing domestic demand is a top priority for the government in 2023. In 2022, China failed to reach the 5.5% GDP growth rate target it set last year (China grew 3% instead). For 2023, China has set an annual GDP growth target of 5% and hopes that its people will spend more to support the country’s economy.

Much of this year’s growth plan is centered around stimulating consumer spending. Particularly in areas related to technology, the country is relying on people to make more big-ticket purchases like cars, and spend more on various shopping platforms, while building more network infrastructure this year. These include continuing to increase the steady growth of new energy vehicles and charging stations, supporting newer models of e-commerce, building 5G network infrastructure in smaller cities, and constructing national data centers in planned regions.

Buy more EVs

China will continue to push the adoption of electric vehicles as part of its stimulus package to boost consumption and to “enhance its leadership position” in the new energy vehicle industry, policymakers said in this year’s annual government work report. It will also promote the wider use of battery swap technology and continue to support the battery industry.

The two sessions is also an opportunity for enterprise leaders (both private and state-owned) to present policy recommendations to the country’s top political and advisory bodies.

Most proposals from leaders of domestic auto companies have echoed the government line. Feng Xingya, general manager of GAC, a manufacturing partner of Toyota and Honda in China, urged the government to roll out supportive policies to reduce the construction cost of battery swap facilities and push for a standard battery design among different manufacturers. CATL chairman Zeng Yuqun called for the establishment of a quality assessment framework to pave the way for the spread of lithium-ion batteries for grid energy storage.

Lei Jun, CEO of Xiaomi and also a delegate to China’s top legislative body the National People’s Congress (NPC), suggested that China issue data security standards for automobiles and promote data sharing among companies for intelligent connected vehicles. In addition, He Xiaopeng, CEO of Xpeng Motors, called for new legislation to clarify liability in traffic accidents involving autonomous driving cars.

Shop more online

Expanding consumption is key to China’s 5% economic growth this year, as the country tries to recover after stringent Covid-19 controls slowed economic growth. The country’s economic planner sees huge potential for e-commerce platforms as drivers of growth.

Strong export growth in the first half of 2022 has boosted China this year, with the country’s total trade of goods reaching a record high of RMB 42.07 trillion ($6 trillion). In particular, cross-border e-commerce exports grew by 11.7%, reaching RMB 1.55 trillion in 2022, reflecting the rise of overseas retail as a major component of China’s export trade. This year, the government pledged more support for cross-border e-commerce and overseas warehouse development in the annual report.

For the domestic market, Chinese authorities vowed to guide the development of new models such as live commerce and on-demand retail, and lead the sector towards high-quality growth.

Wang Yinxiang, an NPC deligate from Cao county, a garment and coffin manufacturing hub in eastern Shandong province, found in her search that e-commerce in her rural county has helped increase the average lifespan of people in the region. The county is known for being a Taobao village (where at least 50 households own shops on Alibaba’s e-commerce platform Taobao).

Build more 5G, data centers, and other infrastructure

This year, China will continue to upgrade to modern infrastructure systems such as 5G, data centers, and the Internet of Things. Specifically, China will focus on expanding internet networks in small- and medium-sized cities. The government aims to accelerate the development of 5G and broadband networks, and achieve greater integration of cloud networks. In addition, the country will continue the expansion of data centers and data hubs planned under the national data center project the “East-to-West Computing Capacity Diversion Project,” aiming to move more data processing from the country’s prosperous but land-scarce eastern regions to the country’s less-developed but sparse western regions.

In addition to networking and data infrastructure projects, the country also said in its work report that it plans to support the construction of smart highways, civilian space infrastructure, and a commercial space launch center on the southern island of Hainan.

Voice recognition company iFlytek CEO Liu Qingfeng proposed that China should accelerate the construction of artificial intelligence models to enjoy the AI boom. Liu pointed out that while Chinese institutions and enterprises have published a series of large-scale models, the intelligence level of the large-scale models is still significantly lower than OpenAI’s ChatGPT. He asked China to accelerate the development of AI.

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SILICON | China’s chip design industry in 2022: the dawn of living with US sanctions

Thu, 09 Feb 2023 02:30:00 +0000

One of the bright spots when it comes to China’s semiconductor industry is its design capabilities. Yes, these companies mostly rely on US design tools, and when designing leading-edge designs, need to use outside fabs such as TSMC and Samsung, but from a pure design point of view, there is some very skilled talent in China. It’s good enough to get sanctioned at least, with notable examples being Biren Tech and YMTC.

So, how was 2022 for China’s chip design industry then? Is it growing? What problems does it face?

The 2022 Numbers

Last year, 433 new chip design companies were established, bringing the total in China to 3,243, an increase of 15.4%, but the first growth rate drop in four years. Surprisingly, despite talk of companies struggling and sometimes failing, the total number of design companies continues to grow.

Total sales have also increased to roughly RMB 534.6 billion (USD 79 billion). Despite this, given the increase in the number of companies, this works out at sales of around RMB 165 million (USD 24 million) per company, the same as in 2021.

The Yangtze River Delta still accounts for over 50% of design industry revenue but central and western China, despite still only accounting for 15% of revenue, is growing at 49%. Cities like Wuhan, Xi’an, and Chengdu are playing ever more important roles in the industry as they have good universities and lower labor costs. It’s more cost-effective for a lot of these new companies to set up there, compared with the east coast.

Most of these design companies are very small though. Only 566 of them have revenues over RMB 100 million (USD 15 million). In fact, the total revenue of these 566 companies reached RMB 494 billion, meaning they account for roughly 92% of industry revenue with only 8% or RMB 41 billion remaining for the other 2,677 companies, leaving approximately RMB 1.5 million (USD 224,000) each. Suffice to say, the majority of semiconductor design firms in China are making close to zero revenue, have less than 100 employees, and are likely relying on venture capital and government money to survive.

In 2022, we continued to see design firms look to the stock market to raise capital. In total 25 such firms listed publicly, with a combined value of RMB 472 billion.

Overall, the year was a mixed bag, but from a macro perspective at least, Chinese firms are doing a bit better than I expected. However, consolidation would be preferable to having a large number of small firms.

The Problem

Despite COVID-19 and sanctions, officially at least the Chinese design industry continues to grow. In some cases, sanctions have helped firms. Losing access to foreign technology means some Chinese design firms must either find ways around sanctions or buy local. The same can be said of their customers who now may buy local designs to have a more secure supply chain. Of course, it isn’t all rosy in this regard. Just recently, we saw Biren Tech lay off workers and simplify its product to survive. YMTC laid off 10% of its workforce directly due to the sanctions placed upon it. Being forced to buy local, either through necessity or because of orders from on high, can result in a worse end product, slower TTM, more bugs, or lower yields. There are silver linings for certain firms, but overall I’d say Chinese companies would prefer it if there were no sanctions.

Most of China’s chip companies and their revenues still come from the consumer electronics chips sector as well as from telecommunications. Many of these are simpler chips that are designed for mature process nodes. The problem China’s industry needs to overcome is how to move up the chip value chain while avoiding sanctions. At this moment, the design capability is there, but why should companies like Biren Tech bother designing for the leading-edge if they are still going to lose access to TSMC or Samsung? That would entail doing a lot of design work with no way to manufacture it. Recently, a now-blocked article written by a China industry veteran went viral in China. It outlined how China will take until 2030 at the earliest to be competitive at even 28nm for lithography, etching, deposition, and other semiconductor manufacturing equipment. The author also concluded that it would take until 2053 to fully catch up, admitting this was a conservative estimate.

This is the crux of the problem now for Chinese design firms and the Chinese government. They are fully capable of designing powerful high-end chips, but if they risk losing access to the ability to manufacture a design after spending millions creating it, why go to all the effort? On the other hand, if Chinese firms stop perusing such designs altogether, the talent will either go elsewhere or be used to work on things that can actually go to market. China needs to somehow find a way to continue funding such projects to maintain its high-level design capabilities despite being aware that there is a high likelihood of zero returns on investment, while simultaneously looking to find ways to speed up its equipment R&D. This is easier said than done, and in my opinion impossible to achieve during this decade, especially since its own equipment firms are sanctioned, corruption is common, big-fund bosses are under investigation, and private firms are unlikely to continue working on designs without the promise of returns.

Recent joint sanctions from the US, Japan, and the Netherlands only serve to exacerbate and compound the problem. While previous sanctions mainly affected firms working at 14nm and below, and focused on US equipment, new sanctions mean China loses access to Dutch and Japanese equipment that could affect China’s fab expansion for mature nodes. Some DUV machines from companies like ASML and Tokyo Electron are to be banned because they can still be used to create 7nm or even 5nm designs. If this were to be expanded to all DUV machines, it would affect mature node fab expansion in China as well and affect China’s ability to be self-sufficient even when it comes to simpler mature node designs. It will be interesting to see how far these bans go and how well they are enforced. China’s response so far has been rather tame compared to years gone by. The coming year and the rest of the decade will be an interesting watch. Personally, I can’t see any easy route out of this for China in the current climate.

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Chinese EV makers rush to offer big incentives as sales slide

Fri, 03 Feb 2023 10:18:11 +0000

Major Chinese electric vehicle makers, from Aion to Nio, are joining the likes of Xpeng Motors in an industry-wide price war ignited by Tesla, offering generous sales incentives to boost demand after posting dismal delivery results for January.

Why it matters: Sales growth for new energy vehicles (NEVs) at the start of 2023 has reached a bottleneck after the central government fully scrapped subsidies for purchasing them at the end of December, the China Passenger Car Association (CPCA) wrote in a post on Wednesday, quoting January sales figures. NEVs is a catchall phrase used in China that includes all-electric cars, plug-in hybrids, and hydrogen fuel-cell vehicles.

A price war kicked off by Tesla has left many consumers on the fence about buying an EV in the immediate future, as some automakers followed suit with price cuts while others raised prices to help offset rising costs, the industry group added.

Flagging January sales: Retail sales of Chinese passenger electric vehicles fell by 1% year-on-year and 43% month-on-month to around 304,000 units from Jan. 1 to Jan. 27, according to figures published by the CPCA on Wednesday. The industry group has yet to publish figures for the full month, but reports by many Chinese EV makers are out, and they show a definite sales slump.

GAC’s Aion on Wednesday reported a 66% month-on-month drop in vehicle deliveries to 10,206 units in January, during which time the company raised its car prices by between RMB 3,000 and RMB 8,000 to make up for rising costs.
Figures from Xpeng Motors and Huawei-backed EV brand Aito more than halved sequentially to 5,218 and 4,475 units respectively. Both companies followed Tesla’s move with significant price cuts across their vehicle lineups early last month.
Nio delivered 8,506 vehicles in January, marking a 46.2% decrease from a month earlier, while Li Auto reported a relatively solid performance with deliveries falling 28.7% sequentially to 15,141 vehicles. CATL-backed Hozon sold 6,016 EVs, down 22.8% from a month ago.
Zeekr’s January sales of 3,116 vehicles were less than a third of the number delivered in December, which the company attributed to a 22-day production suspension for an upgrade at its Ningbo facility. Hong Kong-listed Leapmotor only delivered 1,139 vehicles, an 86.6% drop from a month ago, but didn’t provide any further details.
BYD handed over 151,341 EVs, including around 10,400 units overseas, which was 35% lower than December’s sales but 62.4% higher than in the same month last year, according to a Wednesday statement.
Other than diminishing subsidies, most companies blamed the slide on the seven-day public holiday during the Lunar New Year, as well as the spike in coronavirus infections that swept China after the country’s zero-Covid policy ended in early December, among other reasons.

Nio’s big promotion: Nio on Wednesday began offering customers a package of discounts and special offers for its first-generation electric sports utility vehicles, including a more than RMB 10,000 ($1,483) allowance to cover the cost increase caused by the phasing-out of Beijing’s subsidy.

The EV maker also unexpectedly discounted inventory of the older version of its ES8 and ES6 crossovers by at least RMB 18,000 and offered existing car owners an additional exchange discount of RMB 15,000, local media outlet Powerhouse reported on Thursday, citing two Nio salespeople.
The company also offered buyers free access to its advanced driver assistance software Nio Pilot which has a sticker price of RMB 39,000, among other promotions. If all these offers are combined, one can purchase a performance version of the 2022 ES6 SUV for RMB 313,700, more than RMB 100,000 cheaper than last month.
Nio on Thursday responded by saying the company is about to launch its redesigned ES8, ES6, and EC6 models and is therefore offering discounts on the small amount of inventory and showroom cars of the old models it has left.
Sales of Nio’s ET7, ES7, and ET5 cars, built upon the company’s second-generation technology platform, accounted for 85.6% of its monthly delivery in January, according to a Wednesday statement.

More price campaigns: State-owned automakers SAIC and GAC also announced they would slash prices on their vehicles this week in the hope of grabbing a share of sales during a traditionally slow season.

Rising Auto, an EV brand launched by Volkswagen’s manufacturing partner SAIC in mid-2020, on Thursday cut the starting price of its base R7 crossover by 7.5% to RMB 279,900. The model is also available at a big discount of RMB 10,000 and can be purchased for RMB 195,900 if customers subscribe to its battery-swap program.
On Wednesday, GAC’s EV unit Aion also began offering a limited discount of RMB 5,000 on its Aion Y SUVs and Aion S Plus sedans, priced from RMB 137,600 and RMB 149,800 respectively, before the end of this month.
A day earlier, Geely’s luxury EV brand Zeekr said that customers who place their orders before the end of March would be able to get certain discounts on car insurance and optional parts.

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Local Chinese authorities unveil stimulus measures to spur EV sales

Wed, 01 Feb 2023 10:33:08 +0000

Multiple regional authorities in China are issuing stimulus measures in a bid to shore up demand for electric vehicles, ranging from cash subsidies to free parking lots, as China’s central government ends its massive decade-long EV support campaign.

Why it matters: The government measures come as sales in the world’s biggest EV market start to show signs of slowing down. The local subsidies underscore China’s continued support of green energy transport, despite the central authorities phasing out EV purchase subsidies altogether a month ago after more than a decade. In September, Beijing extended its 5% purchase tax exemption for EVs to the end of 2023.

On Jan. 18, Tian Yulong, a spokesperson for the Ministry of Industry and Information Technology, said China would continue to create a supportive and healthy regulatory environment for EVs by ensuring the stable supply of core components and funding the build-up of charging infrastructure. This will include laying down stricter rules for EV production licenses and completing the regulatory framework for battery recycling.

Details: The Shanghai municipal government on Sunday announced the extension of its EV subsidy program launched last May in the wake of a months-long city-wide lockdown. Consumers will continue to receive rebates of RMB 10,000 ($1,482) per car for any trade-in of internal combustion vehicles for EVs until June. 30, as part of a stimulus package aimed at propping up the local economy, details of which were released on the government’s official website.

On the same day, the provincial government of Zhejiang called on municipalities to hand out cash incentives to current gas-fueled car owners who plan to shift to EVs. The eastern Chinese province will permit EVs to park for free at public facilities for the first hour, as it aims for 60% of cars it produces to be EVs by 2025, according to an action plan published by the regional government.
On Jan. 28, the northern province of Shanxi also rolled out a package of 14 measures to stimulate car demand, including incentives for public EV bus operators, tax breaks for personal EV purchases, and parking discounts. This followed similar initiatives released last month by the provincial governments of Heilongjiang, Henan, and Yunnan to fund EV adoption.

Context: Beijing began granting subsidies to EV buyers across China in 2010, deliberately trimming the purchase incentives starting in 2015 when it found that EVs with a range of over 400 kilometers (249 miles) were qualifying for subsidies of as much as RMB 54,000 per unit. The generous subsidies were cut by more than half to RMB 25,000 in March 2019, leaving China’s sales of new energy vehicles (NEVs), mainly all-electrics and plug-in hybrids, down 4% annually to 1.2 million that year.

Beijing later introduced a gradual scheme which cut the subsidies by 10%, 20%, and 30% from 2020 to 2022 in the hope of stabilizing the market. EVs with a driving range of over 400 km enjoyed a subsidy of RMB 12,600 in 2022 before subsidies were fully scrapped in December. There were more than 13.1 million NEVs on the road as of 2022, according to figures from the ministry of public security.
China’s NEV sales nearly doubled to 6.8 million units in 2022, according to figures from the China Association of Automobile Manufacturers (CAAM). Despite this, the market shifted into a lower gear in the second half of last year, as restrictions on free movement related to the Covid-19 pandemic hit consumer demand and disrupted the supply chain.
Sales of passenger NEVs increased 35% year-on-year to around 640,000 units in December, and the number is expected to rise by just 1.8% year-on-year to 360,000 units in January, according to estimates by the China Passenger Car Association.

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China’s EV battle 2022: why BYD is leaving Tesla and Xpeng in the dust

Tue, 24 Jan 2023 00:30:00 +0000

Skirmishes have surrounded China’s speedy uptake of electric vehicles in the past year, with industry giant BYD reigning supreme but an increasingly large crowd of challengers looking to muscle in on the action. Once-promising startup Xpeng Motors and major automaker Great Wall Motor have been among those to falter in 2022 – and the war is far from over.

Industry observers link BYD’s success to China’s national shift towards electric vehicles, the company’s highly-integrated supply chain across key components, and a rising consumer preference for high-quality, cost-competitive automobiles as recession looms.

Xpeng’s recent setbacks, however, reflect structural weaknesses at the company, including limited competitiveness and low operational efficiency in a crowded marketplace. Now, the risk of falling behind the competition has become real for the Guangzhou-based company.

Even Tesla faces an eroding market share in a highly competitive field, thanks to an onslaught of new models from various domestic rivals. Meanwhile, foreign auto giants from Volkswagen to Ford have long lagged behind Chinese counterparts in transitioning to green energy.

Here, we look at the annual results of China’s EV leaders and attempt to explain the dynamics behind some of the biggest winners and losers of the past year.

Winners and losers

Despite being a bright spot in a slowing auto market, China’s two-year run of huge growth in the EV sector hit unexpectedly fierce competition as it shifted into a lower gear in the second half of 2022.

BYD was the biggest winner of the year, with annual sales of 1.86 million electric cars. The company’s output was more than triple 2021’s figure of around 600,000 units, comfortably exceeding its goal of 1.5 million units.

Tesla was left a distant second. The company’s sales started to slow last year as concern grew about an underlying mismatch between supply and demand. In 2022, the US automaker delivered 439,770 China-made vehicles to local customers, a 37% increase from a year ago and significantly lower than its 50% growth target for overall sales volume.

Besides BYD and Tesla, multiple Chinese EV makers including Nio and Xpeng embarked on 2022 with optimism and ambitious sales targets. However, only a handful managed to hit their goals. Aion (the EV arm of state-owned automaker GAC) and Hozon kept their word by selling around 271,000 and 152,000 EVs respectively last year. Geely’s premium EV brand Zeekr also achieved its goal by delivering just over 71,000 vehicles.

China’s US-listed EV makers mostly underperformed. Nio played tough to secure around 80% of its 150,000-vehicle delivery goal, while Xpeng delivered just over 120,000 units of its 250,000 unit target.

Why BYD dominated the market

In December, when most automakers struggled to protect their market shares by offering generous discounts as the Chinese government phased out EV subsidies, BYD went the opposite way by announcing a price rise of up to RMB 6,000 ($870) across its lineup. The move proved BYD’s role as “price maker” in the mass market, analysts at Jefferies wrote in a Dec. 1 report.

Analysts attributed BYD’s dominance partly to its success in ramping up manufacturing capacity and building a secure, integrated supply chain from batteries to chips. In 2022, when the company tripled its annual car capacity to around 3 million units at its eight manufacturing locations, according to public information gathered by investors, it also more than doubled its battery capacity to 285 gigawatt-hours (GWh), according to estimates by Founder Securities. A company spokesperson declined to comment on the capacity figures.

Also, the automaker has adopted a dual strategy of betting on both all-electrics and plug-in hybrid EVs (PHEVs) as range anxiety continues to be a top concern among local buyers. BYD offers nearly 70 models in major configurations and price categories. This helps the company stand out in a crowded market where many competitors pick a type and limit buyers’ options.

Why Xpeng and Great Wall Motor are losing ground

As China’s EV sales reported nearly 100% annual growth in 2022, Xpeng Motors and Great Wall Motor are among the most surprising names for whom sales growth dipped well below the industry average. The two companies sold 120,757 and 131,834 EV units last year, posting a flat increase of 23% and a 4% decline from a year earlier, respectively.

Multiple factors have put pressure on the two companies, including weaker consumer sentiment and interest rate hikes.

The sales slump at Great Wall Motor indicates a major setback in the company’s slow shift to EVs. In 2022, monthly sales of the company’s Haval H6, once China’s top-selling gas-powered crossover, fell 75% to around 20,000 units from historic highs, as it appeared to be outpaced by popular EV models produced by Tesla (Model Y) and BYD (Song Plus).

Ora, the company’s dedicated EV sub-brand, saw sales decline by 23% year-on-year to 103,996 units. Nevertheless, Great Wall Motor’s management has big plans for 2023 — promising to launch more than 10 EV models, including five new PHEVs under the Haval brand and two new models under the Ora marque.

Xpeng is facing a more complicated external environment, as well as the threat of increased pressure from rivals, said David Zhang, a school dean at Jiangxi New Energy Technology Institute. Not only are sales of big name rivals such as BYD and GAC’s Aion gaining momentum, but younger makers such as Hozon and Leapmotor are increasingly catching up. That’s the broader context behind Xpeng currently restructuring its business, according to Zhang.

Meanwhile, Xpeng is exposed to a potential demand mismatch risk in the short-term, as consumer confidence in vehicle intelligence technologies lags behind ambitious plans to bring self-driving cars to the market, analysts from Zheshang Securities told local media outlet Jiemian.

The Alibaba-backed EV maker has pledged to put more effort into overall car-making after reporting three consecutive months of dropping sales as of October and losses of RMB 6.78 billion ($1 million) for the first three quarters of 2022. It is also dealing with an aging product portfolio and implementing cost control measures to boost efficiency and drive sales, with chief executive He Xiaopeng promising to refocus on the core company after spending some time and energy on emerging businesses such as flying cars.

“We have high expectations for 2023. It’s a game of both competence and persistence. We have winning cards to play the game, and the evolution is making good progress,” a company spokeswoman said when contacted by TechNode.

Trend 1: Bring everything in-house

In-house manufacturing of key components has become one of the biggest trends in China’s EV industry over the past year, as many automakers look for ways to reduce supply chain vulnerability amid persistent chip shortages and the surging cost of battery materials. Among them, BYD is widely seen as a role model for this vertical integration strategy: the automaker builds its own supply chain and performs most of the activities required to bring its vehicles to market.

Already the world’s second-biggest battery maker and a major domestic supplier of power semiconductors for automobiles, BYD is now looking to expand production capacity significantly and accelerate the development of new products. Founder Securities expects BYD’s capacity to increase to 445 GWh-worth of batteries to close the gap with dominant player CATL by the end of 2023. In November, the company abandoned an initial public offering plan for its semiconductor unit as it decided to focus instead on expanding the capacity of a local plant by 80% to reach 360,000 wafers in 2023.

Other major industry players, from state-owned GAC to US-listed Nio, have also been racing to develop battery and semiconductor technologies in-house to ensure a secure supply of the key components. Here are some recent moves and potential developments for the companies heading into 2023:

On Nov. 18, Svolt, an EV battery startup backed by Chinese automaker Great Wall Motor, filed initial paperwork for a public share sale on Shanghai’s Nasdaq-style Star market. The company is looking to raise RMB 15 billion to build three manufacturing plants with a combined annual capacity of around 106 GWh.
On Dec. 29, GAC began building an RMB 2.2 billion drivetrain plant in Panyu, a city in the southern province of Guangdong, with mass production to kick off at the beginning of 2024. Initial capacity will enable it to assemble drivetrain systems for 400,000 battery EVs and 100,000 plug-in hybrid vehicles annually by 2025.
On Dec. 21, Xpeng confirmed that it has set up an RMB 5 billion subsidiary to produce battery packs on its own but will still source battery cells from partners. On Oct. 25, peer Nio made a similar move by forming an RMB 2 billion subsidiary for battery manufacturing, in addition to a $32.8-million research facility for battery development.
On Oct. 10, Chinese media outlet LatePost reported that both Nio and Xpeng had formed hundred-strong teams to work on chips for autonomous driving, while Li Auto had been hiring chip designers for more fundamental semiconductor components.

Trend 2: Short-term bumps

Analysts have warned about the prospects of a bumpier year for EV makers in 2023, and sure enough, the industry is already seeing some sharp movements. On Jan. 6, Tesla made a big splash by cutting the prices of its China-made vehicles by between 6% and 13.5%, a move that Sun Shaojun, a popular Chinese car blogger, described as kicking off an industry-wide battle for survival in the year ahead.

Sun added that many rivals would probably have to follow suit in the face of such a big promotion by an industry leader. Meanwhile, analysts at Bernstein expect competition to heat up with as many as 126 new battery EV models and 55 new plug-in hybrid models coming to market in 2023, a 40-50% increase on last year.

In anticipation of a post-Covid recession and in light of EV subsidies being scrapped, sales are expected to slow this year. Credit Suisse’s sales forecast of 9.4 million EV sales in China is one of the more bullish on Wall Street, while Bernstein more cautiously holds that 8 million units will be sold in the country this year.

An ongoing growth story

And yet, long-term growth prospects remain buoyant, as demand shifts from policy-led to consumer-driven, Bernstein analysts wrote in a Jan. 5 report. UBS shared the sentiment, expecting the new energy vehicle (NEV) penetration rate, mainly for all-electrics and PHEVs, to grow by 10% this year to reach 37% of all new car sales.

2022 proved to be a big year for Chinese EVs. The central government achieved its goal of EV adoption approaching 25% of total car sales three years ahead of schedule, as industry sales nearly doubled to 6.8 million units. Still, pressure on margins is likely to persist in the near term for smaller companies, which have already been exposed to high battery material costs.

Looking ahead, China has cemented its growth momentum in the global EV race, but industry players should expect short-term sacrifices to hit their profits as they glimpse a bigger and brighter future.

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China tech in 2022 | A difficult year for many, but EVs and overseas retail provide bright spots

Mon, 02 Jan 2023 00:10:00 +0000

China had a rough ride in 2022.

Throughout the year, the economy was plagued by the frequent resurgence of Covid and the related containment measures that disrupted daily activities. In the first three quarters, China’s GDP grew by 4.8%, 0.4%, and 3.9% from last year, falling far short of its own 5.5% annual growth goal.

The country’s tech industry was, of course, not immune to the overall sluggish economy. Chinese companies (many of which are in the tech sector) on the Hurun Global 500, a list that tracks the world’s most valuable companies, lost $2.9 trillion in 2022, more than half of their value from last year.

The e-commerce and content sectors, in particular, saw the most damage as consumers and advertisers cut spending. Industry leader Alibaba reported a steep drop in revenue growth, while budget retailer Pinduoduo saw rapid growth as people became more sensitive to prices. Content giant Tencent also reported quarterly revenue declines, and advertising revenue dropped significantly.

Meanwhile, green energy vehicle sales had been a rare growth point in China, and Chinese shopping platforms were rising rapidly in overseas markets despite challenges at home.

It might be too early to tell whether the country is nearing a turning point. After three years of battling the highly mutable and transmissible Covid-19, the Chinese government suddenly relaxed its Covid control policies in early December, exiting from its previously strict measures in less than a week. Such drastic change has resulted in rapid Covid infections across China, triggering drug shortages and causing many people to stay home to recover.

China’s earlier-than-expected reopening could bring an economic recovery in 2023. But the country might also need some time to learn to live with Covid after three years of strict controls.

Goldman Sachs expected China to reopen in the second quarter of 2023 in their annual China outlook report published in November and forecasted China’s GDP growth to “accelerate from 3.0% this year to 4.5% next year.” The first quarter after reopening might see negative growth, due to Covid case surges and people temporarily reducing travel, the report said. However, China might see accelerated growth once people adjust to the new reality, as experiences from other East Asian countries that have implemented strict Covid controls show.

EVs drive automaker growth, BYD claims dominance

In a year of lackluster consumer confidence, new energy vehicles (NEVs, including plug-in hybrids and electric vehicles) have been a rare bright spot in China. The country’s car buyers showed a strong preference for NEVs over traditional gas cars. The share of NEVs in the new car sales reached 36.2% in November, growing from last year’s 22.5% and surpassing China’s goal of 25% by 2025, three years ahead of schedule.

And no Chinese automaker had a better year than BYD. The local EV and battery maker climbed to a dominant position in the new energy vehicle segment. At the same time, China’s leading EV trio — Nio, Xpeng, and Li Auto — faced various problems and lost some of their shine.

BYD managed to capture market share from other strong rivals this year. In a year, BYD grew its share of NEV sales from 19.5% to 31%, while Wuling’s went down from 14.4% to 8%, and Tesla China went down from 10.7% to 7.9%.

As of November, BYD more than doubled its sales from last year, selling more than 1.57 million NEVs this year in China, taking more than 31% of the market share, ranking first and way ahead of the trailing pack of automakers. Wuling, a state-owned mini EV maker, is second, selling more than 400,000, growing 7.1% from last year, and accounting for more than 8% of the market. Tesla’s China operation came in third, with more than 397,800 cars sold, a 59% annual growth, and a 7.9% market share. Li Auto, Xpeng, and Nio ranked 10th, 11th, and 12th, each taking less than 2.3% of the market, down about 1% from last year.

Other local automakers, such as Geely, GAC’s Aion, Chery, Changan, and Hozon, also had a good year and grew their market share, though the speed and scale of BYD’s growth were unrivaled. Hozon made it into the top ten EV brands by sales for the first time this year, squeezing out the state-owned joint venture SAIC. Geely also saw impressive market share growth, rising from 2.7% last year to 5.3% this year.

BYD has two main advantages: competitive pricing and an integrated supply chain. BYD’s popular models — BYD Song Plus and BYD Qin — have been frequent bestsellers in their categories in the last six months. Priced between RMB 150,000 and RMB 220,000 ($21,470 to $31,490), these models are known for affordability and fuel efficiency. Unlike many other automakers hit by supply chain crunch and price hikes of source materials, BYD was able to keep its competitive price as a major battery maker in its own right (and one that is reportedly set to supply its blade battery to Tesla). BYD is also expanding outside China, systematically entering Japan, Southeast Asia, and Western Europe, with more overseas pushes planned ahead.

However, such impressive growth could slow in 2023. Multiple automakers in China gave conservative outlooks for the first half of 2023, citing the end of EV purchase subsidies at the end of 2022. Many brands also cut prices and gave out promotions to attract buyers to place orders before the end of 2022, boosting their year-end sales and capitalizing on the last subsidy run. These moves are likely to overdraft 2023’s sales in advance.

Pinduoduo wins in China, competition heats up in overseas markets

In the economic downturn, budget retailer Pinduoduo outrivaled established platforms like Alibaba and JD. In the third quarter, Pinduoduo reported 65% growth in revenue and a whopping 388% growth in operating profit, contrasting with Alibaba’s relatively flat growth of 3% in revenue and 68% in operating profit, and JD’s 11.4% growth in revenue and 276% in operating profit. Alibaba fared worse than JD, seeing a steep drop in revenue growth, with yearly growth hitting below 10% for the first three quarters of 2022, a major departure from the 20% or 30% plus growth rates it has been accustomed to in the past few years.

Although Pinduoduo’s vice president of finance, Liu Jun, said at a third-quarter earnings call that the company was “unlikely to maintain” that level of profitability, the temporary strong growth still showed the broad appeal of a well-run budget retailer during lean times.

China’s year-end shopping festival Singles Day was also increasingly losing its appeal. Industry leaders Alibaba and JD didn’t release their overall sales data for the first time in a decade. Moreover, these established retailers were also facing serious threats from ByteDance’s Douyin as the short-video platform continues to see strong growth in live commerce.

In contrast to the slow growth back home, outside of China, competition has been heating up for Chinese overseas retail platforms. In March, Shein, the Chinese online fashion platform known for its ultra-cheap prices, managed to expand its market share of fast fashion sales in the US to 40%, continue to widen its lead over H&M’s 27%, Zara’s 17%, Forever 21’s 9% and Fashion Nova’s 6%, a report from Bloomberg Second Measure said. Shein became the largest fast-fashion retailer in the US in the second quarter of 2021 and grew its US sales more than 5.6 times between March 2020 and March 2022.

Seeing Shein’s success, Pinduoduo also launched an overseas retail platform Temu in September. The platform surpassed $1.5 million in average daily gross merchandise value (GMV) in its first month. Although the figure fell slightly short of internal expectations, the platform was spending heavily on ads to capture new customers, even becoming the most-downloaded shopping app in the US, surpassing Amazon, Walmart, and Shein. Nevertheless, it remains to be seen whether such growth is sustainable.

A somber year for China’s semiconductor industry

Since Chinese tech giants ZTE and Huawei began to be hit by US sanctions five years ago, the Chinese tech industry has wondered about the evolution of US sanctions. This fall, the multi-year effort hit a new level.

In October, the US announced a sweeping set of restrictions on semiconductor exports to China, aiming to cut China off from accessing high-end chips and the tools to make them. Instead of putting individual companies on blacklists, the new restrictions took aim at the entire Chinese semiconductor sector and related industries.

In particular, the Biden administration is trying to limit China’s ability to make advanced chips under 16nm or 14nm, DRAM memory chips of at least 18nm, and NAND flash memory chips of 128 layers or more. Meanwhile, the US is also pursuing chipmaking toolmakers in the Netherlands (ASML) and Japan (Tokyo Electron), pressuring them to stop selling China the tools to make high-end chips. There aren’t many ways around these curbs. Unless advanced chipmaking technology changes or undergoes a fundamental evolution, China’s dream of making its own advanced chips in the next few years might be limited.

Content platforms see ad revenue winter

The content and entertainment sectors have seen significant blows in the past year, not just in China, but also worldwide. According to the Hurun Global 500 list, media and entertainment companies suffered the most significant drop in value in 2022, followed by retail, software, and services, while the biggest gainers were in energy and insurance.

Major content platforms in China saw dwindling advertising dollars as companies cut marketing budgets to weather the economic downturn. Worse, whatever budget was left was increasingly going directly to e-commerce platforms such as Pinduodou and JD rather than content platforms like Tencent, Baidu, and Weibo.

Content giant Tencent saw yearly revenue decline by 3% and 2% in the second and third quarters, with advertising revenue down almost 18% in the second quarter. In late December, Tencent’s CEO Pony Ma said in an internal speech that the company could cut Tencent News, the company’s signature news website established in 2003, if the site can’t break even by itself.

Search engine giant Baidu also saw revenue decline by 5% in the second quarter, and a flat 1.9% growth in the third. Microblogging site Weibo saw heavy losses too, reporting 22% and 25% revenue declines in the second and the third quarter.

Gaming companies in China saw a few signs of easing conditions. In April, China began issuing gaming licenses again after an eight-month freeze. But heavy regulation on the sector in 2021 has continued to have ripple effects, and video game companies were projected to see a 2.5% annual revenue decline in 2022. Many smaller studios had to lay off staff or even shut down their companies while waiting for their new games to be approved by the authorities. The worst might be over, but the pain is still being felt throughout the industry.

Related reporting from TechNode

Auto

BYD makes expansion moves in Southeast Asia and Europe

Meet the Chinese carmakers racing to get a larger share of the global markets

E-commerce

How Shein became China’s ‘TikTok for e-commerce’

Shein surpasses Amazon in downloads for the first time in the US

Semiconductors

The US’s moves to contain China’s semiconductor industry: a timeline from July

Chinese semiconductor firms bear heavy fallout of US chip sanction

Content

China resumes issuing new gaming licenses after 8-month freeze

Tencent’s overseas gaming revenue helps lead Q3 recovery

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Chinese EV makers rush to boost year-end sales as subsidies expire

Fri, 09 Dec 2022 09:58:28 +0000

Chinese EV makers Nio, Xpeng Motors, Zeekr, and Aito, as well as Tesla’s operation in China, are racing to get the last slice of the sales pie before the end of 2022, offering special promotions with the country scheduled to phase out subsidies for electric vehicles beginning next year.

Why it matters: Analysts have projected slower EV sales in the coming months after the phase-out but remain positive on the overall growth of the EV sector in China in 2023.

The end of subsidies: The Chinese government currently grants a small number of subsidies to EV buyers, with all-electrics and plug-in hybrids eligible for subsidies of RMB 12,600 ($1,836) and RMB 4,800 ($689) per unit, respectively. Beijing reduced the incentives gradually by 10%, 20%, and 30% from 2020 to 2022.

Multiple Chinese automakers, including Nio, Xpeng Motors, Volkswagen’s Chinese partner SAIC, Geely’s premium EV unit Zeekr, and Huawei-backed EV brand Aito, have recently promised to cover the price increase if customers place their order before the end of 2022 when those subsidies expire and EV prices rise accordingly.

Tesla’s multiple discounts: Tesla China has offered various discounts on its vehicle lineups amid investors’ fears of a looming slowdown in demand, including an additional discount of RMB 6,000 and a rebate of RMB 4,000 on customers’ end-of-the-year orders.

The US automaker kicked off the price war on Sept. 16 by offering customers an insurance incentive of RMB 8,000 and then slightly lowered the amount to RMB 7,000 for orders made from October to December.
This was followed in October by a round of price cuts of its base Model 3 sedans and Model Y sports utility vehicles by at least RMB 14,000 and RMB 20,000, respectively.

Outlook for 2023: Some other automakers have announced the upcoming car price rises in advance, pushing customers to place their orders by the end of the year.

BYD said on Nov. 23 that the price of most of its EV models would be up by up to RMB 6,000 starting next year to offset the increase in vehicle costs from expiring government subsidies and rising battery prices.
GAC’s EV unit Aion and Ford’s manufacturing partner Dongfeng followed suit by previewing a price increase for the next year of up to RMB 8,000 and RMB 9,000, respectively.
The phase-out will also increase profit pressure for EV makers, who have already been hampered by the rising cost of battery raw materials and other supply chain issues over the past year. Carmakers are facing challenges to increase market share while maintaining their margin guidance, UBS analyst Paul Gong told Chinese media outlet Caixin in a Tuesday report.
Gong remains positive on the market’s growth prospects for 2023 and forecasts that the penetration rate of new energy vehicles (NEV), mainly all-electrics and plug-in hybrids, will rise to 37% of all new car sales next year from the current level of 27%. China’s state council in 2020 set a goal of NEVs to account for 20% of new car sales by 2025, which was completed well ahead of time.
Cui Dongshu, secretary general of the China Passenger Car Association (CPCA), expressed a similarly positive sentiment during an online conference on Thursday, saying he expected China’s NEV sales to more than double annually to 6.5 million units this year. The CPCA estimates the number will reach 8.5 million units in 2023, representing a 31% growth year-on-year.

Context: Beijing’s various policy measures and a vast selection of offerings by automakers have allowed the Chinese EV industry to thrive even amid increased competition. EV buyers will still be exempt from a 5% purchase tax next year, the central government said in August.

In November, retail sales of passenger NEVs increased 58.2% from last year and 7.8% from the previous month to around 598,000 units. BYD and Tesla are the two most prominent players, recording sales of 229,942 and 100,291 units respectively, according to CPCA figures (in Chinese) published Thursday.

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Chinese battery makers rush to IPOs as lithium price more than doubled

Thu, 24 Nov 2022 09:42:30 +0000

Chinese battery makers Svolt, Sunwoda, and Ganfeng are rushing to raise funds as prices for key raw material lithium more than double in a year. The country’s regulators are also rolling out a set of new measures in the electric vehicle battery market, including a crackdown on illegal hoarding, as high lithium prices have threatened the profit margins of automakers and could further slow EV adoption in the country.

Why it matters: The spot price of battery-grade lithium carbonate was up 201% in a year, rising RMB 200,000 per ton to RMB 590,000, according to Nov. 11 figures from the metal research institute Shanghai Metals Market.

Analysts said supply and demand have been imbalanced thanks to booming EV sales since 2021. Meanwhile, an output cut of lithium salts due to weather issues in China’s northwestern Qinghai province, as well as advanced orders for next year from battery and material producers, are among the short-term reasons for the skyrocketing lithium prices.
An enormous increase in lithium prices over the past few months could also create long-term structural problems such as industrial overcapacity, as companies from battery makers to lithium producers rush to raise cash for manufacturing capacity expansion.

Funding rush: Svolt, Sunwoda, and Ganfeng are among the Chinese battery makers and material suppliers rushing to raise cash as wider EV adoptions open a window of opportunity to sell bonds and shares.

Svolt, a battery maker backed by BMW’s manufacturing partner Great Wall Motor, filed for an initial public offering on Nov. 18 in the mainland market to fund the construction of three plants with a combined annual capacity of 106.65 gigawatt-hours (GWh) of batteries.
On Nov. 14, Shenzhen-listed Sunwoda completed a share sale in Switzerland, raising $450 million, months after Volkswagen-backed Gotion raised $685 million on the Swiss exchange. A supplier to Xpeng Motors, Sunwoda is building two facilities with a capacity of 80 GWh of batteries annually, an investment of RMB 33.3 billion (nearly $4.7 billion).
Ganfeng Lithium plans to spin off its mining subsidiary, Ganfeng LiEnergy, for a possible listing on the Shenzhen stock exchange, according to a security filing published on Wednesday. In August, China’s biggest lithium compounds producer announced a partnership with state-owned automaker GAC for raw material supply and joint development in battery technologies.

New rules: In a document released publicly on Nov. 18, two Chinese government agencies — the Ministry of Industry and Information Technology and the State Administration for Market Regulation — asked local regulators to do more in their crackdown on illegal acts such as hoarding and price-gouging of battery raw materials.

The two agencies also jointly urged regional authorities to break down local protectionism, build an open, fair, unified national lithium-ion battery market, and help businesses to address supply chain problems.
The central government also voiced concern about “blind development” in battery manufacturing, calling on battery makers and material producers to expand their production capacity “in a scientific and orderly manner” under the supervision of local governments (our translation).

Slimming margins: Rising costs for battery raw materials have hurt the profitability of Chinese EV makers. Nio’s vehicle profit margin declined from 18.1% to 16.4% over three consecutive quarters this year. Meanwhile, the number for Xpeng Motors fell from 12.2% to 9.1% in the first half of 2022.

Speaking to analysts during an earnings call on Nov. 10, Nio’s chief executive William Li expected the company’s vehicle margin to remain relatively stable in the current quarter, adding that an increase of RMB 100,000 in lithium carbonate would cut its car margin by 2%.

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Toyota, Volkswagen, BMW and other auto majors show off new EVs at the 2022 China import expo

Fri, 11 Nov 2022 10:50:05 +0000

Global automakers have brought strong electric vehicle offerings to China’s annual import fair, the 2022 China International Import Expo (CIIE). They include Volkswagen, BMW, Toyota, Honda, Ford, Hyundai, and GM.

These traditional automakers are accelerating new EV rollouts in China as they find themselves in danger of being left behind by Tesla and much younger local rivals amid the country’s surging adoption of intelligent and connected EVs.

Though the expo showcases companies in various industries, from consumer goods to medical devices to smart manufacturing suppliers, CIIE has become a major auto show. Automakers came to the expo with vehicle debuts, futuristic concepts, and cutting-edge car tech. Here’s a look at some of the key auto launches at this year’s CIIE, which ended Thursday.

Volkswagen: ID. Aero

Volkswagen showcased its latest electric sedan model ID. Aero at this year’s China International Import Expo (CIIE) in Shanghai in 2022. Credit: Jill Shen/TechNode

Volkswagen brought its latest electric sedan concept, the ID. Aero (part of VW’s purely electric ID. lineup) to the 2022 CIIE. Built on a dedicated EV architecture known as MEB, the car has a driving range of 620 kilometers (385 miles), a battery pack of 77 kilowatt-hours (kWh), and is scheduled for delivery in China in the second half of 2023.

The low-slung car will also be equipped with an in-car connectivity system, which for the first time since the German auto giant’s entry into China in 1984 has been developed by Volkswagen’s local team. Volkswagen plans to expand its Chinese software team by 50% to 1,200 engineers by the end of next year, Chinese media outlet Jiemian reported, citing Sun Wei, the chief technology officer of Cariad China, the manufacturer’s software subsidiary.

BMW: i4 and i7

A BMW i4, the brand’s first all-electric sedan model, at its booth for the 2022 China International Import Expo in Shanghai, China. Credit: BMW

BMW brought only electrified vehicles to this year’s expo, including the i4, the brand’s first all-electric sedan model that went on sale in China in February with a price range of RMB 449,900 – RMB 539,900 ($62,036 – $74,446). The carmaker also showcased the i7, the first-ever all-electric of the seven-series, the brand’s most luxurious and advanced product lineup.

The success of these luxury models is vital: China sales of the German car giant declined 11.5% year-on-year to 592,873 vehicles for the first nine months of this year, while that of its “born electric” i-series bucked the trend with an annual increase of 65%. Chief executive Oliver Zipse on Nov. 4 reaffirmed commitment to its China growth plans, aiming for more than 25% of its car sales to be all-electrics in the country by 2025.

GM: Cadillac Celestiq and electric Hummer

General Motors debuted the GMC Hummer sports utility vehicle locally at the 2022 China International Import Expo in Shanghai, China. Credit: Jill Shen/TechNode

This year, General Motors’s Durant Guild, the company’s new direct sales business, made its first global appearance to the public during the expo and introduced the Cadillac Celestiq, an ultra-luxury flagship electric sedan.

The low-volume electric fastback is priced at around $300,000 in its home market and will be available to well-heeled Chinese consumers via a direct sales and import vehicle platform. Production will begin in GM’s global technical center in Michigan next December.

Also making its local debut is the GMC Hummer sports utility vehicle, GM’s first all-electric Hummer. The US automaker expects such “halo cars” to create significant buzz around its Cadillac and lower-end Chevy brands and enhance its image as an innovative automaker, Julian Blissett, the head of GM in China, told Reuters in September.

Ford: F-150 Lightning

Ford showcased its Ford F-150 Lightning battery-electric pickup truck at the 2022 China International Import Expo in Shanghai, China. Credit: Qin Chen/TechNode

CIIE 2022 also saw the local debut of the long-awaited Ford F-150 Lightning, an all-electric version of America’s best-selling pickup truck over the past four decades. The Detroit auto giant touted the full-size pickup truck as being able to accelerate from 0 to 96 km/h (60 mph) in under four seconds and power a home for up to three days of regular usage during a blackout.

Ford has ramped up its EV business in China following the establishment in September of Ford Electric Mach Technologies, a subsidiary dedicated exclusively to the research, development, and operation of intelligent battery-powered cars. Early in the month, the manufacturer slashed the prices of its Mach-E electric crossover lineups by nearly 10%, as it rushed to keep up with the rising competition.

Toyota: bZ3

A Toyota bZ3 all-electric sedan at its booth for the 2022 China International Import Expo in Shanghai, China. Credit: Jill Shen/TechNode

Having continued to focus on the current generation of gasoline-electric hybrids, Japanese automakers are beginning to turn their attention to fully electrified cars.

Toyota showcased the bZ3, the second model under its new “Beyond Zero” (bZ) all-electric series, as well as the first result of its collaboration with its EV partner BYD, more than three years after the two companies forged an alliance for EV making. Scheduled for sale by year-end, the China-model bZ3 is equipped with BYD’s “blade batteries,” which the manufacturer boasts have made new achievements in both safety and power, and assembled at a joint plant operated by partner FAW Group in Tianjin. Pricing details remain unknown.

Honda: e:N2 concept

Honda made the world debut of the Honda e:N2 concept at the 2022 China International Import Expo in Shanghai, China. Credit: Qin Chen/TechNode

Honda showed its e:N2 concept EV for the first time at this year’s CIIE. It is the second model under Honda’s Chinese-market e:N lineup. The company began selling its first “e:N series” model, the e:NS1 SUV, at a starting price of RMB 175,000 ($24,609) in April and plans to expand the portfolio with the introduction of 10 new EV models over the next five years.

The Japanese carmaker has experienced a downward trend in China, with sales of passenger cars from its joint venture with partner GAC Group declining 28.3% year-on-year to around 56,000 units, according to figures published by the China Passenger Car Association on Wednesday.

Hyundai: NEXO and Ioniq 6

A Hyundai Ioniq 6 electric sedan at its booth for the 2022 China International Import Expo in Shanghai, China. Credit: Qin Chen/TechNode

Hyundai brought something new to Shanghai this time, and it wasn’t only about electric cars. The South Korean maker said it plans to introduce its NEXO hydrogen-powered SUV to the Chinese market later this year, adding that its first purpose-built fuel cell EV has now been certified for sale by regulators. The NEXO crossover is the top-selling FCEV with a global market share of nearly 60% and recorded sales of 8,449 units globally for the first nine months of this year, according to figures compiled by industry tracker SNE Research.

The automaker also showcased its first all-electric sedan, the Ioniq 6, for the first time in China, a vehicle it hopes will make an impact in a market segment dominated mainly by Tesla’s Model 3. The vehicle has a claimed driving range of 610 km (379 miles) and can charge from 10% to 80% in as little as 18 minutes with an 800-volt electrical system.

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German auto giants VW and BMW make strong vow to double down on China

Tue, 08 Nov 2022 08:09:08 +0000

Despite increasing calls in Europe for an economic decoupling from China amid rising geopolitical conflict, Volkswagen and BMW have committed to long-term development in China and will continue to invest in the world’s biggest car market, according to senior executives from the German automakers.

Why it matters: The remarks come as German Chancellor Olaf Scholz visited China on Nov. 4 with a group of top business leaders, including Volkswagen’s chief executive officer Oliver Blume.

BMW’s CEO Oliver Zipse was also among the group of business executives who joined Scholz’s inaugural trip to China, noting in a statement that the visit sent “a strong signal towards reinforcing economic cooperation between China and Germany.”

Details: “China has established one of the world’s most comprehensive industrial bases and supply chains… and will remain one of our most strategically important markets,” Zipse said, adding that the German carmaker will stay “unwaveringly committed” to the Chinese market.

BMW has also been lobbying the US government to ease up its climate legislation, including a rule that would exclude a $7,500 consumer tax credit to EVs using battery materials sourced from China, Bloomberg reported on Oct. 19.
Volkswagen’s China chief Ralf Brandstaetter also publicly voiced support for Berlin reinforcing business ties with Beijing. “I think it’s very important that we stay in touch at all levels. This is especially true in politically and economically challenging times like these,” he wrote on LinkedIn.
Volkswagen’s Blume had described the visit as an important chance to “build our own perspective in this discussion with the Chinese government” during an earnings call on Oct. 28. The auto giant recently announced a $2.4 billion investment plan to form a software venture with a Chinese partner.

Context: China has been Germany’s biggest trading partner over the past six years, with bilateral trade reaching a combined 245 billion euros ($242 billion) in 2021, according to official statistics. China accounted for more than a third of Volkswagen and BMW’s annual sales last year.

Scholz became the first G7 national leader to visit China in the past three years and has faced intensified criticism over German industries’ over-dependence on China.
Other German business leaders joining the official delegation included the CEOs of chemicals giant Basf, technology company Siemens, and Deutsche Bank.

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Key tech policies from China’s 20th Communist Party Congress

Mon, 17 Oct 2022 10:20:07 +0000

On Oct. 16, top leaders of the Chinese Communist Party gathered in Beijing to meet for the 20th Party Congress. The week-long meeting, held every five years, attracts 2,340 delegates from the party to discuss high-level changes and topics, including the nation’s tech developments and strategy.

Chinese President Xi Jinping’s two-hour-long report formed the most significant part of the meeting. He reminded delegates that the next five years will be crucial for China to make breakthroughs in “high-quality economic development, achieve greater self-reliance and strength in science and technology, and make major progress in creating a new pattern of development.”

China has set out a long-term development goal of realizing socialist modernization before 2035. To get there, the party believes that the country needs to develop its tech sector further and bring tech innovation into traditional sectors.

In his speech, Xi said China needs to build a modernized industrial system that serves the “real” economy, set up a national strategy that helps drive innovation, and ensure new developments are eco-friendly and sustainable.

Build a modern industrial system

Xi emphasized that a modernized industrial system would be key for the country to achieve “high-quality development” and increasing domestic demands.

He stated that China needs to advance new industrialization and become stronger in manufacturing, aerospace, transportation, cyberspace, and digital development. His speech also emphasized that China should develop integrated clusters of new growth tech areas, such as next-generation information technology, artificial intelligence, biotech, new energy, new materials, high-end equipment, and green industry. The country also needs to improve its ability to secure the supply of strategic resources, Xi said.

China needs to find ways to make such developments serve the real economy, like integrating modern services with advanced manufacturing and modern agriculture and integrating the digital economy with the real economy, according to Xi. “We must continue to focus on economic development of the real economy when pursuing economic growth and promoting a new type of industrialization,” he said.

Push an innovation-driven development strategy

Xi acknowledged that China has recorded major achievements in several core tech sectors and growth in cutting-edge areas such as human spaceflight, supercomputers, deep sea exploration, satellite navigation, quantum information, nuclear power technology, large aircraft manufacturing, and biomedicine. Yet China’s tech industry still lacks technological innovation, he said.

He emphasized that China needs to improve its technology innovation system, creating an open innovation system with global competitiveness. He also declared the establishment of a new innovation-driven development strategy, including conducting original, industry-leading scientific research and making China an attractive country for technological innovation as well as a talent center.

The country plans to implement a number of national major scientific and technological projects to enhance the capacity for independent innovation, with hopes of becoming a global innovation leader by 2035. It will also create a “positive environment” conducive to the growth of tech-based small and medium-sized enterprises, Xi said.

According to Xi, innovation is at the “core” of China’s modernization.

Transition to green and low-carbon development

Xi said the country needs to find a development model that also protects the environment, pursuing economic growth while cutting carbon emissions, reducing pollution, expanding green development, protecting ecology, and conserving resources.

Other major efforts under Beijing’s climate initiative include carefully promoting hydropower facilities given their large environmental impact, actively developing nuclear power safely and orderly, improving the official CO2 emissions calculation tool, and establishing a national carbon trading scheme. In addition, China continues to head toward carbon neutrality by shifting toward green energy vehicles. Xi vowed to promote a low-carbon lifestyle and step up the green revolution in the transportation sector.

In 2021, China’s ambition to become a leader in global climate actions faced major setbacks as operations of heavy industries such as steelmaking experienced a widespread power crunch. At this year’s congress, the central government addressed concerns around economic stability and strength, with Xi saying that China will steadily reach peak carbon and carbon neutrality, implementing control measures “in a planned and step-by-step manner.”

Xi said that the country would continue to speed up the establishment of a clean energy revolution while enhancing the “clean and efficient use of coal,” given its natural resource restraints. The strategy is meant to see a gradual reduction of total emissions as well as carbon intensity, which refers to the amount of energy consumed per unit of economic growth.

The commitment comes months after the central authorities in February extended the deadline for domestic steelmakers to reach peak carbon emissions by five years to 2030 and pledged to correct any “campaign-style” carbon reduction moves by local governments in August. Only a third of China’s provinces and municipalities met their carbon reduction goals during the first half of 2021, leaving as many as 18 regional governments enforcing power rationing and idling operations of energy-consuming industries later in the year.

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China’s EV sales continue strong growth amid general slump in September

Tue, 11 Oct 2022 10:23:55 +0000

China’s electric vehicle market continued to trend upwards in September, with year-to-date sales already surpassing last year’s total of 3 million, according to the latest figures compiled by the China Passenger Car Association (CPCA). However, the growth rate of overall car sales in China hit its lowest point in the last two decades owing to an economic slowdown, the industry group said.

Why it matters: The industry-wide sales figures released Tuesday further indicate a broader recognition among Chinese consumers of locally-made EVs, as well as a rising trend of Chinese automakers growing their international business.

Retail sales of new energy passenger vehicles, mostly all-electrics and plug-in hybrids, soared by 82.9% in a year to around 611,000 units in September, bringing the total sales number for this year to nearly 3.9 million units as of last month, according to CPCA.
Meanwhile, the overall industry reported a monthly growth of only 2.8% in new passenger car sales in September, reaching its lowest level since 2002, as the pandemic hit some of the most populous provinces, such as Sichuan, weakening demand.

Details: Last month, domestic auto majors, such as BYD and Geely, enjoyed a 67% share collectively in the passenger car market, up 9.2% from a year earlier, while those numbers for both younger EV startups and Tesla declined to 14.6% and 12.7%, respectively. The share of the market for traditional overseas carmakers further narrowed by 3.3% from a year ago to only 5.7%, CPCA figures showed.

BYD ranked top with an annual growth of 144.3% to reach more than 191,000 EVs last month, taking nearly 10% of China’s auto market. It was followed by FAW-Volkswagen and SAIC-Volkswagen (two joint ventures of the German carmaker) at 165,000 and 122,000 automobiles, respectively.
Geely reported its September retail sales of passenger cars increased by 24.4% from last year to around 109,000 units, followed by Changan at roughly 107,000 units. Zeekr, a premium EV unit of Volvo’s parent company, delivered 8,276 vehicles last month, up from 7,166 units a month earlier. Changan is set to begin delivery of its first car model under the Avatr marque with partner Huawei in December.
Meanwhile, Tesla China achieved a new record by selling 83,135 vehicles, of which 5,522 were overseas exports, bringing the year-to-date number to 483,074. The US automaker has an annual capacity of over 750,000 vehicles at its Shanghai facility, according to its second-quarter financial report.
Chinese EV startup Li Auto delivered 11,531 plug-in hybrid crossovers last month as production of its second model, the L9, began to ramp up. Nio recorded a monthly delivery of 10,878 vehicles, with its new crossover ES7 making it to customers since late August.
However, the numbers for Xpeng Motors declined 18.7% year-on-year and 11.6% month-on-month to 8,468 units, as the EV maker faces stiff competition from bigger names such as BYD in the mainstream EV segment. The company also reduced the prices of its first premium crossover, the G9, just two days after launch.

Context: The CPCA has maintained its sales projection of 6.5 million new energy vehicles (NEV) this year, with EVs expected to make up 28% of the country’s new car sales. The central government previously set a sales target of 25% of all new car sales to be NEVs by 2025.

Nearly 14.9 million passenger cars, including internal combustion engine vehicles and EVs, were handed over to customers from January to September, a bit higher than the 14.5 million units during the same period of last year.
Speaking to reporters on Tuesday, Cui Dongshu, secretary general of the CPCA, said he expected China’s general car market to recover with “explosive growth” over the last two months of this year, buoyed by easing Covid restrictions and tax breaks for vehicle purchases.

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Web3 in China: Will it happen, and what form will it take?

Thu, 25 Aug 2022 02:55:00 +0000

Note: This article was first published on TechNode China (in Chinese).

Tokenization, DeFi, DAOs, Smart Contracts, NFTs, GameFi – these terms are often used when discussing Web3, a catch-all term to describe the vision of a new, better internet based on blockchain technology. Web3 supporters dream of a future stage of the internet that is led by users, organized in a decentralized network, and run on blockchain technology, in contrast to the current internet, which tech companies and other entities control.

Many have doubted China’s appetite to support Web3 due to the country’s preference for centralized systems and controls and its tight regulations on cryptocurrencies. Yet while overseas venture funds are actively investing in Web3 ecosystems, the Chinese government and top Chinese tech companies have also devoted themselves to building consortium blockchains and have successfully launched blockchain projects in government affairs, commerce, and the broader society.

This article attempts to illustrate the development of the Chinese Web3 industry by assessing the technical characteristics of Chinese blockchain projects and identifying the unique value that differentiates China’s Web3 from other cryptocurrency-based financial markets.

Public chain and consortium chain: Two technical routes in Web3

When it comes to the difference between Web3 in China and in other countries, it is essential to distinguish between two blockchains: the public chain and the consortium chain.

The public chain is open for anyone to join and offers unrestricted access for all users to participate. Data is transparent and cannot be tampered with. It is considered to be a truly decentralized blockchain. The consortium chain is jointly managed by multiple verified organizations. Each organization manages one or more nodes to uphold common goals and ensure accountability. Consortium chains tend to enjoy good privacy protection, low transaction costs, and fast transaction speeds. The core difference between the two chains is that the public chain has a token incentive layer that the consortium chain does not have. Therefore, the former is also known as blockchain with cryptocurrencies, whereas the latter is blockchain without cryptocurrencies.

The differences between the two chains has also led to two directions of Web3 applications: the digital asset direction and the industrial blockchain direction. In many countries, the applicability of Web3 mainly revolves around the investment and transaction of cryptocurrencies. Cryptocurrency projects and crypto exchanges generated on various public chains have thrived, as have cryptocurrency wallets, decentralized autonomous organizations (DAOs), NFT trading platforms, and other related industries.

In China, however, token issuance and financing have long been banned, and the government has continued to crack down on crypto mining and virtual currency speculations. As a result, the attempt to adopt Web3 in China began in a more controlled environment, based on the research and popularization of blockchain technology in relevant industries.

Because many people regard digital assets as the core feature of Web3, they tend to conclude that the development of Web3 outside of China is further ahead, that there are no actual Web3 projects in the country, and that consortium chains can only be useful in fringe applications.

However, from a technical standpoint, the public and consortium chain can be applied in various scenarios based on different needs. The public chain does not have an absolute advantage over consortium chains.

In fact, absolute decentralization is also a natural enemy of efficiency, as it requires confirmation by every network node, resulting in lower transaction speed than the consortium chain. Moreover, cryptocurrency is only a basic application of blockchain technology. Each time the cryptocurrency market plunges, the so-called decentralized wealth creation system points to one scam after another.

China’s focus on the “chain” rather than the “coin” helps ensure that cryptocurrency hype does not affect the development and utilization of blockchain technology. In the early stages of blockchain development, China proposed focusing on technological breakthroughs and ecological improvement. In the later stages of blockchain development, China actively guided blockchain technology to support economic growth and improve people’s livelihoods in many aspects, including inclusive finance and digital transformation.

How currency-less blockchains work in China

Web3 also has to align with the laws, rules, and cultural customs of current society, in a way, a permissioned “consortium chain” with centralized characteristics fits better with Chinese conditions.

Luo Yihang, founder of tech media outlet Pingwest, wrote in an opinion piece (in Chinese) that he believes establishing a consortium blockchain network, where laws and regulations form centralized governance to achieve consensus, will lead to greater safety and transaction efficiency. Ultimately, this can create more practical value for the Chinese government, organizations, commercial institutions, and consumers across the nation, he added.

In the consortium chain space, IBM is the leader in BaaS (blockchain as a service). In China, many entities have built their own consortium chains. They include leading internet companies such as Tencent, Baidu, JD.com, Ant Group, and Bilibili, financial institutions such as China Construction Bank, Industrial and Commercial Bank of China, Ping An Insurance, and blockchain technology service providers such as Hyperchain and Tianhe Guoyun. State-owned enterprises, local governments, universities, and research institutes have also established various consortium chain projects like BSN, Treemap Chain, Changan Chain, and Spark Chain.

In the service economy, China’s consortium chains are applied across industries, including food, copyright, law, health, insurance, credit reporting, taxation, carbon trading, supply chain finance, anti-counterfeiting traceability, logistics, transportation, and environmental protection. In addition, the government is also committed to providing the underlying infrastructure of blockchain tech and digital intellectual property rights.

Web3 is expected to transform the internet from three dimensions – technology, industry, and economics – according to the Web3 Prospective Research Report released by the China Academy of Information and Communication Technology, a state-backed scientific research institute, and blockchain company OKG. This article will dive into three use cases of the consortium chain in China’s Guangdong-Hong Kong-Macau Greater Bay Area. The Bay Area operates on “one country, two systems and three jurisdictions” and has accumulated unique advantages in blockchain development. Tencent, Ping An and other companies leading the development of the aforementioned consortium chains are headquartered in Shenzhen, a tech center in the Bay Area. In addition, a large number of consortium chain projects have been launched in the area, greatly accelerating the development of the blockchain ecosystem in the region.

Case 1: Data transfer

Hong Kong, Macau, and mainland Chinese cities in the Greater Bay Area have vastly different data transfer policies. Due to historical reasons, these regions operate in different jurisdictions, putting the area at risk of becoming “data silos.”

The Guangdong-Macau data verification platform developed by FISCO BCOS (a financial blockchain platform founded by Tencent’s WeBank) promotes cross-border transfers of trusted data using blockchain technology. Taking advantage of blockchain tech’s transparent, traceable, and non-tamperable characteristics, professional service agencies can rely on hash value comparisons to verify the authenticity of the data source, thereby accessing credible data to complete requests made by data owners.

The platform mainly provides safe, credible, and efficient cross-border data verification for institutions and residents in Guangdong and Macau. In addition, it serves business scenarios such as cross-border asset certification, bank account opening, mortgage management, and wealth management. For instance, the platform has successfully shortened the process for Macau residents to apply for asset certification-related materials to 5 minutes.

Case 2: Tracing trade

As a major trading port, the Greater Bay Area involves buyers, sellers, logistic firms, custom authorities, tax authorities, banks, insurance companies, and many other related entities. The demand for data sharing is high, but there is also a high cost and difficulty in collaboration.

In November 2020, the Greater Bay Area port logistics and trade facilitation service platform was officially launched, built jointly by China Merchants Group and Ping An Group. The platform cross-checks information of trading parties on blockchains, helps identify the authenticity of trade, and solves practical problems such as personnel and goods entering and leaving the port or trade financing for import and export enterprises.

The platform greatly improved operational efficiency, reduced corporate trade costs, enhanced personnel and cargo customs clearance experience, and increased customs clearance efficiency at service ports. Since its launch, the platform has saved more than RMB 24 million in customs declaration fees for shipping companies annually. Streamlining the connection between international liners and inland barges, the terminal enterprises have shortened the average storage period from 5.7 days to less than two days, significantly improving the efficiency of the terminal site and container turnover.

Case 3: Cross-regional credit

Because the Chinese central banks’ credit information system does not cover non-credit groups or enterprises, banks, and other financial institutions, sometimes it is necessary to introduce market-oriented credit information institutions. However, many of these credit bureaus usually have strong regional attributes, making it hard for companies to do loans and financing cross-regions.

The “Pearl River Delta Credit Information Chain,” established under the leadership of the central bank and the guidance of the bank’s Guangzhou branch, is supported by blockchain technology, realizing cross-regional, cross-system, and multi-dimensional enterprise credit information sharing and interoperability, connecting banks and enterprises to financing and promoting regional economic integration.

Since its launch more than a year ago, the chain has dealt with 14,700 user queries for 207 financial institutions and has accumulated 97,700 authorizations on the chain, according to a government report on blockchain development in the Greater Bay Area. Relying on this platform, financial institutions have granted credit to more than 52,300 households, amounting to more than RMB 323.35 billion.

The future of China’s approach to Web3

As demonstrated above, the consortium chain controlled by state agencies or government organizations has also helped various industries to work together better and opened up new possibilities. The benefits of China’s approach to Web3 largely lie in contributing back to the real economy.

From a global perspective, the future of Web 3.0 is unclear. In China, Web3 has huge potential. According to an IDC report, China’s BaaS business market reached $188 million in 2021, growing 92.6% from the previous year. Presently, Web3 in China still faces obstacles such as a weak technical foundation, financial risks of speculation and fraud, and uncertainty in regulatory policies.

Specifically, the construction of Web3 in China requires the government to actively introduce new applicable scenarios, play a role in driving innovation among enterprises, academia, and research institutions, and help create a user-led environment by opening and sharing the source code through safe and verified channels.

By placing heavy emphasis on developing the underlying infrastructure of the digital economy, such as blockchain technology and establishing new regulatory rules, China can build its Web3 ecosystem through practice and feedback.

Recently, the Chinese government has also been exploring the construction of NFT trading platforms and the digitization of assets to promote Web3 as a part of the digital economy development plan. In addition, with the popularization of the digital yuan, China is also expected to explore the application of digital assets in the future. Such developments all indicate that China is relying more on industrial blockchain and government-led initiatives to prepare for the Web3 era.

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China drafts national guidelines for commercial driverless robotaxis

Tue, 09 Aug 2022 10:48:00 +0000

On Monday, Chinese officials published a set of draft rules that will allow self-driving companies to offer rides and charge fees for fully autonomous vehicles (AVs). The move is part of the country’s ongoing efforts to become a global leader in artificial intelligence. The same day, Baidu announced it was to launch a fully driverless robotaxi service in two major Chinese cities.

Why it matters: The release of China’s first guidelines for commercial robotaxi services could establish a state framework for the rollout of self-driving technology and increase the number of AVs on Chinese roads.

Details: Published by the Ministry of Transport on Monday, the draft regulation said that authorities would “encourage the deployment of autonomous buses on limited access highways, as well as allow paid taxi-hailing services using self-driving cars for low-traffic, controllable scenarios” (our translation).

The government did not outline detailed criteria for the environmental conditions under which an automated vehicle is designed to operate but said that driving routes must be selected to avoid highly populated sites such as schools and supermarkets.
Also, the rules emphasized that robotaxi companies must deploy their automated vehicles with drivers based on different levels of vehicle automation. The rules stipulated L3 and L4 level cars need a human operator, while L5 (fully automated cars) cars need either a remote driver or an in-car safety driver. The rules also asked all cars to suspend operations in adverse weather conditions.
In addition, the companies are obliged to record and share with the government the data logs generated by cars and drivers at least 90 seconds before and 30 seconds after any self-driving malfunctions. These logs must include in-car video footage and pictures of the surrounding environment.
The draft will be open to public feedback until Sep. 7.

Context: China first began allowing autonomous driving road tests on designated streets in April 2018 and then expanded the testing scope to general highways in early 2021.

Several major cities, including Beijing, Shanghai, and Guangzhou have greenlighted self-driving car tests for passenger transport services over the past several years.
Earlier this month, the city government of Shenzhen also passed new legislation that addresses the liability issues in accidents involving cars with self-driving capabilities.
The central city of Wuhan and the southwestern municipality of Chongqing are the latest Chinese megacities to take a significant step towards the driverless car era, recently allowing Baidu to charge fees for rides using its driverless vehicles.

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Meet the Chinese carmakers racing to get a larger share of the global markets

Fri, 05 Aug 2022 10:21:55 +0000

In 2021, Chinese automakers sold more than 1.85 million units in the overseas market, hitting a significant milestone just two decades after China joined the World Trade Organization in 2001.

Beijing’s efforts to make China an auto superpower and the long-term strategy of betting on electric vehicles are starting to pay off. China made up almost 60% of the electric vehicles exported globally in 2021, with the annual shipment of passenger EVs nearly tripling to more than 310,000 units. Analysts expect this momentum to continue, with China on course to surpass Germany as the world’s second-biggest exporter of automobiles by volume this year, just behind Japan.

However, with European and American automakers catching up to China’s success in an increasingly crowded EV field, convincing global consumers to buy China-made vehicles continues to be an uphill battle. Chinese manufacturers, known for churning out cheap, humble cars for developing regions, are struggling to move upscale and compete head-to-head against long-established European car giants for a share of the premium segment in the latter’s home market.

A look at a few carmakers that have been ushering in a wave of EV adoption in China gives a sense of how the global auto landscape might be transformed in the next couple of years. As the world, particularly Europe, reaches a critical period in its energy transition, the localization of an entire EV industrial value chain will be vital for Chinese carmakers to become a global force that upends existing significant players, according to analysts.

State-owned manufacturers

State-owned brands SAIC and Chery are China’s most significant car exporters, with the pair jointly accounting for nearly half of the country’s vehicle sales to overseas markets in 2021.

Morris Garages (MG), the iconic British car brand acquired by SAIC in 2008, is currently the most significant contributor to SAIC’s success. Birmingham-based MG booked sales of over 470,000 vehicles globally last year, at least 10% of which were delivered in Europe.

Another SAIC’s sub-brand, Wuling, is also increasingly gaining popularity globally. Wuling produced the top-selling EV model in China last year, the Hongguang Mini EV. Wuling’s overseas shipments reached an all-time high of 146,000 vehicles to over 40 nations in 2021.

Anhui-based Chery is one of several Chinese carmakers that made early moves to explore global markets, exporting 10 sedans to Syria back in 2001, when China was just about to join the World Trade Organization. Having established a presence in more than 80 countries with 10 manufacturing plants and 1,500 dealership stores, the country’s top passenger car exporter mainly operates in Brazil and Russia, with sales of over 37,000 and 40,000 vehicles, respectively in the two countries last year.

Chery is also the Chinese manufacturing partner of Jaguar and Land Rover. It has plans to expand its reach in Europe and the US by selling its own-branded vehicles in the two regions, chairman Yin Tongyue said in May 2020. Although few details related to this move have been revealed thus far, the company expects its car exports to nearly double to 500,000 vehicles by 2025.

Private auto giants

Great Wall Motor and Geely are the only two homegrown private automakers in China who ranked in the top 10 by export volume in 2021, with shipments of over 143,000 and 115,000 vehicles overseas, respectively. The two automakers are pioneers of Chinese assemblers’ overseas expansion in the era of gasoline-powered cars. They have been expanding their sales networks and manufacturing presence abroad significantly in the last two years, focusing on Europe and countries connected to China’s Belt and Road Initiative.

One of China’s top-selling SUV manufacturers, Baoding-based Great Wall Motor, posted significant growth overseas last year, with shipment volume rising 104% from 2020 and accounting for about 11% of the firm’s total sales, a result of its accelerating push into overseas markets. The Chinese automaker sped past several milestones in 2021 amid a rush of positive news, such as the acquisition of a former Daimler plant in Brazil last August, followed by the launch of its regional headquarters in Munich, Germany three months later.

Great Wall also saw its second overseas plant begin operations in Rayong, Thailand, in June 2021 with a capacity to build 80,000 vehicles annually, two years after the automaker started production of its popular Haval-branded crossovers locally in Russia. The company is on track to launch an electric compact car under its Ora marque, which targets young female buyers, and a plug-in hybrid SUV under its premium EV brand WEY in Europe this year, Reuters reported last September.

The export volume of Geely’s domestic plants increased by 58% year-on-year and accounted for 8.6% of its annual sales in 2021, compared with a growth rate of 25% and a 5.5% share of total sales in 2020. The company’s footprint now covers 28 countries, with entries into Laos, Egypt, and three other states last year.

Like SAIC, the Zhejiang-based automaker expanded in Europe through partnerships with locally-based players, launching a car brand called Lynk & Co in late 2016 and forming a joint venture with subsidiary Volvo to sell the vehicles globally a year later. Reporting deliveries of 25,167 Lynk-branded vehicles overseas in 18 months as of June, the automaker operates eight retail stores in Germany, Italy, Belgium, Sweden, and the Netherlands, with plans to enter France and Spain this year.

Rising EV upstarts

Chinese EV upstarts Nio and Xpeng are still a long way from catching up in overseas sales with traditional Chinese auto giants, but they have pioneered new approaches to going global. For example, the Chinese EV startups are opening direct stores and service centers in European countries to build a strong brand image with quality service, something that has never been done before by a Chinese car brand on the continent.

Located at Oslo’s center of commerce and culture and opening to the public last October, Nio’s first showroom in Norway is as much planting of the company’s flag as an entry into the European market. Called Nio Houses, the two-story, 2,100-square-meter location is not only built for potential customers, but also serves a range of functions with a café, a library, and a living room for car owners on site, hoping to win over wealthy local customers.

So far, the eight-year-old EV maker is seemingly on the right track with deliveries of 327 ES8 crossovers, priced above NOK 609,000 (around $69,300), in Norway in the first four months of this year, which means the brand has already surpassed last year’s total of roughly 200 cars. The company also has plans to enter Germany, the Netherlands, Sweden, and Denmark with the same strategy later this year and to expand its footprint to 25 countries by 2025.

Xpeng has also aggressively pushed ahead in Europe’s booming EV market and currently operates three flagship showrooms – located in Denmark, Sweden, and the Netherlands – in addition to selling vehicles through local car dealerships in Norway since December 2020. The company delivered 486 units of its P7 sedan and G3 sports utility vehicle in Europe last year, while that number reached 426 units for the first four months of this year.

However, multiple supply chain disruptions, including semiconductor shortages and soaring battery material costs, are hitting the company’s growth trajectory. The Alibaba-backed EV maker stopped taking orders for its mainstream P5 sedan in Europe in late June, citing supply chain issues.

Conclusion

The world’s transition to clean energy and carbon neutrality – and China’s head start in EV production – has opened up new opportunities for Chinese carmakers to become globally competitive players in electric mobility. European Union countries reached a deal in June to completely phase out internal-combustion vehicles by 2035, a target that Japan and Canada have also set; the timetable for the UK is 2030.

Experts have urged Chinese automakers to invest more to build their own supply chain networks overseas along with parts suppliers and, therefore, better leverage their technology and expertise globally, rather than just offering direct exports.

There is no easy route to performing successfully on the global stage, but it would be wise to seize the chance when it comes – and China’s EV makers seem well poised to do so.

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Pony.ai and Caocao to provide robotaxi services in Beijing

Wed, 03 Aug 2022 10:58:22 +0000

On Tuesday, the self-driving car startup Pony.ai announced that it partnered with ride-hailing company Caocao to provide robotaxi services in Beijing.

Why it matters: Autonomous driving is still a long way from commercialization. The deployment of autonomous vehicles on a familiar ride-hailing app might help Pony.ai get closer to making money from its pilot projects.

Details: Starting from Wednesday, public passengers will have the option to choose Pony.ai’s custom-made test models of robotaxi from the Caocao app on their phones. However, the robotaxis fleet of 30 or so will be restricted to a designated area in southern Beijing. A safety driver behind the wheel is not required, but each car will have a monitor in a passenger seat.

There is an RMB 18 ($2.67) base fare for all rides, and longer routes will cost RMB 3 per kilometer beyond three kilometers during rush hours and RMB 2.6 during off-peak hours. By comparison, local ride-hailing services usually have a base fare of RMB 14 per ride and RMB 1.8 per kilometer over three kilometers.

Context: In April, Pony.ai and Baidu received permits from the Beijing city authorities to offer driverless rides in an area of 60 square kilometers (23 square miles) in the city’s southeast Yizhuang district. The local government allowed the two companies to charge fares last November.

Backed by big automakers Toyota and FAW, Pony.ai has been operating a robotaxi pilot project commercially on the outskirts of Guangzhou since May and has partnered with T3, an emerging rival to Didi, as well as Ontime, a ride-hailing service of Chinese automaker GAC.
Last August, Chinese tech giant Baidu launched its proprietary autonomous ride-hailing platform called Apollo Go, also known as “Luobo Kuaipao” in Chinese. The company completed over 196,000 trips during the first three months of this year. Baidu has launched commercial operations of robotaxis in three domestic cities, including Beijing and the southwestern municipality of Chongqing.
Rival WeRide also collaborated with GAC for a commercial launch for customers of Ontime in Guangzhou this year, while self-driving unicorn Momenta is piloting a non-commercial fleet of 60 robocars for ride-hailing with SAIC in Shanghai and the nearby city of Suzhou. ByteDance and Meituan-backed Qcraft also deploy a few dozen autonomous vehicles with T3 for free in Suzhou.

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BYD and others keep Shenzhen workers in “closed-loop” system as new Covid cases emerge

Tue, 26 Jul 2022 09:42:25 +0000

Chinese automaker BYD and other manufacturers are asking workers in Shenzhen facilities to work and live in the workplace until the end of this month, as the southern Chinese city sees new outbreaks of the omicron variant, local media reported. Chinese companies often keep employees in the so-called closed-loop system so they can produce even in cases of regional lockdowns.

Why it matters: It remains to be seen whether the latest wave of the Covid-19 pandemic will again strain automakers in China, but this news shows the continued impact of Covid control measures on auto supply chains.

Details: BYD is one of the dozens of companies operating its Shenzhen factories under a closed-loop system that requires employees not to leave the plants for one week starting on July 24, financial media outlet Yicai reported on Monday (in Chinese).

Workers are confined in their workplace and must take one nucleic acid test daily. A BYD spokesperson told Chinese media Yicai on Tuesday that production is unaffected by the current outbreak.
BYD produces two popular electric vehicle models in Shenzhen, the Han sedan and Tang crossover, with a monthly capacity of around 30,000 vehicles. The car giant also has manufacturing sites in multiple cities, such as Changsha and Hefei, and projects its annual capacity to be more than 3 million vehicles this year.

Context: Other large tech companies in Shenzhen are doing the “closed-loop” system, including Huawei, ZTE, and drone maker DJI. Foxconn, a manufacturing partner of brands like Apple and Samsung, said that its Shenzhen facilities are under “normal” operation, Reuters reported on Tuesday.

BYD’s Shenzhen plants also stayed in a closed loop system for about a week in March, when China’s technology hub went into a two-week lockdown to contain the spread of Covid-19 infection. Shenzhen recorded 21 new Covid infections on July 24, including 13 asymptomatic cases.

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A timeline of Didi and its year-long cybersecurity investigation

Fri, 22 Jul 2022 10:48:00 +0000

China’s year-long, once seemingly never-ending investigation into Didi finally reached a conclusion on Thursday, with authorities imposing a massive fine equivalent to $1.2 billion on the ride-hailing giant over alleged violations in cybersecurity, data security, and personal information protection.

The RMB 8.02 billion ($1.19 billion) penalty, which was set at 4% of Didi’s 2021 revenues, comes as Chinese policymakers have reportedly been mulling over whether to call an end to their crackdown on the country’s technology sector in the face of the country’s slowing economy.

While Didi will now be looking to move past the year-long investigation, the Chinese mobility behemoth will have to be much more cautious about how it operates and how it deals with regulators going forward. On Thursday, the country’s internet watchdog issued unusually harsh criticism, calling Didi’s breach of data privacy and national security rules “a serious offense with negative influences.” The company said later that day that it will continue carrying out a comprehensive rectification of its operations, without giving a timeframe.

Although the fine itself won’t hurt too much in Didi’s finances, the probe is undoubtedly another landmark case for the Chinese tech sector following Beijing’s antitrust crackdown on Alibaba a year ago. So how did we get here? Below is a look back at the bumpy road that Didi has traveled over the past 12 months.

June 30, 2021 – Didi goes public in the US

Didi raised $4.4 billion in its long-overdue initial public offering on the New York stock exchange last June, making it the biggest IPO from a Chinese company on a US exchange since Alibaba’s in 2014.
Didi filed for a share listing on June 10, 2021, roughly around the same time that China’s market regulator reportedly opened an antitrust probe into the company. Didi had described reports of such a move as “unsubstantiated speculation.”

July 2, 2021 – Beijing officially launches an investigation into Didi

Didi’s fortunes took a startling turn just days after its mega IPO when the Cyberspace Administration of China (CAC) announced it had launched an investigation into the company over alleged illegal use and collection of users’ data.
The review was aimed at addressing “national security risks” as the government sees Didi’s mobility and traffic data as key to such concerns. This was followed by a ban on Didi’s mobile services from Chinese app stores on July 4, 2021.

July 6, 2021 – US shareholders sue Didi

Didi faced two shareholder lawsuits in the US alleging that the company failed to properly disclose information that it was in talks with Chinese regulators over cybersecurity compliance issues ahead of its IPO. Multiple law firms also sought to bring additional class-action litigation against Didi, SCMP reported.
Didi told Reuters that prior to its US listing it was unaware that China’s cyberspace watchdog would open a probe and suspend app downloads. A few days later, Beijing announced that seven central government departments had started an on-site inspection of the ride-hailer.

August 9, 2021 – SoftBank scales back China investment

During SoftBank’s 2021 second-quarter results presentation, founder Masayoshi Son said that he would take a “wait-and-see” approach until the impact of regulatory action against Chinese tech firms became clearer. SoftBank’s Vision Fund was Didi’s biggest shareholder, holding around 20% of its equity ownership.

September 3, 2021 – Speculation is rife over probe’s end goal

The cybersecurity review triggered a wave of speculation regarding possible resolutions to Didi’s regulatory crisis. On Sept. 3, 2021, Bloomberg reported that Beijing’s municipal government planned to wind up with a controlling stake in the ride-hailing giant. A few days later, Reuters reported that Didi’s president Jean Liu would leave the company in a few weeks. Didi denied both reports.

December 2, 2021 – Didi prepares to quit New York

Didi announced that it had been in preparation to delist from the New York stock exchange while pursuing a new listing in Hong Kong, a move reportedly requested by Chinese regulators who feared the leaking of sensitive data to US authorities.

March 11, 2022 – Regulators put the brakes on Hong Kong listing plan

In March, Didi suspended its preparations for trading shares in Hong Kong, a move initially slated for as early as this summer, after being informed by Chinese regulators that their proposals to comply with cybersecurity and data rules failed to meet requirements, Bloomberg reported.

June 11, 2022 – Didi delists from NYSE

Didi delisted in the US on June 13, 2022, a few days after filing paperwork with the US regulators and garnering support from most shareholders. They were left with little choice, as the company had told them that it had to do so before it could achieve a settlement with Chinese authorities.

July 21, 2022 – Didi fined for$1.2 billion

Hitting the ride-hailing titan with a massive $1.2 billion fine on Thursday, cybersecurity regulator the Cyberspace Administration of China said that the company had unlawfully collected vast troves of user data since June 2015. Didi also posed a serious threat to national security in the way it processed data, the CAC said. Didi’s CEO Cheng Wei and President Jean Liu were each fined RMB 1 million as part of the reprimand.

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China wants more rural Chinese to drive electric cars

Wed, 01 Jun 2022 10:33:42 +0000

China announced a broad campaign on Tuesday in which 26 automakers will create incentives for people in rural China to buy electric cars, in an attempt to revive flagging car sales after a wave of coronavirus lockdowns hit the country’s economy.

Why it matters: The move is Initiated by policymakers as part of a larger scheme to boost big-ticket purchases and battle the deepening economic fallout from the Covid-19 pandemic.

Details: A total of 26 auto firms, including BYD, state-owned SAIC, Volvo’s parent company Geely, and GAC’s EV subsidiary Aion, are joining a series of online promotional campaigns targeting car buyers in rural areas and lower-tier cities in at least 11 Chinese provinces.

Automakers will be encouraged to work on sales incentive programs in collaboration with e-commerce platforms to generate offline car sales from May to December, according to a statement (in Chinese) jointly issued by four government agencies on May 16 and released to the public on May 31.
The Ministry of Industry and Information Technology, the Ministry of Agriculture and Rural Affairs, the Ministry of Commerce, and the National Energy Administration jointly launched the campaign. They will also team up with provincial governments to push supportive measures that will encourage more people to buy EVs, such as more investment in public charging infrastructure.
Other automakers participating include state-owned automakers Dongfeng and Changan, SAIC-GM-Wuling (a joint venture between General Motors, SAIC, and Wuling Motors), as well as WM Motor and Leapmotor. The China Association of Automobile Manufacturers (CAAM) is assigned to collaborate on the project.

Context: Beijing has pledged to mitigate the adverse effects of the Covid-19 outbreak on the auto industry, including cutting vehicle purchase taxes up to RMB 60 billion ($9 billion). In addition, multiple local governments have unveiled new cash subsidies and announced new vehicle quotas to stimulate car purchases.

In April, China’s new car sales fell 47.1% from March to 1.18 million units, with a 38.3% slump month-on-month in sales of new energy vehicles, including all-electrics, plug-in hybrids, and hydrogen cars, CAAM data showed (in Chinese).
Big automakers such as Tesla and SAIC, the latter of which has joint ventures with Volkswagen and General Motors, were forced to suspend operations at their factories in Shanghai throughout most of April as the city enforced a strict lockdown to stop the spread of Covid-19.

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Xpeng’s first-quarter net loss widens, expects slow second-quarter revenue

Tue, 24 May 2022 11:03:19 +0000

Xpeng Motors released first-quarter earnings on Monday night, giving a second-quarter forecast that fell far below estimate. The company said it has made progress in ensuring the production against the backdrop of a global shortage of chip and battery supplies, but investors remained concerned that a prolonged supply crunch and China’s strict Covid-19 measures will hurt margins this quarter.

Why it matters: Xpeng is joining a long list of Chinese tech companies facing a challenging quarter with production cuts and profits squeezed. The company expects deliveries to fall between 31,000 and 34,000 units in the three months until June, compared to the 34,561 vehicle deliveries in the first quarter of 2022.

Details: On Monday, Xpeng reported revenue of RMB 7.45 billion ($1.2 billion) in the first quarter of 2022, up 152.6% from the same quarter last year. However, net loss more than doubled year-on-year to RMB 1.7 billion. The company’s share prices fell 5.5% on Monday.

Xpeng expects second-quarter revenue to reach up to RMB 7.5 billion, well below analysts’ average estimate of RMB 8.3 billion, according to data compiled by Bloomberg. Gross margin will also be impacted due to existing supply chain constraints, but is set to improve in September with the delivery of higher-priced new models to customers, said Dennis Lu, vice president of finance at Xpeng.
Xpeng executives said on Monday that the company has expanded efforts to reduce the impact of supply-chain difficulties and China’s Covid-19 lockdowns. In addition, it has contracted multiple new suppliers and implemented more flexible design and manufacturing for its EVs.
During an earnings call, Chief executive He Xiaopeng said that the company has begun to see significant progress as it aims to secure enough battery supply to meet demand in the current quarter. More “optimization” is likely to happen during the second half of 2022, thanks to a multi-sourcing strategy and the decline of battery prices, He said.
However, the ongoing semiconductor shortage is getting worse, as the electric vehicle (EV) maker can only monitor the impact on the production of chip supply chains one week into the future. He added that the current semiconductor supply bottleneck could last into 2023 or even longer, in contrast to a previous estimate that the issue could be resolved or alleviated by the end of 2022.

Context: Earlier this month, rival EV maker Li Auto also delivered a gloomy revenue forecast for the second quarter, expecting up to RMB 7.04 billion, which is 36% lower than previous estimates, with the company citing supply chain issues related to Covid-19 lockdowns in China. Li Auto’s vehicle delivery plunged by 62% in April from the previous month to 4,167 vehicles, with Nio’s and Xpeng’s volumes nearly cut in half over the same period.

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Xpeng, Li Auto rescind jobs offered to new college grads: reports

Fri, 20 May 2022 10:25:19 +0000

Xpeng Motors and Li Auto recently rescinded some job offers given to fresh college graduates as a recent Covid-19 outbreak and strict lockdown controls put stress on Chinese businesses, local media reported on Thursday.

Why it matters: The cutbacks indicate that Chinese electric vehicle (EV) companies are adopting more conservative and selective hiring practices as they navigate a time of economic uncertainty. EV makers are also facing rising battery material costs and semiconductor shortages, putting pressure on their earnings.

Details: A college graduate surnamed Wang, who had received a written offer from Xpeng last year and was supposed to begin work this summer, has had his job offer rescinded, according to a Thursday report by Chinese video outlet Houlang.

A human resources staff member told Wang on May 9 that the company had to rescind the offer because of “business adjustment,” offering him RMB 5,000 ($748) in compensation instead, Wang recalled, adding that over 20 fresh graduates he knows are in a similar situation.
In a statement sent to local media outlet Sina Tech on Friday, the EV maker said that it withdrew some job offers for fresh graduates and let go of some employees as part of a realignment of some “marginal” functions (our translation).
The company added that it has recruited over 10,000 new employees amid strong growth since early 2021. It added that around 900 fresh graduates are scheduled to be on board this July but that it will take measures to reflect business priorities and increase operational efficiency.
Xpeng’s news came days after rival Li Auto reportedly (in Chinese) rescinded around 100 graduate job offers. The company did offer transfers for job openings to some technical graduates that had offers in the autonomous driving and data analytics departments.
On May 11, Li Auto confirmed that some of its positions were eliminated because the company is realigning certain functions and teams without revealing any further information. The EV maker is scaling down some recruitment plans due to delayed product launches and changed business outlook for the year, state-owned media outlet Yicai reported on May 12, citing a company insider.

Context: A broader hiring slowdown is on the way across sectors in China, as the country prioritizes strict pandemic control.

ByteDance on Thursday denied reports that it was cutting 80% of its workers in its game distribution department but confirmed that the company trimmed headcounts, following several rounds of layoffs last year amid Beijing’s regulatory crackdowns on tech firms.
Social e-commerce site Xiaohongshu cut about 200 employees, mainly affecting fresh graduates and recent hires. Home appliance maker Midea on Thursday confirmed plans to reduce its workforce and halt non-essential investment given the current macroeconomic environment, Chinese media Yicai reported.

Correction: Xiaohongshu’s layoff number has been updated from an earlier version of this article.

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Top Chinese leaders meet with tech firms, stress support for platform economy

Wed, 18 May 2022 10:44:50 +0000

On Tuesday, China’s top political advisory body held a consultation session to discuss digital economy development with leaders from the country’s private sector firms. Baidu CEO Robin Li and NetEase CEO Ding Lei attended the meeting and made proposals. Vice Premier Liu He emphasized support for a healthy platform economy, the country’s private sector, and overseas listings.

Why it matters: Industry observers believe the anticipated meeting is a barometer for whether the country will loosen the crackdown on the tech sector that began in late 2020 and accelerated last summer. Despite the lack of an apparent reference to the crackdown, the meeting supported a healthy platform economy and the private sector, which can be read as a sign that the crackdown will ease.

Details: The meeting re-emphasized many of the goals previously put forth in long-term economic plans, including optimizing data management and the trade of data, the facilitation of a national data center system, the continued construction of an industrial internet to help with smart manufacturing and more. Baidu’s Robin Li proposed that the government should consider loosening restrictions for companies to test autonomous cars, while NetEase’s Ding Lei proposed a wider adoption of China’s digital yuan.

Wang Yang, China’s top political advisor and chairman of the Chinese People’s Political Consultative Conference (CPPCC), hosted the meeting.
Vice Premier Liu He also attended and addressed the meeting. According to state news agency Xinhua, Liu said “the country should support the sustained and healthy development of the platform economy and private sector” and encouraged platform companies to participate in major national science and technology projects. Liu also stressed support for “the listing of digital companies in the capital markets at home and abroad,” for which he first showed support in a March 16 high-level government meeting.
Robin Li, CEO of Baidu and a member of the CPPCC, proposed that government should speed up the digitization of China’s infrastructure and relax policies to allow companies to better test autonomous driving. For example, Li said artificial intelligence could help cut down costs on the country’s flood control system.
Ding Lei, CEO of NetEase and a member of the CPPCC, suggested more comprehensive promotion and adoption of the digital yuan, such as using it to pay for utilities, buy stocks, and pay for daily deliveries.
More than 100 delegates attended the meeting, of which 29 experts and CPPCC members addressed the meeting directly. Delegates attended the meeting virtually as well as in-person.

Context: In February, the CPPCC held a videoconference meeting with firms in Hangzhou to discuss how to grow digital economies. That meeting was held in preparation for the meeting this week.

China’s tech sector has seen its market value tumble since late last year, as the Chinese regulator tightened regulation on monopolistic behaviors and overseas listings. In two years, the top five Chinese tech firms combined have lost nearly half of their market value.

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Why does China want to build a national data center system by 2025?

Tue, 17 May 2022 00:30:00 +0000

In mid-February, China launched a new national project: building a centralized data center system across eight Chinese regions (in Chinese). It’s called the “East-to-West Computing Capacity Diversion Project,” reflecting the movement of computing and data processing infrastructure from the country’s eastern regions to its western regions.

The diversion project plans to channel the growing demand for computing and data analysis in the country’s prosperous but land-scarce eastern regions to the country’s less-developed but sparse and resource-rich western regions.

According to the February government announcement, the project will set up eight computing hubs and 10 data center clusters. The plan is to build an integrated data center system by 2025. Each hub will connect to one or two data center clusters nearby. The hubs in the west will take offline data needs or needs that demand less internet connection, and the hubs in the northern and eastern regions will take more advanced needs from nearby megacities like Beijing, Shanghai, and Guangzhou. The eight hubs will be located in Beijing-Tianjin-Hebei, Inner Mongolia, the Yangtze River Delta (Shanghai and neighboring provinces), Guangdong-Hong Kong-Macao Greater Bay Area, Chengdu-Chongqing, Guizhou, Gansu, and Ningxia.

This isn’t China’s first attempt to redistribute key resources by way of a grand plan that involves heavy upfront infrastructure investment. But it is the first one that’s centered around data and computing power.

In the first decade of the 2000s, the country successively launched three projects to redistribute natural gas, electricity, and water from one Chinese region to another to achieve economic growth: the “West-to-East Gas Transmission Project,” the “West-East Power Transmission and Conversion Projects,” and the “South-to-North Water Diversion Project.” The logic was to pool resources and demand to make better use of limited resources, such as sending water from the wet south to the dry north, and channeling gas and electricity from the resource-abundant west to the populous east.

The data center project has been built upon policy groundwork laid down over the past three years. The Communist Party first elevated data to the status of a key economic factor (as important as land, labor, capital, knowledge, and technology) in the 19th fourth plenary session in 2019. In December 2020, China’s top economic planner, the National Development and Reform Commission, issued a key policy guideline for setting up a system of “national integrated big data centers” (in Chinese). Last March, the government solidified its emphasis in the key long-term planning document, the 14th Five Year Plan. The five year plan asked the country to grow a data service industry and establish uniform standards in the industry.

Who are the key players?

A data center’s industrial supply chain includes three main sections. First, the upstream section: the infrastructure providers that build data center structures and supply power. The midstream section is made up of business operators that run the data centers. They are a mix of state-owned telecom operators, private cloud service companies, and third-party internet data center service providers. Finally, the downstream section is made up of end-users: companies and government agencies that need systematic data management.

According to a February report (in Chinese) from China’s internet watchdog, the Cyberspace Administration of China (CAC), leading players that have taken part in the project are the two state telecom providers – China Mobile and China Telecom – and a series of cloud service providers from tech majors: Huawei Cloud, Tencent Cloud, Alibaba Cloud, ByteDance’s Volcengine, and Amazon Web Services.

China Mobile will focus on connecting computing resources across different data center hubs and developing communication channels throughout the network. China Telecom will build many of the data centers. As of February, the company had already built 77% of the data centers in Inner Mongolia, Guizhou, Beijing-Tianjin-Hebei, Yangtze River Delta, Guangdong-Hong Kong-Macao Greater Bay Area, and Chengdu-Chongqing, CAC reported.

Huawei Cloud has started to build data centers in three hubs (Guizhou, Beijing, and Chengdu-Chongqing). The company’s data center in Guizhou is its biggest in the world, with more than 1 million servers. Tencent Cloud has been building two data centers in Chongqing. The first one began operations in June 2018, with 100,000 servers. Alibaba Cloud has plans to build data centers around Beijing, Inner Mongolia, and Shanghai, adding to its data center hubs across 25 regions worldwide.

ByteDance’s Volcengine told CAC that it is building a system of Content Delivery Network (CDN) nodes throughout the country to provide accelerators for transmissions across regions. The team is also looking to cultivate technicians to manage data centers and help western regions to build hardware supply chains for data centers.

Amazon Web Services has plans in the western Ningxia region. Its first data center hub there went into operation in December 2017, and the company announced plans to expand the center to more than double its size in 2021.

Apart from major state companies and tech giants, other niche companies in the data center sector are expected to benefit from the project. Sugon (or Dawning Information Industry Company), a supercomputer manufacturer established by the Chinese Academy of Sciences, has been working with the Chongqing government to help them cut down energy usage in data centers by utilizing immersion cooling technology, according to a government report in May. In addition, China’s top internet data center service providers such as the Nasdaq-listed GDS, Beijing-based VNET and Sinnet Technology, and Shanghai-based Yovole Networks, are expected to work with local governments on their data center projects.

Potential concerns for a major infrastructure project of the digital age

In the last decade, China has continued to see growing demand for data storage and management, thanks to the huge popularity of short-video apps, livestreaming e-commerce, Internet of Things (IoTs), and other data-rich services. Data analytics firm IDC expects China’s big data and analytics industry to reach $11 billion in 2021, and it predicts that number will more than double to $25 billion in 2025. The data center project is an effort to meet these demands ahead of time, but some experts think such foresight could create an oversupply and hurt companies and local economies.

Chen Gen, a science writer and an invited lecturer at Peking University, wrote in a late-April column (in Chinese) that building large-scale and advanced data centers ahead of the demand will “further deteriorate the industry competition situation” and that “oversupply of similar services will inevitably lead to a decline in unit prices, which could result in a decline in profit.”

Chen added that China’s plan to build these data centers with high power efficiency will hike up the cost and make it “difficult for companies to make up the loss in building these centers, even with some government subsidies.” The government has asked large data centers to keep their Power Usage Effectiveness (PUE) below 1.3, which is considered efficient by global standards, and has also demanded that at least 65% of each center’s capacity needs to be in use at any one time.

Such requests ensure that the data center project fits two high-level goals for the Chinese government. One is to set up a “unified domestic market” to tackle local protectionism and increase efficiency. The second is to reach peak carbon emissions by 2030 and become carbon neutral by 2060.

Liu Shiping, director of the fintech research center at the Chinese Academy of Sciences, told state media outlet Beijing Daily (in Chinese) that he thinks the green energy industry is set to benefit from the project. “For now, 70% of our data centers are coal-powered […] in the future, I can see wind, solar, and hydropower in the western Yunnan-Guizhou-Sichuan regions play a big part in data center power supplies.”

Wang Yuanzhuo, a computer science researcher at the Chinese Academy of Sciences, was quoted in the same report as saying that he hoped the project wouldn’t become another example of “heavy in construction, light in application.” In the past, many Chinese regions have blindly invested in projects related to the likes of new energy vehicles and semiconductors due to beneficial government policies, but “many of these projects have been stalled and even hurt the local economy.”

We are still in the initial stages of the national data center project, and it is too soon to tell whether it will make economic sense in the long run. However, China has shown that it has long-term and detailed plans around utilizing data as a key national resource, from passing the Data Security Law in 2021 to setting up a data exchange pilot scheme in the same year and regulating tech companies’ algorithms in March. The data center project will be a key piece of infrastructure as China continues its push to become a powerful digital economy with centralized control and close monitoring of its data.

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Didi said cybersecurity review completion a “prerequisite” for new listing

Fri, 13 May 2022 10:45:56 +0000

On Wednesday, China’s ride-hailing giant Didi urged US investors to vote yes on delisting its shares from New York. Didi said it can’t pursue a new listing as it faces a cybersecurity review launched last July by Chinese regulators, which still has no clear end in sight.

Why it matters: The company said in a filing to the US’s Securities and Exchange Commission (SEC) that the completion of Beijing’s cybersecurity review is “a prerequisite” for seeking approval for another listing, which implies a further delay for Didi’s plan to list in Hong Kong instead.

Details: Didi will only be able to complete a cybersecurity review on the condition that the company removes itself from the New York Stock Exchange, according to the filing.

A settlement with the Chinese regulators is also a must for Didi to resume “normal” operations, including getting its apps back onto domestic app stores and having access to new users, which will benefit shareholders, the company said.
The Chinese ride-hailing company said it remains unsure whether its rectification program will comply with local laws and when its business can return to normal. A shareholder meeting will be held on May 23 to vote on Didi’s proposed delisting from New York.

Context: Didi initially announced plans to delist from the US and seek a new Hong Kong listing back in December. But the company had halted the process when it failed to meet the requirements on data security compliance, a March statement confirmed.

Didi’s losses more than doubled in 2021 to RMB 19.1 billion, while revenue grew by only 22.6% compared to the previous year to RMB 173.8 billion. The company has lost a massive $60 billion in market capitalization 10 months after it made its public debut in New York.
The Chinese government launched a cybersecurity investigation into Didi over alleged data security concerns last July, immediately after its $4.4 billion US IPO, and has since neither disclosed any results nor lifted its ban on the company’s services on local app stores.

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Bosch remains committed to Chinese market despite lockdowns, company’s China president says

Wed, 11 May 2022 09:44:00 +0000

Despite being hit by China’s latest wave of Covid-19 cases and struggling to ramp up production amid the country’s related lockdowns, Bosch continues to view China as a hugely important market and remains committed to the country in the long term, the company’s China president said on Tuesday.

Covid-19 lockdowns have “had no impact” (our translation) when it comes to business development decision-making for the Chinese market, Chen Yudong, the president of Bosch China, told reporters during a virtual conference. Chen added that the company plans to extend its hiring spree by opening up 4,000 positions in China this year, as part of its long-term efforts to meet strong local demand and drive innovation in key technologies.

Bosch China has been running its local manufacturing sites using the so-called closed-loop system where workers eat and sleep on-site at its facilities, as government and industry groups work hard to help businesses return to normal. However, the German group has so far only achieved a partial output recovery to around 30-75% of its pre-pandemic level, with that number varying among Bosch’s different products and factories, as a result of a shortage of workers and disrupted supply chains, according to Chen.

The world’s biggest auto parts supplier is now seeing “positive signs of recovery” as the pandemic begins to ease in China, although production will take time to fully recover, according to Chen. He called for more government measures to lift restrictions on auto firms in light of a long supply chain that requires collaboration and coordination across the industry.

China’s auto industry has been dealt a major blow over the past month, as operations in some of its most important locations have ground to a halt due to restriction measures aimed at curbing a nationwide Omicron outbreak. Total passenger vehicle output in April fell 41.1% to around 969,000 units compared to the same time last year, according to figures published by the China Passenger Car Association (CPCA) on Tuesday. Sales of SAIC, China’s biggest auto manufacturer, were down 60% year-on-year to 166,600 units last month, while Tesla sold just 1,512 locally-made vehicles over the same period, down from 65,814 cars sold in March.

Some foreign businesses have scaled back plans to increase investment in China and have lowered their business forecasts for this year because of the country’s strict Covid-19 measures, CNBC reported on May 10, citing a survey released by the American Chamber of Commerce in China. Chen expected Bosch China to reach a “small” annual growth rate of less than 10% in sales for 2022 (our translation). The company reported revenue of RMB 128.6 billion ($19.1 billion) in China in 2021, up 9.6% from 2020.

Two of Bosch’s manufacturing facilities in Shanghai and the northeastern city of Changchun were temporarily closed early last month, according to a Reuters report. Production restarted a few days later, as the German parts maker was featured on an April 17 “whitelist” of 666 companies that were prioritized to resume operations by the Chinese government. Both SAIC and Tesla were also on that list, although the US electric vehicle giant was reportedly forced to suspend production for a second time as it was unable to secure enough components.

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BYD sees first-quarter sales jump 180% while Covid hits other Chinese automakers

Wed, 27 Apr 2022 10:30:54 +0000

BYD reported an impressive increase in sales in the first quarter while extended Covid-19 lockdowns in eastern and northern Chinese regions hit other automakers hard, according to the latest official figures released on Monday.

Why it matters: The sales figures highlight China’s accelerated shift from petrol and diesel engines to electric vehicles (EVs) and clean energy. It also showed the continued impact of supply chain disruption on the auto industry, worsened by the Russia-Ukraine war and Chinese authorities’ lockdown measures in controlling the coronavirus outbreaks.

Details: BYD’s sales jumped 179.8% year-on-year, reaching 291,378 vehicles in the first quarter of 2022, while FAW and BAIC saw their sales slide by more than 20% compared to a year ago, figures from the China Association of Automobile Manufacturers (CAAM) showed Monday.

Shenzhen-based BYD was an outlier for an industry hit by supply chain woes and lockdowns. BYD has been less affected by China’s pandemic control measures as Shenzhen quickly controlled an outbreak in March. The automaker also makes some of its own EV batteries and chips, protecting it from the wider supply chain shock. In addition, the EV giant is phasing out internal combustion engine vehicles faster than other automakers. Sales of new energy vehicles (NEVs), including EVs and plug-in hybrids, account for 98% of its total car sales.
FAW’s sales plunged due to omicron outbreaks in Changchun, the capital city of northeastern Jilin province, where the manufacturer’s joint ventures with Volkswagen and Toyota were shut down for four days in March, resulting in lost output of 50,000 vehicles.
BAIC sales also fell off a cliff, partly because the firm cut production during the Beijing Winter Olympics early this year as the city government embraced strict anti-Covid measures. Great Wall Motor reported a 16.3% decline in quarterly sales, as the virus and lockdown orders hurt supply chains.
GAC is also catching up, reporting a 150% annual increase in sales to 45,000 EVs under its Aion brand, while Changan and Geely have done a modest job, reporting flat EV sales for the first quarter.

Context: Industry experts are concerned about the Chinese automotive sector slipping into lower gear this year as supply chains face mounting strains such as the rising cost of raw materials and frequent lockdowns.

The CAAM in January predicted China’s auto sales would grow 5% in 2022, compared with a 3.8% gain last year, but said early this month that the industry now faces new obstacles to achieving that goal, according to a report from Caixin (in Chinese).
Sales in the world’s biggest car market increased 0.2% to 6.5 million vehicles from a year earlier in the first three months of this year, while NEV sales more than doubled to around 1.2 million units, said the industry group.

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Automakers in China still face many hurdles as some resume production

Fri, 22 Apr 2022 10:36:21 +0000

The Shanghai factories of Tesla and SAIC started producing again on Tuesday following weeks of lockdown due to a wave of omicron infections that have put the country’s auto production in a deep freeze. However, further halts loom large, as many other auto parts makers struggle with getting government permits to restart operations.

Why it matters: China’s auto industry is still far from getting back to total production. This week’s resumption is limited, and the wider industry faces various challenges, such as supply chain shortages and a limited workforce.

Shanghai and its neighboring regions are a key hub for China’s auto industry.

Short-staffing: Although Tesla and Volkswagen partner SAIC got their employees back to work earlier this week, smaller auto parts makers on the government’s whitelist for business resumption are facing challenges in putting their workers on assembly lines.

“We basically failed to call back our employees today even though we had government permission for resuming production,” Ye Chunlei, a director of Daimay Automotive Interior, a supplier to auto majors such as Tesla and Volkswagen, told Chinese media 36Kr on Thursday.
Ye estimated that only 40% of the company’s employees were eligible to return to the factory, adding that the resumption order had not been communicated to lower-level government departments, such as the local neighborhood committees responsible for managing the lockdown in the apartment complexes across Shanghai.
Tesla only has enough inventory of spare parts and materials for about one week of production, sources told Chinese media Caixin on Thursday. The US EV giant said on Wednesday in its earnings report that “limited production has recently restarted,” and the company continues to “monitor the situation closely” without revealing further details.

Logistics disruption: Despite easing restrictions from Shanghai authorities, automakers are having trouble getting parts and materials as new lockdowns across the country continue to hit the auto supply chain.

Freight carriers around Shanghai are finding it challenging to secure vehicle passes that allow them to deliver goods to China’s largest metropolis. Further complicating matters, the requirements for vehicle passes vary among different regions, Chinese media Caixin reported on April 15, citing a local carrier from the eastern city of Wuxi.
Truck drivers are also required to submit multiple documents to prove that they are Covid-free, including negative tests from within the previous 48 hours and health codes that show they have not been in any known high-risk environment.
The volume of highway traffic in Shanghai and the nearby provinces of Jiangsu, Zhejiang, and Anhui plunged by 65% on April 18 compared with a year ago, according to numbers released by the Ministry of Transport. The volume of highway traffic nationally in China is also down by 40%, according to the same statistics.

New rules to resume production: Shanghai released a new guideline on April 16 to help companies prepare for resuming production.

More than 250 auto firms in Shanghai are now mandated to implement strict health and safety rules at their plants to qualify for resuming production, including running in a “closed-loop” production system where workers live on-site.
Other measures include daily testing of employees, restrictions on group dining, and limiting movement, according to guidelines (in Chinese).
The rules state that workers should wear face masks at all times, except when eating or drinking, and that all visitors are required to take an antigen test on-site and have proof of a negative covid test result within 48 hours before their arrival.

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Chinese automakers could face “huge losses” from Shanghai’s lockdown: auto execs

Fri, 15 Apr 2022 11:59:24 +0000

Shanghai and Changchun, two of China’s major auto hubs, have been swamped by the highly contagious omicron variant of the coronavirus. The outbreaks, coupled with China’s strict epidemic control measures, have resulted in a huge blow to April auto sales. Now auto executives and analysts say that the impact could cripple the whole industry if the lockdowns remain unchanged.

“All Chinese car manufacturers will have to stop production in May, if there is no way for those in Shanghai and suppliers nearby to restart operations and production,” He Xiaopeng, chief executive of Xpeng Motors, said Thursday on his Weibo microblog (our translation).

The Xpeng leader is not the only boss to express deep concerns about the consequences of China’s current wave of lockdowns. Richard Yu, chief executive of Huawei’s consumer business group and smart car solution unit, said on Friday that technology and manufacturing businesses linked to suppliers in Shanghai could “stop altogether” in May if a solution is not found soon. “This is especially the case for the auto industry, and the economic loss could be huge,” Yu wrote on his WeChat Moments feed, according to a report by Chinese media Sina Tech (our translation).

Auto giants are already feeling the pain of lockdowns that began in Changchun early in March and were extended later that month to Shanghai. Auto sales in Shanghai and Changchun, the capital city of northeastern Jilin province, have ground to a halt. The Shanghai outbreak could lead to a sharp 20% drop in vehicle sales, the China Passenger Car Association said earlier this week.

Meanwhile, Volkswagen’s auto sales in China tumbled 23.9% year-on-year to 754,000 units for the first quarter, which the company’s China CEO Stephan Wöllenstein on Thursday attributed to lockdown measures and chip shortages.

Tesla has been forced to halt assembly lines in its Shanghai factory since late March. General Motors is eking out some limited output with partner SAIC in Shanghai by asking workers to sleep on factory floors, while multiple major auto suppliers such as Bosch and Aptiv have suspended production, Reuters reported.

China’s auto industry is now enveloped in a “perfect storm” with lockdowns added to the existing problems like semiconductor chip shortages and raw material disruptions due to the Russia-Ukraine war, said Stephen Dyer, a managing director at consulting firm AlixPartners.

“The bottom line is that unless China can stamp out COVID completely, this uncertainty will hover over the entire sector like a dark cloud,” said Tu Le, managing director of consultancy Sino Auto Insights.

Both Dyer and Le expressed confidence that the industry can be on a path toward recovery if lockdown measures loosen soon, but the industry will see major losses if lockdowns continue in the long run.

He Xiaopeng’s Thursday Weibo post noted that some of the related government officials are now “working hard to coordinate” reopening activities. Nio on Thursday also said that it is restarting operations in its plant in the eastern city of Hefei as the supply of key components improves slightly, without revealing details.

“The silver lining is that it is still only April so any lost production from late March can be made up via overtime in the rest of the year,” said Le from Sino Auto Insights. A similar sentiment is being expressed by AlixPartners’ Dyer, “If production halts are relatively short, it is possible for vehicle production and sales to quickly make up for production stoppages so that annual sales are less affected, as was the case in 2020.”

In addition, auto companies are now doing everything in their power to minimize damage and prepare for a rebound. SAIC-Volkswagen is reportedly (in Chinese) working 24 hours a day to track their shipments of components and is in contact with more than 500 suppliers to ensure supply. Volvo’s parent Geely has been assigning its employees to guard the highway junctions to transport goods from Shanghai with its own fleet, according to an April 11 report by Chinese media Caixin.

The immediate focus is on business recovery rather than profit. “Profit margins will be squeezed but their priorities right now should be to get production back online the second they get that thumbs up,” Le said.

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China resumes issuing new gaming licenses after 8-month freeze

Tue, 12 Apr 2022 07:41:38 +0000

On Monday, China resumed issuing new gaming licenses (in Chinese) after pausing it for eight months when the country began a broad crackdown on content, gaming, and the education sector last summer.

Why it matters: The halt on new gaming licenses led to an 8-month-long winter for the gaming industry in China, forcing many game makers to downsize, cutting down on development projects, and laying off staff.

Small studios took the heaviest hit during the license freeze. About 14,000 small gaming companies and gaming-related firms reportedly went out of business by the end of 2021, according to the South China Morning Post.

Details: On Monday, China’s National Press and Publication Administration (NPPA) released a list of licensed games for April, made up of 45 Chinese games. It’s the first list of licensed games released by the administration since last July, with new licenses put on hold since August.

Major Chinese gaming companies like 37 Interactive, Lilith, and Baidu were all granted new licenses this month. However, the country’s two largest gaming companies, Tencent and NetEase, were absent from the list.
89% of the approved games are made for mobile platforms, while 9% are for desktop devices. The list of newly licensed games also includes one indie title for the Nintendo Switch, called “Clocker.” The game was initially released on the desktop gaming platform Steam and received a favorable rating of 84%.
The list of newly licensed games does not include any overseas games, which have become increasingly attractive for Chinese players as they face tighter regulations at home.

Context: China has strict rules for publications, which apply to video games. Companies must apply to NPPA for gaming licenses to publish new games. In the seven months of 2021, before the freeze, China issued 675 gaming licenses, averaging 96 per month.

Chinese authorities had initiated long periods of gaming license freeze in the past. In late 2018, the gaming industry saw 80 new licenses approved after a 9-month hiatus.

In addition, stricter rules for Chinese gaming companies at home pushed NetEase, Tencent, and others to focus more on developing games for the overseas market.

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Digital policy experts weigh in on China’s new algorithm regulation

Tue, 05 Apr 2022 00:02:00 +0000

In mid-March, two weeks after China’s new algorithm regulation came into effect, many of the most popular Chinese apps, including WeChat, Douyin, Weibo, and Taobao, changed their app settings to allow users to turn off algorithm-based recommendation services, complying with the new rule.

Announced last November and brought into effect on March 1, the new regulation, called Provisions on the Administration of Algorithm-Generated Recommendations for Internet Information Services, was jointly issued by four Chinese government agencies: the Cyberspace Administration of China (CAC), the Ministry of Industry and Information Technology (MIIT), the Ministry of Public Security, and the State Administration for Market Regulation (SAMR).

The regulation deals with the very mechanisms governing the provision of online content – algorithm-powered recommendations that lie at the core of the business model of many of the country’s popular internet services, from social media applications to e-commerce sites, delivery apps, and video platforms.

The regulation is also the world’s first attempt by a national regulator to control the possible abuse of algorithmic decisions. It asks companies to notify consumers about the usage of algorithms, provide an opt-out choice, and protect vulnerable groups, such as minors and seniors.

To better assess the relevance of the new rules for the future of the country’s digital economy, its relation to other regulations in and outside of China, and its possible impact on China’s tech industry, I talked to a number of specialists in digital policy.

More regulations on digital economy worldwide

“It is really impressive to see how fast China adopted or revised key legislation to address certain challenges bound to the digital economy,” said Elena Scaramuzzi, Head of Global Research at Brussels-based independent regulatory research company Cullen International.

Scaramuzzi added that China isn’t alone in regulating digital enterprises and behaviors, other countries and regions are looking to do the same, including the EU, Australia, South Korea, Japan, Singapore, and the UK.

There have been considerable efforts to regulate the data economy across the world. A noteworthy example from the EU, said Scaramuzzi, is the European Commission’s proposal to regulate the use of AI, presented in April 2021. “If approved, the new EU rules would introduce bans on AI practices which pose certain risks, such as AI systems that use subliminal techniques to distort a person’s behavior. According to our recently published research on the global policy trends in AI, half of the surveyed economies (Brazil, China, the EU, Germany, the UK, and some US states) have rules today requiring transparency, explainability, and contestability of certain AI-based decisions.”

Scaramuzzi also pointed out that China’s algorithm regulation does not come in a silo. “The regulation refers to several laws of China, including among others the Personal Information Protection Law (PIPL),” she said.

The new algorithm rules borrow the principles of transparency from PIPL as well as user consent by establishing that algorithm-enabled service providers should disclose to the public the algorithm’s basic logic, purpose, and mechanisms, and allow users to switch off such services, introducing a de-facto opt-out system. They also deal with competition issues, with clauses banning, for instance, the use of algorithms to restrict other service providers or to conduct price discrimination.

The broad scope of the new rules – encompassing different angles – was also remarked upon by an industry practitioner I consulted, representing a large Chinese tech group. The person asked not to be named as they don’t have their company’s approval to speak to the media, but they further highlighted the moralistic angle present in the rules. “One can best understand the algorithm rules and China’s latest interventions in the field of privacy, data security, online gaming, and ed-tech by looking at all this under the prism of the common prosperity drive.” Common prosperity is a political-economic campaign launched by the Chinese government in mid last year to lessen widening social inequality.

This social values-focused approach, unique to the Chinese way of regulating the digital economy, can be found in the wordings of the algorithm regulation: asking all algorithm-recommended service providers to “adhere to mainstream values, actively spread positive energy, and promote the positive and good application of algorithms.”

Chinese regulators have indeed appeared to be increasingly sensitive and responsive to public controversies and complaints by consumers in this field. The mistreatment of gig workers by delivery platforms – which has previously triggered widespread criticism – is for instance explicitly addressed in the new algorithm rules. So too is the harm caused to minors by algorithms designed to stimulate addictions or overconsumption.

Display transparency in algorithms

The noteworthiness of the rules goes beyond their broad scope and moralistic intent. In a comment to the Stanford University-funded DigiChina project, Rogier Creemers, University Lecturer of Modern China Studies at the University of Leiden, noted how “the new regulations attempt to impose a regulatory system classified by type of application and level of impact for algorithms.” In essence, the law introduces a sort of “transparency index” for algorithms; service providers capable of influencing public opinion or social mobilization will need to disclose information such as the types and the scope of applications of their algorithms, as well as their self-assessment reports.

To achieve that level of transparency, Chinese regulators asked companies to register their algorithms with a state system, launching a new online portal on the same day the regulations came into effect.

When it comes to regulating the digital economy, it is interesting to note the similarities in approaches across different jurisdictions.

“The new Chinese regulation indicates a point of contact with the European approach to data regulation, one that is based on the principle of transparency and disclosure to the interested parties,” said Francesco Pizzetti, Professor of Constitutional Law at Turin University and Former President of the Italian Data Protection Authority.

“Chinese regulators seem to have recognized the need for users to be informed about the operating rules of the digital services they use on a daily basis. This is particularly important given the historical change we are witnessing towards an overarching digital society, in which automated programs channel the information we receive.”

Algorithm rules’ impact on Chinese tech industry

It may be too soon to forecast the regulation’s impact on China’s tech companies and more generally on the growth of China’s internet sector, which has already been under heavy regulatory pressure in the past year.

Chinese tech companies are facing headwinds on multiple fronts: tightened domestic regulatory scrutiny, a slowing economy, concerns over the possible delisting of US-listed Chinese stocks from foreign markets, and the delicate position Chinese tech groups find themselves in amid Russia’s war in Ukraine. This regulation is likely to add more concerns to their plate.

Angela Huyue Zhang, director of the Center for Chinese Law at the University of Hong Kong, said in an op-ed for Nikkei that she fears China’s attempt to regulate algorithms might hinder the growth of its most creative internet companies, such as ByteDance, the parent of Douyin and its international version TikTok, which both rely on sophisticated recommendation engines.

One can get a flavor of what might happen with the introduction of the opt-out option of recommender systems by looking at the case of Apple in Western markets. When Apple offered iPhone users the option to switch off tracking, 84% of users took it, putting a dent in the ads revenue of apps like Facebook and Instagram.

“If a similarly large share of Chinese consumers opted out of personalization, collecting and using personal data would become much more costly for both platforms and merchants,” Zhang told Project Syndicate in a February interview, adding that the overall trend of tightened data regulation might not only affect China’s consumer internet business but also derail China’s ambition to become an AI superpower.

However, not all share the same view. The unnamed tech industry practitioner I quoted earlier thinks there is room for optimism.

“The new regulatory move will oblige tech companies to engineer a cultural change inside the organization so as to make sure that privacy is embedded, consumers are protected, trust in digital services, and sustainability of business models are ensured. While there might be disruption in the short-term, with platforms having to adjust their internal processes, in the long-term it will be beneficial for the healthy growth of China’s internet ecosystem,” the person said.

While it might be too early to assess the actual effects of the new regulation, it will certainly be closely watched by both the tech industry community and the international legislators’ circle. As hinted at by Professor Pizzetti, the opportunity in front of us lies in the future establishment of shared regulations that can enable the free circulation of data in the digital world.

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Two sessions 2022: 5 Chinese tech leaders weigh in

Thu, 10 Mar 2022 08:30:22 +0000

The annual meetings of the National People’s Congress (NPC) and the advisory Chinese People’s Political Consultative Conference (CPPCC) being held this week are most important for the windows they provide into the government’s economic targets and policy priorities in the coming year.

But the so-called “two sessions” meetings also enable some top private enterprise executives who are members of the two bodies to present recommendations for policy directions publicly. This year, airing perspectives from tech industries were founders of Tencent, Baidu, NetEase, Xiaomi, and Geely. Their recommendations perhaps won’t be taken up by government authorities this year but might merit serious official consideration in future years.

READ MORE: China’s Two Sessions 2022: More 5G, rural e-commerce, semiconductors, and other tech priorities

Risky new technologies

In his ninth year as an NPC delegate, Pony Ma, founder and CEO of Tencent, urged more emphasis on the digitalization of pillar industries, standardized processes, and customized support for specialized high-tech enterprises. He also warned about the market risks inherent in the emerging sectors of the metaverse, non-fungible tokens (NFTs), and Web 3.

With regulatory risks remaining a major concern for tech giants, the billionaire’s comments largely aligned with the government’s bigger picture initiatives ranging from digital transformation to the call for large enterprises to fulfill their social responsibilities and work toward carbon neutrality. Ma made no comments about online gaming, a key revenue source for his company and an area in which many other delegates advocated for harsher regulation.

Ma also called for the government to build a social emergency network for sending disaster warnings and coordinating rescue resources by learning from the flood relief experiences in Henan and Shanxi last year. He suggested mobilizing local groups like community volunteers, food and package delivery workers, and ride-hailing drivers to be trained for natural emergencies.

Green transport and cultural IP

Robin Li, founder and CEO of Baidu, focused his remarks on autonomous driving and green computation. He urged the government to give more support so China can take the lead in commercializing fully autonomous driving. Specifically, he suggested government support for companies testing autonomous cars without safety drivers, preparing roads for automated cars, and building smart transportation infrastructure.

Li also proposed the creation of more green AI services as a way to achieve China’s goal of reaching carbon neutrality by 2060. China should optimize AI algorithms to minimize carbon emissions and develop big models that cut energy consumption. He also recommended public data centers set up ways to measure their carbon emissions.

According to NetEase founder and CEO Ding Lei, building a global intellectual property (IP) platform for exchanging cultural IP, digital video, and musical content should be a national priority. It’s an area that NetEase, the parent of popular music and video streamer NetEase Cloud Music, has already tapped this year with the launch of the beat trading platform BeatSoul in January.

Ding also called for more research on sodium-ion batteries as an alternative to the more popular lithium-ion ones to lower the price of batteries. In addition, recycling and rental services for lithium-ion batteries were also proposed as possible measures to address the issue.

Recycling, recharging, swapping

Lei Jun, co-founder and chairman of Xiaomi, recommended the government improve consumer electronic waste recycling and set unified standards for monitoring carbon emissions of new energy vehicles (NEVs). Not coincidentally, the smartphone maker made plans to build its own electric vehicles last year.

Lei called to consolidate three core processes (trading of used products, reproducing, and scrap dismantling) into one recycling system. Government should pay more attention to safeguarding former owners’ privacy in the recycling process, Lei said, by setting up third-party organizations to erase personal data found in second-hand devices.

Lei urged the government to build high-voltage fast-charging stations for NEVs on a large scale. He also suggested the government build a national platform to help different companies jointly develop fast charging and other essential techs.

Li Shufu, founder and chairman of automaker Geely, proposed that battery-swapping stations be built across the country, so more people could adopt NEVs without worrying about finding charging stations.

Li called for regulators, industry groups, and market players to establish unified and generalized standards for swapping technologies. The government should green light rules to speed up approval for swap stations’ land use and cut red tape involved in getting permits to sell swappable electric vehicles (EVs), Li said.

Although Tesla CEO Elon Musk views battery swapping as an “unlikely” solution and many others worry about the technology’s scaling problems, Chinese companies are jumping into the market in the hope that the service can work at scale in the world’s biggest EV market. Separation of the battery from the vehicle, along with battery-leasing options offered by carmakers, could also reduce the upfront purchase price of EVs, which could increase competitiveness and boost adoption. Beijing showed its support for the technology by defining swap stations as complementary to charging facilities in its “new infrastructure” investment plan for 2020.

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China’s Two Sessions 2022: More 5G, rural e-commerce, semiconductors, and other tech priorities

Wed, 09 Mar 2022 12:45:30 +0000

Beijing this year aims to expand 5G infrastructure, set up a national system of data centers, keep a tight regulatory grip on big platforms, and push e-commerce in rural China, according to goals set forth this week at the annual lianghui (“two sessions”) meeting of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC).

China plans to bolster the tech sector by increasing state funding in key areas such as chip manufacturing and improving the capital market so more tech firms can raise money domestically. Having a growing and self-sustained tech sector is central to the government’s plan to achieve these set targets, according to government reports presented in the meeting.

Given the ongoing surge in the pandemic in China, an economic slowdown, and uncertain global geopolitical pressure, many of the goals for 2022 will be particularly challenging to achieve. The GDP growth target of 5.5% is ambitious, despite being the lowest in a decade (It was 6% last year; no target was set in 2020 due to the pandemic).

Members of the NPC and CPPCC, the nation’s top legislative bodies, meeting from March 5 to March 11, emphasized the need for a stable growing economy as China prepares to host the all-important 20th Party Congress in autumn. This year is also the second year in China’s 14th Five-Year Plan (2021 to 2025), which is set to make the country wealthier and more equal, growing China’s per capita GDP to the level of moderately developed nations and expanding its middle-class.

Achieving self-sustainability in semiconductors and strategically important areas such as AI, biotechnology, and advanced manufacturing tools and machines are high on the government’s priorities. The government will fund small startups that possess innovative tech in the manufacturing, fostering what they called “little giants,” according to the Ministry of Finance’s report filed to the meeting and released to the press.

New energy vehicles will continue to be embraced. The government aims to build more green energy power structures to ease its reliance on fossil fuels. In key growth areas like Beijing, Shanghai, and Guangdong, the state will fund national laboratories and tech innovation hubs to attract tech talents.

Reassuring capital markets

China will “promote the development of venture capital,” Premier Li Keqiang said on March 5 at the opening of the six-day NPC assembly. The remarks sent an assuring signal to worried tech venture capitalists after China’s year-long tech crackdown erased trillions of dollars in market cap from Chinese tech majors like Alibaba, Didi, and Meituan. However, the country will still be mindful of the systematic risks brought by “unregulated and disorderly expansion of capital,” Li said in the government work report.

Despite the fears spawned by last year’s regulatory crackdowns, venture capital investments in China jumped almost 50% from $86.7 billion in 2020 to a new record of $130.6 billion for 2021, data from research firm Preqin shows. However, venture capital pivoted to financing hard tech areas like semiconductors and robots rather than highly-regulated areas like edtech.

In addition to leveraging venture capital, the country plans to improve the operation of public capital markets by reforming China’s new third board, an over-the-counter share trading platform serving small and medium enterprises (SMEs). China made the first step of reform by launching the Beijing Stock Exchange last November, targeting small tech startups and enhancing the connectivity of the multi-level capital markets.

Infrastructure priorities: 5G, data centers

Regulatory crackdowns on large internet platforms will likely continue this year, as the Supreme People’s Procuratorate, the state’s prosecutor, said in the NPC that it plans to closely monitor anti-monopoly, anti-competitive behaviors, and guide the capital market to orderly development.

China plans to construct more 5G stations and further utilize data as a critical national resource to bring more value from its increasingly digitized economy. China’s economic planner, the National Development and Reform Commission (NDRC), said in a report released to the assembly that it will launch several “major infrastructure projects,” building 5G networks, artificial intelligence (AI), and an integrated national system of big data centers.

China elevated data to one of the key economic resources in the 14th Five-Year Plan released last year. In 2021, China laid the groundwork for keeping data secure with a slew of regulations. This year, it will further the work to allow data to be better classified and defined to better share and trade data, said the NDRC report.

Building countryside e-commerce

As China faces continued weak consumption in 2022, the government hopes to compensate by expanding rural e-commerce. The government work report proposed to strengthen the construction of business ecosystems in county-level communities and to improve rural delivery services. The economic planner’s report shows that express delivery services now cover more than 80% of the country’s administrative villages, which will “further unleash consumption potential in rural areas.”

In 2021, China’s total online retail sales increased 14% year on year to RMB 1.3 trillion ($206 billion), or 30% of China’s overall retail consumption of RMB 4.4 trillion, according to NDRC’s report.

In addition, the economic planner wants to boost cross-border e-commerce as part of its efforts. For example, China plans to expand the scope of the pilot scheme for cross-border e-commerce retail imports and started planning on building seaports, inland ports, and overseas warehouses.

Smaller manufacturing startups

In 2021, manufacturing accounted for 27.4% of China’s GDP. The country aims to upgrade this key sector by nurturing homegrown startups specializing in robotics, automation, industrial software, and other smart manufacturing tools.

Since the US-China trade war in 2018, China has rushed to reinforce its manufacturing supply chains and make sure it doesn’t rely too much on foreign supplies in core technologies. China has funded more than 4,700 startups since 2021 and plans to invest in 3,000 more this year.

The government called the state incubation the “little giants” project, setting out to give out RMB 10 billion ($1.58 billion) over the years to fund startups in key manufacturing areas. These areas include high-end machine tools, aerospace equipment, marine engineering equipment, advanced railway equipment, electric power equipment, new materials, biomedicine, and high-end medical equipment.

Yet more support for semiconductors

China’s semiconductor industry has seen an exponential increase in investments and government support since 2019, as the country’s top chipmakers faced US sanctions. The government vowed to rely less on foreign technology in its chip production, but the complexity of this high-tech industry means China’s pursuit of self-sufficiency will be a long-term effort.

The government vowed to keep throwing money and support into this effort. China’s Ministry of Finance said in its report to the NPC assembly that it would channel funds to the integrated circuits industry through market measures. It would also give tax cuts to the chip industry, alongside other sectors like industrial mother machines, 5G, biotech, and agricultural equipment.

The NDRC said it will guide semiconductor makers to gradually expand their production, stabilize supply chains in and outside of China, and will help them connect with suppliers. It also vowed to pay close attention to raw materials prices, helping suppliers and manufacturers secure production resources.

’Moderating’ clean energy policies and supporting NEVs

Chinese policymakers have faced significant challenges as they tried to meet ambitious carbon reduction goals over the last year, ranging from heavy reliance on coal to a nationwide power crisis.

China will continue its efforts to reduce the use of coal and promote renewable energy sources, according to the government work report. And yet, the moves to reach its emissions peak will be done “in a well-ordered way,” Li said, adding that energy supply will be ensured “in accordance with overall planning,” in addition to efforts to build wind and solar power plants.

Last year, the central government imposed strict measures by enforcing energy consumption mandates and intensity limits. As a result, at least a dozen Chinese provinces introduced power cut measures in September. This, along with soaring energy prices, forced many factories to reduce or even halt their operations late last year.

Beijing will also push the country’s EV industry forward to drive consumption and cut carbon emissions. The NDRC, the economic planning agency, said in its report that it will continue to boost purchases of NEVs and build more battery charging and swapping facilities. Meanwhile, the Ministry of Finance pledged to maintain subsidies and tax exemptions for NEV purchases.

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Chinese regulator urges tech companies to stop forcing users to download apps

Fri, 04 Mar 2022 11:01:05 +0000

China’s IT regulator urged tech companies to stop forcing users visiting web versions of their services to download apps in a Thursday meeting.

Why it matters: The suggestion could cut profits from major internet companies as they might see app users and data decrease. Chinese internet companies often use their web applications to attract new users to mobile apps, from which they can collect users’ information and promote products more easily, especially after browsers start to set a stricter countermeasure to protect users’ privacy.

Chinese tech companies such as Baidu, Weibo, Zhihu, and Sohu, often require users who visit the mobile web version of the services to download their apps, or else, limiting their access to the mobile web services or trick them into clicking an adjacent button to download the apps.
Compared to Chinese social media companies, global service providers like Facebook, Twitter, and Reddit have focused on building more app-like features into their websites, making the web experience more pleasant.

Details: The regulators made the urge following a public complaint. On Feb. 11, a user complained that many tech companies forced people to visit a mobile web version of their services to download apps, according to a complaint posted on state media People’s Daily’s leadership message board. The board allows users to post suggestions for leaders of relevant ministries in China. The Ministry of Industry and Information Technology (MIIT), China’s administration for the IT industry, responded to the complaint, promising they would conduct in-depth research on forced app installation.

MIIT asked service providers to stop forcing users to download apps without their approval and add a prominent option to cancel downloads.
MIIT also asked service providers to provide better mobile web users’ experience, avoiding using techniques such as folding web pages, pop-up windows encouraging app downloads, and frequent alerts.
At the time of the publication, Zhihu and Sohu have gotten rid of their app install walls, while Baidu Tieba still requires users to download apps to read full threads.

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Didi starts wide layoffs seven months into China’s cybersecurity review

Tue, 15 Feb 2022 10:15:30 +0000

Chinese ride-hailing platform Didi wants to lay off 20% of its staff, Chinese media LatePost reported on Monday night. Didi is showing stress signs after Beijing launched a cybersecurity review on the company last July.

Why it matters: Didi is trimming its workforce to reduce operating costs and better cope with intense competition in the ride-hailing market. Other ride-hailers started going after Didi’s market share in China after regulators ordered the removal of Didi’s apps from app stores to review the company for cybersecurity reasons. The review, launched in July, is still ongoing.

Details: Didi will lay off about 20% of its staff across major businesses, including ride-hailing service, package delivery, and bike rental, Chinese media LatePost reported Monday, citing people familiar with the matter. Didi has already begun laying off employees in its corporate research lab in mid-January.

Sources told LatePost that the lay-offs will be completed by the end of this month. The company reported an average of 20 million trips per day in January, a 20% decrease from 25 million rides during the first quarter of last year. In addition, Didi’s share of the ride-hailing market fell from nearly 90% to 70%.
R-Lab, Didi’s corporate research lab set up in 2017 and incubated its food delivery project, will close its operation in China, while overseas staff from the lab are consolidated into its international business group.
Didi’s self-driving subsidiary will be excluded from the job cuts, the report said.
The ride-hailing giant has been unable to add new users. At the same time, it has also experienced a shrinking existing user base since the Chinese government launched a cybersecurity probe into the company in July. Meanwhile, its new businesses have made slow progress, the report said.
Didi did not respond to a request for comment by TechNode on Tuesday morning.

Context: Didi’s domestic ride-hailing business took a hit due to Beijing’s investigation. The company posted a net loss of RMB 30.4 billion ($4.7 billion) in the third quarter of 2021, compared with a net income of RMB 665 million during the same quarter a year earlier. Its revenue decreased by 13% quarter-on-quarter to RMB 39 billion over the same period.

Didi’s biggest rival Amap has taken this chance to build up market share, achieving 5 million daily rides on average since last September. The Alibaba-owned map platform is planning to launch a standalone ride-hailing app and establish its own car fleet, moving away from being an aggregation-only platform for third-party drivers, the LatePost report said.

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Youzan, a Chinese e-commerce service provider, starts mass layoffs after doubling losses: report

Fri, 21 Jan 2022 09:05:21 +0000

Youzan, one of China’s largest e-commerce service companies, is reportedly planning to lay off 1,500 people, or nearly 30% of its employees. The company is the latest Chinese tech firm to cut workers as Beijing enters the second year of tightening regulations.

Why it matters: Youzan, which develops software helping merchants to sell products on various Chinese online platforms, has faced substantial challenges as one of its major clients, social video giant Kuaishou, is developing its own software services as it aims to rake more profit from the booming livestream retail sector.

The contribution from marketers on Kuaishou has fallen by half from its highest level when it accounted for 20% of Youzan’s gross merchandise volume (GMV) in the first half of 2021, according to its interim financial report released in August.

Details: Earlier this month, Hong Kong-listed Youzan kicked off a wave of layoffs in departments involving research and development (R&D), Chinese media Sina Tech reported Thursday, citing people with knowledge of the matter.

More job cuts will be conducted among various departments this year, as the people estimated that more than 1,500 employees would be forced to leave the company. Hangzhou-headquartered Youzan had 4,358 employees as of Sept. 30.
The company recently parted ways with Chen Jinhui, a former executive at Baidu’s takeaway service who joined the company as a vice president of sales channels in mid-2017.
Youzan did not immediately respond to TechNode’s request for comment.

Context: Multiple Chinese big tech companies, including Bytedance, Baidu, and Kuaishou, have been carrying out layoffs and lowering their growth targets amid a slowing economy and a tightened regulatory environment.

Youzan reported a 10% year-on-year decrease in revenue to RMB 1.17 billion (around $185 million) for the first three quarters of 2021, while its losses nearly doubled from RMB 340 million in the same period of 2020.

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Chinese EV makers may face a price war in 2022: UBS

Thu, 13 Jan 2022 06:00:09 +0000

China’s electric vehicle (EV) sales soared in 2021, bucking the national trend of slowing auto sales. Local automakers have shown strong competitiveness against overseas counterparts. However, industry players may face new challenges: a looming price war among competitors will likely reduce profits, a UBS Securities analyst said on Tuesday.

Why it matters: There might be greater supply than demand in the Chinese EV market this year, since consumption could be reduced by slowing economic growth amid the recharged pandemic, Paul Gong, head of China auto research at UBS, told reporters on Tuesday.

An easing chip shortage may also help EV makers return to normal auto production this year, Gong said. He warned that an intense “price war” would push the prospect of profitability further away for automakers in the short term.

Details: Still, the rise of domestic EV makers will be “the way of the future” in China, as local players have generally “achieved greater progress” in the development of products and technology than foreign auto majors, according to Gong (our translation).

UBS projects cautious optimism in its outlook for the industry over the long term. It expects that, compared to its 2021 projection of 3 million vehicles, China’s EV sales will increase by 35% to more than 4 million vehicles this year. Sales could grow to 7.05 million units in 2025, according to UBS.
Sales of new energy vehicles, which include all-electrics and plug-in hybrids, increased by nearly 160% year-over-year to 3.52 million units in 2021, according to a statement published by China’s Ministry of Industry and Information Technology on Wednesday.

Context: The number of passenger electric vehicles sold in China surged 169% year on year to nearly 2.99 million units in 2021, according to figures published Tuesday by the China Passenger Car Association (CPCA). That figure beat the estimated 2.4 million units the industry group made in June.

Tesla China sold a record 70,847 locally-made vehicles in December and saw its total 2021 sales reach 320,743, taking the third spot in the list of China’s top-selling EV makers. BYD dominated the market with sales of 584,020 vehicles, followed by SAIC-GM-Wuling with 431,130 cars, CPCA figures showed (in Chinese).
US-listed Chinese EV trio Nio, Xpeng, and Li Auto are among the top 10 sellers, each achieving deliveries of nearly 100,000 vehicles. German auto giant Volkswagen sold around 130,000 passenger EVs, more than doubling its 2020 total, according to CPCA.
CPCA raised its forecasts for China’s NEV sales, including passenger and commercial vehicles, by over 10% to 6 million units in 2022 from the previous year. The association added that China will maintain leadership in the global EV race.

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Drive I/O | Huawei pushes further in EV, rules eased for foreign owners

Tue, 11 Jan 2022 10:29:56 +0000

Drive I/O

Drive I/O is TechNode’s ongoing premium series on the cutting edge of mobility: EVs, AVs, and the companies trying to build them. Available to TechNode subscribers.

Huawei burrowed further into the auto industry with the launch of the first vehicle with its homegrown operating system. The Chinese government cut purchase subsidies on new energy vehicles (NEVs) by 30% this year, while scrapping ownership limits on foreign automakers’ investments in the auto industry. Chinese electric vehicle (EV) makers Nio, Xpeng, and Li Auto celebrated record annual deliveries of nearly 100,000 cars in 2021. Alibaba’s head of autonomous driving lab quit the company after more than four years. Didi, soon to delist, shows a few signs of approaching break-even with its first post-IPO earnings report.

Huawei intensifies auto plans with launch of first vehicle with ‘seamless’ Harmony

News: Huawei on Dec. 23 unveiled the first EV model equipped with its HarmonyOS operating system with manufacturing partner Seres. Huawei boasts that this in-car software system offers users a seamless experience of smartphone and car features across devices. Priced from RMB 250,000 ($39,063), the Aito M5 sports utility vehicle runs on electricity or fuel and has a 1,242-km driving range, which compares with the 1,080 km offered by Li Auto’s popular plug-in hybrid crossover Li One. Huawei said that it will showcase the vehicle in 180 Huawei shops across 42 cities and deliveries should start around Feb. 20.

Insights: As US chip sanctions crippled its smartphone core business, Huawei is trying to diversify its operations by breaking into the Chinese automobile sector. The Chinese telecommunications giant last April started selling Seres vehicles through its sales network, but they did not sell well. From April through November, Seres achieved sales of only 7,080 SF5 EVs, which were equipped with Huawei powertrain system and in-car software, according to figures published by China Passenger Car Association. Huawei has also partnered with state-owned automakers BAIC and Changan to equip vehicles with its autonomous driving hardware and software. Yet some industry insiders are doubtful that the tech giant will eventually make its own cars.

News link: TechNode

Beijing sticks to plan to end EV subsidies in 2023

News: Chinese authorities on Dec. 31 unveiled long-awaited details about its national subsidy program for new energy vehicles (NEVs), such as all-electrics and plug-in hybrids. For 2022, beginning Jan. 1, subsidies to EV buyers will be cut 30% compared to 2021. According to a document released by the Ministry of Finance, the grants for EVs delivering driving ranges of at least 400 km (248 miles) will be cut by RMB 5,400 on an annual basis to RMB 18,000 ($2,824). Meanwhile, the subsidies this year for all-electrics with a driving range of 300 km to 400 km will be lowered to RMB 13,000, while those for plug-in hybrids will be cut to RMB 6,800. Beijing also reaffirmed its plan to eliminate subsidies entirely at the end of this year. Subsidies for purchases of new energy vehicles (NEVs) were already trimmed by 10% and 20% during 2020 and 2021, respectively.

Context: In reaction, several overseas automakers have raised prices for their EVs in China to offset the subsidy cuts. The prices of Tesla’s popular China-made Model 3 and Volkswagen’s ID series EVs have risen by RMB 10,000 and RMB 5,400, respectively. Newer local EV makers are taking a more active approach to reduce the impact of the subsidy cut. Nio on Jan. 1 announced moves to make up the difference between sticker prices and reduced subsidies of its vehicles for customers who had paid a deposit before the end of 2021 and who will get their vehicles delivered by Mar. 31. Cui Dongshu, secretary general of China Passenger Car Association (CPCA), forecasts that the trimmed government incentive program could still give a great boost to the EV adoption in the country, noting that the manufacturing cost of EVs and batteries are falling significantly. Cui estimated China’s NEV sales could more than double to around 6 million vehicles in 2022 from the previous year and therefore maintain leadership in the world EV race.

News link: Reuters

China lifts restrictions on foreign auto ownership

News: China now allows overseas automakers to operate wholly-owned ventures in the country’s passenger vehicle sector. As of Jan. 1, 2022, foreign firms are no longer limited to 50% ownership in their joint venture auto operations. The law had been in effect since 1994. In addition, foreign automakers can now set up more than two joint ventures that make the same type of vehicles. The new ownership rules were detailed in a Dec. 27 release from the Ministry of Commerce and the National Development and Reform Commission, China’s top economic planner.

Insights: The move has been perceived as a positive signal that would create a level playing field for domestic and foreign carmakers, Cui Dongshu, secretary-general of the China Passenger Car Association, told state broadcaster CGTN. Nonetheless, Cui said there would be no significant impact on the market from removing the limits since they were expected. German auto major BMW is expected to become the first internal-combustion vehicle maker to take advantage of the new JV rules. It plans to up its stake to 75% from 25% in its JV with Chinese partner Brilliance Automotive by the end of 2022. The Chinese government since 2018 has gradually ramped up efforts to fully liberalize the domestic auto industry, starting by scrapping limits on foreign ownership of EV makers as it aims to be a global leader in the sector. Tesla became the first foreign auto brand to enjoy the relaxed EV regulations when it set up its wholly-owned venture in Shanghai in May 2018.

News link: Global Times

China’s EV trio post record deliveries numbers in 2021

News: The US-listed Chinese EV trio of Li Auto, Nio, and Xpeng launched the new year by publishing record delivery numbers for 2021. Each noted that they had delivered nearly 100,000 vehicles in 2021, despite global chip shortages. All had doubled their deliveries from 2020. Xpeng Motors had stood out among its peers, delivering a record 98,155 vehicles last year, up 263% from its 2020 delivery count. It surpassed Nio, whose annual deliveries totaled 91,429 electric crossovers. Nio was hit by supply chain issues and changes to its manufacturing lines during the second half of last year. Meanwhile, Li Auto saw 2021 deliveries surge 178% year on year to 90,491 vehicles.

Context: Chinese automakers have been riding the wave of growing popularity of EVs in the country, boosted by a years-long national subsidy program and special license plates to EV buyers, among other policy measures. Nio, Xpeng, and Li Auto, all once struggling to stay afloat and beset by lackluster sales, are the poster children of the revolution. The trio has laid out ambitious plans to expand their sales and service networks as they vie to grab market share from internal-combustion vehicle segments. Analysts surveyed by Seeking Alpha expected Nio’s annual revenue to increase by 74% this year, Forbes reported, while Citigroup forecast that Xpeng’s deliveries could almost double to 175,000 units in 2022.

News link: South China Morning Post

Alibaba’s head of autonomous driving quits

News: Alibaba has parted ways with Wang Gang, a renowned computer scientist who has served as head of the tech giant’s autonomous driving lab under its Damo Academy research division for three years, Chinese media reported on Jan. 5, citing people familiar with the matter. A former tenured professor at Nanyang Technological University, Wang joined Alibaba in early 2017 as the chief scientist for the company’s artificial intelligence lab and was tasked with improving speech recognition capabilities for its first smart speaker device, the AliGenie X1, launched later that year. Wang has begun working on a startup developing robot vacuum cleaners and has raised an unknown amount of funds, the sources added.

Insights: The move is noteworthy in many ways. For one, Chinese industry giants had hoovered up research talents and poured resources into exploring the potential of artificial intelligence (AI) over recent years. The rush is over given a slower-than-expected process of implementing AI in industries, as many top scientists give up the high salaries in the industry for academia, while others start up their own businesses. Wang’s departure comes after Li Lei, the director of ByteDance’s AI Lab, left the company to join the University of California Santa Barbara as a professor last August, following the resignation of ByteDance Vice President Ma Wei-Ying a year earlier, SCMP reported. Chinese tech powerhouses also struggle with executive turnover and layoffs, as Beijing’s regulatory clampdowns continue to weigh on the sector.

News link: TechNode

Didi’s first earnings report after IPO: $4.7 billion loss

News: On Dec. 30, Didi reported its first earnings as a public company. It wasn’t pretty: The company lost RMB 30.4 billion ($4.7 billion) on RMB 42.7 billion ($6.6 billion) in revenue during the September quarter of 2021. To compare, the company reported a profit of RMB 665 million on revenue of RMB 43.4 billion in the same quarter of 2020. Didi’s largest source of revenue is still its domestic ride-hailing business, which yielded RMB 39 billion, down 12.9% from the previous quarter. The company posted an 8% quarter-over-quarter decline to 2.36 billion in ride volume over the period.

Context: Still the largest ride-hailing service in China by ride volume and revenue, Didi has been at the forefront in Beijing’s wide crackdown on local tech companies. Did’s business has taken a hit from a suspension order that has kept its services off Chinese app stores since July. Having been listed in the US for less than six months, the Chinese mobility giant on Dec. 3 announced plans to take its shares off the New York stock market and instead pursue a listing in Hong Kong. Beijing has yet to announce the results of its cybersecurity investigation into Didi, and the company’s shares have fallen more than 60% from its IPO price.

News link: TechNode

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Xpeng Motors fined by Chinese watchdog for facial recognition breach

Wed, 15 Dec 2021 08:27:01 +0000

Chinese electric vehicle maker Xpeng has been ordered to pay RMB 100,000 ($15,710) in fines by China’s local market watchdog for collecting customers’ facial data without consent, Chinese media reported, as Beijing looks to tighten rules over user data privacy.

Why it matters: The latest penalty reflects the Chinese authorities’ goal of tightening data privacy rules following a series of controversies over the use of consumers’ personal data. The moves are changing the way Chinese tech companies operate.

Details: A district office under Shanghai’s market regulator (Shanghai Municipal Administration for Market Regulation) has imposed a fine of RMB 100,000 on an Xpeng subsidiary for unlawfully gathering facial data without customers’ knowledge, state-owned media The Paper reported Tuesday, citing Tianyancha, a Chinese business data inquiry platform.

The Alibaba-backed EV maker was handed the fine for installing a total of 22 facial-recognition cameras in seven showrooms in Shanghai, according to a penalty bill (in Chinese) viewed by state-owned media outlet China News Service.
The company reportedly used these cameras to collect more than 430,000 facial images during the first six months of this year without declaring the practice to the public, thus breaching China’s consumer protection law, the report said, citing the market watchdog.
Xpeng said in a Tuesday statement to local media that it used the technology to gather information such as traffic flows, hoping to improve sales and better customer service. The company added that it had deleted all collected facial data and will strictly comply with regulations and protect customers’ personal information in the future.

Context: Xpeng is not the first automaker in China to violate customers’ privacy. German automaker BMW was found using facial recognition technology on customers without their knowledge, state broadcaster CCTV reported in March.

The Chinese government in August passed the Personal Information Protection Law, which came into effect on Nov. 1. The law requires companies to gain consent before collecting personal data.

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China Tech Investor: China’s data regulations foster both security and development? With Tom Nunlist

Fri, 10 Dec 2021 04:32:21 +0000

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, the guys are joined by Trivium China’s Tom Nunlist to discuss China’s evolving data regulation. They go over the three pieces of legislation that are shaping the country’s broad policy towards data, and how it diverges from the frameworks in the US and Europe, and how China’s assertive approach to such policy may impact the future of data protection standards globally.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

Tencent
Alibaba
Baidu
Bilibili
Xiaomi
JD
Pinduoduo
Meituan-Dianping
Kuaishou

Hosts:

Elliott Zaagman– @elliottzaagman
James Hull– @jameshullx

Guest:

Tom Nunlist – @freefader

Editor:

Peter Isachenko

Podcast information:

iTunes
Spotify
RSS Feed
Music: “Hey Ho” by Steve Jackson, Royalty Free Music

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China Tech Investor: Baidu, Tencent and Alibaba earnings with Michael Norris

Mon, 29 Nov 2021 05:07:31 +0000

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this earnings episode, the guys welcome back Michael Norris to discuss September quarter earnings for Baidu, Tencent, and Alibaba. They also answer some listener questions towards the end about which company will benefit the most from opening walled gardens as China ramps up antitrust regulations.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

Tencent
Alibaba
Baidu
Bilibili
Xiaomi
JD
Pinduoduo
Meituan-Dianping
Kuaishou

Hosts:

Elliott Zaagman– @elliottzaagman
James Hull– @jameshullx

Guest:

Michael Norris – @briefnorris

Editor:

Peter Isachenko

Podcast information:

iTunes
Spotify
RSS Feed
Music: “Hey Ho” by Steve Jackson, Royalty Free Music

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Baidu begins commercial robotaxi services in Beijing

Fri, 26 Nov 2021 09:15:53 +0000

China’s tech giant Baidu officially launched an autonomous ride-share service in the capital city Beijing, after receiving the country’s first permit for commercial robotaxi services.

Why it matters: This is the first time that the Chinese government has allowed companies to legally charge Uber-like fees to the public for their robotaxi services, a major milestone for Chinese self-driving car development.

Details: The service, known as Apollo Go (or Luobo Kuaipao in Chinese), ferries passengers around a 60 square kilometer (around 23 square miles) area in the Beijing Economic and Technological Development Zone in the south of the city, Baidu said on Thursday.

A 55-year-old female resident surnamed Yuan took the first commercial trip on the platform and paid RMB 1.34 ($0.2) for her 3km ride (with a 95% discount), according to an announcement released Thursday (in Chinese).
Qualified users can locate one of 67 autonomous cars in the vicinity and hail a ride by themselves by using the Apollo Go App. Baidu is currently operating the fleet from 7 a.m. to 10 p.m. each day in the area.

Context: Baidu, as well as self-driving unicorn Pony.ai, obtained approval from the head office of the Beijing High-level Automated Driving Demonstration Area to start charging for rides using autonomous vehicles (AVs) in the zone, China Daily reported on Thursday.

Pony.ai said in an announcement (in Chinese) that it will gradually transition its free trial service, which began in April, into a commercial one in the future, without revealing further details.
Baidu in May launched a fully driverless, paid robotaxi pilot project using 10 AVs in the Shougang Industrial Park on the outskirts of Beijing, and plans to expand the fleet to more than 100 vehicles during the Beijing Winter Olympics next February.
The search engine firm claimed its robotaxi project offered 115,000 rides during the third quarter of this year, and its testing vehicles had logged 10 million miles as of September. Google’s self-driving unit Waymo announced in January 2020 that its vehicles had driven 20 million miles on public roads, Quartz reported.

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China Tech Investor: Will online gaming remain a pillar of China’s digital economy?

Fri, 29 Oct 2021 04:25:57 +0000

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, the guys are joined by South China Morning Post’s Josh Ye to discuss China’s gaming industry. They go over recent regulations, misconceptions, and whether Chinese gaming firms have a leg up in the future of the “metaverse.” James and Ell also briefly discuss Luckin Coffee, Evergrande, and antitrust regulations.

To read more of Josh’s work on gaming in China and much more, check out the Pro Edition of SCMP’s 2021 China Internet Report.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

Tencent
Alibaba
Baidu
Bilibili
Xiaomi
JD
Pinduoduo
Meituan-Dianping
Kuaishou

Hosts:

Elliott Zaagman– @elliottzaagman
James Hull– @jameshullx

Guest:

Josh Ye – @TheRealJoshYe

Editor:

Peter Isachenko

Podcast information:

iTunes
Spotify
RSS Feed
Music: “Hey Ho” by Steve Jackson, Royalty Free Music

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Insights | State investors place their bets as rivals close in on crippled Didi

Tue, 19 Oct 2021 02:57:13 +0000

China’s July crackdown on Didi has had knock-on effects for the wider ride-hailing market, as investors scurry to fund competitors cranking up efforts to steal market share from the ride-hailing monopoly.

Remarkably, this time it is not seasoned venture capital funds but state-owned investors including Citic that are pouring billions of RMB into promising up-and-comers. The leading beneficiaries so far are automaker Geely’s Cao Cao and T3, a ride-hailing service backed by three other domestic automakers. The investments follow more than three months of speculation that Chinese regulators could impose heavy fines, break up the company, or even demand a complete takeover by the state. Didi was listed on the New York Stock Exchange in late June but, less than one week later, cybersecurity regulators forced the removal of Didi’s app from online stores.

Insights

Insights is a series of explainers on developing stories in China tech, available to TechNode subscribers.

Bottom line: Venture capitalists are bullish that upstarts can catch up with the longstanding leader in China’s ride-hailing industry because Didi has been losing momentum ever since its app was suspended. However, the challengers still have to tackle the same regulatory problems Didi has faced.

T3 and Cao Cao gained traction: Dominating China’s ride-hailing market with a 90% share, Didi has had no serious competitors for more than five years. But now investors believe that Beijing’s cybersecurity investigation of Didi may put some ride-hailers backed by automakers in a better position to prosper.

Founded by auto majors FAW, Dongfeng, and Changan back in 2019, T3 is being thought of as one of the most promising challengers to Didi.

The company is near closing a $775 million funding round led by state-owned financial conglomerate Citic Group, along with a credit line of RMB 2 billion ($310 million) from local banks, according to a LatePost report (in Chinese) on Sept. 23.
Cao Cao Mobility is another Didi rival that managed to attract investor interest, currently on track to complete a new round of fundraising in the first half of 2022, Bloomberg reported late last month, citing chief executive Gong Xin.
A subsidiary of Chinese automaker Geely, Cao Cao made the announcement less than a month after closing a nearly $600 million funding round led by five state-owned enterprises. The local government of the eastern city of Suzhou and its associated parties, such as Suzhou Xiangcheng Financial Holding Group and Suzhou High-Speed Rail New City Group, have since had a serious claim to the company’s capital structure.

Investors bullish on fast-growing entrants

The multi-million dollar investments are the latest to follow in the Chinese ride-hailing space which is witnessing investor interest running high over the possibility that two or even more companies could thrive after being a winner-takes-all market since Uber left China in late 2016.

Investors were “very enthusiastic” about T3’s recent external funding round, having placed investment biddings of “more than 10 billion yuan,” LatePost reported citing people familiar with the matter.
Even minor league entrants, mostly backed by Chinese automakers, are capturing interest from mainstream investment firms and market watchers. Notable are SAIC’s mobility service Xiangdao and OnTime, a ride-hailing service partly launched by GAC, the report said.
Some Chinese investors are now eyeing Didi’s misfortune as an opportunity for its competitors, especially those backed by local auto giants, to knock it off the top spot in the country’s ride-hailing market. As the industry is facing more stringent scrutiny, these companies, having generally hired more licensed drivers, will be under much less pressure in compliance with new regulations, an industry executive told LatePost.

Have they solved Didi’s problems? One of the biggest regulatory hurdles Didi has faced is compliance with regulations governing operating permits and licenses for drivers. Didi acknowledged in its initial public offering (IPO) filings that many of its drivers in China had not obtained the license legally necessary to provide ride-hailing services.

The cities of Beijing and Shanghai, for example, require ride-hailing drivers to be local residents and their cars must be registered with local number plates. Both these requirements are extremely difficult to fulfill for ride-hailing drivers, who are mostly migrant workers from other parts of the country.
A “large number” of cars on Didi’s platforms may not have the necessary permits to provide ride-hailing services, Didi said in the prospectus. Violators of these regulations may face fines of up to RMB 12,000, local media reported.
Despite lagging behind Didi in number of orders, those rivals are performing better in terms of compliance with regulations. Around 68.5% of orders completed on T3’s platform were deemed as “compliant” in August, meaning that they had met all regulations, according to data from China’s transportation ministry. Cao Cao managed to get a compliance rating of 56.8% in August. By comparison, the ratio for Didi was only 41.9% in the same month.

Didi’s pain is rivals’ gain: Another competitive advantage rivals have over Didi is that they can accept new app user registrations, while Didi still can’t.

The Cyberspace Administration of China (CAC) on July 2 ordered Didi to stop taking new user registrations “to prevent the expansion of risk” during a “cybersecurity review” into the company.
On July 4, the CAC ordered apps stores in China to take down the Didi app as part of the cybersecurity review.
According to a 2020 regulation on the review process, a CAC cybersecurity review should be completed within 45 days. However, it can be extended if “the situation is complicated.” It seems that Didi’s situation falls under the definition of “complicated” as the review process is still ongoing and the app was still unavailable on Chinese app stores as of Friday.
The Chinese version of Didi’s app was downloaded about 900,000 times in June, according to SensorTower, or 30,000 times per day.
In September, the Financial Times reported that the number of Didi’s daily users had fallen 30% since the end of June.
“Didi has sent me a fewer amount of orders since the investigation, but the impact is not big. I still mostly rely on its platform for rides especially during off-peak times,” (our translation) a Shanghai taxi driver surnamed Lu told TechNode on Oct. 15. Alibaba’s mobility service, Amap, currently collects a 9% service fee of the fares. That fee is “slightly higher than that of Didi,” according to Lu.

Analysts’ take

The Didi saga is “a window of opportunity” for rivals, Chen Liteng, an analyst with Hangzhou-based consulting firm 100ec.cn, told TechNode. But Didi still maintains a “significant lead” in China’s ride-hailing market and up-and-comers “would be struggling in their attempts to shake Didi’s position over the short term,” Chen said.

“If Didi goes through the crisis, the company will find itself easier to be compliant with rules, and that would turn up the heat on its challengers. Ride-hailing platforms T3 and Meituan will in turn probably face more regulatory scrutiny in the future,” said Chen.
“Collectively, all of the smaller players together could pose a threat but they still need to raise much more capital, keep trying to grow share, and ultimately compete with Didi in the tier-one cities where their true strength lies,” Tu Le, managing director of Sino Auto Insights, told TechNode.
Le agrees that automaker-backed ride-hailers, with a higher rate of compliant drivers and vehicles than Didi, probably are more capable of adapting quickly to the new regulatory environment as Beijing imposes stricter regulations on the industry.
“The automakers are used to influencing and knowing how to work through new regulations and currents, so I see that as an advantage for them,” he said.

READ MORE: Didi app ban ignites race for ride-hailing market share

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China Tech Investor: Evergrande: How we got here, and what it means, with Ming Zhao

Thu, 30 Sep 2021 06:22:48 +0000

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, the guys are joined by tech founder and financial blogger Ming Zhao. They discuss the broader context of Evergrande’s growth and collapse, and what this means for the broader Chinese economy. Topics include China’s balance-sheet expansion, off-balance-sheet lending, and past instances of heavy leverage and collapse for Chinese firms.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

Tencent
Alibaba
Baidu
Bilibili
Xiaomi
JD
Pinduoduo
Meituan-Dianping
Kuaishou

Hosts:

Elliott Zaagman– @elliottzaagman
James Hull– @jameshullx

Guest:

Ming Zhao – @fabiusmercurius

Editor:

Peter Isachenko

Podcast information:

iTunes
Spotify
RSS Feed
Music: “Hey Ho” by Steve Jackson, Royalty Free Music

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Emerge 2021 | Regulation the biggest challenge for Chinese investors eyeing overseas

Wed, 22 Sep 2021 08:14:05 +0000

The biggest challenges that Chinese investors should be well prepared for when investing in startups overseas is tightened regulations around the world, said Zhu Bin, a former director of Greater China investment advisory, at Business Sweden.

Corporates and investors who are looking to do outbound investment should try to engage or at least touch base with some advisors who are familiar with these regulators and the newest developments as they are constantly changing, Zhu told TechNode’s Emerge 2021 conference in Beijing on Sept. 19.

Chinese companies’ overseas investment activities are facing increasing regulatory pressure recently, especially in high-tech industries like semiconductors and sectors concerning privacy like social media. In late June, the US government halted a Chinese investment firm’s acquisition of South Korean chipmaker Magnachip.

In 2019, The Committee on Foreign Investment in the US (CFIUS) forced Chinese gaming company Beijing Kunlun Tech to sell gay dating app Grindr, which is popular in the US, citing privacy concerns. The sale finally went through in March 2020.

“CFIUS is increasing scrutiny of Chinese investment in the US. European countries are also on their way to produce their own regulations of what can be done and what should not be recommended in terms of investment,” said Zhu.

“These regulations are constantly evolving,” he said. “Unless you are a real expert and you are working on these areas on a daily basis, otherwise, you will be shocked perhaps every three months by how things have changed.”

Recent changes to US laws, including the Foreign Investment Risk Review Modernization Act (FIRRMA), expanded CFIUS’s ability to block investments that it deems a threat to US national security.

READ MORE: CFIUS doesn’t mean Chinese companies can’t invest in the US

Chinese tech giants invested heavily in the US between 2010 and 2018, but quickly scaled back investments in US startups beginning in 2019, TechNode reported last year. The drop-off is partly explained by increased scrutiny in 2018 when CFIUS was given more power to review investments in US companies.

Since then, new Chinese investments in American startups have fallen dramatically. Contributions in the first quarter of 2020 dropped to $400 million, down by more than a third compared to the same period in 2019.

READ MORE: Before the bans, China tech investment turned away from US

“You have to satisfy governments,” agrees Edison Chen, director of investment at Plum Ventures at the Emerge panel with the theme “Cross-border investment in a global context”. “Entrepreneurs have to understand how America works and how China works.”

“If you can understand both of them[the US and China], you can be very successful in entrepreneurship,” said Chen.

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China Tech Investor: Breaking down China’s tech regulation (thus far), with John Artman

Fri, 17 Sep 2021 09:24:20 +0000

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, the guys are joined for the second time by John Artman, tech editor at the South China Morning Post. They go over some of the SCMP’s 4th annual China Internet Report released recently, and talked about the four areas of China tech regulations: antitrust, fintech, data security, and cryptocurrency. They also go over China’s recent crackdown on overseas IPOs and what that means for overseas investors.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

Tencent
Alibaba
Baidu
Bilibili
Xiaomi
JD
Pinduoduo
Meituan-Dianping
Kuaishou

Hosts:

Elliott Zaagman– @elliottzaagman
James Hull– @jameshullx

Guest:

John Artman – @knowsnothing

Editor:

Peter Isachenko

Podcast information:

iTunes
Spotify
RSS Feed
Music: “Hey Ho” by Steve Jackson, Royalty Free Music

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Insights | Why Chinese tech giants are becoming very generous

Tue, 14 Sep 2021 02:42:21 +0000

Philanthropy is shifting from a “nice to have” initiative to a “must have” commitment for Chinese tech giants.

Chinese internet firms ramped up their donations for the public good over the past few months, giving away billions of dollars to causes ranging from technology innovation to bridging income inequality. The move is widely viewed as an effort to placate a state that lately seems to be scrutinizing their every move.

Bottom line: Under intensifying regulatory pressure, Chinese tech companies are scrambling to show their willingness to operate and invest in compliance with the state’s broad goal of “common prosperity.” The change forced these tech titans, many already suffering selloff pressure due to tighter state reins, to seek a balance between shareholder interests and the higher operating costs due to huge donations.

Insights

Insights is a series of explainers on developing stories in China tech, available to TechNode subscribers.

Brief timeline: Tech giants such as Alibaba and Tencent are already active donors through their corporate funds. The companies’ billionaire founders are also writing large checks for charity from their personal foundations. Alibaba’s Jack Ma topped Forbes annual China charity list with nearly $500 million in donations in 2020. Tencent’s Pony Ma came in third with about $402 million, and ByteDance’s Zhang Yiming was fifth with $189 million. Pinduoduo’s Colin Huan topped the Hurun China Philanthropy List 2021 with donations totaling $1.9 billion.

Unlike previous donations that tended to be sporadic initiatives by individual companies, there’s a newfound generosity from nearly every major tech company over the past few months.

Tencent invested RMB 50 billion ($7.7 billion) in “sustainable societal innovation” projects in April. The gaming titan later doubled the sum, giving an additional RMB 50 billion to the company’s “common prosperity fund” in August.
Alibaba announced in August an investment of RMB 100 billion across ten key initiatives to promote common prosperity in China. The company will establish the Alibaba Group Common Prosperity Advancement Working Committee, chaired by chief executive Daniel Zhang, as a permanent mechanism dedicated to delivering on the key initiatives by 2025. The committee will focus on technology innovation, economic development, high-quality employment creation, care for vulnerable groups, and the establishment of a common prosperity development fund.
Pinduoduo rolled out in mid-August a RMB 10 billion agriculture initiative to address critical needs in the agricultural sector and rural areas such as food security and agricultural technology. In March, Pinduoduo founder Colin Huang stepped down as chairman after giving away 2.37% of his shares, worth $1.85 billion, to charity last year.
Meituan’s founder and CEO Wang Xing in June donated $2.3 billion worth of Meituan shares; his company is still undergoing an antitrust probe by regulators following his controversial comments hinting of discontent with the government, wiped tens of billions of dollars off Meituan’s market value.
Xiaomi founder and CEO Lei Jun transferred $2.2 billion worth of shares in the company to the corporate Xiaomi Foundation and the personal Lei Jun Foundation in July. This is in addition to the nearly $1 billion that Lei announced in April he would donate to charity.
Zhang Yiming, founder of TikTok developer ByteDance, is giving RMB 500 million of his own money to establish an education fund.

Compared with previous donations, tech firms’ burst of generosity over the past months was mainly directed towards the goal of public welfare and reducing inequality, a goal made explicit in the company’s five-year plan released this March.

The donations are mainly directed to fields like technology innovation, poverty alleviation, welfare of low-income groups, agricultural/rural development, education, basic science/research, healthcare, and small- and medium-sized enterprise (SME) support.

A change in priorities for economic growth

When former Chinese leader Deng Xiaoping ended the country’s planned economy and embraced a free market in the 1980s, he said allowing some people and regions to get rich first would speed up economic growth and achieve the ultimate goal of common prosperity. Now, the priority seems to be shifting to the latter.

On Aug. 17, Chinese President Xi Jinping called for the nation to achieve “common prosperity” in a speech, asking to rationally “adjust” excessive incomes and for wealthy individuals and companies to return more to society.
Xi’s call came as Chinese authorities stepped up regulation of tech companies in multiple areas, including antitrust, data security, and privacy, ending the country’s long-standing laissez-faire regulatory approach towards the tech sector.

The changes also came as income inequality becomes an increasingly pressing problem in Chinese society.

China’s top 1% own nearly 31% of the nation’s wealth, according to a study by Credit Suisse.
Chinese Premier Li Keqiang said in May 2020 that 600 million people, or roughly 42.9% of China’s population, have a monthly income of RMB 1,000.
China received a score of 0.465 on the Gini index of the World Bank, which measures economic inequality. The score ranges from zero to one, with one meaning complete income inequality. A score of 0.4 or above is considered at a “warning level.”
“Alibaba is a beneficiary of the strong social and economic progress in China over the past 22 years. We firmly believe that if society is doing well and the economy is doing well, then Alibaba will do well,” said Daniel Zhang, chairman and chief executive of Alibaba Group, in a company statement on Sept. 3.
Resentment toward tech companies is growing in China. Whether restaurant owners on food delivery platforms or startups in crowded verticals, small businesses feel they are squeezed by the digital behemoths.

Investor sentiments

While donating tens of billions of dollars for social initiatives out of their profits, the Chinese tech companies, mostly listed, face the double pressure of convincing investors that they are making the right decision to sacrifice short-term profits for long-term growth prospects.

Chinese tech stocks have experienced a stunning sell-off since the beginning of this year as Beijing widened its crackdown. Intensified regulations over monopolistic behaviors, overseas listings, and data security, coupled with massive fines, wiped out hundreds of billions of dollars in market value of Chinese tech companies.
“As platforms grapple with increased regulatory scrutiny inside and outside of China, investors will need to come to grips with the impact of regulatory burden and compliance costs on EPS (earnings per share) and ROIC (return on invested capital),” said Michael Norris, head of research and strategy at AgencyChina.

How effective philanthropic displays will be?

But the efforts raise other questions: Will these philanthropic displays be enough to ease the wrath of regulators? Norris thinks there’s little chance internet platforms can avoid regulation through their social impact investments.

“However, these investments can signal internet platforms are responsible market participants. This hits the right notes with regulators who’ve been tasked with curbing exploitative practices and market irregularities,” Norris said.
“Think of it as stakeholder capitalism, with Chinese characteristics,” he added.

New opportunities under the disguise of donation?

The government’s attention to areas like tech innovation, agriculture, education, and basic science means opportunity for tech companies. By entering these strategic areas, they could expect returns from those donations, or investments, if they have aligned their business with the broader strategic goals properly. But the time for such returns may be long.

Started as a social ecommerce platform, Pinduoduo has become laser-focused on “digitizing agriculture”, an initiative that aligns with the government’s drive to modernize agriculture and boost development for rural areas.
Pinduoduo said in a statement that the company will be able to “get back” because the users “have placed their trust” in the platform.
“I observed that both Tencent and Alibaba pledged to support SMEs. This might mean that some of the investment is applied to existing subsidies or retains discounted take rates,” said Norris.

A lasting change?

China has lagged when it comes to charitable efforts, partly due to China’s tradition of passing fortunes through a family line. Back in 2010 when Microsoft co-founder Bill Gates and billionaire investor Warren Buffett invited Chinese moguls to a dinner to discuss philanthropy, lots of them turned down the invitation for fear of being asked to make a donation.

However, there’s been a significant change in charitable giving, especially since 2008, when donations struck a chord with larger groups due to the Sichuan earthquake. Donations for fighting the COVID-19 outbreak and helping victims of the recent flood in Henan peaked as tech firms tried to fulfill their social responsibilities, a concept specified in the country’s corporate law.

Chinese tech billionaires still have a long way to go to be on track with philanthropic models comparable to western counterparts like Gates.

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Edtech will survive China’s crackdown, but it won’t be the same

Tue, 31 Aug 2021 03:24:09 +0000

All through my late teens, as a student at an elite public high school in the northeastern industrial city of Shenyang, after-school classes were a constant. They were usually held in makeshift classrooms located in random residential buildings close to campus. Scores of students packed elbow to elbow, while a teacher in the front, often from our high school, sweated through derivatives or English participles. Looking back, all that extra study was practically useless: Almost every question I was taught to crack during these sessions was levels above the difficulty demanded by the national university entrance exam, the infamous gaokao. At its best, it was intellectual acrobatics; at its worst, a massive grift.

My experience was not exceptional. By 2020, at least one-third of Chinese households with children of K-12 age (in Chinese) were paying for private classes to supplement the regular curriculum. Outlays by these families floated valuations of the K-12 private education industry from RMB 373 billion ($58 billion) in 2015 to over RMB 700 billion in 2021. In that span, the industry also rapidly moved online.

There were massive open online courses (MOOCs) provided by renowned public middle schools and animation-based interactive learning for the youngest students, but the most profitable innovation was the massive livestream class designed for passing a specific exam, often taught by a celebrity teacher. Livestreams helped the likes of Gaotu Techedu (GSX) and Yuanfudao to rapidly consume 15% of the private tutoring pie and transformed China into the world’s most desirable destination for edtech financing.

Then on July 24, Beijing’s State Council dropped a hammer on the industry with a 15-page collection of regulations known as “The Double Reduction Opinion” (in Chinese). With stated goals of lightening students’ homework load and saving parents money, the new guidelines require tutoring schools to stop teaching core curriculum subjects or spin off such activities into nonprofit units. Foreign ownership and public listings of such companies are banned. So is providing any classes at all on weekends and holidays—thereby slashing marketable hours by 80%. For-profit education companies will be limited to extracurriculars like art and sports.

The directive triggered massive stock sell-offs in the US and Hong Kong. Three of the US-listed stars—TAL Education, Gaotu Techedu, and New Oriental Education—collectively lost $100 billion in market cap from their peak earlier this year. It’s expected most of the $23 billion venture capital invested in the sector in the past five years, an estimate by HolonIQ, will be vaporized.

Decrees from the Chinese upper echelons can often be massaged and delayed to suit local conditions. But after flipping through a dozen interpretations by local governments, I don’t see any wiggle room.

Cities and provinces are racing to be fastest, and strictest. Beijing encourages after-school services to adopt a “learn first, pay later” approach to prevent financial scams. Zhejiang asks its counties to set up “expert commissions” to supervise tutoring outfits on what to teach. Hunan leadership boasts it has “rectified 15,000 after-school training institutions since June, and disciplined 170 teachers who engaged in paid tutoring.”

In the month following this unprecedented crackdown, the smoke has begun to clear. We are getting a better sense which edtech firms will die, which will survive, and which might even prosper.

No more IPOs

Late-stage startups that were anticipating mega-IPOs will likely give up on listing and see their valuations shrink to nearly nothing. Among them are two of the world’s biggest edtech firms: Yuanfudao, once valued at $15 billion, and Tiger Global-backed Zuoyebang. Another high-profile case is Spark Education, which had filed for an IPO in late June. The cash-burning unicorn was dedicated to teaching three- to ten-year-olds math and science through small-class livestreams and animation, and raised a total of $590 million in nine rounds in under four years. Most likely, none of them will be able to raise money at a unicorn valuation for years.

Tencent-backed VIPKid has also shelved its IPO plans. Its business model, also employed by New York-listed peer 51Talks, relied on the now-banned practice of hiring English speakers overseas to tutor Chinese students by video call. VIPKid alone claimed to employ 100,000 North American tutors teaching 600,000 Chinese children in 2019. Under the new regulations, these and other online tutoring companies have to shift swiftly to customers outside China—or face extinction.

The various bans are also having an impact on foreigners employed throughout China in private language schools, known as training centers, which often serve adults as well as children. Many such teachers in August found they couldn’t renew their visas or their visas were suddenly cancelled, according to conversations in WeChat groups.

Giants already pivoting

The edtech giants are downsizing fast. Gaotu, Yuanfudao, Zuoyebang, and TAL have collectively cut tens of thousands of employees. ByteDance’s edtech brand, Dali, has laid off half its in-house K-12 tutors and shut down its one-on-one online English tutoring unit, GoGoKid. There have even been more than a dozen public protests by sacked Chinese staff seeking back pay.

All major firms are attempting to remain for-profit by pivoting into much smaller segments individually worth somewhere between $1.5 and $3 billion.

TAL started offering lessons in the permissible non-curriculum subjects of calligraphy, drama, and the board game go at its existing after-school centers. Youdao, NetEase’s educational brand, just unveiled a new six-app matrix with lessons in arts, robotics, and coding, aiming to rake in some offline licensing fees. Zuoyebang expanded its non-curriculum portfolio by three new apps, the most intriguing of which claims to “cultivate learning motivation”.

Like Dali, Youdao has the option of doubling down on its existing hardware lines. Both could use their traffic portals for paid courses or services unrelated to the K-12 core. The Ministry of Education’s recent announcement that physical education should be worth as many points as math in high school entrance exams makes sports an attractive new path for online-cum-offline providers.

Another direction is adult education. New Oriental’s latest “family education” line hopes to turn a decade-long free service to parents into a profitable business. TAL’s latest spin-off features language training and preparation for the National Graduate Program Entrance Exam. The Gaotu Professional app, launched in May, offers training in accounting, the civil service exam, and other life-long learning pursuits.

Homegrown companies venturing into online language training apps may be able to mine an especially sweet spot: Days after the release of the Double Reduction rules, popular foreign-owned apps like Duolingo and Memrise disappeared from mainland Android app stores.

It’s time for edtech to align more of its business interests with the public education system. First, the national rollout of after-class, on-campus programs, which the Opinion spent a chapter promoting, prompted inventions of CRM software used for billing parents who pay for extracurriculars.

Second, classroom utility tech is entering a golden era as instructional competence needs to rise as homeworking wanes. Data-driven solutions that help analyze academic performance or grade exam papers will be in demand. And finally, MOOCs will gain traction, since they’re hailed as “equalizers of learning resources,” laying down a capitalizing path for platform players, such as Hillhouse-backed EEO (ClassIn).

No place for unicorns

I hope that millions of students across China will feel their study burdens resoundingly lifted soon. The truth is, I was never vocal about wasting my high school weekends in those dimly-lit classrooms. Nor did I complain about constantly moving from one building to another to dodge regulators’ door-knocking. I simply bought that I was “a good student,” and a good student always shows up.

Many determined parents are going to find ways for their children to show up to extra classes like I did, as long as only 6% of the 10 million taking the gaokao each year are admitted into one of the 150 tier-one universities, and standardized tests are the only keys to the kingdom.

It’s these stark facts that have driven so many, including up to 60% of upper middle-class households, to spend so much on online tutors and after-school classes. Affluent families will now simply reallocate their exorbitant education budgets to in-home tutors or to Chinese or foreign teachers found online, sometimes by reconnecting with the teachers abruptly laid off by the edtech giants.

Through the smoke-and-mirrors exercise of aggressive salesmanship and false marketing, parents have been fed, for years, a core message by the tutoring giants: “The school your kid attends is not enough.” As Chinese families follow their inertia to cram, part of the tutoring industry will go guerrilla. But if gaokao-oriented tutoring goes underground, this desperation won’t make any new unicorns rich.

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Tech companies may see more scrutiny with new critical infrastructure regulation

Wed, 18 Aug 2021 08:32:19 +0000

China’s top executive body published a new regulation to protect critical information infrastructure on Tuesday, which is likely to bring stricter cybersecurity oversight to companies in a wide range of sectors, including tech.

Why it matters: In July, regulators initiated one of the nation’s first cybersecurity reviews of ride-hailing giant Didi, citing regulations indicating Didi was treated as a critical information infrastructure operator. The new regulation provides detailed definitions of what would qualify as critical information infrastructure (CII), and the responsibility and obligations of businesses treated as critical information infrastructure operators (CIIOs).

Chinese tech companies need to know whether they are CIIOs, said Calvin Peng, a senior partner at Jincheng Tongda & Neal law firm. Companies classified as CIIOs should expect much stricter regulatory oversight, especially regarding national security matters, Peng added.
Companies have little say when it comes to deciding whether they would qualify as CIIOs, Peng said. Peng’s law firm has seen some regional Chinese government agencies start reviewing companies to determine if there are CIIOs in their region as early as June 2019.

Details: The regulation defines critical information infrastructure as essential network facilities and information systems used in industries such as public communication, information services, energy, transportation, water conservancy, finance, public services, e-government, national defense science and technology, as well as other industries that would seriously endanger national security and public interests if their data was leaked or the systems get damaged.

The central government “attaches great importance to the protection of critical information infrastructure,” Chinese government agencies said in a press conference (in Chinese) on Tuesday. “Critical information infrastructure is the central nervous system of economic and social operations, and it is the top priority of network security,” it said (our translation).
CIIOs must conduct security examinations and risk assessments every year, said the regulation published (in Chinese) on Tuesday. Peng said companies that may not be classed as CIIOs at first could be classified later on as their businesses expand and change.
Companies should prioritize purchasing “secure and reliable network products and services,” said the regulation. Operators need to pass a cybersecurity review before they buy any network products and services that could affect national security, it said.
The regulation takes effect on Sept. 1.

Context: The regulation comes as Beijing pushes to protect critical data and develop a new economy driven by government-led data exchanges and data marketplaces. The nation has set up multiple “data exchanges” to trade data ranging from a collection of adult faces intended for AI training to voice data collected from mobile phones, TechNode recently reported.

The country in June passed a comprehensive Data Security Law, stipulating how data can be used, collected, protected, and developed in China. The law, as well as the regulation, will take effect on Sept. 1.

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China’s data exchanges, explained

Tue, 17 Aug 2021 08:56:14 +0000

Data for sale:

Three hundred and three hours of English and Chinese voice data collected from mobile phones, on sale at the Beijing International Big Data Exchange. Price negotiable.
A collection of adult faces intended for AI training, provided on the Shanxi Data Exchange Platform. Price to be negotiated offline.
A collection of pictures of the Chinese flag taken by mobile phone for AI model training, for sale on the Shanxi platform. Price to be negotiated offline.
20KB of licensing and penalty histories of various companies, detailing the types and duration of the licenses and the decision-making authority, supplied by the Beijing Financial Holdings Group to the Beijing International Big Data Exchange. Price negotiable.
A list of COVID-19 testing centers in Beijing, complete with addresses, phone numbers, details on how to make an appointment, and booking links. Viewable online for free.

More data and more data exchanges are to come. There are at least 15 of these online marketplaces for big data in some stage of development in China. Established by city or regional governments, these pilot projects are state-run, or operating on a mixed public-private basis. Government agencies are the primary sources of the datasets. Whether private companies will be willing to put their data up for sale is an open question. The buyers may be individuals or companies. Qualifications for purchases are unclear, with various data exchanges asking potential buyers to register first.

Data as ‘seed capital’

Data exchanges are a key element in China’s ambitious digital plans. The 14th Five-Year Plan, released in March, set forth Beijing’s plan to integrate technology into development, digitizing everything from industrial production to agriculture to municipal governance. The digitization plan even extends to culture, sports, and lifestyle services such as libraries, hospitals, and nursing homes.

Chinese leaders hope to develop a new kind of data economy, one in which data is traded as easily as ball bearings or pork bellies, according to Kendra Schaefer, head of tech policy research at strategic advisory Trivium China in Beijing. With a focus on government infrastructure and domestic informatization, she has been researching China’s data marketplaces. Schaefer explained that China hopes to “supercharge innovation” by making more data available to companies and to the general public.

In November 2019, the Fourth Plenary Session of the Nineteenth Central Committee of the Communist Party characterized data as a “factor of production.” Experts identify this decision as a key change in economic strategy. It means that economic planners see data, and access to data, as being as important as land, labor, capital, and energy.

For now, most of the data available on exchanges comes from the state. The government sees data collected by state agencies as “seed capital,” Schaefer told TechNode. But as data exchanges mature, they hope to see private data sources join, and replace the state as primary sellers of data.

Shandong Province’s Rizhao City Big Data Development Bureau wrote in an analysis of trends in big data that governments at all levels have accumulated a “large volume” of data on the public. “How to put this data to use, better support government decision-making and public services, and to lead and promote the development of big data is key to the overall situation” (our translation).

Artificial intelligence (AI) development, in particular, reveals the importance of data to China’s technological growth. According to the Rizhao Bureau analysis, published on its WeChat account in April, recent important developments in artificial intelligence primarily stem from the “large volumes and high quality of the data that have been mined and analyzed.” The article states that it is often difficult for individual entities to gather enough high quality data on their own for effective research. It is only through “open sharing and the circulation of data across domains that we can create datasets with complete information,” the piece said.

How do data exchanges work?

A data exchange is an “experimental shopping mall for data and data services,” in Schaefer’s words. The exchanges are owners and operators of the malls as well as middlemen, negotiating agreements with data providers, such as government agencies and private companies, to sell their wares on the platforms. Schaefer explained that a major purpose of the data exchanges is to function as a “platform where government agencies put all their [data]… and then everybody knows where to go and how to get it and how to access it.”

TechNode’s research on exchanges’ websites and Chinese news sources has identified 15 planned exchanges. Based on news reports and exchange websites, 12 have some evidence of opening in the past six years, such as an opening ceremony, press conference, or anniversary. However, TechNode was only able to find four Web platforms listing datasets for sale. These are based in Beijing, Qingdao, Shanghai, and Shanxi. It is unclear whether and how the other trading platforms conduct business.

Potential customers on these four platforms search for various types of data separated into categories. They can use public data from state agencies for free. Current cost structures for other datasets, geared toward financial companies or AI training, are left vague, with prices for many datasets listed as “negotiable” or with a note asking potential buyers to contact the exchanges directly.

Big players in big data

China’s newest trading platform, the Beijing International Big Data Exchange, formally opened at the end of March. Run by the city government, it provides data in Beijing municipality and lists as “partners” on its website both state-owned enterprises such as China Electric (CEC), and private companies such as Tencent Cloud and JD. Tencent Cloud appears to be providing technical support and infrastructure for data sharing, but TechNode’s research did not find data for sale from Tencent, JD, or any other big private company on the Beijing, Shanghai, Shanxi, or Qingdao platform websites.

According to Schaefer, China’s major tech companies are “often tangentially involved in a huge variety of government projects,” and the manner of their involvement is “not always obvious.” She said that while partnerships could take multiple forms such as advising, sharing data, or building the platform infrastructure, it is also possible these tech majors are only providing technical support.

The 15 regional and municipal exchanges confirmed by TechNode are listed in the table below.

Name	Location	Established
Beijing International Big Data Exchange	Beijing	March 31, 2021
Shanghai Data Exchange Corporation	Shanghai	April 2016
Chongqing Big Data Exchange	Chongqing, Sichuan Province	Planning began September 2015
Northern Region Big Data Exchange	Tianjin	Planning began 2019
Beibuwan Big Data Exchange	Guangxi Province	Aug. 11, 2020
East Lake Big Data Trading Center	Wuhan, Hubei Province	July 2015
Guiyang Big Data Exchange	Guiyang, Guizhou Province	April 14, 2015
Harbin City Big Data Center	Harbin, Heilongjiang Province	September 2019
Hebei Big Data Exchange Center	Chengde, Hebei Province	Dec. 3, 2015
Henan Big Data Exchange	Henan Province	April 17, 2018
Huadong Jiangsu Big Data Exchange Center	Yancheng, Jiangsu Province	Circa early 2018
Qingdao Big Data Exchange Center	Qingdao, Shandong Province	Planning began April 2015
Shanxi Data Exchange Platform	Taiyuan, Shanxi Province	July 2020
Wuhan Yangtze River Big Data Exchange	Wuhan, Hubei Province (Optics Valley high tech development zone)	Aug. 28, 2015
Zhejiang Big Data Exchange Center	Hangzhou, Zhejiang Province	September 2016

At least nine other cities and provinces are working to develop the ability to process data transactions, based on participation in the 2021 Joint Working Conference of the National Data Exchange Center in Shanghai, according to Chinese tech and investment publication Yaosu Jiaoyi Zhi Jia (The Factor Investor).

Two Chinese cities are also planning international exchange partnerships, both with Singapore. Puyang Science and Technology Intel reported that Tianjin began preparations to build a Northern Region Big Data Exchange in 2019. According to tech publication Cyberspace Ninghe, this exchange platform will be located in the future Sino-Singapore Tianjin Eco-city. China and Singapore are collaborating to develop the sustainable city on a plot of previously unusable land in Tianjin. The Singaporean government also announced back in September 2019 a partnership with Chongqing to create the China-Singapore (Chongqing) International Data Channel.

Big data, big problems

Some trading platforms are up and running, but they still need to resolve major problems regarding privacy protection, private sector sourcing, and integration with other exchanges if they are to operate as envisioned.

Ownership

One big problem with selling data: it’s not always clear if you own it. Lawyers say that Chinese law doesn’t provide clear rules about what data can be owned, and how it works.

One key issue is the difference between “personal information” and “data.” The Chinese civil code gives citizens privacy rights to protect “personal private information”—conversations, medical information, ID numbers, faces, names. You can let a company use your face or your name, but you can’t sell them.

But when a company collects information about thousands or millions of people and properly anonymizes it, it can become data—a critical factor of production that the state wants bought and sold. Making clear rules for this informational alchemy is vital to make a data economy work, experts say.

Is it anonymous?

Much valuable data starts its life as personal private information. For example, mobile phone data is listed as a source of audio and image data under the Beijing Exchange’s artificial intelligence category. Many of these datasets are provided by Datatang, a state-owned AI services provider listed on Beijing’s NEEQ stock exchange.

While these datasets do not have names or contact information tied to each voice and image, that alone does not mean they are anonymized. The most recent draft of China’s Personal Information Protection Law, released in April, stated that personal information is any type of information “recognizable or potentially recognizable as being related to a person” (our translation). According to Camille Boullenois, a consultant with the European research consultancy Sinolytics, data is not considered anonymized if it can be used “alone or in combination with other data” to lead to re-identification of a person.

READ MORE: The loophole in China’s privacy regime: anonymization

Even when direct identifiers such as a name or ID number are removed, it is possible for voice or image data to be combined with other information and traced back to its source. Boullenois explained that the risk of re-identification is “very difficult to assess.” The risk of re-identification often changes with time. For example, she said, if new data is added to the exchange in a few years, it might enable new combinations leading to reidentification.

Reluctant partners

Another significant hurdle to creating a useful exchange is that much of the most useful information comes from private companies. They’re “reticent” to sell their data, Schaefer said. Schaefer explained that since the technologies to protect data assets and regulations around ownership are not yet fully developed, companies see it as a “huge risk” to contribute data on the basis of an agreement or contract with the government. “There is not a lot of legal support for data protection right now,” she said.

Nonetheless, it’s possible companies will be willing to work with data exchanges in the future. “Depending on what data we’re talking about, [a company’s] evaluation changes,” Schaefer said. She suggested that while tech companies will try to avoid sharing the crown jewels with exchange platforms, they may be happy to give data that is “just sitting around” if they “can’t find another use for it.”

Integrating exchanges

Legally and technologically, there is no nationally integrated system for data sharing. Gestures have been made with inter-city and international data sharing initiatives and conferences, but the reality is that the exchange platforms are scattered and unconnected. Writing in January for the Research Institute for Modern Digital Cities, Chinese analysts Li Chunguang and Wang Shuo argue that resources are unevenly distributed from region to region, with local governments lacking the talent to support digital transformation and key research centers being located in major cities outside of regional development areas. The two analysts say these gaps will hinder the growth of big data.

Still in beta

More regulations are on the way, and companies are waiting for these changes to data marketplaces before doing business. While two of three major planned laws governing data in China, the 2017 Cybersecurity Law and the 2021 Data Security Law, have gone into effect or been finalized, respectively, the Personal Information Protection Law is currently in its second draft. According to Schaefer, taken together, the three laws will serve as the “foundation” of Chinese privacy and data regulation. She explained that finalizing the laws governing data is “one of China’s top priorities,” and she expects to see an “explosion of regulations” when all three laws are in effect. “We’re really close to having that foundation there,” she said.

READ MORE: China’s Data Security Law aims high, but lacks details: experts

On its WeChat account, the Rizhao Big Data Development Bureau highlighted the importance of these laws in creating a process for big data usage: “In considering systemization, ensuring consistency, and avoiding fragmentation, formulating special data security laws, personal privacy protection are necessary.” But the bureau note also said that laws and regulations will add friction to data sharing and transactions, “inevitably [increasing] the cost of data circulation” and “[decreasing] the effectiveness of data integration.”

READ MORE: Shenzhen blazes trail for national data regulation: experts

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China’s Wingtech closes deal to buy UK’s NWF

Mon, 16 Aug 2021 10:40:53 +0000

Chinese chipmaker Wingtech said on Monday that it had closed a deal to buy Newport Wafer Fab (NWF), the UK’s largest chip fabrication plant. The deal was closed after the UK government initially considered blocking it.

Why it matters: The UK government’s clearance on the deal is a breakthrough for Wingtech, which quickly established its dominant position in China’s car chip industry through overseas acquisitions since 2018. But the single approval doesn’t mean Chinese chip firms looking to buy chip plants abroad will enjoy a smoother regulatory environment.

NWF is a manufacturer of low-end chips. The plant mainly produces 180-nanometer (nm) wafers, while the industry’s bleeding edge is the 3-nm process by Taiwan’s TSMC and South Korea’s Samsung.

Details: The UK government gave Wingtech the green light to take over NWF’s parent company on Aug. 12, according to a Wingtech filing (in Chinese) to the Shanghai Stock Exchange.

Wingtech said its acquisition of NWF had been closed as of Monday. It now fully owns the UK firm through Nexperia, Wingtech’s Dutch chip subsidiary.
NWF’s operation might be affected by domestic and overseas industry policies, said Wingtech’s filing, without elaborating.

Context: The NWF deal, conducted through Nexperia, was previously subject to a national security investigation by the British government following backlash from some UK lawmakers.

Nexperia offered GBP 63 million (around $87.2) to buy NWF on July 5. The deal met with little regulatory pressure when it was first announced, but it soon met with more official scrutiny in the UK.
Some UK politicians have advocated taking a hard line on the deal. Tom Tugendhat, a UK parliament member and the chairman of the parliamentary Foreign Affairs Committee, told CNBC on July 5 that he would be “very surprised” if the deal was not being reviewed under the National Security and Investment Act, a November law passed to protect key UK assets from foreign takeovers.
On July 7, UK Prime Minister Boris Johnson said he had ordered national security advisor Stephen Lovegrove to review the acquisition. Lovegrove had 30 days to complete his review.

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DRIVE I/O | China has 6 million aging EV batteries. Can it recycle them?

Thu, 12 Aug 2021 07:35:09 +0000

A dozen years after it set out to build an industry from scratch, China boasts the world’s largest number of electric vehicles. More than 6 million clean-energy cars and trucks are running on Chinese roads.

Drive I/O

Drive I/O is TechNode’s ongoing premium series on the cutting edge of mobility: EVs, AVs, and the companies trying to build them. Available to TechNode subscribers.

That’s 6 million electric vehicle (EV) batteries that are going to wear out one day. The oldest electric cars are starting to retire their batteries: More than 200,000 tons of them went offline in 2020, Xinhua (in Chinese) reported in April, citing figures from the China Automotive Technology and Research Center. From 2021 to 2030, the auto industry will shed 7.05 million more tons of EV batteries—about 168 times the weight of Beijing’s Bird’s Nest Stadium, Greenpeace wrote in an October report.

It’s either a huge mountain of toxic waste, or a gold mine of rare metals. It all depends on battery recycling.

There are no public records of how much of the 200,000-plus tons of the EV batteries retired last year got recycled, but it is widely agreed that the current recycling rate is very low. China first authorized EV battery recycling in 2018, but the first batch of licensed recyclers have found it a tough business. With high costs, limited demand, and competition from cheaper pirate recyclers, it will take more carrots and sticks for the industry to take off. The key, experts told TechNode, is likely to be stronger enforcement of rules that make carmakers responsible for disposing of end of life batteries.

Second lives for old EV batteries?

If you’ve owned a device with a rechargeable battery, you already know: They wear out. The longer you use a battery, the less charge it holds.

EV batteries are good for eight to 10 years. By the end, they’ll store only 70% to 80% of the charge they held when new. That’s when they reach the end of their useful life in a car.

The battery pack is the most single most expensive component of an EV, accounting for about 30% of the total cost to consumers. It pushes up the cost of an 80.5 kWh battery pack in Tesla’s Model Y crossover to about $9,250, BloombergNEF estimated in a December report. The components may be still useful after batteries reach the end of their first life: A customer recently sold the used battery pack of his EV to an unnamed “highest bidder” and earned more than RMB 10,000 ($1,544), according to a Xinhua News Agency report (in Chinese) in April.

The first five companies got on the white list in July 2018. That was it until December 2020, when the Ministry of Industry and Information Technology (MIIT) certified 22 more companies to recycle EV batteries. While forging alliances with automakers, these little-known companies vary greatly in backgrounds. They are subsidiaries of big battery makers or associates of cell material suppliers, or simply units of traditional scrap recyclers.

A few of these larger players already claim to be profitable. A Shenzhen-based company called GEM is a leader in the industry, with a 10% share of the market and a client list of more than 280 domestic and foreign automakers. The company, which is also the country’s largest battery materials producer, said in its 2020 annual report (in Chinese) that the amount of batteries it recycled more than doubled from 2019, its first year to turn a profit from the practice. It didn’t disclose any numbers, however.

Other recycling companies are still investing heavily to scale up the business. For example, Hefei-based Gotion High-tech, along with the government of the city’s Feidong district, on March 22 announced they would invest RMB 12 billion ($1.85 billion) to build a new facility for the manufacturing and recycling of raw battery materials in the capital of eastern Anhui province. The move came just two weeks after Gotion established a recycling subsidiary with a registered capital of RMB 50 million. The Volkswagen battery supplier aims to ensure annual production of 100 gigawatt hours (GWh) of batteries by 2025, with raw material sourced from used packs.

Yet many of the other white-listed recycling firms are struggling to break even, according to Yang Xulai, a professor at Hefei University and a former research lead at Gotion High-tech. One reason: Not enough spent batteries are being funnelled to proper recyclers, since owners of EV vehicles are not required to turn them over to an MIIT-licensed company.

As a result, over half of spent batteries are probably being recycled by unsustainable, polluting practices, Bao Wei, a general manager at Zhejiang Huayou Holding Group, a recycling partner of BMW in China, told business news site Caixin (in Chinese) in January.

Where did the batteries go? The easiest and most profitable destination is the illegal one: Unscrupulous companies, usually traditional auto scrap yards, strip the electrolyte packs of valuable raw materials like cobalt and nickel, and dump the hazardous leftovers in a nearby landfill or waterway. That’s in violation of environmental regulations but enforcement is lax.

The licensed players thus find themselves competing against lower-cost rivals which can pay higher prices to EV owners for their waste batteries, as they are normally not subject to environmental regulations and have been disposing toxic battery wastes to landfill without proper treatment.

“This leads to a low collection volume of waste batteries for qualified recyclers, and this problem gets further exacerbated by poor consumer awareness of the importance of waste battery treatment,” Chinese and Australian researchers wrote in a paper published in May.

The three types of EV batteries

Whether their processes are dirty or clean, recyclers consider the materials in nickel-manganese-cobalt (NMC) batteries and nickel-cobalt-aluminum (NCA) batteries the most valuable. These two types of batteries are known for enabling a long driving range with a high-energy density. However, the two current mainstream recycling techniques, which recover materials through burning or the use of strong acids, produce extensive chemical waste and greenhouse gases—and at very high expense, experts told Caixin in a January report (in Chinese).

When it comes to the third type of battery, Lithium Iron Phosphate (LFP), which offers a shorter driving range but boasts better thermal stability, the outlook is less promising. The key components are too cheap for recycling to be economical. Dismantling one ton of spent LFP batteries for key materials only generates revenue of about RMB 9,300 ($1,440), which is far from covering the cost of recycling, investment advisory firm Guangzheng Hang Seng said in a report in mid-2018.

The potential profit that can be extracted from an expired NMC or NCA battery fluctuates with the fluctuating prices of cobalt and nickel. At the metals’ current prices, the 60-kilowatt NMC811 battery used in a Tesla Model 3 might yield revenue of RMB 6,254.

Nonetheless, the recycling business could take off soon, spurred by the anticipation of a shortfall in cobalt, nickel, and batteries’ other raw materials in the coming few years. Demand for cobalt used in EV batteries will reach 980,000 tons over the decade to 2030 in China, around seven times the global output of the raw material in 2019, in Greenpeace’s estimation.

Read more: Drive I/O | How Chinese EV batteries broke through

Storage and solar power

There may be alternatives to stripping spent EV batteries for their components. Perhaps they can be converted into lower-quality batteries or used for something other than powering machines.

MIIT in a draft guideline (in Chinese) issued in October 2020 called for recyclers, EV makers, and battery suppliers to cooperate to produce new uses for spent EV batteries. In particular, the guideline encourages companies to repurpose old batteries for backup power systems for utility-scale projects or telecommunication base stations. One such model is BMW’s reuse of EV batteries to power the forklifts in its local factory in northern Shenyang city. Such a forward-looking policy could help “enhance overall electric grid efficiency and reliability,” wrote the regulator.

Other companies such as State Grid, the country’s largest public utility, are hoping to repurpose EV batteries for energy storage. Old packs can be reassembled into a battery energy storage system that can store solar energy power for use during periods of scarcity and provide greater flexibility for grid demand spikes.

Economic deterrent

However, this storage industry is also having trouble squeezing out profits in the face of technical and commercial challenges. Second-life batteries need to be standardized in performance and safety standards, such as charge capacity, recharge time, and longevity. But the hard reality is: Batteries from different manufacturers vary greatly in design and construction, since they are custom-designed to work with a given car model, consulting firm McKinsey wrote in a 2019 report.

Recyclers need to take battery cells apart for standardization, refurbishing, and reassembly before they can be used in energy storage. Yet the performance limits and health status of these batteries vary greatly and are often not disclosed to recyclers by battery manufacturers and carmakers, according to Bao of Zhejiang Huayou Holding.

Then there are safety concerns, which have led to large energy storage plants recently being banned from using spent EV batteries. Nonetheless, Beijing is still pushing for more trials, including battery storage programs for small-scale commercial and industrial facilities such as 5G base stations.

All these practical challenges combine to form an economic deterrent: It is simply cheaper for energy companies to start with all-new batteries than to use retired packs, according to Zhao Guangjin, an expert with State Grid.

Whether the next stage is energy storage or recycling of materials, the transportation of spent batteries is another steep expense because both the transport vehicles and warehouses need to be customized with safety measures.

Regulatory and business outlook

A national market foundation has been set, but the government will need to provide a mixture of carrots and sticks to help the market gain scale, Zheng Mingyang, Toxics Campaigner at Greenpeace, said in an interview with TechNode on July 14. For instance, South Korea has made it mandatory for car owners to return EV batteries to designated drop-off sites. “Such mandatory enforcement measures to end users is worth consulting,” Greenpeace wrote in its October 2020 report (our translation).

Greenpeace has proposed incentive and punitive measures to ensure players such as automakers, battery makers, and recycling companies bear their responsibilities and develop new applications for used batteries. For instance, the government should levy higher taxes on battery makers that use original raw materials, while rewarding battery makers that use recycled materials.

Loss-making companies also need an incentive to look for the value that second-life batteries promise. Zhang Tianren, chairman of recycling company Tianneng Group and a delegate to the National People’s Congress, the Chinese parliament, in March called for stimulus policies such as subsidies and tax cuts for certified recycling companies, most of which are struggling to eke out profits.

The vice chairman of China’s biggest battery supplier, CATL, publicly dismissed the idea as “a fake proposal” in late 2018. Huang Shilin said that the company was developing new battery types made for energy storage. In 2020, the Tesla partner sold 2.39 GWh of batteries for energy storage systems, according to its annual report.

The Chinese government has established a policy framework that places responsibility for battery recycling on EV makers, experts warn that it’s not clear how it plans to regulate the sector. Beijing has not specified a clear target for the overall collection of waste batteries, nor a clear definition of the scope of authority among multiple central and local government agencies taking a shared responsibility, according to a paper by Chinese scientists published in May in the Journal of Environmental Engineering and Landscape Management.

One murky legal area concerns automakers’ responsibilities. According to regulations issued in 2018, the makers are required to make their dealers buy back spent batteries from auto customers. Direct-sale companies like Tesla, Nio, and Xpeng are responsible for taking back the old batteries themselves. Unfortunately, dealers have little motivation to do so.They still face no penalties for failing to take back batteries. They are more motivated to sell cars than to take back batteries, Caixin (in Chinese) reported in January, 2019 citing Zhang Guofang, a professor at Wuhan University of Technology.

Local governments with significant auto industries may offer a way forward. In a draft action plan (in Chinese) issued by the Guangzhou Municipal Development and Reform Commission on June 22, both domestic and foreign automakers would be required to report the establishment of recycling stations for EV batteries in the city. Meanwhile, Shanghai authorities plan to create a recycling network across the city and an online tracking system to manage the fabrication, sale, and recycling of EV batteries by the end of this year, Chinese media The Paper reported.

For now, the major obstacle to clean reuse remains profitability. Being on the cutting edge of market creation, each stakeholder needs a little more incentive to be part of a sustainable recycling process.

“If there is money to be made, more companies and investments will be attracted,” (our translation) Huang Shan, an industry insider told China National Radio.

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ByteDance cuts edtech headcount amid private tutoring crackdown: report

Thu, 05 Aug 2021 12:52:48 +0000

ByteDance is scaling back its online education businesses and laying off half of its in-house Pre-K tutors, according to a report by Late Post (in Chinese) on Thursday.

Why it matters: ByteDance is grappling with the fallout from recent regulations that impose strict limits on edtech companies’ business operations and financial activities, and completely ban online tutoring for pre-school children. The company is scaling back its Pre-K focused-businesses and focusing more on other sectors such as vocational education.

The new rules are seen as an attempt to ease pressures on school children, who have suffered from China’s highly-competitive education system, and boost birth rates by reducing living costs for families in the country’s major cities.

Details: The layoffs affect employees of Dali Education, ByteDance’s standalone edtech brand that runs the short video giant’s education products, including Pre-K education platform Guagua Long and one-on-one English tutoring app GoGoKid, Late Post reported.

Guagua Long will suspend sales of all its online trial courses by mid-August and lay off half of in-house tutors by the end of August, according to the report..
GoGoKid, the company’s English tutoring app targeting kids up to 12 years old, had been removed from app stores in China on, TechNode found on Thursday. ByteDance will shut down the platform completely, according to Late Post.
TechNode was unable to independently verify the report. A ByteDance spokeswoman declined to comment on the matter when contacted by TechNode on Thursday.
Discussions around ByteDance’s layoffs have also circulated this week on professional networking platform Maimai. Maimai user Kunlun Dizi, who identified himself as an employee of Dali Education, said he had been laid off.

Context: In an internal meeting held in June, Chen Lin, CEO of Dali Education, said that the company management is “very confident and patient” about its education business and will continue to invest without any layoffs, according to Chinese media outlet Pingwest.

Chinese edtech giants including Zuoyebang and Yuanfudao are also rumored to be laying off staff, as Chinese officials tighten regulation governing the private tutoring market.
In October 2020, ByteDance launched edtech brand Dali Education to host all its education businesses. The unit had 10,000 employees after launch.

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China’s supreme court sets limits on facial recognition

Thu, 29 Jul 2021 11:09:24 +0000

A Wednesday judicial interpretation released by China’s highest court sets boundaries on how businesses in China can use facial recognition technology.

Why it matters: The interpretation prohibits businesses from forcing people to accept facial recognition applications on apps to access services. In public spaces, businesses could infringe personal rights if their use of facial recognition violated “related law and regulations,” said the interpretation.

The interpretation directs lower-level courts on facial recognition-related disputes.

Details: On Wednesday, the Supreme People’s Court, China’s highest court, released a judicial interpretation (in Chinese) to address facial recognition technology issues in civil trials. Businesses have to acquire users’ consent before collecting their facial information.

Businesses could face charges of personal rights infringement if they do not give customers an alternative to face recognition to access public places or online services. However, the rules do not apply to situations regarding public safety, public health emergencies, and other crises, according to the interpretation.
Yang Wanming, vice president of the Supreme People’s Court, said at a Wednesday press conference that the interpretation is partly a reaction to the growing phenomenon of Chinese businesses abusing facial recognition tools. Courts have seen rising cases in which companies collect facial information without consent or force customers to accept facial information collection.
“Some retailers use ‘touchless’ face recognition technology to collect consumers’ facial information without consent, then push them to different advertising based on their gender, age, and mood,” said Yang. “These acts seriously infringed users’ rights and interests,” he added.
The interpretation will take effect on Aug. 1.

Context: The interpretation is one part of a regulatory overhaul on privacy and personal data collection. China is finishing drafting a law on personal information protection. The Data Security Law, passed in June, will take effect in September.

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WeChat suspends new user registrations

Tue, 27 Jul 2021 10:26:03 +0000

Tencent’s popular super app WeChat said Tuesday it has temporarily suspended new user registrations, attributing the decision to “related laws and regulations.”

Why it matters: This is the first time Tencent has suspended new user registration for the ubiquitous app in China, which many people rely on for communication and other life services such as paying utility bills and shopping online.

The action comes as China accelerates scrutiny on tech companies’ anticompetitive behavior and their data security practices.

Details: WeChat said in a Tuesday social media post (in Chinese) that the app is not accepting new individual users and public accounts to comply with “related laws and regulations.” The company calls the suspension a “technical security upgrade.”

The company said it expects the upgrade to be completed by early August.
A WeChat spokesperson declined to comment when reached by TechNode.

Context: Earlier this month, the Cyberspace Administration of China (CAC) banned ride-hailing platform Didi Chuxing from registering new users while launching a cybersecurity review into ride-hailing app Didi Chuxing.

The CAC in the same month announced similar cybersecurity investigations into three other companies, job recruitment platform Boss ZhiPin, transport companies Huo Chebang and Yun Manman, and asked them to stop registering new users.
WeChat is China’s most-used instant messaging app. In 2020, the app had more than 1.2 billion monthly active users worldwide.

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INSIGHTS | Meet China’s three major tech regulators

Tue, 27 Jul 2021 07:45:16 +0000

If you care about China tech, it’s time to get to know the country’s main tech regulators. 2021 started with the country tightening antitrust regulations on big technology players, shaving billions of dollars off their market caps.

The crackdown reached a new high this month when the Cyberspace Administration of China (CAC) launched a security probe into ride-hailing platform Didi Global just days after its New York listing, sending shock waves among investors around the world.

Insights

Insights is a series of explainers on developing stories in China tech, published in the subscriber-only TechNode Distilled newsletter.

It’s normally exclusive to TechNode subscribers, but we’re making this issue free as a sample of our work. Sign up here to get access to every issue.

These crackdowns aren’t new—for the past few years, regulators have been subjecting tech firms to stricter data and privacy rules. Understanding who they are and what they do is becoming more important than ever for investors in and watchers of China tech. Below are the top three Chinese tech regulators you should know.

Bottom line: Dozens of agencies regulate China tech, but the current crackdown is driven by three key regulators: the Cyberspace Administration of China (CAC) polices content, privacy, and cybersecurity. The State Administration for Market Regulation (SAMR) is in charge of markets and consumer protection, and has led the recent anti-monopoly campaign. The People’s Bank of China (PBoC), China’s central bank, is the key organization for financial regulation, and has been the most important player in writing new rules on lending, payments, and the “rectification” of Ant Group.

Cyberspace Administration of China (CAC)

The CAC was created in 2011 as part of the State Council Information Office but its powers have mushroomed over the past few years. The agency is in charge of areas like online content, privacy, and data security.

When it was created, the agency was only an online content moderator: The CAC’s duties included online content moderation, online news regulation, and “online propaganda work,” state newspaper Guangming Daily (in Chinese) reported in 2011 when the agency was founded.

A reshuffle made it a regulator: In 2014, the CAC joined the Office of the Central Cyberspace Affairs Commission, a body of the ruling Chinese Communist Party.

The two bodies share the same staff and offices under a special arrangement called “one institution with two names.” The party body is under the Central Leading Group for Cybersecurity and Informatization, which reports directly to Chinese President Xi Jinping.
The 2014 reshuffle officially gave the CAC the authority to regulate content on China’s internet. In a document (in Chinese) published in August 2014, the State Council authorized the CAC to “take responsibility for nationwide internet information content management and for the supervision and management of law enforcement.”
The 2014 document was the only legal basis of the CAC’s law enforcement power before the 2017 Cybersecurity Law, Liu Jinxin, an editor at a website managed by the CAC, wrote (in Chinese) in 2016 when the law was passed by China’s legislature.

Now, it’s about more than just content: Over the course of the last ten years, the CAC has expanded its reach beyond content moderation, taking on responsibility for privacy regulation and cybersecurity, among several others areas.

Subsequent laws since the CAC was created have given it the power to “coordinate” the regulation of online privacy and data, said Carly Ramsey, a Shanghai-based director at consultancy Control Risks.
China’s Cybersecurity Law says the CAC is responsible for “coordinating” the nation’s cybersecurity regulations.
The country’s Data Security Law, which was passed in June and will take effect in September, charges the CAC with “coordinating” network data security and regulation.
According to the cybersecurity and data security laws, said Ramsey, “the CAC always has a coordination and supervision role when it comes to the development and implementation of cybersecurity-related laws and regulations.”

It may also have a say in who can go public: Earlier this month, the CAC proposed an overhaul of China’s cybersecurity review process, requiring companies holding data on more than 1 million users to seek permission from regulators before filing for initial public offerings (IPOs) overseas.

One key purpose for overseas IPO reviews is to control the risk of companies exporting “core” and “important” data or being “influenced, controlled, or abused” by foreign governments during the listing process, the regulator said in the draft provisions.

Related regulators: The CAC works with government agencies like the Ministry of Industry and Information Technology (MIIT) and the Ministry of Public Security (MPS) to regulate privacy and data issues.

State Administration for Market Regulation (SAMR)

SAMR is China’s top market regulator. It is the main regulator in China’s antitrust campaign against tech companies.

Until 2020, dealing with the CAC was often the top priority for Chinese tech companies’ government relations departments. But ever since the Chinese government launched an antitrust crackdown on the sector in November, SAMR has become another major regulator that has left government relations staff scratching their heads.

China’s antitrust regulators have largely left tech companies alone. The situation changed dramatically in November, when SAMR proposed guidelines targeting anticompetitive behavior, specifically including internet companies. The new rules widen the reach of antitrust, which previously only applied to the physical economy.

Next, SAMR took direct aim at big tech players like Alibaba and Tencent, punishing them for minor violations of China’s Anti-Monopoly Law, such as unreported merger and acquisition deals from years before. In December, the agency launched an anti-monopoly investigation targeting Alibaba. The probe ended in April when SAMR issued Alibaba an RMB 18.2 billion ($2.8 billion) fine for antitrust practices including “forced exclusivity.”

Most recently, SAMR blocked a merger deal between Tencent-backed game streaming platforms Huya and Douyu.

New broom: SAMR was established in March 2018 during a structural reshuffle of the State Council, China’s cabinet. It absorbed three ministry-level government agencies and inherited antitrust authority from three other central government bodies, under a government reorganization plan (in Chinese).

In the structural reshuffle, the State Council eliminated the State Administration for Industry and Commerce, the General Administration of Quality Supervision, Inspection and Quarantine, and the China Food and Drug Administration. All three agencies’ enforcement authorities were transferred to SAMR.
The mega-regulator also assumed powers to enforce antitrust laws that had belonged to the National Development and Reform Commission, the Commerce Ministry, and the State Council.

Top trustbuster: China’s 2008 Anti-Monopoly Law identified an antitrust commission under the State Council as being responsible for the coordination and supervision of China’s anti-monopoly regulation. The commission, like the others, was also merged into SAMR in the 2018 reshuffle.

SAMR also has the authority to formulate antitrust regulations and guidelines, according to the Anti-Monopoly Law.

Price regulation: Inheriting powers from the State Administration for Industry and Commerce, SAMR regulates companies’ pricing strategies, per the nation’s 1997 Price Law (in Chinese).

As a result, online marketplaces like Taobao and Ctrip fall under SAMR’s purview.
SAMR earlier this month proposed (in Chinese) regulations on consumer pricing practices, banning e-commerce platforms from using big data and algorithms to charge customers different prices for the same product or service by analyzing their purchasing history.

People’s Bank of China (PBoC)

The PBoC, the country’s central bank, is the major regulator for fintech. The financial regulator oversees China’s online payment sector, supervising companies like Alipay and Tencent’s WeChat Pay, which combined have more than 1 billion users.

The bank has been involved in high-profile moves against China’s tech sector, leading the investigation into fintech giant Ant Group after China halted the company’s plans for a mega IPO in November.

Ruling online payments: The PBoC became a fintech regulator in 2015 after it issued regulations (in Chinese) governing the online payment sector, requiring companies that provide digital payment services to be subject to its oversight. Ant Group’s Alipay is China’s largest mobile payment service, followed by Tencent’s WeChat Pay.

It doesn’t like cryptocurrencies: The bank and online payment regulator is also use its power to crack down on cryptocurrencies. In June, the central bank summoned several commercial banks and Alipay, asking them not to provide financial services to cryptocurrency traders, according to state news agency Xinhua (in Chinese).

See also: Finance is also governed by two specialist regulators. The China Banking and Insurance Regulatory Commission (CBIRC) is also responsible for online banking and insurance products.

And if you like IPOs: The China Securities Regulatory Commission (CSRC) regulates stocks, and appears to be taking an increasingly important role in approving the listings of all Chinese companies.

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Chinese tech giants donate more than RMB 1 billion to flood-hit Henan

Thu, 22 Jul 2021 10:36:41 +0000

As deadly floods hit central Henan province, Chinese tech majors are jumping in to provide donations and aid to the disaster-hit area, collectively donating more than RMB 1 billion ($154.5 million) as of Thursday.

Since Saturday, the area has been rocked by torrential rain and flooding, which has killed at least 33 people and displaced 3 million. Henan officials told state broadcaster CCTV on Thursday that the economic losses from the floods are expected to reach at least RMB 1.22 billion.

Why it matters: Chinese tech companies are part of a larger, nationwide operation to provide relief to Henan.

Top Chinese companies are expected to provide relief in major crises. During the height of the COVID-19 outbreak in China, the tech industry led the drive, collectively donating RMB 3.42 billion, followed by the financial sector with RMB 1.93 billion, according to National Business Daily.

Details: Tech majors Alibaba, ByteDance, Didi, Meituan, Pinduoduo, Tencent, Baidu, Kuaishou, and others have announced that they will donate funds to tackle the flooding in Henan. Alibaba and Ant Group donated the most, providing RMB 250 million.

The Jack Ma Foundation contributed RMB 50 million, one-fifth of Alibaba and Ant’s RMB 250 million donation, according to an announcement on microblogging platform Weibo on Wednesday.
ByteDance, Didi, Meituan, Pinduoduo, and Tencent each donated RMB 100 million.
Meanwhile, Baidu donated RMB 90 million. Xiaomi, Kuaishou, and Vivo each provided RMB 50 million. Internet security company Qihoo 360 donated RMB 40 million. Electric carmakers XPeng and Li Auto donated RMB 15 million and RMB 10 million, respectively.
Apart from funds, some tech firms also converted their service centers in flood-stricken areas to temporary food banks or shelters. Life services platform Meituan told Chinese media that the company had donated 630,000 essential items, including bottled water, rice, noodle, and other staples. Alibaba’s grocery unit Hema has delivered 17,000 servings of fresh food to front-line rescue workers.
Since Tuesday, ride-hailing giant Didi temporarily suspended all local services in Zhengzhou, Henan’s capital, to protect drivers’ and passengers’ safety. The company said on Weibo that it had organized a fleet to deliver supplies and help rescue operations, evacuations, and transport health workers.

Life-saving online doc: On Tuesday night, a university student from Henan nicknamed manto created an online spreadsheet to help people trapped in flood-hit areas broadcast rescue information.

The document, created on Google Docs-like Tencent Docs, was visited 2.5 million times and edited more than 20,000 times within a day of being created.
A Tencent spokesperson told TechNode that the company expanded the platform’s limits on Wednesday morning to allow more than 200 people to edit the document simultaneously.

Context: Chinese tech majors are hoping to improve their company images. Major tech firms have faced much social criticism for their extremely long working hours and weekend work schedule. Regulators also began late last year to crack down on major tech firms over anti-competition business practices and data security concerns.

READ MORE: The Chinese gaming startup outperforming Tencent overseas

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CHINA VOICES | Why are Chinese regulators investigating Didi?

Mon, 12 Jul 2021 10:57:13 +0000

Didi is everywhere in China. In the country’s major cities, you’re unlikely to find someone that hasn’t hailed a ride through its platform. The company’s popularity led the Uber-like taxi app to a much anticipated New York IPO on June 30. Didi raised a whopping $4.4 billion—the largest amount of any Chinese company going public in the US since 2014.

Then, Didi caught the attention of Chinese regulators.

China Voices

In TechNode’s subscriber-only translation column, we bring you discussions about tech on the Chinese internet. TechNode has not independently verified the claims made below.

For the first two days after going public, Didi’s stock performed well, rising more than 17% from its offering price. Then, the ride-hailer’s US debut took a jarring turn: China’s top internet regulator announced a cybersecurity investigation into the company.

Didi’s share plunged more than 20% on the news. Investors say that the move blindsided them. Apart from scrutiny at home, the company now also faces lawsuits from US investors for failing to disclose its regulatory risks.

According to the government’s official announcement, Didi faces regulatory backlash over data security. The regulator did not provide any further details.

What kinds of data does the company hold that led to regulators souring on the company? This week, we combed Chinese media reports on the investigation into Didi, hoping to provide a clearer picture of what led the company to fall out of favor. All quotes have been edited for clarity.

Didi’s big data analytics

On July 2, the third day after Didi’s IPO, China’s internet watchdog launched a “cybersecurity review” of the ride-hailing company, citing national security concerns.

Then two days later, on a Sunday night, the same regulator—the Cyberspace Administration of China (CAC)—ordered app stores in China to remove Didi’s app. The CAC said the app “seriously violated Chinese laws and regulations on personal information collection and usage.”

Of all tech majors in China, Didi collects the most comprehensive data on personal travel. Its ability to do big data analysis on users’ activities and habits can carry security risks, said China’s nationalistic tabloid Global Times on July 4.

The news of the investigation into Didi began trending on popular microblogging site Weibo over the weekend. The government’s inquiry won cheers from many Chinese internet users, who see the move as a means of protecting China’s national security and the data privacy of its citizens.

Why China’s ban on Didi’s app is winning applause
Global Times, July 4

Didi Chuxing is a high-tech internet company that has greatly popularized online ride-hailing services in China. But the company undoubtedly collects the most detailed personal travel data out of all the major internet companies. It’s very worrying that, according to the Cyberspace Administration of China’s announcement, Didi may have violated laws in the way it collects and uses personal information. Didi appears to have the ability to perform big data analysis on users’ activities and habits, which could become a potential security risk to people.
As a matter of principle, we hope that internet giants can minimize collection of users’ data instead of capturing as much information as possible.
Internet behemoths are used to calling the shots in their sectors, but the government cannot allow them to make the rules governing personal information. The government has to control the rules and standards, making sure that internet giants minimize their user data collection. Internet companies shouldn’t be allowed to have a super database of user information that is more detailed than that controlled by the Chinese government, let alone use the database however they please.
The government needs to be vigilant with a firm like Didi, which went public in the US and consists of top foreign stakeholders. This is not only a matter of protecting personal information but also a matter of national security. Regulating Didi doesn’t mean the country is stunting the growth of the company. It serves to eliminate risks so that the users will feel more comfortable, thus giving the company a bigger market.

Maps and road traffic data

Experts told the Chinese business magazine 21st Century Business Review that Didi’s collection of road traffic data is at odds with China’s national security.

Didi’s investigation gives a stern signal
Cao Yanjun, Yang Song
21st Century Business Review, July 5

Cybersecurity investigations into internet companies will become the norm.
Di Wei, an assistant professor of economic law at East China University of Political Science and Law, told 21st Century Business Review that Didi holds road traffic data including that which deals with surveying and mapping, traffic flow, and charging stations. This data is vital data, according to the third article in the “Provisions on the Management of Automobile Data Security (Draft for Comment Solicitation)” that was released on May 12. The provision defines vital data (to national security) collected by auto companies.
Data collected by automobile companies is closely connected to individual privacy and national security issues. For example, when a user follows a given route, companies can collect data on home addresses, work addresses, and surrounding geographic data.
“The potential risk lies in exposing personal information, and even data vital to the national interest, which in turn affects military safety,” Di Wei said.

Driving record data

Didi’s record of driving data and driver and passenger security information pose major security risks to China if leaked, according to Classification Evaluating Reviews, a WeChat account that promotes China’s multi-level protection scheme, a tiered system of national cybersecurity levels.

China launches its first cybersecurity investigation! Didi gets investigated
Classification Evaluating Reviews, July 2

Cybersecurity investigations aren’t administrative interviews but preventative safety precautions. Didi has already become an essential part of China’s internet traffic infrastructure. Didi’s datasets of driving records, and driver and passenger security information pose a massive security risk.
According to China’s multi-level protection scheme, we can infer that Didi’s network has been classified as vital information infrastructure, thus prompting the cybersecurity investigation.

It might take a few months for Chinese regulators to elaborate on what the Didi data in question includes. In the meantime, Chinese media reports show that Didi’s massive collection of mapping and traffic data, and its ability to provide big data analysis using its data, may have alerted the country’s regulators.

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China may require data security reviews for all overseas IPOs: experts

Wed, 07 Jul 2021 09:57:55 +0000

Chinese firms, especially those dealing with data, may have to submit every overseas IPO to regulators for a data security review, experts told TechNode.

China’s top leaders called for increased supervision of data during international IPOs on Tuesday, days after ride-hailing giant Didi Chuxing and two other recently US-listed firms were banned from registering new users during a “cybersecurity review.”

Senior party and government officials issued a directive (in Chinese) on Tuesday night, calling for an increased crackdown on “illegal securities activities.” The directive was jointly issued by the General Office of the Central Committee, the administrative branch for the party’s top leading groups, and the General Office of the State Council, the Chinese cabinet.

The document appears to confirm that Beijing is worried about data security during the overseas IPOs process. Taken together with the Data Security Law passed on June 10, these new documents provide clues that data may be a key factor in the decision to launch an investigation on Didi.

Three newly US-listed firms have been blocked from registering new users since Friday by China’s data watchdog, the Cyberspace Administration of China. The CAC has cited concerns about data and national security and the collection and handling of personal private information, but has not published specific reasons.

READ MORE: How did Didi get in trouble with data regulators?

One of the document’s sections focus on overseas listings. Article 19 directs regulators to “improve relevant laws and regulations on data security, cross-border data flow, and confidential information management.” Article 20 asks regulators to increase scrutiny on Chinese companies listing overseas, which refers to China concepts stocks, and “clarify regulatory responsibilities in China and strengthen cross-department cooperation.”

‘Data practices that used to be legal might become illegal’

Zhu Bao, a Beijing-based attorney specializing in corporate compliance, said the directive’s focus on tightening data management is new and signals a shift in priorities.

“I don’t think this prohibits all Chinese companies from going public overseas. It signals that internet companies, especially those dealing with data and seeking an overseas listing, will face much stricter regulation and approval processes,” Zhu said.

“Certain data practices that used to be legal might become illegal now,” Zhu added. He said companies that collect users’ information should consider seeking legal advice and review their data servers to make sure they are compliant with the directive.

Yang Zhaoquan, director of Beijing Vlaw Law Firm, told TechNode that “data could be leaked during the review and auditing procedures in a IPO process.”

“In the age of big data, internet companies can collect massive amounts of sensitive data, including citizen’s personal information, state agency data, and operation data of other companies,” Yang added.

More than Didi

Chen Long, a partner at Plenum, an independent research firm on Chinese politics and economy, told TechNode that the documents clearly relate to Didi’s investigation, but reflect concerns broader than this case.

Apart from data security issues, the directive also asks to increase punishment for accounting fraud cases like Luckin Coffee’s 2020 fraud scandal, Chen said. “The directive is a culmination of the past year’s events and providing clarity on regulatory responsibility,” he added.

The directive didn’t specify a government body to take charge of the data review. Chen said China needs to clarify which government body should be responsible for reviewing Chinese companies filing for overseas IPO. Currently, it’s a gray area, he added.

Chen expects the Chinese government will task the China Securities Regulatory Commission (CSRC) and the Cyberspace Administration of China (CAC) to review the data of companies seeking overseas IPOs.

Bloomberg reported in May that China is considering rules that would require firms to seek formal approval before listing in overseas markets.

Zhu said he expects the CSRC will work with the Ministry of Public Security in the future to review these cases. He added it will probably take about six months for the government to finalize all the details and responsibilities. Still, tech and data companies seeking to list overseas should brace for a stricter review process from now on.

Translation of directive excerpts

Article 19: Strengthen cross-border supervision cooperation. Improve relevant laws and regulations on data security, cross-border data flow, and confidential information management. Regulation needs to be revised to strengthen the confidentiality and file management related to the issuance and listing of securities overseas, and consolidate the main responsibility of information security of overseas listed companies. Strengthen the standardized management of cross-border information provision mechanisms and procedures. Adhere to the principle of law and reciprocity, and further deepen cross-border audit supervision cooperation. Explore effective ways and methods to strengthen international securities law enforcement cooperation, actively participate in global financial governance, and promote the establishment of law enforcement alliances to combat cross-border securities violations and crimes.
Article 20: Strengthen the supervision of China’s concept stocks. Effective measures will be taken to deal with risks and emergencies of Chinese concept stock companies, and push to set up relevant regulatory systems. Amend State Council’s special regulation on companies raising funds and listing overseasing. Clarify which domestic industry supervisors will be responsible and strengthen cross-departmental supervisory coordination.

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How did Didi get in trouble with data regulators?

Mon, 05 Jul 2021 12:38:52 +0000

It has been a rollercoaster week for Didi Global. Last Wednesday, Didi raised $4.4 billion in a behemoth US IPO. Two days later on Friday evening, China’s cybersecurity regulator announced an investigation into the company. Then on Sunday night, less than a week after Didi went public on the New York Stock Exchange, the regulator asked app stores in China to remove Didi’s app.

The probe of China’s dominant ride-hailer follows other large penalties for Chinese tech majors, such as the abrupt suspension of Ant Group’s giant $34 billion dual IPO listing in Shanghai and Hong Kong in November 2020 and a $2.8 billion antitrust fine for Alibaba in April.

Authorities at the Cyberspace Administration of China (CAC), a cyberspace watchdog, said on July 2 that they launched a “cybersecurity review” of Didi to “guard against risks to national data security” and “protect the public interest.” Citing national security law and cybersecurity law, they also asked Didi to stop registering new users. Two days later, they ordered operators to pull Didi’s app from all app stores for issues concerning user data protection, saying the app “seriously violated Chinese laws and regulation on personal information collection and usage.”

The app store suspension, although dramatic, hasn’t stopped Didi from operating. Didi’s service is still widely available in China. The ban means new users cannot download Didi’s app and use its service. Yet new users, at the time of this writing, can still register for the service through Didi’s mini-program embedded in apps like WeChat, a popular Chinese messaging app, according to our observations. Also, existing users, which account for most Chinese ride-hailing customers as the company holds 90% of the market share, can still use the service, either through Didi’s app or its mini-program on WeChat.

On Monday, the CAC expanded its probe, announcing that it also launched similar cybersecurity investigations into three other companies and asked them to stop registering new users. All these companies have recently debuted on US stock exchanges. Job recruitment platform Boss ZhiPin debuted on Nasdaq under Kanzhun, a Tencent-backed company, on June 11. Partner transport companies Huo Chebang and Yun Manman went public together on the New York Stock Exchange on June 22 as a single company called Full Truck Alliance.

The actions are a notable step up for privacy regulation. But they come as part of a long-term effort to regulate data use during an ongoing crackdown on big tech, experts told TechNode.

Business may be… fine?

Didi said in a July 4 statement that it expects that the app takedown may have “an adverse impact on its revenue in China.”

According to a 2020 regulation for the review process, a cybersecurity review should be completed within 45 days. However, it can be extended if “the situation is complicated.”

James Hull, analyst and portfolio manager at Hullx Capital, said a suspension of 45 days or longer isn’t “that bad for the company,” because most Chinese users already have the Didi app and could access Didi through WeChat mini-programs. The Chinese version of the app was downloaded about 900,000 times in June, according to SensorTower, or 30,000 times per day.

Michael Tan, a partner with international law firm Taylor Wessing Shanghai Office, told TechNode that he thinks the investigation could take six months. Didi’s stock price is likely to take a hit, but the company is unlikely to be delisted from the US, he added, because Chinese regulators will focus on data security more than the listing.

But Tu Le, founder and managing director of business intelligence firm Sino Auto Insights, told TechNode that he thinks US investors may demand more information. “If I were a US investor in Didi, I’d like to know what Cheng Wei, Jean Liu, and the rest of the management team ‘knew,’ if anything at all, and ‘when’ they knew it.”

“If there was prior knowledge that Cyberspace Administration of China would block new users due to security issues, then it should’ve been disclosed prior to the IPO,” Le added.

Didi shares on the New York Stock Exchange fell 5.3% on Friday, following the CAC announcement of a cybersecurity review of the company. The US market had not opened on Monday at the time of this publication.

Both Le and Michael Tan say Didi’s probe could have broader implications for Chinese data companies planning to raise money in the US.

Le said the Didi probe “should really freak out any data company planning to IPO in the US.” Data companies need to make sure that their data management strategy is bulletproof if they decide to list in the US later this year, he said. “I’d say they’ll still do it, but this should give them pause, if only for a brief moment,” he added.

Why is Didi being investigated?

It’s not entirely clear what got Didi in trouble. The notices refer to national security and to “serious problems with illegal and irregular collection and use of personal data.” Timing suggests that the recent US IPO could also be a factor. All three firms that were penalized this past week have been listed on US markets since early June 11.

The company says that all information related to Chinese users is stored in China, in response to speculation of Didi sharing sensitive data. Company Vice President Li Meng wrote on Weibo Saturday that the company was willing to sue over speculation that it had shared sensitive information during its IPO process.

Tan said that alleged data privacy abuse is the main reason for Didi’s investigation. Didi’s US IPO likely accelerated the probe but didn’t trigger it.

In 2015, Chinese state news agency Xinhua collaborated with Didi’s big data analytics department on a report focusing on commuting patterns of state staff working for different Chinese ministries. “Almost all ministries work overtime,” the report said, “The Ministry of Land and Resources is the busiest. There were 298 rides hailed between 6 p.m. to 2 a.m. in two days,” Xinhua said. China could deem data like this as sensitive.

The investigation targets Didi’s potential privacy breach activities in China, Tan said. “US IPO will result in disclosure of much business-related information to the US markets and other third parties in the US,” he said. “This will inevitably lead to some speculation, such as Didi being investigated due to national security concerns or providing access to sensitive data,” he added.

Legal background

The investigations are based on a relatively new CAC power called a “cybersecurity review.” This review process was created by the 2016 Cybersecurity Law, but has never previously been implemented, according to the Beijing News. According to the law and 2020 implementation measures, the review system focuses on operators of “critical information infrastructure,” and their purchases of “network products and services that might impact national security.” The Cybersecurity Law, along with landmark laws on privacy and data security, is part of an ongoing effort to regulate the use of personal data by companies in China. Cross-border data transfers are a focus of these laws, but the laws also require companies to implement best practices for collecting and storing data.

“That could cover anything from Didi’s servers to cloud computing to basic network equipment,” said Tiffany Wong, a consultant at research-based consultancy Sinolytics.

Wong said that it’s also possible for companies to get in trouble under these laws due to how they store and process important data. “It could be that Didi hasn’t segmented their personal information to the CAC’s liking, or don’t have good data protection mechanisms in place as required, and the state wants Didi to have full compliance before collecting any more personal information,” Wong added.

Moreover, Xie Maosong, a senior politics and governance researcher at the Chinese Academy of Sciences, told TechNode that he thinks Didi and other internet companies need to develop a better sense of social responsibility in China instead of focusing only on making money. Xie studies Chinese governmental policies and he gave lectures a few weeks ago to the Cybersecurity Administration in Hangzhou on regulating Chinese internet companies.

“In the western society, capital takes priority,” said Xie, “but in China, politics always takes priority. Here, politics doesn’t refer to the Chinese government, and it refers to the interests of the nation, a collective interest, in contrast to the interests of a few capitalists,” he added.

Tech crackdowns in China

The investigation into Didi came as China widened an ongoing crackdown on tech companies. The crackdown started in November when authorities halted Chinese fintech giant Ant Group’s plans for a mega dual IPO, citing “changing regulatory environment.” Since then, regulators have abandoned their laissez-faire approach to tech firms and put them under the microscope.

In December, the State Administration for Market Regulation (SAMR) announced an anti-monopoly investigation into e-commerce behemoth Alibaba. The probe was closed in April as the market regulator imposed a record RMB 18.2 billion ($2.8 billion) fine on Alibaba.

Anti-monopoly has been the most active area of the campaign, hitting tech titans like Tencent, Alibaba, Meituan, and Didi itself, according to TechNode’s Techlash Tracker database. But the campaign also involves privacy protection, data security, and financial de-risking. Over the past year, hundreds of companies have been hit with small fines over privacy and data security violations.

READ MORE: INSIGHTS | Making sense of China’s big tech crackdown

The Didi probe is the first major case in the privacy and data security section of the campaign.

In the past, companies like Tencent, search engine Sogou, and smartphone maker Xiaomi were fined small amounts of money for collecting excessive or unnecessary data from their app users. Those enforcements usually cite China’s 2017 Cybersecurity Law and regulations on how apps should collect and store user data.

The investigation into Didi, however, probably involves national security issues, according to the CAC. In addition to the Cybersecurity Law, the CAC also cited China’s National Security Law in announcing the Didi probe. The 2015 National Security Law has a clause (in Chinese) vowing to “safeguard the nation’s cyberspace sovereignty, security, and interests.”

“The state attaches great importance to cybersecurity and data security. The Cybersecurity Law passed in 2017, the Cybersecurity Review Measures issued in 2020, and the Data Security Law that is taking effect in September are all signs of the government’s determination to protect cybersecurity and data security,” said Qi Aimin, a professor at Chongqing University’s School of Law.

Recent cybersecurity reviews on tech firms, including probes into Boss Zhipin, Huo Chebang, and Yun Manman announced on Monday, proving that “large-scale cybersecurity and data security investigations of internet companies will become a trend,” said Qi.

A timeline of Didi’s regulatory woes

Dec. 24, 2020: Chinese transport minister Li Xiaopeng pledges to ramp up antitrust enforcement as one of the ministry’s priorities in 2021. The head of Chinese transport watchdog made the comment a month after the release of the draft anti-monopoly guidelines targeting the country’s big tech companies by the SAMR.

March 12, 2021: China’s top market watchdog SAMR fines (in Chinese) Didi Mobility Pte. Ltd., a subsidiary of the Chinese ride-hailing giant, RMB 500,000 ($77,400) for failing to seek antitrust clearance for the establishment of a joint venture with Softbank. In the current antitrust law framework, companies need to receive approval for mergers or acquisitions involving firms with annual revenues of RMB 10 billion and above globally or more than RMB 2 billion in China.

April 30, 2021: Didi is again ordered (in Chinese) to pay a penalty after insufficiently disclosing three acquisitions and investments for antitrust reviews, including a takeover of a Shenzhen-based car rental firm. Chinese gaming powerhouse Tencent and retail giant Suning were also punished for the same reasons, with each fined RMB 500,000, the highest amount stipulated by the law.

May 12, 2021: China’s cyberspace administration issues new draft rules on data collection applying to both carmakers and ride-hailing platforms, stipulating that companies need to gain regulatory approval before providing “important and private data” to foreign entities (our translation). Coming after growing concerns about vehicle cameras and where the car data is going, CAC writes in the announcement (in Chinese) that the rules have been drafted to safeguard national security and the public interest.

May 14, 2021: Chinese antitrust regulators order ride-hailing platform Didi and online services giant Meituan to rectify their ride-hailing practices, reports Bloomberg. The two companies were among 10 online on-demand services ordered to make changes to their operations, including increasing drivers’ commission fees.

June 17, 2021: Reuters reports that China’s market regulator is investigating whether Didi violated antitrust rules. Didi dismisses the report as “unsubstantiated speculation from unnamed sources.” However, the company acknowledged that it has just completed a one-month self-inspection to correct monopolistic practices, along with dozens of other companies, as required by regulators, in its IPO prospectus filed last month.

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Tesla issues largest ever recall in China

Mon, 28 Jun 2021 12:12:21 +0000

Tesla said on Saturday it will recall more than 285,000 vehicles in China to address safety concerns in its autopilot system, marking the automaker’s largest recall in the country. Tesla told local news the decision is not linked to previous safety incidents.

Why it matters: The recall raises questions over the carmaker’s future in China. The company’s prestigious image has soured quickly as Chinese Tesla owners this year began blaming the company for car malfunctions, including sudden accelerations and brake failures.

The recall affects over 90% of Tesla vehicles made and sold in China, according to figures released by the China Passenger Car Association.

READ MORE: Safety questions and shady sales tactics are chilling the China-Tesla love affair

Details: Tesla will recall 285,520 cars, including Model 3 and Model Y vehicles built between 2019 and 2021. Affected customers can receive fixes remotely through system upgrades, without bringing the cars back to the dealers.

China’s market watchdog, the State Administration for Market Regulation, said it found safety risks in Tesla’s autopilot cruise-control systems. Drivers can easily activate the system by accident, causing the vehicle to accelerate suddenly, the regulator said in a statement (in Chinese). In some extreme cases, this problem can lead to collisions, the regulator said.
The watchdog said the recall is Tesla’s response to a safety investigation initiated by the regulator.
However, Tesla said in its statement (in Chinese) that the recall is a result of the company “acting responsibly to the customers” and that it reported the recall voluntarily to the regulator (our translation).
A Tesla spokesperson insisted that the recall was proactive and unrelated to previous accidents in an interview with the National Business Daily (in Chinese).
The affected models include more than 211,000 Model 3 vehicles made in China between December 2019 and June 2021, nearly 36,000 imported Model 3s manufactured during 2019, and 38,600 Model Ys made in China since the start of this year.
Tesla did not respond to TechNode’s emailed request for comment.

Context: Since early last year, Tesla has faced mounting pressure in China over safety concerns and customer service complaints. The company also faces national security concerns in China.

After a car owner launched a high-profile protest at a car show in April, the US carmaker issued an unusual public apology, pledging to respect Chinese customers and China’s laws, and cooperate with the government on its investigations.
In late May, the company also established a data center in China, after the Chinese military reportedly banned staff from using Tesla vehicles due to concerns over the cars’ ability to collect confidential data. The center will store and process information generated by locally-made Teslas.
Chinese government agencies have begun requesting staff to refrain from purchasing Teslas, due to data security concerns, a person with direct knowledge of the matter who asked not to be named told TechNode in early June.
In February, Tesla announced a recall in China affecting 36,126 imported Model S and Model X vehicles over touchscreen failures. Three months later, the company issued another recall involving 5,974 imported Model 3 due to safety risks posed by defective bolts, CNBC reported.

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INSIGHTS | Making sense of China’s big tech crackdown

Mon, 28 Jun 2021 06:39:06 +0000

In China, big tech is in the regulators’ crosshairs. Since financial regulators spiked an IPO for Ant Group, the Alibaba-affiliated fintech giant that was slated to outraise Saudi Aramco, tech majors have had to get used to fines, investigations, and meetings with regulators. This big tech crackdown shows no sign of slowing down.

Insights

Insights is a series of explainers on developing stories in China tech, available to TechNode subscribers.

Most recently, Reuters reported that ride-hailing firm Didi Chuxing is facing an anti-monopoly probe as it prepares for a New York IPO. Alibaba was hit with a $2.8 billion fine in April. JD delayed an IPO for fintech unit JD Technology in the wake of the Ant fiasco. Tencent and Meituan are both reportedly the target of antitrust investigations.

In May, TechNode launched a techlash tracker, aiming to take stock of the big tech crackdown by counting enforcement actions. So far, we’ve identified 29 such events, and we’re regularly adding to it.

How do we make sense of the trend?

Bottom line: China is working through a broad change in its approach to managing tech giants. The crackdown is broader than anti-monopoly, finance regulation, or Jack Ma, seemingly reflecting a change in attitudes to the power of big tech.

It’s a big deal, but it’s surely not the end of big tech. No one ever got big in China tech without knowing how to work with the state, and so far, we see regulators prioritizing compliance over punishment.

But expect to see business models changed, especially around lending and the use of data, likely in ways that will cut into profits for tech majors.

How the crackdown affects tech

It’s not about fines: Compared to the size of the companies, the fines are small. Alibaba’s $2.8 billion fine, a record for Chinese antitrust, represents only about a week and a half of the company’s revenue. Other companies have seen fines in the millions: tutoring platforms Zuoyebang and Yuanfudao paid RMB 2.5 million ($389,000) for unfair competition, while community group buy platforms paid up to RMB 1.5 million.

It is about changing businesses: Ant didn’t pay a fine, but it was forced to agree to a far-reaching “rectification plan” in the wake of its failed IPO that will likely leave it looking a lot more like a bank. Fidelity estimated that these changes will wipe out about $150 billion in value, about half the company’s valuation pre-fiasco.

A lot happens behind the scenes: In fintech, we’ve seen JD Technology and Tencent prepare to make changes along the lines of Ant Group without publicly getting involved in investigations. Chinese authorities often care more about getting their way than getting a pound of flesh, and many changes will likely be carried out without the public knowing exactly who made the decisions.

Big tech will survive: Rumors that Ant Group would be broken up do not seem to be panning out. While it’s likely to look quite different after rectification, it appears that it and other targets will emerge still massive.

Five ways to understand a crackdown

So what’s the crackdown about?

1. Anti-monopoly is the most active area of enforcement right now. It’s also the biggest change—until late 2020, the anti-monopoly law was not successfully applied to tech majors.

We’ve identified 18 events, starting in December last year. Led by the State Administration for Market Regulation (SAMR), it appears that the campaign will hit every leading firm in the sector. To date, only Alibaba has seen a major fine, while other tech majors have paid small fines for failing to submit mergers and acquisitions for review or face reports of ongoing investigations. The focus of investigations seems to be on the widespread “choose one of two” model under which major e-commerce platforms demand exclusivity from merchants. Didi, Meituan, and Tencent are all reportedly targets of ongoing investigations.

Tencent has also faced lawsuits from ByteDance and private citizens over its practice of blocking users on messaging platforms from opening links that lead into apps from other major tech ecosystems.

We expect to see bigger fines and orders to change business practices as investigations unfold, but it’s not clear if the campaign will challenge the dominance of monopolies on the Chinese web. Choose one of two, or blocking links, are pretty marginal elements of the power of big tech.

2. Privacy enforcement dates back farthest, and has affected the great number of companies. We’ve identified seven events, dating back to 2019. Typically, we see dozens or hundreds of companies fined in each event, for issues like over-collecting data or failures to store it securely. With major data breaches a routine event even at major tech firms, it’s no surprise that fines are common. These fines have come from the Cybersecurity Administration and the Ministry of Industry and Information Technology.

Fines over data violations have come in parallel with a series of laws on data collection and storage that experts have said are turning China from one of the world’s least regulated data environments to one of its most. These laws limit the transfer of much data outside of China, and create what Control Risks’ Carley Ramsey described as a “mandatory how-to guide” for cybersecurity at TechNode’s Emerge conference last year.

3. Financial de-risking also dates back years. Beijing’s campaign to bring lending under control originally focused on bank loans to “zombie” state-owned companies. But the spectacular collapse of hundreds of online peer to peer lending companies around 2018 showed that small loans to individuals could also drive risks. By 2019, regulators had largely shuttered the once-thriving industry.

But the Ant Group IPO fiasco marked a new wave of fintech regulation. Financial authorities, most importantly the central bank, became concerned that online lending products offered by Ant and its peers—often available during checkout on major e-commerce platforms—were leading retail borrowers into unsustainable levels of debt, and creating systemic risks. After a dramatic intervention, the company and its peers are transforming into more bank-like entities, which will likely focus more on profiting off loan interest than using data to sell loans to other investors. It’s also likely these companies will take steps to add friction to taking out loans.

We’ve identified only three events in the fintech crackdown, but they were doozies. So far, JD Technology and Tencent’s fintech divisions appear to be mirroring the changes at Ant without a public regulatory proceeding.

4. Jacklash may be the most popular frame, but for our money it’s the least convincing taken alone. This theory holds that Alibaba founder Jack Ma fell out of favor with politicians first, and that the Ant suspension and Alibaba antitrust case flowed from that. The theory doesn’t explain why so many non-Ma firms have been caught up in the crackdown. But it is true that his Ant Group and Alibaba have suffered by far the biggest consequences so far. Our feeling is that you don’t have to pick between believing in the policy story or the personalities story—often, they go together. TechNode doesn’t cover politics, but we can recommend some reading on how a policy disagreement turned nasty.

Read more:

5. Data monopolies are a speculated fifth theme. Some clued in observers predict that the crackdown will end with tech giants forced to share—or at least, to rent out—their data. The Wall Street Journal recently reported that Ant Group is in talks to share its data with a state-backed ratings company, which would fulfill a request regulators have made for years. Protocol recently wrote that companies, both Chinese and multinational, may soon have to comply with wholesale requests from the government for user data.

Tiffany Wong, a consultant at research-based consultancy Sinolytics, told TechNode that there is evidence that data monopolies are one of the issues on regulators’ minds. SAMR’s ruling on Alibaba, she said, argues that “because they own so much data on trade, logistics, etc., they have a huge benefit over competitors. They’re able to do calculation for targeted marketing, and because they own all this data the market entry barriers are very high for other platforms.” Influential former central bank chief Zhou Xiaochuan argued that the amount of data held by platform companies is a threat to competition in a Macau speech last November.

What’s behind it?

Beijing is clearly rethinking how it governs tech. But why now? Outside the policy issues listed above, there’s two more factors worth considering.

One is popular tech skepticism. In recent years, the Chinese public has turned from admiration to skepticism of big tech, following a global trend. Repeated scandals and controversies over extreme working schedules like 996, dangerous false advertisements, and deeply indebted young people have made big tech a popular target. Critical reporting on tech firms regularly goes viral, while self-organized groups of angry consumers are getting traction with companies like Tesla.

On the other side is an international movement toward regulation. On Thursday, the US House Judiciary Committee approved the final piece of a package aimed at curtailing big tech companies’ power to use their platforms to promote their other business lines. The move could make it easier for lawmakers to break up the likes of Facebook, Google, and Amazon.

In fact, China’s concerns are not too different to the arguments made by American thinkers like Elizabeth Warren, Tim Wu, and Dina Srinivasan. Beijing’s privacy model is based on Europe’s GDPR. As China cracks down on big tech, it’s participating in a global trend.

Graphics by Chris Udemans

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China to ban large energy storage plants from using retired EV batteries

Thu, 24 Jun 2021 08:56:59 +0000

China’s top energy policymaker released new regulations on Tuesday to ban large energy storage plants from using used automotive batteries following several deadly safety incidents at battery and power plants.

Why it matters: The new rule highlights the challenge of repurposing used electric car batteries.

Using old batteries may lead to higher operational costs than using new batteries, Zhao Guangjin, an expert at the state-owned energy provider State Grid, told Caixin (in Chinese). In addition, facilities may have to spend more to standardize used batteries, which could arrive at storage facilties at different stages of use.

Details: The National Energy Administration said in a draft policy document (in Chinese) that it would ban “in principle” any new “large-size” energy storage projects that use repurposed lithium-ion batteries. The draft does not specify the criteria for defining “large-scale” projects.

For existing large energy storage plants, the draft calls for more inspections, including adding regular technical reviews of battery life and performance.
The energy regulator said the ban would last until after the industry “crosses a key threshold” in utilizing batteries under different storage and cycling conditions. The regulator also said it plans to set up a new review system to inspect battery performance.
Repurposed batteries can still be used in small energy storage projects, telecommunication base stations, and electric vehicles with a top speed of 70 kilometers per hour (44 miles per hour).
The draft is under public review until July 22.

Context: As the world’s biggest electric vehicle market, China is hoping to find a workable solution to recycle used batteries. Batteries from the first generation of electric cars released in the Chinese market around 2009 are now nearing the end of their life cycles. However, several recent safety incidents have increased scrutiny of the battery recycling industry.

An explosion occurred at a recycling affiliate of China’s biggest battery supplier CATL in January, killing one person and injuring six others, Bloomberg reported.
In April, an explosion occurred at an energy storage power station in Beijing, killing two firefighters and injuring another, according to China Daily.
Chinese companies are still in the process of refining battery storage technology and technical standards are still evolving, Kaiyuan Securities analyst Liu Qiang wrote in an April report.

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Didi may face new antitrust probe ahead of US IPO: Reuters

Fri, 18 Jun 2021 07:30:15 +0000

China’s market regulator is investigating Didi on whether it violated antitrust rules, Reuters reported Wednesday night. Didi called the report “unsubstantiated speculation.”

Why it matters: The probe report comes less than a week after the ride-hailing giant filed for a US IPO on Thursday. It remains to be seen whether the news will affect the company’s plan to go public.

A slew of tech major Chinese companies have faced antitrust scrutiny in the last year as part of a broad push to regulate the country’s powerful tech sector.

READ MORE: The Chinese gaming startup outperforming Tencent overseas

Details: Unnamed sources told Reuters that China’s market regulator, the State Administration for Market Regulation (SAMR), is looking at Didi on suspicion of anti-competitive practices.

Regulators are also investigating whether Didi used anti-competitive practices to squeeze out smaller rivals, and whether Didi manipulated the price of rides, Reuters wrote.
The probe is in early stages, and the regulator has not yet given detailed instructions to Didi, according to Reuters’ report.
A Didi spokesperson told TechNode on Friday that it refused to comment on “unsubstantiated speculation from Reuters’ unnamed sources.”

Context: Didi, dominant in China’s ride-hailing market, has been fined several times this year by market regulators for antitrust violations.

In March and April, SAMR fined Didi’s subsidiaries a combined RMB 2 million (around $310,000) for insufficiently disclosing past acquisitions and investments for antitrust reviews.
Didi was punished in April alongside several other Chinese tech giants, including Tencent and Meituan, for failing to seek antitrust clearance for their investments.
Didi has dominated the ride-hailing market since merging with Alibaba-backed Kuaidi in 2015. A year later, Didi bought out Uber’s China business as the American rival left the market.

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China passes data security law as it continues to crack down on tech giants

Fri, 11 Jun 2021 09:18:32 +0000

China’s top legislature on Thursday passed a comprehensive data security law that stipulates how data is used, collected, protected, and developed in China. The law will affect a broad range of industries, including tech, telecommunication, transportation, finance, health, and education.

Why it matters: China is moving from one of the world’s least regulated data environments to one of its most. In the past year, China has drafted several laws to regulate tech firms’ collection and use of personal data and limit anti-competitive practices.

The law also creates a legal basis for the state to request data held by China’s powerful tech companies.

Details: The Data Security Law of China focuses on data that is high-level and crucial to national security, calling it “core state data,” according to a full text of the law published by state news agency Xinhua (in Chinese).

Formulating the Data Security Law is “a necessity” to safeguard national security, Xinhua wrote in a commentary (in Chinese) on Friday. “Data is a basic strategic resource of a nation. Without data security, there is no national security,” it wrote.
The law directs central and local governments to oversee “core state data,” a category that includes data held by private firms. If companies are found to have mishandled such data, they can face fines between RMB 2 million ($313,200) and RMB 10 million or be ordered to shut down.
The law also directs the central government to define a category of “important data.” Companies found sending “important data” to entities overseas can be fined between RMB 100,000 and RMB 10 million, or have their business licenses revoked.
Companies are required to “cooperate” when authorities ask to inspect their data for “national security or criminal investigation” purposes. Those data inspection requests are subject to “strict examination and approval,” the law said.
The law prohibits Chinese companies and individuals from providing data stored onshore to overseas judicial bodies or law enforcement agencies without Chinese government approvals.
The law takes effect on Sept 1.

Context: The new data security law is a step forward in China’s push to keep important data within its borders. The 2017 Cybersecurity Law requires firms to store data collected in China locally.

Last October, the nation proposed a draft of the Personal Information Protection Law, which resembles the European Union’s General Data Protection Regulation (GDPR). The GDPR is a respected example for such regulation worldwide. In January 2020, China proposed an overhaul of its Anti-Monopoly law to rein in an increasingly powerful tech sector.

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China Tech Investor: Baidu, Tencent, and JD earnings, with Michael Norris

Thu, 10 Jun 2021 07:53:38 +0000

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

It’s another earnings episode, so the guys welcome Michael Norris back to the show. They discuss the quarterly earnings of Baidu, Tencent, and JD, while also answering questions from listeners. Key topics include what a new era in tech regulation means for stocks.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

Tencent
Alibaba
Baidu
Bilibili
Xiaomi
JD
Pinduoduo
Meituan-Dianping
Kuaishou

Hosts:

Elliott Zaagman– @elliottzaagman
James Hull– @jameshullx

Guest:

Michael Norris – @briefnorris

Editor:

Peter Isachenko

Podcast information:

iTunes
Spotify
RSS Feed
Music: “Hey Ho” by Steve Jackson, Royalty Free Music

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BSN architect firm Red Date raises $30 million

Thu, 10 Jun 2021 06:04:09 +0000

Red Date Technology, the firm building the government-backed blockchain platform Blockchain Services Network (BSN), announced on June 10 that it had completed a $30 million Series A funding round with various global investors.

Why it matters: Red Date is the architect of the BSN, China’s ambitious state-backed blockchain initiative aiming to establish an internet-like network for blockchain applications.

Red Date has also launched its own blockchain projects, independent of the BSN. The new funds will likely provide the company resources to develop the products.

READ MORE: EXCLUSIVE: BSN architect firm eyes CBDC with two new projects

Details: According to a statement released by Red Date on Thursday, the $30 million financing round was led by the Saudi Aramco-owned venture capital fund Prosperity7 Ventures and Hong Kong-based blockchain VC Kenetic Capital.

Other investors included Swiss banking and financial services company Pictet Group, and Bangkok Bank, a leading banking firm in Thailand. Existing shareholder Blueprint Forest LP also participated in the round.
Red Date CEO Yifan He said in the statement that the BSN is the first effort to connect public and private ledgers at the enterprise level. He added that the BSN will allow blockchain services to be accessible to small and medium enterprises (SMEs) and individuals around the world.

Context: In addition to serving as the main software architect of the BSN, Red Date is diversifying to become a heavyweight in China’s blockchain industry.

In March, the company became a licensed reseller for American ledger company R3’s widely-used Corda enterprise blockchain. It plans to roll out an open version of the Corda blockchain on the BSN.
Red Date also told TechNode in December 2020 that the company is working on two projects, a payment network and public chain, that capitalize on central bank digital currencies and stablecoins, digital currencies pegged to an outside asset such as a national currency or precious metal.
Public blockchains—Casper, NEAR and Findora—were integrated into the BSN earlier this year, adding to a total of 20 blockchains hosted on the network.
Telecom provider China Mobile and payments provider China UnionPay have invested in the BSN.

Blockchain Services Network (BSN)
What: A platform for blockchain development, bringing together cloud services and different chain protocols on city nodes.
Why: To reduce the cost of blockchain application design and deployment while powering communication between chains. It will be made available around the world through local cloud providers, ultimately creating a global internet of blockchains.
Who: It is part of the government’s Global Blockchain Strategy unveiled by Chinese President Xi Jinping in November 2019, spearheaded by the China State Information Center, China Mobile, China Union Pay, and Red Date Technology.

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Regulators ask crypto mining to move out of Sichuan province after September: sources

Fri, 04 Jun 2021 08:27:04 +0000

The crypto mining world remains in suspense about the future of Sichuan-based crypto mines after a regulators’ meeting on June 2. Two sources who know meeting attendees and asked not to be named told TechNode that Sichuan regulators have asked crypto mining companies to make plans to exit the province after September.

Following talk of a crackdown on bitcoin mining from top-level government officials, Sichuan officials met to discuss the effect of crypto mining on electricity consumption.

Regulators told crypto mining companies to make plans to move their operations elsewhere and not to add any more new rigs during this transition, two sources who know someone in the meeting told TechNode.

Industry insider Molly Mo first reported that the Sichuan meeting was positive towards the industry.

Local authorities don’t want any sudden shocks to the local economy, so they will allow miners to stay through the end of the rainy season, which usually lasts until the end of September, one source said.

At the time of the publication, no official statements or regulations have come out of the meeting, which took place on June 2.

Why it matters: The southwestern province is a major crypto mining hub, due to its abundance of cheap electricity from hydropower plants during the rainy season. A crackdown there would significantly disrupt global crypto mining operations.

Another major crypto mining hub, Inner Mongolia, proposed a set of eight measures on May 25 that will likely kill the province’s mining industry.

Details: No policies have been officially released since the meeting. It was “inconclusive,” reported Chinese blockchain news outlet PANews (in Chinese).

Sichuan energy regulators called the meeting to gather information about how the region’s crypto mining industry affects electricity consumption and what would happen if they shut down the mining industry. The Block first reported the news on May 27.

Context: After the State Council’s Financial Stability committee discussed a crackdown on Bitcoin mining at a meeting on May 21, the global crypto community has been anxiously waiting for a decision from Sichuan provincial officials. The State Council is China’s cabinet of ministers.

Bitcoin mining’s high energy consumption has reportedly caught the attention of Chinese regulators as they are ramping up sustainability efforts. Beijing wants the country to be carbon neutral by 2060, according to the latest Five Year Plan.
Beijing authorities also see crypto trading as speculative investment that has become popular with mom-and-pop investors, bringing financial risk to the economy.

This story has been updated with more information.

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Delivery robots to come to Beijing streets

Thu, 27 May 2021 09:54:31 +0000

The local government of Beijing on Tuesday granted the country’s first-ever permits for commercial deployment of delivery robots to JD.com, Meituan, and Neolix, allowing the companies to charge clients for driverless delivery services.

Why it matters: Robot vehicles are going into commercial use on Chinese city streets for the first time. It’s not the first time such vehicles will operate on city streets: China has previously granted permits to test passenger and commercial vehicles on city roads, and self-driving vehicles have gone into use in limited circumstances.

Robot delivery services have previously been allowed to operate in geo-fenced areas such as university and industrial campuses.
During lockdowns last February, local authorities in Beijing and Wuhan temporarily authorized Meituan and JD.com to use delivery robots delivering life and medical supplies to residents and hospitals on a limited set of public streets.

Details: Beijing-based tech giants JD.com and Meituan, as well as robotics startup Neolix, have been authorized to operate robot delivery services commercially within designated parts of the city’s Daxing district, state-owned media Beijing Daily reported Wednesday (in Chinese).

The companies’ vehicles can operate on public streets in a designated area of 225 square kilometers, as well as the city’s mammoth new Daxing International Airport, and a 143-km stretch of highways, the report said. Robots face a speed limit of 15 kilometers per hour.
Around 100 driverless cars deployed by JD.com and Meituan have begun delivering groceries to customers in the areas. Meanwhile, Neolix, backed by Chinese EV maker Li Auto, says that it expects to provide food delivery using a fleet of more than 150 vehicles by the end of June.

Context: The government is pushing automated passenger and freight transport services. Vehicle intelligence is one of the major goals of China’s current five-year plan, running to 2025.

The Beijing municipal government earlier this year gave Baidu a green light to charge for rides on a fleet of 10 self-driving cars in an industrial park in the west of the city.
Shenzhen in March started consultation on allowing companies to charge fees for their self-driving transport services in the city, expecting applications, such as last-mile delivery and robotaxis, to grow significantly over the next three to five years, Caixin reported (in Chinese).
JD.com has been testing a fleet of 100 vehicles for grocery delivery in over 20 domestic cities, while Alibaba in March said its delivery robots have gone into operation into 15 university campuses in 11 cities.

With contributions from Emma Lee.

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Who are the funders in China’s cleantech industry?

Thu, 27 May 2021 07:46:16 +0000

“Achieving carbon neutrality may need trillions of yuan in investment and decades of continuous effort,” Zhang Lei, founder of Hillhouse Capital said during a speech in mid-March (in Chinese).

Zhang was speaking at the China Development Forum in Beijing, an event attended by high-level officials from China and abroad. It’s a pretty big deal, and the first major international conference that’s held after the conclusion of the Two Sessions, China’s biggest annual political meeting.

“…As a VC/PE organization, we have to be involved in something this big,” the investor and entrepreneur said, referring to China’s push to cut carbon emissions—a major theme at the event.

Hillhouse Capital, the venture firm Zhang founded in 2005, has invested in some of China’s biggest tech firms, including JD.com, Tencent, and Meituan. It’s the kind of investor most startups dream of attracting.

Chinese investment in carbon-reducing technologies is set to explode. Over the next 40 years, Goldman Sachs expects China to invest $16 trillion to reach the goal of carbon neutrality set by President Xi Jinping in September. So where is all this money going to come from?

Cleantech

Cleantech is TechNode’s monthly in-focus newsletter looking China’s push to clean up its environment using technology. Available to TechNode Squared members.

Typically, the Chinese government has been the largest driver of cleantech investment. For years, it has implemented massive subsidy systems for clean energy generation, including solar and wind, to drive adoption of these power sources.

As the government pushes carbon neutrality, venture capital firms are increasingly setting up cleantech-focused funds to back novel companies trying to solve the emissions puzzle.

It’s a common pattern—the state goes in first, and the market follows. It works, but at a cost, leading to wasteful investment as investors pile into the latest hot industry.

Government takes the driver’s seat

In the past, China’s government has put its own money behind promising low-carbon industries. The investments act as a seal of approval, leading to a flood of private funding.

In 2016, China’s investments in renewable energy and energy efficiency reached $167 billion. This accounted for 55% of its total spending on energy, higher than the global average of 33%, according to a report by researchers at the Energy Foundation China and the University of Maryland.

Last year, the country’s first public fund dedicated to investing in green projects and companies raised RMB 88.5 billion ($13.84 billion). In July, China’s finance and environment ministries set up the fund, which aims to support the transformation of the country’s economy and increase the role of the market in fighting emissions, though it has not yet formally launched.

The planned National Green Development Fund’s 26 mostly state investors include some of China’s biggest banks, companies, and several provincial governments. The fund is preparing to start business rapidly. It is setting up an investment management unit and plans on making a “sizable” number of hires as it prepares to launch later this year, AsianInvestor reported, citing sources close to the matter.

China’s banks have typically been major financiers of cleantech projects, specifically those involving energy generation, energy efficiency, and waste management.

One example is China Industrial Bank (CIB). According to a report by German environmental consultancy Adelphi, CIB was the first bank in China to “embrace sustainable development and green finance.” The company has focused on financing renewables, clean transportation, as well as water and wastewater management.

In 2017, the bank’s green financing portfolio reached more than RMB 674 billion.

Venture capital funds have taken note. Globally, cleantech startups raised a record $17 billion in venture capital funding in 2020, with the US and China making up the bulk of that total, according to a report by BloombergNEF.

“The majority of this investment was in late-stage startups from a variety of new climate-tech funds, resident clean-tech funds and corporate venture capitalists,” the report said.

The bulk of cleantech investments in China during 2020 were focused on the transportation sector, according to PwC. “One reason for the significant imbalance here is the Chinese automotive sector is relatively young, so much of the investment is made in entrepreneurial firms,” the company said in a recent report.

It ain’t pretty, but it works

China’s method of funding has built the world’s largest electric vehicle and solar energy markets.

For just over two decades, large portions of the government’s cleantech funds were directed at the clean energy sector, driving down the price of solar panels globally and making China a world leader in panel production. Now, photovoltaic cells are seen more as a commodity than a technology.

The government made similar moves with electric vehicles, a cornerstone of the country’s low-carbon economy. China was late in producing gas-driven cars, putting it behind the US, Japan, and Germany. In 2009, China introduced subsidies for EVs in the hope that these vehicles could take the lead in the next generation of cars.

After spending RMB 60 billion in subsidies over ten years, China now has the largest EV market out of any country in the world.

But this method of investment comes at a cost: It can be inefficient and wasteful.

In the renewables sector, the state hasn’t always been able to keep up with the rate at which the market has expanded. The government has a backlog of missed subsidy payments. The deficit is huge—reaching RMB 328 billion at the end of 2020, according to Credit Suisse.

The problem stems from China’s tendency to promote and then regulate. The state relaxes regulation to encourage innovation, the market booms, and the officials impose regulation and pull back on support.

As a result of subsidies, China’s renewable energy capacity eclipses actual demand for the power that these sources produce. The government is now encouraging these firms to fend for themselves, as the cost of renewable energy reaches parity with fossil fuels in some areas in China.

In China’s EV sector, preferential treatment resulted in overinvestment and ill-spent funding. Government support for the sector triggered a rush into the industry. Investors threw money at entrepreneurs with little to no experience in the auto sector. They lost billions of yuan after the bubble burst.

At the height of the bubble, there were nearly 500 EV companies in China. Now, just a few survive, including Nio, Li Auto, Xpeng.

Rise of the cleantech VC

In September, China’s President Xi Jinping laid out plans to reach peak carbon emissions by 2030 and carbon neutrality by 2060.

The speech served as a call to arms, and venture capital firms and corporate VCs have already set up several multi-billion dollar cleantech-focused funds, pointing to the start of a possible rush into the sector.

In March, cleantech company Envision Group and venture capital firm Sequoia Capital China set up a carbon neutrality tech fund worth RMB 10 billion. “The fund will cooperate with enterprises and governments to create a carbon-neutral technology innovation ecosystem,” the companies said in a statement.
Also in March, GCL Energy Technology and CICC Capital, an arm of China Capital Investment Group, launched a RMB 10 billion fund. The fund will focus on decarbonizing the auto sector and will raise around RMB 4 billion in its first phase, China Daily reported on March 31.

These amounts are small compared to the government’s promised RMB 88.5 billion green fund, but represent a significant push from the private sector to heed to government’s calls to invest in the sector.

Zhang Lei’s Hillhouse Capital is also pushing into the cleantech industry. Earlier, this month, the company led a RMB 50 million funding round for carbon emissions management firm Carbonstop, in what could be the beginning of a new wave of founding rounds for cleantech startups in China.

Hillhouse has a significant number of cleantech companies in its portfolio. These firms include Longji Solar, solar power station operator Xinyi Energy, and battery maker CATL.

Another venture investor is Tsing Capital. The firm has backed a slew of startups that have become household names in cleantech, including drone maker eHang, China Hydro, and US-based Lucid Motors.

These government and private funds represent just a drop in the ocean when compared to what China is going to need to spend to meaningfully reduce its emissions. But given the amount of attention cleantech in China has received in the past few months, it’s likely just the beginning.

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Crypto mining armageddon? Blockheads

Tue, 25 May 2021 04:23:54 +0000

Chinese crypto mining braces for regulatory headwinds after a top government body vowed a crackdown on the industry. The news came after a tough week for the industry, which saw power outages in Sichuan and calls for snitching in Inner Mongolia. A Hainan company completed the first cross-border e-CNY transaction for e-commerce.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of May 17-25.

Miningeddon

On May 21, the State Council’s Financial Stability Committee discussed plans to “crack down on Bitcoin mining and trading” at a meeting chaired by Vice Premier Liu He. Authorities have yet to release specific policies against crypto mining, but some major Chinese companies are preparing to move their operations to North America. (TechNode)
Mining pool BTC.TOP and HashCow, as well as Huobi Mall, the website where the crypto exchange sells mining pool services, halted all or part of their China operations following the State Council Committee’s statement. (Reuters)
The announcement also sparked a sell-off of stablecoin USD Tether against the Renminbi on over-the-counter desks, which China’s miners rely on to convert crypto to traditional currency. (The Block)

Minerdämmerung

Three Chinese finance industry bodies reiterated a 2017 ban prohibiting banks and payment institutions from offering crypto-related services. Bitcoin briefly plunged to $30,000 when the news was reported in English. (TechNode)
The Development and Reform Commission of Inner Mongolia set up a hotline, email, and mail address for the public to report crypto mining operations. The regional government is considering a total ban on crypto mining amid a push to reduce electricity use. (The Block)
The hashrate for major Chinese mining pools dropped by as much as 23% on May 19, before mostly recovering. The drop has been widely attributed to power outages in Sichuan. (8btc.com)

The digital yuan

Changsha launched a second digital RMB lottery May 22 to distribute RMB 40 million of the digital currency. The lottery is supported by the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, Construction Bank of China, Bank of Communications and Postal Savings Bank, Hunan Rural Credit Union, and Bank of Changsha. (Rednet, in Chinese)
A Hainan company completed the first cross-border e-CNY transaction for e-commerce, according to a statement May 18. (People’s Daily Overseas Network)

The blockchain stocks

Chinese blockchain stocks outperformed their international counterparts last week amid falling Bitcoin prices. (Bloomberg)

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Bitcoin crashes on minor news from China

Fri, 21 May 2021 09:45:42 +0000

Cryptocurrency markets crashed on Wednesday night, with Bitcoin hitting $30,000 its lowest price since January. The abrupt sell-off came amid a plunging market and was widely attributed to a “ban” on crypto in China. As of writing, Bitcoin prices have recovered from the Wednesday drop, but are still far off their April peak.

So, did China crash Bitcoin?

The news that came out of China was very minor: Chinese authorities didn’t instate any new restrictions on cryptocurrencies this week. On Tuesday, three Chinese finance industry associations reiterated a 2017 ban on providing crypto related services. The effects on China’s crypto industry will likely be minor.

But the insignificance of the news didn’t determine the perception and consequent actions of already-skittish investors. It appears likely this minor news, in translation, really did set off a market crash.

Timing lines up

The timing of the news breaking and the sell-off suggests that international traders were responding to news from China.

The statement was posted on the evening of May 18, while Bitcoin was trading at around $45,000, after falling 30% in the previous 30 days.

Stories on a crypto “ban” in China made the rounds in international media on the afternoon of May 19, meanwhile the price of Bitcoin started to drop faster, losing $2,000 in a couple of hours.

Google searches for the keywords “China,” “crypto,” “bitcoin,” and “ban” started increasing around 10:00 p.m. China Standard Time on May 18. Around 9:00 p.m. May 19, searches spiked, at almost the same time that Bitcoin spiked downward to $30,000 just after 9:00 p.m. the next night.

(Image credit: TechNode/Eliza Gkritsi, Chris Udemans)

But the Chinese internet was not very interested in the associations’ statement.

Chinese state-owned TV channel CCTV reported on the statement a little after 10.00 a.m. on March 19. The news then circulated in Chinese social media. On China’s Twitter-like platform Weibo, related hashtags started picking up steam in the afternoon. As of the time of writing, they have been viewed at least 2.5 million times. That makes the news a mid-sized Weibo trend, garnering similar views as news on US artist Beeple selling a non-fungible token (NFTs) for $69 million back in March.

(Image credit: TechNode/Eliza Gkritsi, Chris Udemans)

Only when Bitcoin entered freefall on the evening of March 19 did Weibo blow up. Related hashtags have been viewed at least 800 million times since Wednesday night. The hashtag “Bitcoin collapse” was Weibo’s number three trending topic last night.

What did China do?

The government didn’t do anything, but some industry associations reminded finance and payments providers that they are not allowed to offer crypto services.

Some in China’s crypto community have pointed fingers at Reuters for distorting the news.

3 dumb things happened within the last hour:

1) Reuters writing a misleading article on China banning
2) People retweeting Reuters and believing it
3) Market dumping on the Reuters news

China didn't just ban crypto. It's reiterating an anti-speculation law from years ago.
— Qiao Wang (@QwQiao) May 18, 2021

The China Internet Finance Association, the China Banking Association, and the China Payment and Settlement Association said that financial and payments providers are prohibited from conducting business related to virtual currencies, reiterating a 2017 regulation on cryptocurrency activities. Their statement was posted on the People’s Bank of China official WeChat account.

The list of prohibitions for finance and payments providers is longer and more comprehensive, compared to the 2017 rules, but they broadly refer to the same types of activities. The associations’ words are not legally binding, unlike the 2017 regulations.

The 2017 rules essentially banned IPO-like initial coin offerings (ICOs) and exchanges. The rules prohibited exchange platforms from converting fiat currencies like the Renminbi to virtual currencies like Bitcoin, companies from issuing crypto tokens in initial coin offerings, and financial and non-bank payment institutions from offering crypto-related services:

Financial institutions and non-bank payment institutions shall not conduct business related to token issuance financing transactions. Financial institutions and non-bank payment institutions shall not directly or indirectly provide account opening, registration, trading, clearing, settlement and other products or services for token issuance financing and “virtual currency,” and shall not underwrite related tokens and “virtual currency.” The insurance business may include tokens and “virtual currency” into the scope of insurance liability. Financial institutions and non-bank payment institutions shall promptly report to the relevant authorities if they find clues about the illegality of token issuance financing transactions.
September 2017 statement from People’s Bank of China, Central Cyberspace Administration, Ministry of Industry and Information Technology, State Administration for Industry and Commerce, China Banking Regulatory Commission, China Securities Regulatory Commission, and China Insurance Regulatory Commission

In the four years since the 2017 rules, crypto exchanges have continued to offer their services and run massive offices in China, blockchain companies have launched ICOs, and most of the world’s crypto mining has been in China.

Last year, however, authorities cracked down on crypto exchanges and particularly over-the-counter traders.

The three industry bodies’ Tuesday announcement said essentially the same thing;: that financial and payment companies should not provide crypto services:

Financial institutions, payment institutions and other members must effectively strengthen their social responsibilities. They must not use virtual currency to price products and services, and must not underwrite insurance businesses related to virtual currencies or include virtual currencies in the scope of insurance liability. They must not directly or indirectly provide customers with other services. Services related to virtual currency, including but not limited to: providing customers with virtual currency registration, trading, clearing, settlement and other services; accepting virtual currency or using virtual currency as a payment and settlement tool; developing virtual currency exchange services with RMB and foreign currencies; develop virtual currency storage, custody, mortgage and other businesses; issue financial products related to virtual currency; use virtual currency as investment targets for trusts, funds, etc. Financial institutions, payment institutions and other member units should effectively strengthen the monitoring of virtual currency transaction funds, rely on industry self-discipline mechanisms, strengthen risk information sharing, and improve the level of industry risk joint prevention and control; if clues of violations of laws and regulations are found, they must promptly adopt restrictions, suspensions or procedures in accordance with procedures. Terminate relevant transactions, services, and other measures, and report to relevant departments; at the same time, actively use multi-channel and diversified access methods to strengthen customer publicity and warning education, and take the initiative to make warnings about risks related to virtual currencies. Internet platform corporate member units shall not provide services such as online business premises, commercial display, marketing and publicity, and paid diversion for virtual currency-related business activities. If clues of related problems are found, they shall promptly report to relevant departments and provide technical support for related investigations and assistance.
March 18 statement from China Internet Finance Association, China Banking Association, and China Payment and Settlement Association

Carbon complications

An overblown story from China doesn’t explain all of the recent drop in crypto markets. In the last month, Bitcoin has lost 30% of its value, likely because investors are skittish amid looming environmental and regulatory concerns.

A further plunge crstarted after tech CEO Elon Musk tweeted that Tesla will not accept Bitcoin as payment on March 13, citing environmental concerns. The digital asset has lost 30% of its value in the week since Musks’s statement.

Tesla & Bitcoin pic.twitter.com/YSswJmVZhP
— Elon Musk (@elonmusk) May 12, 2021

“This recent crash reflects the misunderstandings [of the effects of] Bitcoin mining on the environment in my opinion, but perhaps also has been driven by the ESG-minded companies that have been influenced by Musk’s latest stance on Bitcoin,” Flex Yang, CEO and co-founder of Babel Finance, a crypto financial services firm, told TechNode.

The associations’ statement probably won’t bring dramatic change to China’s rules on crypto, but concerns about environmental regulation are mounting for crypto miners in the country.

As the central government pursues carbon neutrality, local governments are increasingly hostile to crypto mining activities. Inner Mongolia has already proposed a ban on the industry, and crypto miners in Sichuan, which is usually more friendly, are expecting increased pressure in the coming months.

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Losercoin, and a new crypto mining crackdown? Blockheads

Tue, 18 May 2021 09:45:51 +0000

Authorities in Sichuan could put more pressure on crypto mining activities as they look to achieve sustainability goals set by the central government. A new token dubbed Losercoin tapped into retail investors’ feeling of always being left behind. Dalian pushes ahead with B2B applications for the digital yuan, while Hong Kong looks into cross-border transactions using the central bank-backed digital currency.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of May 11-18.

The crypto mining crackdown?

Miners in southwest China, including Sichuan, could be under greater than normal pressure from regulators, as provincial authorities pursue carbon neutrality goals. On May 16, major Chinese crypto mining pools saw their hashrate fall by around 20%, in part because of inspections from government authorities. Hashrate is a measure of computing power on the Bitcoin network. Usually, during the wet summer months, Sichuan accounts for around 30% of China’s Bitcoin hashrate. (Wu Blockchain, in Chinese)
On May 15, state-owned news agency Xinhua criticized the latest crypto bull run, and called for more regulation. The article said that the industry’s “chaos” increasingly “threatens” the wealth of citizens, citing examples of small investors who were scammed out of their money. (Xinhua)

The losercoin

A new cryptocurrency looking to own failure is picking up steam in China. Losercoin, the native token of decentralized exchange LoserSwap, is a project initiated by a team that describes itself as “two poor guys” from rural China, who “lost a ton of money” in crypto trading, according to its website.

The founders appear to have tapped into a rich vein of Chinese investors who feel like losers, promising that they don’t plan on taking advantage of them through pump and dump tactics or rug pulls.

On Losercoin’s fan website, a post titled “How to know you are a loser” includes “loving cheap or free items such as LOWB,” and, “Always feel like you are not fitting in; you always lose money when everyone else is making money” (CoinDesk’s translation). LOWB is the ticker for Losercoin.

The hashtags “loser coin” and “LOWB” have been viewed 17 million times on China’s Twitter-like social media platform Weibo as of the time of writing, peaking around May 11. (CoinDesk)

But the losers’ wins were short lived: When the hashtags were trending on Weibo, the coin’s price rose, but has since dropped below its launch price, according to data from CoinMarketCap.

For once, we all need to win.#losercoin $LOWB https://t.co/tPiMgvom9V
— Losercoin (@loser_coin) May 17, 2021

The digital yuan

The Postal Savings Bank of China, along with two local companies, launched China’s first platform for B2B e-CNY transactions in Dalian, a city in the northeast. China Construction Bank has also set up a digital RMB-enabled shipping platform in the city, which vessel managers can use to pay for fuel, food, and other necessities. (Tianjian.com, in Chinese)
On May 8, a branch of the Public Security Bureau in Changsha paid employees’ salaries using the digital currency. (Digital Coin Research Society, in Chinese)
The Hong Kong Monetary Authority told Bloomberg that they are in talks with the Digital Currency Research Institute of the People’s Bank of China to expand joint trials for the digital yuan, including cross-border transactions. (Bloomberg)

The exchanges

Huobi Group, parent company of Huobi crypto exchange, launched a $100 million venture capital fund to invest in blockchain startups, particularly in the fields of decentralized finance (DeFi) and non-fungible tokens (NFTs). (Decrypt)

Did Tencent plug Bitcoin?

A WeChat article by Tencent’s Research Institute called on authorities to explore the inclusion of Bitcoin and other cryptocurrencies in China’s foreign exchange reserves, China blockchain maven Colin Wu reported. The Institute deleted the article in less than 24 hours, Wu wrote on Twitter. (Wu Blockchain Twitter)

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China Tech Investor: China’s evolving semiconductor landscape, with Stewart Randall

Wed, 12 May 2021 07:33:55 +0000

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, James and Elliott are joined by Stewart Randall, Director of Operations at Intralink Shanghai and a regular TechNode contributor. Stew talks about the current semiconductor frenzy in China, what are the factors fueling it, and how investors can differentiate the contenders from the pretenders.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

Tencent
Alibaba
Baidu
Bilibili
Xiaomi
JD
Pinduoduo
Meituan-Dianping
Kuaishou

Hosts:

Elliott Zaagman– @elliottzaagman
James Hull– @jameshullx

Guest:

Stewart Randall – @stewrandall

Editor:

Peter Isachenko

Podcast information:

iTunes
Spotify
RSS Feed
Music: “Hey Ho” by Steve Jackson, Royalty Free Music

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China flocks to Dogecoin-like Shiba, e-CNY for kindness: Blockheads

Tue, 11 May 2021 07:17:00 +0000

Chinese investors flocked to memecoin Shiba Inu just after it launched on Huobi and OKEx. Alipay will start testing e-CNY use in the super app, the Qingdao government wants to use the digital RMB to incentivize kindness, and China passed two standards at the International Telecommunications Union (ITU). The Bitcoin hashrate is moving away from China and China’s OTC king is going on trial.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of May 5-11.

Shiba frenzy

A joke cryptocurrency called Shiba Inu caught the attention of Chinese cryptocurrency investors following the meteoric rise of Dogecoin. Shiba, named after the Japanese dog breed, started trading on crypto exchanges preferred by Chinese traders. It began trading on OKEx and Huobi on Saturday, and on Binance on Monday.

Its price rocketed more than tenfold since Saturday, according to data from CoinMarketCap. The hashtag “Shiba rise” exceeded 100 million views on Chinese microblogging platform Weibo as of the time of writing.

The price of Dogecoin, a joke cryptocurrency or memecoin, rose 800% in the last month following repeated plugs by Elon Musk. After the Tesla founder on Saturday called it a “hustle” on the American comedy sketch show Saturday Night Live, the memecoin lost about 30% of its value. The hashtag “Dogecoin” in Chinese was viewed 130 million times on Weibo after Musk’s SNL appearance.

Shiba has surpassed Bitcoin and Ethereum to become the top token in terms of volume traded on Huobi and OKEx, data from CoinGecko showed. (CoinDesk)

The digital yuan

Alipay will start testing the use of the e-CNY in its app for select users. The option is available through its own licensed bank, MYBank, on the super app. (China Securities Journal, in Chinese)
The government of Qingdao, a city in eastern Shandong province, in collaboration with the local branch of China Construction Bank, is testing the conversion of government-measured “moral points” into digital RMB to incentivize kindness and create a care feedback mechanism. (Mobile Payments Network, in Chinese)
The People’s Bank of China Digital Currency Research Institute and the China Academy of Information and Communications Technology passed two standards for blockchain with the UN agency, the ITU. The standards are on function and performance-assessment methods for blockchain platforms. (Shanghai Securities Journal, in Chinese)

Mining updates

In China, the Dogecoin and Litecoin price rallies have led to a surge of interest in older mining machines geared towards the two cryptocurrencies that were unprofitable until the rallies. (The Block)
In April, more of the global bitcoin hashrate came from outside China rather than within, signaling that China is losing its dominance in crypto mining. Foundry USA made it to the top five pools globally, a ranking usually dominated by Chinese pools. (CoinTelegraph)

The Chia launch

Trading for Chia, a new crypto token by the inventor of BitTorrent, started on May 4. The token is poised to be a greener alternative to Bitcoin, and has been very popular with Chinese miners. Its popularity has led to hard drive shortages in China and Vietnam.

Just days after its launch, the Amazon Web Services Chinese site started advertising a cloud solution for mining Chia. The page has since been deleted.

Chia’s price dropped by about 29% since May 4, while volume traded has increased six-fold, data from CoinMarketCap showed. (The Block)

READ MORE: Is crypto mining really moving to North America?

OTC trial

Zhao Dong, known as China’s over-the-counter (OTC) king, is scheduled for trial in Zhejiang province on May 12. He faces charges of illegal business operations and assisting in IT-related criminal activities. OTC trading is widely used by Chinese miners who want to convert their crypto assets to fiat currency to pay for ongoing bills, but the government cracked down on the practice last year. (Wu Blockchain, in Chinese)

Crypto funding

Crypto lender Babel Finance raised $40 million in a Series A led by Sequioa China, Dragonfly Capital, and investors from outside Asia’s crypto world including Zoo Capital, Bertelsmann Asian Investments (BAI), and Tiger Global Management. (TechNode)

The trading ban

One of China’s state-owned big banks, CITIC Bank, posted a notice on its website prohibiting account holders from using their accounts to buy cryptocurrencies. The notice was dated April 22, but was only discovered last week. (CITIC Bank notice, in Chinese)

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China levies maximum fine on edtech giants for unfair competition

Mon, 10 May 2021 06:13:27 +0000

Chinese regulators have imposed the maximum penalty on Zuoyebang and Yuanfudao, two of the country’s most valuable edtech startups, for unfair competition amid a broader crackdown on its biggest internet companies.

Why it matters: Beijing is expanding its scrutiny of tech firms to the online education sector following extensive fines on various segments from e-commerce to community group-buy platforms.

The penalty comes on the heels of the fines levied on four major edtech platforms—TAL Education-backed Xueerxi, GSX Techedu, Koolearn Technology, and Gaosi Education—for deceptive pricing practices.

Details: The State Administration for Market Regulation (SAMR) said in a statement (in Chinese) on Monday that it had imposed RMB 2.5 million ($389,000) fines each on Zuoyebang and Yuanfudao. The regulator also issued regulatory warnings to the startups, two of China’s most valuable (in Chinese) online tutoring platforms.

The investigation showed Zuoyebang fabricated information about its teachers’ work experience, falsified user reviews, and gave misleading details about its services in order to boost orders.
The Alibaba-backed company fraudulently claimed on its website to be a partner of the United Nations, according to the notice.
SAMR pointed out that both of the two companies falsely advertised discounted prices to boost orders.
A Zuoyebang promotional campaign on its own app and official stores on Tmall and JD markets offered a discount of around 21% off of online courses priced up to RMB 3,280 (around $510). Yuanfudao also lured customers with special deals, such as offering RMB 399 package courses for RMB 9. Investigations showed that no transactions at these prices had ever been recorded.
Zuoyebang confirmed news of the penalty with TechNode, and pledged full compliance with the order and rectification of improper marketing behavior and misleading pricing.
A Yuanfudao spokeswoman said that the company had already started inspecting various channels and had removed all the improper marketing banners.

Context: Investors have rushed into the online education sector, which has seen a boost during the coronavirus pandemic.

Yuanfudao, focused on the K-12 age group, raised over $3.5 billion in 2020 from investors including Tencent, DST Global, and Jack Ma-backed Yunfeng Capital.
Rival Zuoyebang received a combined $2.35 billion funding last year from investors including Alibaba, Tiger Global Management, SoftBank Vision Fund, and Sequoia Capital China.

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TechNode launches the ‘Techlash Tracker’

Fri, 07 May 2021 05:19:29 +0000

Editor’s note: The ‘Techlash Tracker’ stopped updating from November as tech crackdowns became recurring in China. The topic is now part of TechNode’s daily news coverage.

Starting this week, TechNode is launching a new open resource. The “Techlash Tracker” is a database of major regulatory moves involving big tech in China, an open-source project to help make sense of a major trend defining China tech this year.

The tracker is a regularly and openly available updated set of spreadsheets, built in Airtable, recording events. Click here to view.

We invite anyone interested in China tech to use this resource for analysis, and to contribute to it.

Something is happening here, but we don’t know what it is

In China tech, the word of the year is “antitrust.” Alibaba was fined a record-breaking $2.8 billion for “forced exclusivity” and other anti-competitive practices, while Meituan faces a probe by market regulators over the same practices. Tencent, Didi, and Baidu—to name only a few—have been fined lesser amounts for failing to submit M&A deals for review.

Or is it “de-risking”? The IPO of fintech pioneer Ant Group, slated to be the world’s largest, was abruptly axed late last year as regulators prepared a series of changes to its operations. JD Digits, a competitor, withdrew its IPO application voluntarily in the wake of the fiasco. This week, 11 other tech majors were summoned to Beijing to discuss changes to their fintech operations.

Some say it’s all about data. Beijing has moved in the past year to recognize the strategic importance of this resource, which it has called ”the new oil,” and hopes to prevent tech companies using walled gardens to monopolize access to it.

Related to data, the list continues: consumer rights, privacy, cybersecurity.

We can see the trend: Big tech is being regulated as never before. At TechNode, we’re seeing a big trend, and we’ve been wondering how to understand it—and what to call it.

It’s tempting to see it as the local vector of a so-called global “techlash” that embraces everything from the EU’s General Data Protection Regulation (GDPR) to US Senator Elizabeth Warren.

Or maybe it’s just “Jacklash”: both Alibaba and Ant were founded by Jack Ma, a flamboyant billionaire who annoyed regulators when he dismissed banking authorities as “old men” in a speech last year, and some commentators have interpreted many recent moves as personal attacks on him. But then, how to explain the broadening scope of the investigations?

Just make a list

When we don’t know where to start with a topic, we often approach it by just making a list. In our new “Techlash Tracker,” we aim to make a database of key events in big tech regulation. We plan to include enforcement actions, fines, and announcements of new laws and regulations. We will track private antitrust lawsuits in another sheet.

We’ve chosen an intentionally vague name, “techlash,” rather than “antitrust” or “crackdown,” to indicate uncertainty about an interpretation.

The tracker is intended as a living document: we aim to update the list at least once a week with new events, if applicable. We’ll also continue to dig through our archives to add more previous events, and plan to create some visualizations to help understand the material as the list grows.

The material here is also a bit raw. Expect to see it in more digestible forms in our reporting in the coming months as well as, we hope, in the work of our friends and colleagues.

An open resource

The Techlash Tracker is an open resource. In addition to making it free to use, we invite other analysts to use the data we’ve collected (but please do credit us if so). We’re also counting on our readers to help us catch events. Click here to submit more events for the tracker if you see something we’ve missed.

Thanks for your support, and we hope you’ll find the tracker useful!

Your techno-friends,

The TechNode team

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CFIUS doesn’t mean Chinese companies can’t invest in the US

Wed, 05 May 2021 10:41:51 +0000

Despite heightened US-China trade tensions and the COVID-19 pandemic’s disruptive effects on the global economy, mergers and acquisitions continue. The US government’s Committee on Foreign Investment in the United States (CFIUS), however, has steadily increased its scrutiny of Chinese investment in US businesses. Recent changes to US laws, including the Foreign Investment Risk Review Modernization Act (FIRRMA), expanded CFIUS’s ability to block investments that it deems a threat to US national security.

CFIUS is examining more Chinese companies investing in US businesses, but this does not mean CFIUS will block all such transactions: in fact, the majority are still approved. Chinese companies considering investments involving critical technologies or sensitive personal data must plan ahead and carefully consider their approach to minimize CFIUS risk.

How it works

An interagency panel, CFIUS, reviews foreign investments in, or acquisitions of, US companies for national security risks. If CFIUS determines such risks cannot be mitigated, it may block a transaction, or if the transaction has been completed, direct the foreign owner to divest from the US business.

Opinion

Doreen Edelman is partner and chair of Lowenstein Sandler’s Global Trade & Policy practice, based in Washington D.C.

Laura Fraedrich is a senior counsel with Lowenstein Sandler’s Global Trade & Policy practice, based in Washington D.C.

Christian Contardo is an associate with Lowenstein Sandler’s Global Trade & Policy practice, based in Washington D.C.

Recently, the US government has identified the government of the People’s Republic of China as a significant counterintelligence and economic espionage threat. As a result, CFIUS has increasingly focused on Chinese investment in US businesses, particularly involving sensitive data, critical technology, or critical infrastructure. Due to this emphasis on data and technology, tech companies in particular are exposed to CFIUS risk.

Following the 2018 regulatory changes, CFIUS now may review any minority investment in US businesses that:

Produce, design, test, manufacture, fabricate, or develop one or more Critical Technologies;
Perform certain functions related to Critical Infrastructure; or
Maintain or collect, directly or indirectly, Sensitive Personal Data of US citizens.
The capitalized terms are all defined in the regulations and together are referred to as a TID US Business with TID standing for Technology, Infrastructure, and Data.

CFIUS may review minority investments in TID businesses if the investment provides the foreign party:

Access to Material Nonpublic Technical Information;
Membership or observer rights on, or the right to nominate an individual to a position on, the board of directors (or equivalent); or
Any involvement, other than through voting of shares, in substantive decision making related to the US company.

Additionally, CFIUS must be notified of certain transactions. Those involving US businesses that produce, design, test, manufacture, fabricate, or develop Critical Technologies require a CFIUS filing if US regulatory authorization is required to export the Critical Technology to the foreign investor. In other words, a foreign investor must determine if the company’s technology would normally be subject to a US export license. If so, it must notify CFIUS.

A companion law to FIRMMA requires the US government to review export control requirements for emerging and foundational technologies, which is expected to result in increased license requirements for US exports to China.

It’s not a ban

Although risk has increased, Chinese companies can still invest in the United States. In many cases, foreign investment poses no national security risks that would warrant CFIUS intervention. Although the “T” in TID, refers to technology, only a few companies will qualify as TID US businesses that trigger the closest CFIUS scrutiny.

However, some evidence suggests that FIRRMA may have put a damper on Chinese investment in the US. The 2019 CFIUS report indicates a marked decrease in China-based notice filings, although this also corresponds with an overall decline in Chinese investment in the US amid global economic uncertainty. While the confidential nature of the CFIUS process makes data-gathering difficult, public disclosures of CFIUS matters since 2019 indicate there have been at least 16 filings by Chinese companies. Of those, CFIUS approved six, President Trump blocked one, and the rest either remain pending or there has been no public disclosure of their disposition. Because of the sensitive nature of the information provided to CFIUS, CFIUS does not publicly disclose its decisions; thus, we gathered the above information from corporate disclosures.

Notably, during the same time, CFIUS clearances that involve “mitigation agreements,” conditions on the deal monitored by the US Department of Justice, have increased. The Assistant Attorney General for National Security, who oversees the process, has indicated that this increase in mitigation measures rather than blocking transactions is likely to continue. He cautioned, however, that investment from companies owned by foreign governments or in countries that are not allied with the US may present trust issues that make mitigation measures unlikely to alleviate national security concerns.

Given the recent tensions between the US government and the Chinese government, China-based investors may face an uphill battle to convince CFIUS of their ability to mitigate national security concerns, particularly involving acquisitions of TID US businesses. However, this is not impossible. For example, even if the US business involves Critical Technology, the Department of Commerce already may have licensed that technology to China for a particular purpose such that the investment does not create additional risk, or an agreement to restrict use of the technology may be sufficient. Also, it may be possible to restrict access to data or to facilities in a way that sufficiently mitigates risk.

Should you continue to invest?

With expanded jurisdiction and new mandatory filing requirements, CFIUS risk is greater than ever for Chinese investments in US tech companies. Even when companies may not be required to file with CFIUS, many choose to do so voluntarily to obtain clearance and avoid a future requirement to divest. Obtaining clearance at the time of the transaction matters more than ever because FIRRMA also has provided more resources for CFIUS to review non-notified transactions (transactions that were completed without a CFIUS filing), potentially disrupting the investment.

Investors should consider their goals. For parties not seeking to control the US company, and who are willing to take a passive role or invest as a limited partner with restricted access to sensitive technical information or data, CFIUS risk is much less. It’s possible that CFIUS may not even review the transaction.

Additionally, while FIRRMA enjoyed bi-partisan support, the Biden administration may herald a change in CFIUS policy over time. We are still waiting for appointments to the Treasury Department offices that manage the CFIUS process. Once they are filled, we will have a better sense whether there has been a change in the risk calculation for certain foreign investment transactions.

Chinese companies should evaluate CFIUS risk early to identify the likelihood of any US national security vulnerabilities as well as to determine whether a mandatory filing is required, or whether a voluntary filing would be prudent. Additionally, companies should consider proactive steps to address likely CFIUS concerns, such as investing as a limited partner with no control of the US business, or restricting foreign access to technology or data. With proper planning and collaboration, Chinese tech companies can successfully navigate this complex regulatory framework to make the acquisitions and investments to improve and grow their businesses. After all, CFIUS still approves the vast majority of the transactions it reviews.

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May holiday spending, Meituan probe: Retailheads

Wed, 28 Apr 2021 07:07:50 +0000

E-commerce retailers geared up for a national consumption festival during the Chinese Labor Day holiday in May. Regulators launched an investigation into Tencent-backed Meituan. Seven central government agencies announced new rules for livestreamed e-commerce. JD Logistics and Alibaba-backed edtech firm Zuoyebang consider public listings.

Retail
headlines

China’s e-commerce and retail market offers a fire hose of products, choices, business models, rapidly changing content, and more. Here’s what you need to know about China’s online retail market for the week of April 21 to April 28.

May holiday consumption

The Ministry of Commerce will kick off a month-long campaign to increase consumer spending on May 1 in the hopes of boosting economic recovery amid the pandemic. Some 260 e-commerce retailers will participate in the national event including tech giants Alibaba, JD.com, Meituan, Trip.com, and ByteDance. (SCMP)

Meituan, livestream commerce probes

The State Administration for Market Regulation (SAMR), China’s top antitrust regulator, said in a one-line statement on Monday that is investigating food delivery leader Meituan for “forced exclusivity,” a practice in which platforms force merchants to use only one company’s platform or services. Meituan said that it would cooperate with the investigation. The Tencent-backed platform, along with 33 peers in the internet sector, had previously pledged from April 14 to 16 to comply with SAMR rules. (TechNode)
Seven central government agencies including the Cyberspace Administration of China, the Ministry of Public Security, and the Ministry of Commerce also announced new rules on April 23 governing livestreamed e-commerce that will go into effect on May 25. The regulations on livestream views and transactions, misleading marketing, and user data privacy follow a previous set of rules announced by SAMR on March 12 at the annual 315 consumer rights protection gala. (TechNode)

Funding and IPOs

JD Logistics, the logistics arm of Chinese online retailer JD.com, will seek approval from the Hong Kong stock exchange for a public listing. The company filed its prospectus for an initial share offering on Feb. 16. JD Logistics would be JD.com’s third publicly traded unit after its healthcare arm went public in December. (IFR)
Alibaba-backed edtech newcomer Zuoyebang may pursue a US listing as early as the third quarter of this year. The study services platform could raise over $500 million. The startup has hired a CFO from Nasdaq-listed Joyy Inc purportedly for his knowledge of the American market. (Bloomberg)
According to Sohu Finance, Chinese supermarket chain Wumart Group submitted a prospectus to the Hong Kong stock exchange on March 29, in which it had agreed to either take an up to 2% stake in Chengxin Youxuan or buy a maximum of $100 million in shares in the Didi-owned community group-buy platform. Community group buying is a platform-based grocery service employing a network of organizers who coordinate selling products to their neighbors. By combining individual orders into bulk shipments, group-buy companies can offer lower prices to customers. (Sohu Finance, in Chinese)
Delivery service Baishi Express hosted an internet conference in Hangzhou on April 24, where CEO Zhou Shaoning announced that the company is currently in financing discussions. He said that the quickest timeline for an IPO would be in 2022. (36kr, in Chinese)

Food delivery and grocery

Grocery e-commerce startup MissFresh began offering its produce on the JD.com app and its offshoot JD Daojia earlier this month. In exchange for access to its marketplaces, JD will collect commissions and fees per transaction. The two platforms have the same target audience, consumers who want produce delivered to their doors. MissFresh filed a prospectus to US regulators earlier this month. (KrAsia)
Food delivery behemoth Meituan’s new autonomous delivery vehicle commenced full operations beginning last week. The company highlighted improvements in vehicle range, storage capacity, and artificial intelligence capabilities. First trials of the vehicle began in February to minimize the need for close contact amid the pandemic. This space is one to watch as Meituan and Tsinghua University are teaming up to work on autonomous vehicle and other AI technologies, while Beijing’s city government has set aside urban districts for vehicle prototype testing. (Caixin Global)

Cross-platform troubles

Alibaba’s Taobao Deals, a Pinduoduo rival, has made little progress in applying for a mini program on Tencent’s mega chatting app WeChat, according to an Alibaba executive. The executive said that Tencent has stopped testing for Taobao Deals and has not provided a timetable for the launch of the mini program. (SCMP)

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INSIGHTS | Deciphering the Ant Group rectification plan

Tue, 27 Apr 2021 08:39:37 +0000

A year ago, Ant Group was riding high. Since it was founded in 2014, it had become, by its own description, China’s dominant fintech company. It was set to raise $34 billion in blockbuster dual listings in Shanghai and Hong Kong in November 2020.

But it was not to be. Two days before its listing, Chinese regulators shut it down, citing changes to the regulatory environment that Ant hadn’t disclosed in its IPO prospectus. They made it clear, Ant would not be allowed to list in its current form.

The company, supervised by regulators, has since been negotiating its “rectification” behind closed doors.

Insights

Insights is a series of explainers on developing stories in China tech, published in the subscriber-only TechNode Premium newsletter.

It’s normally exclusive to TechNode subscribers, but we’re making this issue free as a sample of our work. Sign up here to get access to every issue.

The tech world has been in suspense for months. How much will Ant change? Will it be allowed to retain its data-driven core business, or forced to change into something much more like an online bank?

The answers depend both on opaque conversations between the business and government, and on an emerging body of fintech regulations.

On April 12, the company met again with regulators. In a readout, it said it had “completed the formulation of our rectification plan.” In another meeting readout on behalf of the regulators, one of the central bank’s deputy governors, Pan Gongsheng, a key figure in the government’s effort to oversee Ant’s revamp, confirmed that a plan was formed and added a little more detail.

So, is Ant Group’s future clear?

READ MORE: UPDATED: Ant Group IPO delay and Jack Ma’s ill-timed speech

Bottom line: Clearer. We know about the plan only from two very brief statements, from Ant Group and Pan. There’s a lot we still don’t know.

With a rectification plan in place, changes should accelerate across the company. It appears that the company will continue providing the same services, but will change how it is organized, accounted for, and regulated. The brief statements don’t tell us much about the key question of managing data flows between digital payments and microlending.

We don’t know much about Ant’s understanding with its regulators. Both statements agreed that there are five points in the rectification plan. But they don’t agree on what the points are. We can make some informed guesses based on areas of overlap, but some big questions are still hanging over the company.

Whatever will happen to Ant, it will set a precedent for the governance of platform companies.

What we learned

The new information: Last week, we got a trickle of new information about these questions.

Ant wrote a terse press release announcing that it had a rectification plan, in English, on its WeChat account. 183 words summarize the specifics of the plan.
Pan, a deputy governor at the People’s Bank of China (PBOC), made a one-paragraph comment about the plan during an interview on the plan and fintech regulation more broadly with official media (in Chinese).
State media quoted the regulators’ readout of the meeting, given by Pan: the PBOC, the China Banking and Insurance Regulatory Commission (CBIRC), China Securities Regulatory Commission (CSR), and the State Administration of Foreign Exchange (SAFE).

“We don’t know if it will mean sleeping in separate bedrooms or a full-blown divorce.”

The confusion: Ant and Pan both describe a five-point plan, but they do not agree on what exactly those points are, or how to order them.

It’s hard to separate the five points in Ant’s English statement, but the Chinese version clearly outlines them. We’ve broken them up below according to the Chinese.
Pan’s five are different. For example, he puts antitrust first in his statement, but Ant places it in sub-point three of point five.
Adding to this confusion is the fact that many of the regulations they are referring to are still in development, or so brand new that courts haven’t had time to interpret them.
Both statements also refer to a third set of five demands (in Chinese) by the central bank deputy governor in December 2020, which don’t line up perfectly with either statement.

So, we have three sets of five points that have some overlap but are not the same; a penta-triptych in an impressionist style.

What they said (in the order of appearance in the statements as published):

If you can’t read the text, please click here. (Image credit: TechNode/Chris Udemans)

Financial holding company

This is Ant Group’s first point, but only ranks third in Pan’s list. Ant will set up a financial holding company “in its entirety,” it said. This will affect how the company is regulated. Recently China has been making new regulations for financial holding companies, but we don’t know that much about how they’ll be applied yet.

(Image credit: TechNode/Eliza Gkritsi)

Does it lend? Ant Group has always said it’s not a bank and it shouldn’t be regulated like one.

Ant doesn’t make money the same way banks do. Banks lend out money and earn profits from interest.
Ant Group behaves more like a loan originator, such as Countrywide: it finds people who want financial services—such as loans, investment products, or insurance—and connects them to finance companies. It makes money by charging providers what it calls “technology fees” for helping them find customers.
Ant owned only 2% of the RMB 2.15 trillion in loans it has created; the rest were underwritten by its partner banks.
But Ant Group also owns 30% of MyBank, which underwrites loans enabled through Ant’s credittech platforms. MyBank is Ant’s second-largest customer, according to the IPO prospectus, accounting for 6.2% of Ant’s revenue in Q1 2020.

(Image credit: TechNode/Eliza Gkritsi)

The same goes for investments and insurance: Out of the RMB 4.1 trillion of assets that go through its investmenttech platforms, only 33% of that is directly managed by Tianhong Asset Management, a company that Ant Group has a 51% stake in.

Ant’s insuretech platforms enabled RMB 52 billion worth of insurance premiums contributions. But its licensed subsidiary only accounted for 9% of those.

But regulators say “same industry, same regulation.” In his interview, Pan said that platform companies “should not make technology a ‘camouflage’ for illegal activities.”

Now what? The company’s operations likely won’t change dramatically, but the way it runs its books will: Rules for financial holding companies will require it to behave a lot more like a bank—which will likely drag on its profitability.

Financial holding companies “only manage equity investment and do not directly engage in commercial business,” according to trial measures for this type of corporate structure issued by the State Council in September 2020.
The regulatory framework sets requirements for registered capital and corporate governance rules. It also places these companies under the purview of the People’s Bank of China (PBOC).
“Ant will have to inject a significant amount of capital to meet the capital adequacy requirement, and also need cash to meet the manage liquidity risk appropriately,” Li Nan, associate professor of finance at Shanghai Jiaotong University’s Antai College of Economics and Management, told TechNode.
More detailed rules on balance sheet management, leverage ratios, and capital adequacy requirements might be drafted later, Chinese media have reported.
Ant Group will still be able to “enjoy the benefits of economies of scale,” but with “Chinese walls” separating the different operations, Li said.

A customer makes a purchase using Alipay at a store in Shanghai on July 24, 2019. (Image credit: TechNode/Shi Jiayi)

Monopolistic behavior

Correcting monopolistic behavior is Pan’s first point. In Ant’s statement, the issue is much less prominent, with only a mention of competition in a sub-points below the fifth point. Pan ties the monopoly issue to the “inappropriate links” we’ll see below.

Market dominance? According to iResearch, Ant Group accounts for more than 55% of the third-party digital payments market. By this measure, Alipay reaches the threshold to be classified as a dominant player in the sector, according to new regulatory definitions issued in January.

It’s not illegal to be a dominant player. But the regulation calls for a review into the dominant players’ business practices to make sure you play fair.
Its ubiquitous digital payments app Alipay had 1 billion annual active users as of the 12 months ending August 17, 2020.
These users transacted a neat RMB 118 trillion in payment volume in the 12 months ending June 30, 2020.

Playing fair: The fintech giant also has to “correct unfair competition in its digital payments business and give consumers more choice in payment methods,” Pan said.

Ant said that “returning to its origin, our payment business will serve consumers and SMEs by focusing on micro-payments and bringing them convenience.” Micropayments are low-value retail transactions.

Simplifying structure… a bit

Ant Group is hard to supervise, regulators have said. In part because its business cuts across different regulator’s territory, and in part because its operations are spread out across many subsidiaries. Reorganization will clearly define Ant’s different businesses to align with regulatory lines.

Another issue related to corporate reorganization is to bring Ant’s credittech operations under properly licensed subsidiaries. This is not directly addressed as a separate point in either of the statements, but both allude to it. Ant and Pan both mention a promise to set up a licensed personal credit reporting company. Ant also promises to place two major lending platforms in a consumer finance company.

What’s the issue? Ant Group is a very difficult corporate entity to wrap one’s head around, particularly its credittech operations. It does a lot of different things, both tech and finance, and has many corporate entities. It is very difficult to discern which company does what.

The company’s microlending business is currently divided into a few different subsidiaries, according to its IPO prospectus. Two are “dedicated to technical services”: Ant Zhixin in Hangzhou and Chongqing Wantang. Ant Shangcheng and Ant Small and Micro Loan, both registered in Chongqing, are used to “fund a small portion” of the microloans enabled through Ant’s platforms.
The two microloan companies that actually fund loans are able to operate nationwide because Chongqing municipality allows fintechs that have set up shop there to offer their services in the rest of China.
Sesame Credit, a fully owned subsidiary, has been a licensed corporate credit reporting company since 2016.

LISTEN MORE: China Tech Investor: Ant Group is really big, and really confusing

Now what? The plan will set up “clearer boundaries between different regulated entities under the financial holding company,” Jun Wan, a lawyer who specializes in fintech at Han Kun Law Offices in Shanghai, told TechNode.

Reorganization “does not mean that Ant has to be broken up,” Li said. The plan “implies that Ant will set up different licensed subsidiaries under the same financial holding company,” the Jiaotong University professor said.
Ant Group started the process to set up a Chongqing subsidiary dedicated to consumer finance in August 2020, and got the green light from the China Banking and Insurance Regulatory Commission in September 2020, its prospectus said, but didn’t give any details as to what happened since.

Data

Pan demanded that Ant “break the data monopoly.” Ant, in its own second point, offered a promise to return Alipay “to its origin… by focusing on micropayments,” which could mean less focus on data. Both referred to regulations on personal credit reporting companies, specifically in regards to data management.

In the pre-rectified Ant Group, data was like the family fridge: Alipay put food in, and other units like Huabei and Jiebei could take it out as needed. It was not clear to outsiders who was using what data for what purposes.

In its prospectus, the company said it limited access to personal data “based on necessity,” and that it maintained “strict control over access to personal data and strict assessment and approval procedures to prohibit invalid or illegitimate uses,” and “records of data access.” “We limit any access based on necessity and maintain records of data access.”

The rectified Ant will manage data more like a cafeteria: If Huabei is going to use Alipay data, it will have to track what it takes and get a receipt. There will be rules—overseen by regulators—about what data it can transfer, for what use, and how, but we don’t know much about what these rules will be.

The Alipay super-app. (Image credit: TechNode/Eliza Gkritsi)

Data management is a regulatory priority in general, and particularly for the regulators on Ant’s case. “The regulators keep focusing on personal information protection given Ant collects a huge amount of personal information. It may require Ant to follow the strict personal information protection laws and regulations when collecting the personal information,” Wan said.

Data mixing: Ant uses data from Alipay and Alibaba to assess the credit risk of potential borrowers for its microlending businesses. Regulators seem to be concerned both that the company’s monopoly on payments data gives it an unfair advantage over rivals, and that the way it uses the data threatens user privacy.

Access to user data is crucial to one of the unique aspects of Ant’s credittech business: Unlike banks, Ant can perform risk assessments for consumers and SMEs with little to no credit history.
The company described its credit risk assessment process in its IPO prospectus: “Based on customer insights and risk rating in terms of spending, assets, liabilities, occupation, and other parameters such as financial stability, we categorize all Alipay users into different risk categories. […] By leveraging our dynamic risk management systems and extensive and real-time customer insights across different consumption scenarios, including those on Alibaba’s platforms, we have constructed comprehensive customer profiles, which feed into our dynamic credit risk assessment system.”
In a speech at the Bund Summit on Oct. 25, 2020, Jack Ma argued: “We must use today’s technological capabilities to replace pawnshop thinking with a credit system based on big data.”
Ant also uses its “unparalleled customer insights” to serve investment and insurance products to consumers, its prospectus said.

New rules on data soups: In his interview, Pan said that Ant will have to abide by the “’credit reporting industry management regulation’,” a 2013 regulation on the credit risk assessment industry. The 2013 rules were updated in January.

In January, while Ant’s rectification plan was being negotiated and drafted, the State Council updated the 2013 regulation on the credit reporting industry. The new administrative measures have yet to be finalized and implemented.
The measures will guide how the 2013 law is implemented and, according to some legal commentators, clearly extend it over tech companies.
The rules are still in the pipeline, and much is left up to interpretation (in Chinese).

Data walls? Under most extreme reading of the administrative measures, it could be that Ant will no longer be able to use data from Alipay to perform credit risk assessments for its microlending products.

Soochow Securities, a Shanghai-listed financial services firm, said in a report that the measures won’t allow internet platforms like Alipay to both attract hordes of borrowers and perform credit risk assessments. As the measures are implemented, the two functions will have to be separated.

Porous walls: It’s more likely that the data flow will continue, with more oversight: This could have serious implications for Ant’s credittech business model: It likely means that it will have to pass through regulatory hurdles to use customer transaction data from Alipay to conduct credit risk assessment, experts told TechNode.

The rules don’t prohibit credit-reporting agencies from working with other companies, like Alipay, to collect data. But they have to report to the PBOC when they do so, and only work with licensed information providers.
“Ant may still be able to use relevant data from Alipay,” but it will have to follow rules on how to do that, Wan said.
Ant might have to limit the amount of data it collects to perform credit risk assessments. The proposed measures require companies to minimize their data collection to what’s necessary.

Some say Ant may have to share data. The 2013 regulation also proposed a nationwide data platform where credit reporting agencies contribute data. But the platform never got traction.

Data monopolies are the crux of the anti-competitive behavior that big tech companies exhibit, several experts wrote in November 2020.
Li understood Pan’s data monopoly remark to mean that “Alipay may misuse the market power and data collected from the Alipay platform to discriminate against certain types of consumers or small merchants.”
The new measures reiterated the need for a platform, but didn’t make it mandatory. Ant could also be asked to share credit assessment data with other platforms.
The Financial Times, citing anonymous sources, reported Friday that the PBOC is pushing for Ant to give control of its data to an external, state-owned company.
Legally, it’s not mandatory: Ant will “not be required to share all the credit risk data through a national database,” Wan said.
The database, under the supervision of the PBOC, didn’t get traction, in part because tech companies refused to share data on it.
If Ant has to share its data with other companies, its valuation will be significantly lower, wrote Wang Shuai from the Oxford-Hainan Blockchain Research Institute.

Ant Group nests

Under the monopoly issue, Pan also brought up “irregularities such as nesting credit business in the payment link.” Ant didn’t make any direct mention to “nesting” in its statement.

Alipay users can select Ant Group’s Huabei or its money market fund Yu’ebao. (Image credit: TechNode/Jill Shen)

Embedding links: Alipay often advertises Ant’s microlending products on its payment success notices. It also gives users the option to pay using its native products, be it a microloan or a money market fund, as well as the user’s linked debit cards. But Alipay doesn’t give users the option of paying using other tech giant’s options.

Regulators have been complaining about such practices, which they call “nesting,” since 2019. PBOC deputy governor Fan Yifei said that this “cross-nesting” of microlending and digital payments forms a “closed loop” that spreads risk through the market and is hard to supervise.

No nesting: Pan specified that “nesting credit business in payment links” is an “irregularity” that will be rectified. This will likely stop, reducing Ant’s ability to market loans to Alipay users.

Ant’s statement gave little in the way of clarification: The company said its two microlending platforms will be under the consumer finance company, and that Alipay will “return to its origin… focusing on micropayments.” This phrase has been used by regulators since at least September 2020.
Inappropriate links “refers to the operation that Alipay embedded the Huabei as one payment option, instead of setting up a separate credit-card type service,” Li said.
Soochow Securities expects that this will limit the growth of Ant’s microlending business, because it won’t be able to attract new borrowers from Alipay.
When asked about whether this means that the Alipay app will have to be broken up, Wan said it’s still unclear. To the best of our knowledge, regulators have never mentioned breaking up the company in public.

The People’s Bank of China headwuarters in Beijing. (Image credit : Flickr/bfishadow)

Liquidity risk

Finally, Pan called on Ant to manage liquidity risk, particularly in its money market fund (MMF) Yu’ebao. Ant said only that it would“strengthen risk prevention,” and did not mention Yu’ebao.

Does Yu’ebao have a cash problem? Liquidity for money market funds has been a regulatory issue for a while.

Regulations on money market funds implemented in 2018 set new liquidity ratios. Back then, Yu’ebao was China’s biggest money market fund.
At the time, Chinese media reported that Tianhong Asset Management, the Ant affiliate that manages Yu’ebao, did not meet the requirements.
Today, Yu’ebao’s total balance is falling, as are its yields. The total balance of Yu’ebao fell below RMB 1 trillion in Q1 2021, Tianhong’s report said. The money market fund lost its spot as China’s biggest.
Tianhong said that average residual maturity of its portfolio assets is 57 days, and that it maintains a high ratio of cash to liabilities.

The liquidity plan: The company will “manage and control liquidity risk of its important fund products and reduce the balance of [its money market fund] Yu’ebao,” Pan said. Ant will need to raise liquid assets like cash, Li said, to be able to quickly meet short-term debt obligations.

The decision to release pressure from Yu’ebao came as a surprise, Soochow Securities said in its report on the April 12 plan.
Across its operations, Ant also has to “control high leverage and risk contagion” and “improve corporate governance,” Pan said.

What now?

The April 12 statements gave some clarity on what Ant will look like once it has been rectified: It will become a financial holding company with clearly delineated business operations. Alipay and Ant’s microlending platforms will be separated, but we don’t know if that will mean sleeping in separate bedrooms or a full-blown divorce.

Ant’s revamp is far from over. There will likely be more meetings and readouts, as changes to the fintech behemoth are negotiated and rolled out. Even the underlying laws and regulations are still in development. Basic issues are still undetermined, such as how will Ant’s credit risk assessment data practices change.

Whatever happens, it will set a precedent for other platform companies, especially in fintech.

As one banking and insurance regulatory official put it. The issues discussed in Ant’s meetings with regulators are “universal” to internet platforms. Other internet giants should watch closely.

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Regulator opens probe into Meituan over antitrust rules

Tue, 27 Apr 2021 00:15:32 +0000

China’s top market watchdog said Monday that it has started an investigation into food-delivery giant Meituan, continuing the country’s crackdown on the platform economy.

Why it matters: Beijing has stepped up antitrust regulations in recent months, prompting tech majors including Tencent, Didi Chuxing, and Alibaba’s grocery unit to pledge compliance with anti-monopoly practices and fair competition rules.

The investigation into Meituan follows a record-breaking fine of RMB 18.2 billion ($2.8 billion) levied on Alibaba on April 10 for antitrust violations. Alibaba said in response that it would end the practice of forced exclusivity and spend billions to lower merchant costs.
Beijing had issued on March 12 smaller fines of RMB 500,000 ($76,095) on 12 Chinese companies over 10 investment deals in violation of the country’s Anti-Monopoly Law. These include Alibaba, Tencent, Didi Chuxing, Baidu, JD.com, ByteDance, Meituan, and Suning.

Details: The State Administration for Market Regulation (SAMR), China’s top market watchdog, said in a one-line statement on Monday that it is investigating the Tencent-backed platform for antitrust violations—namely, forced exclusivity.

Meituan said in a statement on Weibo that the company would cooperate with the investigation and that business is currently operating normally.
The Weibo statement reiterated Meituan’s pledge to comply with SAMR rules—along with 33 peers from April 14 to 16—in which it emphasized “protecting consumer rights” and “improving compliance management.”
Forced exclusivity, or “choose one out of two,” is a practice in which platforms force merchants to use only one company’s platform or services.

Context: Food delivery platform Meituan has emerged as one of the frontrunners in China’s red hot community group-buy market after launching Meituan Youxuan on July 7.

SAMR’s increased regulation of the tech sector includes closer scrutiny of community group buy businesses. The regulator levied fines of RMB 1.5 billion on five companies, including Meituan Youxuan, on March 3. Beijing also summoned Meituan alongside other tech giants including Alibaba, JD.com, Tencent, Pinduoduo, and Didi, for a meeting in December to discuss oversight of the group-buy industry.
Community group buying is a platform-based grocery service that employs a network of organizers who coordinate selling products to their neighbors. By combining individual orders into bulk shipments, group-buy companies can offer lower prices to customers.

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UPDATED: Chinese authorities demand Tesla brake data following protest

Thu, 22 Apr 2021 11:23:44 +0000

Tesla on late Thursday announced (in Chinese) that, earlier in the day, it had mailed to a customer surnamed Zhang the full data logs for the 30 minutes prior to the accident involving her Model 3 sedan. The company also released to the public data of the car for one minute prior to the crash.

In a statement sent to state-owned media China Market Regulation News, Tesla said the vehicle was traveling at 118.5 kilometers per hour (around 73.6 mph) when the driver, Zhang’s father, hit the brake for the final time before the crash. Then the car’s automatic emergency braking system reacted 2.7 seconds later and the crash occurred after another 1.8 seconds.

The US automaker insisted that the car’s brake functioned properly throughout with the car continuously slowing down to 48.5 kms per hour before the crash occurred. The company said that it is currently in negotiation with the owner to set up an inspection of the car by a third-party institution. Tesla pledged to fully cooperate with regulatory departments for more in-depth investigations and accept without reservation criticisms from the public.

Zhang in early March told Chinese media that her Model 3 crashed one late afternoon in February when her father was driving at a speed of around 60 kms per hour on a highway in Anyang, a city in central Henan province. Zhang insisted her father was driving under the speed limit, given that her mother and one-year-old daughter were also in the car and that the road was dense with traffic. She said that the brake failed to respond when her father pressed the pedal.

Tesla’s release comes two days after Chinese authorities asked Tesla to provide data for the crash investigation. On Monday, Zhang had climbed atop a car to protest at China’s premier annual auto exhibition.

Why it matters: For the first time China will officially investigate complaints about Tesla brake failures. Tesla owners in both the United States and China have complained about faulty brakes for years. So far, however, safety regulators have not found evidence for these claims. The company’s reputation in China has suffered in the past year as customers allege safety defects and shady sales practices.

READ MORE: Safety questions and shady sales tactics are chilling the China-Tesla love affair

Details: A branch of the State Administration for Market Regulation (SAMR), China’s top market regulator, in the central province of Henan, on Wednesday ordered Tesla to share “the full range of data” about a crash two months ago to aid its investigation. The owner of the Tesla Model 3 involved, a woman identified only by the surname Zhang, staged a widely publicized protest at Auto Shanghai on Monday. Regulators told Tesla to send the data to the owner “as soon as possible,” according to a Chinese media report (our translation).

Ge Weihua, a customer service manager at Tesla’s regional office in Zhengzhou, the capital of Henan province, told state television channel CCTV on Thursday that the company’s head office had prepared the relevant data and the local office would share it with Zhang by 6 p.m. Beijing time.

Zhang, accompanied by two other female Tesla owners, staged a protest Monday on the opening day of this year’s Shanghai Auto Show, alleging that the brakes on her sedan malfunctioned while her father was driving in Anyang, Henan, in February, causing a crash with another vehicle. The protest was widely reported in Chinese media, with many online commentators siding with the customer.

Tesla responded later that day that the accident was due to excessive speed. Grace Tao, Tesla’s vice president of external affairs in China, told local media that “there is no possibility Tesla will compromise,” Reuters reported.

On Tuesday, national market regulators publicly instructed local market watchdogs in Henan province and Shanghai, where Tesla’s production facility is located, to protect consumers’ legal rights. Later the same day, the company issued an apology (in Chinese) for being slow to respond to the complaint.

In an additional statement, published late Wednesday on the Chinese social media platform Weibo, the US automaker requested Zhengzhou authorities appoint an officially recognized testing agency for the investigation and pledged to “accept the result whatever it might be” (our translation).

Update: Details added April 23 about Tesla’s release of crash data.

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Huobi subsidiary launches Bitcoin, Ether, crypto mining funds in Hong Kong

Thu, 22 Apr 2021 05:49:45 +0000

Huobi Asset Management, an affiliate of the crypto exchange, has launched in Hong Kong four virtual asset funds for institutional investors.

Why it matters: Newly licensed Huobi Asset Management is one of several Chinese cryptocurrency companies looking to lure deep-pocketed institutional investors by taking advantage of favorable digital asset laws in Hong Kong and Singapore.

With the backing of a Hong Kong-listed crypto giant, the company aims to be a leader in digital asset management for traditional investors.

Details: Two of the new investment vehicles are passive funds that mirror the value of Bitcoin and Ethereum, according to a company statement shared with TechNode on Thursday. Another is an actively managed fund that invests in a basket of cryptocurrencies.

The company also launched a private equity fund that will invest in crypto mining operations, which had not been previously announced.
Only accredited professional investors such as family offices, high-net worth individuals, and asset managers can invest in the funds.
Investors have already pledged $50 million across the four funds, and the company is targeting $100 million of total managed assets by the third quarter.
Huobi Asset Management is a wholly owned subsidiary of Huobi Tech, which is in turn owned by the same shareholders as Huobi Global, the group behind the cryptocurrency exchange.

Context: The Hong Kong Securities and Futures Commission subsidiary granted Huobi Asset management in March a digital asset portfolio management license. Other companies like financial services firm Babel Finance are also looking to acquire asset management licenses in Hong Kong.

Huobi Global is the world’s second-largest crypto exchange with transaction volume of nearly $12 billion in the last 24 hours as of the time of writing, data from research firm Messari showed.
Hong Kong is reportedly planning to ban crypto trading for retail investors.
Chinese high-net-worth individuals are reportedly looking to crypto as a hedge against the US dollar, amid rising crypto prices and geopolitical tensions.

Correction: A previous version of this article misstated that Huobi Tech is owned by Huobi Global.

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SILICON | Loongson promises self-reliance with new architecture

Wed, 21 Apr 2021 06:51:48 +0000

Last week, Chinese processor company Loongson announced plans to release a new instruction set architecture. Loongson is known for processors based on the MIPS architecture, and is linked to the Chinese Academy of Sciences.

According to the company, its new LoongArch architecture includes a base architecture as well as extensions such as vector instructions, virtualization, and binary translation. The architecture reportedly has nearly 2,000 instructions—a surprisingly high number—with the company claiming the architecture provides complete independence from technology developed overseas.

Opinion

Stewart Randall is Head of Electronics and Embedded Software at Intralink, an international business development consultancy which helps western tech businesses expand in East Asia.

The company said that the architecture has done away with “outdated content” found in traditional instruction sets and is more suitable for high-performance, low-power design. The new architecture, it claimed, makes it easier to compile software and develop operating systems or virtual machines. It is also compatible with mainstream instruction sets, so software designed for x86 or Arm should be able to run on LoongArch.

An instruction set architecture (ISA) is the link between hardware and software. It specifies how the hardware runs the software code. China has so far been relying on ISAs developed by foreign companies.

China’s quest for a homegrown CPU

The global CPU market has been dominated by the x86 architecture for years, essentially controlled by two companies, Intel and AMD.

For several years now Chinese companies have been trying to break this duopoly, with some success domestically but definitely not globally. Huawei and Phytium both used the Arm v8 architecture to create powerful 64-core server chips used in data centers and supercomputing. Under US pressure, it is difficult for either company to continue creating such chips.

Hygon and Zhaoxin design x86 processors through joint ventures with AMD and VIA, although Hygon fell into geopolitical trouble as well. Another company, Sunway, has always used the lesser-known, US-designed Alpha architecture, but as far as I know Sunway processors were only ever used within the government.

A few companies, most notably C-Sky and China Core, tried to promote their own architectures or variants of older ones like PowerPC into the commercial market. Both more or less failed and have since latched onto the much talked-about open-source RISC-V architecture. Alibaba acquired C-Sky in 2018. It’s now a leading RISC-V processor company under the name T-Head.

Loongson has always used the MIPS architecture. MIPS ISA has an interesting history, but it is going out of fashion—even its owner, MIPS Technologies, has ditched it in favor of RISC-V.

There has never been a successful Chinese architecture. C-Sky failed to scale and moved to RISC-V. Other companies that claim to be “made in China” have used or use existing open-source or licensable architectures.

Starting from scratch to build an ISA is a big challenge. It’s faster to design your CPU based on a mature architecture, because there is an existing hardware and software ecosystem to latch onto.

However, with Huawei, Phytium, Hygon, and Shenwei on the US entity list, China is worried that it doesn’t have a completely independent architecture. RISC-V may be a great platform for Chinese companies to go overseas with their designs, but it is a global initiative, and in some cases, China may want something that is totally its own.

READ MORE: China’s chipmakers could use RISC-V to reduce impact of US sanctions

No patent infringements

You may be wondering if LoongArch infringes on patents from other architectures. To allay such fears, Loongson paid for a third-party IP agency last year to analyze whether LoongArch infringed on other architectures including Arm, x86, RISC-V, and MIPS. They concluded that the design is unique and independent, that its manual was clearly different to others’, and that it didn’t infringe on Chinese patents for any of the major international architectures.

Perhaps the key phrase here is Chinese patents, rather than global. This may be something to keep an eye on. Loongson says they will analyze international patents as well but have so far concluded that the architecture is completely independent and controllable.

It seems to me that in order to avoid patent infringements and at the same time support emulation of other architectures they have ended up increasing the complexity of their instruction-set: 2,000 instructions is more than other mainstream architectures.

Loongson 3A5000

The Loongson 3A5000 CPU, announced last month, is already using this new architecture and has already been successfully “taped out,” and sent to a fabrication plant for production, at 12nm.

This CPU is aimed at the PC market. The interesting thing here is the process node. Loongson has always used GlobalFoundries to tape out chips based on ST-Micro’s FD-SOI process. One might presume they would continue to use GlobalFoundries for the new generation chip, but they have not announced what process it uses.

Some have said it will use the TSMC 12nm process, while others suggested it could be using SMIC, which now boasts the ability to tape out 12nm. SMIC may be not be ready for mass production yet, but for a test chip, this should not be a problem. This could be a Chinese architecture manufactured at a Chinese fab—just hearsay right now, but something to consider. TSMC or GlobalFoundries are still more likely, as SMIC 12nm would be new to the company, and SMIC has recently come under more restrictions from the US.

It’s also worth noting that Loongson moving from 28nm in previous chips up to 12nm shows development in its design capabilities. It also has a new server chip 3C5000 using the same process but it is said to be much more powerful.

Why not RISC-V?

Since Wave Computing became MIPS Technologies and ditched the MIPS architecture in December, there have been rumors that Loongson would follow. Most in the industry surmised the company would move to RISC-V like many others have.

RISC-V seems to be the easiest route for a company like Loongson, but there are some reasons why it might have chosen not to. First, there are other companies doing this, so it would be difficult to differentiate. Secondly, it’s clear Loongson wanted something 100% Chinese, not reliant on an international architecture. Finally, Loongson might be planning to follow the RISC-V model and actually open the architecture.

According to its press release, once the IP patent situation is confirmed globally, they plan on creating a LoongArch Alliance where members can access the architecture and Loongson IP cores for free. While the company did not say the instruction set will be open to members, it is certainly possible.

It is rumored though that the company will join the RISC-V consortium. Prior to the LoongArch announcement, executives have said they are “looking forward to join the open-source instruction consortium.” Most thought this meant RISC-V, but they could have been alluding to their own alliance.

I wouldn’t be surprised if the company joined RISC-V. Its own architecture could be used within China for military or government applications, while RISC-V would be a better platform for Loongson to finally go global.

Time will tell

“Only by achieving independence in the root of the instruction system can the software ecosystem chains be broken,” Loongsoon management said in its press release. Such statements make it clear that the main purpose of LoongArch is for China to have its own fully independent instruction-set architecture.

Since C-Sky moved to RISC-V, this hasn’t been the case. While I do not see LoongArch becoming a globally competitive architecture, as ecosystems are difficult to build up, it could be another string in China’s self-reliance bow.

It will also be interesting to see how the LoongArch Alliance develops. Will it open the instruction-set architecture? If cores designs are free, is that just for research or for commercial use as well?

This whole initiative definitely has government support. Loongson came out of the Institute of Computing Technology, China Academy of Sciences, which is still a major shareholder, and a RISC-V consortium member, with one person on its board.

I will be keeping an eye on whether LoongArch infringes on any global patents, any processor benchmarks out there, how its alliance develops, and whether it does make a move to RISC-V in the end as well. It will likely be used in government and military PC and server applications, but can it move beyond that? Time will tell.

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PBOC calls crypto ‘alternative investment,’ Xinjiang blackout: Blockheads

Tue, 20 Apr 2021 05:59:54 +0000

The vice president of the People’s Bank of China said that cryptocurrencies are an “alternative investment” and that the central bank is trying to determine the best way to regulate them. Crypto mines in Xinjiang were closed down last week. Pilots for the digital yuan are ongoing, and Shanghai will soon get its first large-scale test. Bitmain teased its new Ethereum ASIC.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of April 14 – 20.

PBOC on crypto

China’s central bank is “studying” to determine the correct regulatory framework for cryptocurrencies to be used as investment tools, Li Bo, newly appointed (in Chinese) vice president of the People’s Bank of China, said at the Boao Forum on April 18. The vice president said that crypto will be an important alternative investment tool in the future, but shouldn’t be used as currency. Li added that if stablecoins, a type of cryptocurrency pegged to fiat currencies, are to become widely used payment tools, strict regulation is necessary. (Wu Blockchain, in Chinese)

Mining blackout in Xinjiang

Cryptocurrency mines in Xinjiang were shut down on Friday for safety inspections, causing the hashrate of popular mining pools to fall more than 20%. The price of Bitcoin fell by around $3,000 on the day. The inspections follow a spate of accidents at coal plants in Shanxi and Guizhou provinces as well as the Xinjiang autonomous region in late March and early April, which also slowed the global Bitcoin hashrate. (CoinTelegraph, CoinDesk)

The digital yuan

Southern China’s Hainan province has started its own digital RMB pilot. This weekend, the e-CNY was in use throughout venues related to the Boao Forum, a gathering of international financial experts held in Boao on the eastern coast of the island province. (Hainan Daily)
Shanghai and Suzhou in eastern China will collaborate on a cross-province digital yuan trial during a shopping festival which starts on May 4. It will be Shanghai’s first large-scale trial compared with earlier pilots which limited transactions to department stores and a single hospital. (Shanghai Securities Journal)

READ MORE: CHINA VOICES | DCEP class is in session, with Zhou Xiaochuan

Bitmain demand

Bitmain announced that its newest Ethereum ASIC mining machine is coming soon, but didn’t release details on the machine’s specifications. Ethereum mining is booming, and Bitmain’s last Ethereum-specific rig was released in 2018. The firm said the Antminer E9 will be a “game changer.” Digital asset media outlet The Block calculated that the new rig could outperform rivals by three times. (The Block)
Bitmain said that orders for its Antminer S19j Pro are sold out for the rest of the year. (Wu Blockchain Twitter)
Taoping Inc, a Shenzhen-based Nasdaq-listed smart display screen company, ordered $24 million worth of Bitmain’s S19j Pro. (Taoping statement)

Filecoin, ‘the trend of future storage’

Tech consortium IPFSUnion announced plans to build China’s largest Filecoin mining center at an industrial park in eastern China’s Jiangxi province. Microsoft, Alibaba, SAP, Huawei, SNDA, Giant Network, and AMD are members of the consortium. The investment reportedly totals $1.3 billion. (IPFSUnion announcement)

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INSIGHTS | China looks beyond EVs

Mon, 19 Apr 2021 10:12:46 +0000

A little over a decade ago, China’s leaders laid out plans to become the world’s biggest market for electric vehicles (EVs). The country was late in producing gas-driven cars, putting it behind the US, Japan, and Germany. In 2009, China introduced subsidies for EVs in the hope that these vehicles could take the lead in the next generation of cars. Now, observers ask if hydrogen is next.

China’s EV push worked—the country is now the world’s largest market for EVs and is home to some of the world’s largest manufacturers of EVs and EV batteries.

Now, the government and some of China’s biggest energy companies are jumping into hydrogen energy. More than 10 state-owned energy companies including Sinopec and State Grid have plans to increase the use of hydrogen energy in the country.

While China has a well-developed EV industry, the country is looking for new ways to cut emissions. The government doesn’t want to “put all its eggs in one basket with battery EVs,” Tu Le, managing director of Beijing-based consultancy Sino Auto Insights, told TechNode.

In September, Chinese President Xi Jinjing revealed plans for China to reach peak emissions by 2030 and hit carbon neutrality by 2060. Hydrogen fuel, which can be used in applications from industrial processes to transportation, could form a linchpin in reaching this goal. The technology could allow China to move away from fossil fuels as the cost of producing clean hydrogen drops.

“Hydrogen is now expected to play a much more important role to drastically decrease [China]’s greenhouse gas emissions over time,” Tu Jianjun, adjunct professor at the School of Environment at Beijing Normal University, wrote in a paper late last year.

Bottom line: China’s hydrogen energy sector could see massive growth in the next 30 years. The country’s commercial vehicle sector is likely to see the biggest benefit from the technology.

The country already produces 20 million tons of hydrogen annually, around a third of the world’s total, according to a report by the Beijing-based think tank Green Belt and Road Initiative Center.
Little of that goes towards energy use, and, despite the promise of the zero-emission technology, it’s going to be a long road to mass adoption. Currently, the majority of China’s hydrogen comes from fossil fuels, which contributes to the country’s carbon emissions.

What is hydrogen power? Hydrogen fuels cells are a dense, efficient, and clean form of energy storage. Use power to isolate the gas, and then you can deploy it to power a car in a reaction that’s cleaner than fossil fuels and requires less heavy equipment than battery electrics. It even has applications in energy-intensive industries like the steel sector. One of the most popular prospects at the moment is fuel cell electric vehicles (FCEV).

These vehicles use hydrogen as fuel. Unlike battery-powered electric cars, they don’t rely on electricity from the grid. Instead, these cars combine hydrogen and oxygen to produce electricity.
Energy released from the gas is clean. So clean, in fact, that while petrol-driven cars release a myriad of dangerous greenhouse gases, the byproduct of hydrogen power is water.
Hydrogen is also well-suited to high-temperature industrial processes, and the technology could significantly reduce the sector’s carbon footprint, particularly if the hydrogen is produced using renewable energy.

The element is rarely found in its pure form and needs to be extracted from water, coal, or natural gas. But producing it in an environmentally friendly way is currently expensive, preventing wider use until the issue is dealt with.

China eyes hydrogen: After being delayed last year, a national plan for hydrogen is expected at some point in 2021. Already, several whitepapers and planning documents have laid out goals to decrease emissions and increase hydrogen energy adoption. Until recently, China’s interest in developing its hydrogen economy was not driven by an ambition to cut emissions.

The country should increase the number of fuel cell electric vehicles (FCEV) on its roads from 5,000 in 2020 to 1 million in 2030, the China Automotive Technology and Research Center (CATARC), a research institute overseen by the State Council, said in 2017.
The country should increase its hydrogen refueling infrastructure from 100 stations in 2020 to 1,000 in 2030, the CATARC said.
The technology should make up 10% of China’s total energy mix by 2050, up from 2.7% in 2019, China Hydrogen Alliance, which is supervised by the National Energy Administration (NEA) and the National Development and Reform Commision (NDRC), said in its 2019 whitepaper.
At the same time, revenue from China’s hydrogen economy should reach $1.7 trillion by 2050, up from $42.5 billion in 2019, the group said.
The 13th five-year plan for energy issued by the NDRC and the NEA in 2016 promotes hydrogen production pilots and R&D into fuel cells.

Localized developments: Despite the lack of a national plan, Beijing has encouraged local governments to develop and fund their own hydrogen industries. But these plans are often far more optimistic in their targets than industry expectations, Yuki Yu, founder of Energy Iceberg, wrote in a report.

Yu added up figures from just seven of the around 50 regional governments that released hydrogen plans by late 2019. In total, they planned on a total of 15,000 FCEVs by 2020, much higher than CATARC’s 5,000.
Recently, the southern province of Guangdong announced (in Chinese) several hydrogen energy and fuel cell projects worth a combined RMB 60 billion.

“Anytime the Chinese government puts the thumb on the scale, there’s going to be 200 or 300 companies globally that come with their hand out.”
Tu Le, managing director of Sino Auto Insights

Better than batteries? But China has bet big on competing technology. The country spent billions building its electric vehicle industry. Government subsidies led to the rise of some of the biggest EV companies in the world, and made China the world’s number one market for these types of vehicles.

Batteries present significant problems when they reach the end of their lifespan. Recycling facilities will need to see higher rollout to deal with this issue.
Compared with batteries that are currently used in EVs, hydrogen fuel cells are energy dense.
Depending on the grading of a charging pile, EVs can take a long time to refuel.
Fuel cell vehicles don’t share this problem. They refuel much like their gas-driven counterparts, a process that typically takes a few minutes.

A brief timeline: China’s drive to use hydrogen for power has been years in the making. The country’s ambitions were initially set out as part of its Made in China 2025 plan. There has been a lot of action in the industry over the past few years, and things appear to be picking up pace.

May 2015: China’s Premier Li Keqiang outlines the county’s Made in China 2025 plan, which includes mentions of fuel cell vehicles.
June 2017: China’s transport and science ministries releases plans to promote research and development into fuel cell technologies and hydrogen infrastructure.
June 2019: Wan Gang, a former science and technology minister—the same man who two decades ago convinced Beijing to pursue its EV industry—says the country needs to “look into establishing a hydrogen society.”
June 2019: During the same month, the China Hydrogen Alliance releases a landmark white paper on the country’s hydrogen industry. The document is widely regarded as a key document that explains the government’s goals in developing its hydrogen power and fuel cell industries.
April 2020: China releases a new draft Energy Law, classifying the gas as an energy source rather than a hazardous chemical. This classification previously limited its applications in energy.
September 2020: SAIC, China’s largest automaker, announces plans to release 10 fuel cell vehicles by 2025, with production capacity hitting 10,000 vehicles in the same year.
March 2021: At this years’ Two Sessions, Ma Yongshen, president of China’s largest oil company Sinopec, calls for the country to focus on producing environmentally friendly hydrogen. Ma’s views were echoed by Li Chan, an academician at the Chinese Academy of Sciences.
March 2021: Following Ma’s speech, Sinopec says in an earnings call on March 29 that it would step up investment in the technology by building 1,000 hydrogen refueling stations that also sell conventional fuels by 2025, without specifying how much it would invest.
April 2021: Nearly 20 clusters of Chinese cities submit applications for a central government scheme to finance building hydrogen infrastructure and demonstration areas in the hopes of making fuel cells commercially viable.
April 2021: The Beijing government releases draft plans to deploy 10,000 fuel cell vehicles on its roads and build 74 refuelling stations by 2025.

What’s the potential? In China, buses and trucks will likely come first. The policy environment currently favors using fuel cells in heavier, commercial vehicles rather than passenger cars, Energy Iceberg’s Yu said.

Experts TechNode spoke to didn’t doubt the potential of the technology, but expressed concerns over mass adoption.
“Right now, EVs are at least ten years ahead of fuel cell vehicles. There is a lot of existing infrastructure, so right now it will be really hard for fuel cells to compete,” Yu said.
Hydrogen is better suited than battery power for vehicles that have high utilization rates, like buses and trucks. “It doesn’t make sense to have a fleet of buses that are just parked because they are being charged,” Tu Le, managing director of Beijing-based consultancy Sino Auto Insights, told TechNode.

Dirty secrets: Hydrogen is only as clean as the process used to produce it. The element is rarely found in its pure form, and typically needs to be extracted from fossil fuels or water. Depending on how it is produced, it can be completely clean or release harmful gases.

The majority of hydrogen in China is manufactured using natural gas or coal, known as “grey hydrogen.”
Grey hydrogen is primarily produced in coal or oil-based plants in refineries., representing a major hurdle that faces the industry.

Cleanup in aisle H: The industry needs a cleanup to achieve its green potential.

The cleanest, known as “green hydrogen” comes from separating water into hydrogen and oxygen using electricity generated from renewable sources. This form of production is seen as vital to dramatically reducing carbon emissions but is expensive given how much renewable energy is needed.
Meanwhile, “blue hydrogen” is produced in the same way as grey hydrogen, but around 50% of the carbon produced is captured and stored underground.
According to the Hydrogen Council, the price of green hydrogen is expected to halve in the next ten years.

“More than 80% of hydrogen produced in China is grey. But we see a growing number of green hydrogen projects being launched. In 2018, there were probably just one or two projects, but last year, at least 30 were announced.”
Yuki Yu, founder of Energy Iceberg

What next? China has a history of rapidly developing domestic industries after choosing them key development priorities. The country’s EV and solar industries are a testament of this. Hydrogen energy is likely to be next. Development—and funding—will likely accelerate once a national plan is rolled out.

Beijing has already launched a subsidy system, in which it encourages cities to form alliances to develop hydrogen supply chains.
The subsidies are similar to the approach China took when developing its EV industry, and the developments that result will likely spillover into the global hydrogen economy.

READ MORE: Little mention of China’s EV industry in Five-Year Plan bodes well: experts

Big opportunities: Hydrogen has big potential, but it will take big investments to bring the technology to widespread use. Oliver Bishop, general manager of hydrogen at petroleum giant Shell, told Green Tech Media that China is expected to play an important role in the global hydrogen economy, with large scale deployments meaning cheaper costs around the world.

China’s leadership in the hydrogen economy hinges on whether it can clean up its hydrogen production processes—and convince the world that electric vehicles are not the only way.

“There needs to be private enterprise appetite to diversify out of battery electrics, which are already doing research into batteries and infrastructure,” Tu said.

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Tencent, Alibaba’s Hema, Didi pledge to comply with anti-monopoly rules

Thu, 15 Apr 2021 07:52:33 +0000

Tencent, Didi Chuxing, and Alibaba’s grocery unit joined Chinese tech peers in promising on Thursday to uphold rules against anticompetitive behavior amid a sweeping crackdown across the sector that began with e-commerce giant Alibaba.

Why it matters: In the wake of Alibaba’s RMB 18.2 billion ($2.8 billion) fine for using “forced exclusivity” tactics, regulators are sharply reining in China’s biggest internet companies.

READ MORE: What is ‘forced exclusivity’? And why did it get Alibaba fined $2.8 billion?

Details: On Tuesday, the Chinese State Administration for Market Regulation (SAMR) convened with the Central Cyberspace Administration of China and the State Administration of Taxation regarding China’s biggest internet companies.

Tech firms were ordered to complete self-inspections within one month, in line with requirements laid out during the meeting.
Gaming and social media behemoth Tencent promised to abide by the provisions of the Anti-Monopoly Law, filter out illegal advertisements, refrain from illegal collection and misuse of personal information, and protect intellectual property rights.
The rest of the 11 companies that issued on Thursday pledges to comply include some of China’s top tech firms such as ride-hailing platform Didi Chuxing, short video app Kuaishou, entertainment platform Bilibili, online travel agency Trip.com, and Alibaba’s supermarket chain Hema.
Covering a variety of internet market segments, all company letters contained commitments to anti-monopoly practices and fair competition.

Context: The regulatory crackdown on anti-competitive practices started late last year with small antitrust fines for Alibaba, Tencent, and others, culminating in Alibaba’s record penalty on Saturday.

The meeting on Tuesday between regulatory bodies addressed topics such as antitrust regulation and the practice of “forced exclusivity” notably used by Alibaba, where it imposed penalties on merchants if they operated outside of Alibaba’s ecosystem.

Updated: revised first bullet point under “Details” for clarity.

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Grey market for console gaming imports rebounds after crackdown

Thu, 15 Apr 2021 07:40:12 +0000

Two weeks after a crackdown on imported console gaming products, it’s still easy to buy them in China. Games remain widely available in offline stores and online, and prices have returned to normal after a brief spike.

The tight supply led to an increase in prices across other online stores, but this was short lived, according to Daniel Ahmad, a senior analyst at Niko Partners, a firm that monitors China’s gaming market.

Prices for imported consoles and individual games have returned to pre-crackdown levels, which are slightly above international ones, TechNode has found on Taobao. The analyst said that on other online retail platforms such as JD.com, there wasn’t much of an impact.

Physical stores that TechNode visited in Shanghai in the last week seemed unaffected by the crackdown on console gaming. They were still advertising imported consoles and titles banned in China—including a US version of Animal Crossing, which was removed from Taobao last year, reportedly because of its use by protesters in Hong Kong.

Some particular games are still very hard to find on Taobao. These include Nintendo’s Animal Crossing, and The Last of Us, an intensely violent two-part series developed for PlayStation. Special edition Animal Crossing Switch consoles are still widely available throughout the online marketplace, but don’t come with the game.

Imported Nintendo Switch games from Hong Kong, Japan, and the US, on display at a store in Shanghai on April 13. (Image credit: TechNode/Eliza Gkritsi)

Grey imports

China’s Anti-Smuggling Bureau said on April 2 that authorities in Guangdong had arrested 54 importers and seized RMB 78 million ($12 million) worth of Nintendo, PlayStation, and Xbox gaming consoles.

While such events are “not unusual,” this was the largest anti-smuggling operation in recent memory, Ahmad said.

“It’s not really part of a wider, larger crakdown, but of course the government always reserves the right to do that, given the grey area,” Ahmad said.

Chinese console gamers usually have to wait several months before international hits are released domestically, if ever, due to stringent censorship of imported gaming titles. Some famous titles never get released domestically due to graphic violence or sexual content.

This has created a small but active market for consoles and cartridges imported from nearby Hong Kong or Japan.

READ MORE: INSIGHTS | No country for console gamers

Taobao ghost town

In response to the crackdown, several shops on Taobao removed listings for the imported console gaming products. Some told customers they would not be delivering for a while. One of the biggest Taobao stores, called TGBus, told customers that deliveries would be halted temporarily because a water leak had damaged some of the goods and had led to power outage in its warehouse, Chinese media reported.

The hashtag on social media site Weibo about Nintendo Switch being targeted has been seen over 150 million times, peaking at 136 million on March 31. That was when local media reported that popular Taobao stores selling imported consoles were down.

The shop that had claimed water leak damage remained offline as of April 12, but its affiliates are still live on the e-commerce app. Another popular shop based in Shanghai merely told customers it couldn’t deliver due to “exceptional circumstances.” The shop remains live on Taobao, but is empty of listings.

Some of the shops that removed their listings or disappeared altogether from Taobao said they were directly supplied by the importers who had their products seized. Others were exercising an “abundance of caution. They felt like they may be indirectly implicated in some way if they were to keep these products up,” Ahmad said.

A popular Taobao shop for imported games shows no listings on April 13. (Image credit: TechNode/Eliza Gkritsi)

Even in the immediate aftermath of the crackdown, most shops didn’t disappear from Taobao, and the impact on other e-commerce apps was minuscule. Two weeks on, business is back to normal.

The Monster Hunter effect

The Hong Kong release of a new entry in a popular series might have have triggered the crackdown.

The week leading up to the crackdown, the first entry for Nintendo Switch of the long-running series Monster Hunter was released in Hong Kong. Monster Hunter: Rise was developed by Capcom, the Japanese studio behind the Resident Evil series.

The series has met massive success throughout East Asia, as has the Switch console.

Prior to 2014, when sales of console gaming products were completely banned in China, authorities would clamp down on imported products when there was a surge in interest: “If you hit a certain threshold, that would trigger a reaction,” Ahmad said.

It is likely that “there would be a high number of imports” of Monster Hunter: Rise, which could have triggered a reaction, Ahmad said.

Three hashtags related to the Capcom game, #MonsterHunter, #MonsterHunterRise, and #MonsterHunterWorld, have been viewed at least 470 million times on Weibo. The hashtag numbers peaked in the runup to March 26, when Monster Hunter: Rise was released in Hong Kong.

The Switch has been a big hit in China, driving growth in the mostly niche console market. Nintendo has delivered 1 million units of the console in China since it launched in December 2019, according to Tencent, which has partnered with the Japanese game developer to sell the Switch in China.

This is roughly double what Sony’s PlayStation and Microsoft’s Xbox sold in the same time period, according to data from Niko Partners.

Catching up

All major consoles are now sold legally in China in local versions, but few games are available for these outside the grey market. Eager to get their hands on a wider variety of releases, gamers turn to imported goods.

“We are now at a point where every major console manufacturer has launched a product in China,” and once something is released overseas, it will get an official release in China, albeit with a delay, the Niko Partners analyst said.

Sony has announced plans to launch the PlayStation 5 in China in the second quarter of 2021. The console’s global release was in November 2020.

A Taobao listing for Nintendo Switch consoles imported from Japan and Hong Kong. (Image credit: TechNode/Eliza Gkritsi)

For games, “there is still a very strict regulatory environment,” which means the approval process is “long” and “cumbersome,” Ahmad said. Officially, it takes three months, but in reality, it can take a year to get a game approved by China’s National Press and Publication Administration. Rather than wait, online and offline shops respond to strong demand with smuggled products.

Ahmad points out that despite a recent increase in the speed of the licensing process, a “soft cap” on how many games can get approved means that there is no “material difference” in the number of games Chinese console owners can get their hands on.

Globally, more than 3,000 titles are available on the Nintendo Switch console. As popular as the Switch has been, gamers in China can only choose from fewer than 20 titles, Ahmad said.

This might sound like a small number, but it’s a massive improvement. During the first three months of the Switch’s launch in China in December 2019, only one game was approved: Super Mario Bros U Deluxe.

New titles have been slowly added to the list of approved games, notably Ring Fit Adventure in September 2020.

“This is why there is a big smuggled games market in the first place,” Ahmad said.

Correction: A previous version of this article incorrectly described Niko Partners as “London-based.”

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Japan scrutinizes Tencent stake in Rakuten over national security

Thu, 15 Apr 2021 05:46:12 +0000

Chinese internet giant Tencent’s investment in Japanese tech firm Rakuten will be “monitored for national security implications,” Japanese government officials told their US counterparts prior to the meeting between the two nations’ leaders on Thursday, Nikkei reported.

Why it matters: Chinese tech companies’ overseas investment activity faces increasing scrutiny as the US pushes for a tech alliance with allies.

Details: Japanese officials briefed the US National Security Council on Tencent’s March investment in Rakuten, a Japanese e-commerce and telecommunications service provider, Nikkei Asia reported on Thursday.

Rakuten announced on March 12 that it planned to raise a total of JPY 242.3 billion (around $2.2 billion) by issuing new shares to investors including Tencent, Japan Post Holdings, and US retail giant Walmart.
Tencent, through its Image Frame Investment subsidiary, paid JPY 65.7 billion on March 31 to acquire a 3.7% stake at Rakuten, according to Nikkei.
Japanese officials worried that the investment might run afoul of an executive order signed by former US President Donald Trump in January which banned transactions with eight Chinese apps including Tencent’s WeChat Pay over national security concerns.
Tokyo will “closely monitor” the tie-up to see whether Tencent has access to non-public technology, sources told Nikkei.

READ MORE: Before the bans, China tech investment turned away from US

Context: Rakuten is an online retail company founded by Japanese billionaire Hiroshi Mikitani. The company also runs a telecommunications business. It launched its 5G service in September.

Japanese Prime Minister Yoshihide Suga is set to meet with US President Joe Biden in Washington on Thursday.
Biden has upheld the Trump administration’s tough policies on Chinese tech firms. Biden’s government last week imposed sanctions on seven Chinese supercomputer developers, barring them from acquiring US technology.

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What is ‘forced exclusivity’? And why did it get Alibaba fined $2.8 billion?

Thu, 15 Apr 2021 04:13:58 +0000

China’s months-long investigation of Alibaba for anti-competitive practices concluded on Saturday as the e-commerce heavyweight was slapped with a record RMB 18.2 billion ($2.8 billion) fine for violating the Anti-Monopoly Law for a variety practices, most importantly “forced exclusivity.”

The State Administration for Market Regulation (SAMR), China’s top market regulator, defined Alibaba’s dominant market position in a 24-page decision released on April 10. Alibaba’s annual revenue from e-commerce services accounted for more than 70% of the combined revenue from China’s top 10 e-retail platforms, while its overall turnover represents more than 60% of China’s online retail sales during 2015 to 2019, according to SAMR.

The regulator determined that Alibaba had been “abusing” its market dominance by imposing “forced exclusivity” on merchants, a practice in which platforms force merchants to sell their wares on only one company’s platform or services.

“I think this is a good thing to bring more competition, both for the market and for the long-term growth of Alibaba itself. Alibaba’s high gross margin and its high pay to employees are to some extent determined by the company’s monopolistic position,” (our translation) Song Peijian, a professor at the Business School of Nanjing University, told TechNode.

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“It’s like the platform is collecting taxes from the merchants. There are cases when merchants are recording hundreds of millions of RMB but still can’t make money from their business. That’s unimaginable in the traditional industry,” Song added.

What impact will the penalty and the ban on forced exclusivity have on Alibaba? And what is forced exclusivity—the main violation authorities cited in their decision—and why was forced exclusivity so important that Alibaba kept going despite multiple warning signs?

Record-breaking penalty

The fine Alibaba received is the largest in the history of Chinese antitrust law, breaking a record set by a fine imposed on US chipmaker Qualcomm. In February 2015, Qualcomm agreed to pay a fine of $975 million to settle a 14-month investigation into its anti-competitive practices led by the National Development and Reform Commission of China.

The Alibaba fine is also the second-largest antitrust penalty worldwide for a single company, according to a research note by the law firm Dentons China. The largest fine in history remains the European Union’s EUR 4.34 billion (around $5.2 billion) fine on Google in 2018 for using its Android mobile operating system to illegally “cement its dominant position” in search.

While the RMB 18.2 billion penalty, 4% of the group’s 2019 revenue, is China’s largest for antitrust violations, the sum is small compared to Alibaba’s more than RMB 312 billion in cash and cash equivalents as of 2020. The 4% penalty is also well short of the maximum 10% permitted in the antitrust law.

Alibaba shares in Hong Kong and US both jumped on news of the conclusion of the investigation—regarded as a major source of uncertainty for the e-commerce platform—despite the fact that the penalty was double the rumored sum of $1 billion.

“Determination of the penalty means Alibaba’s antitrust case has come to an end. A series of negative events has dragged Alibaba’s market cap near to a historic low. As long as it is slightly favorable, the stock price will usher in a rebound,” Wang Shan, an analyst at Tiger Brokers, told TechNode (our translation).

Michael Norris, research and strategy manager of Agency China, said that immediate market response to the fine reflects “a belief the regulatory overhang over Alibaba will conclude shortly.”

“It’s highly arguable the regulatory uncertainty over anti-trust investigations has done more damage to Alibaba’s share price than the fine for ‘forced exclusivity’,” he added.

The record-breaking fine against Alibaba is a direct sign that China has become a major antitrust regulator internationally, said Deng Zhisong, a partner at Dentons China.

While pledging full compliance with the administrative decision, the company played down its impact, saying that it expected no material impact on its business from the end of forced exclusivity, according to Chairman Danial Zhang during the Monday briefing. In addition, management said Alibaba will spend billions to lower merchant costs, responding to allegations that they’ve been overcharging merchants.

Forced exclusivity and timeline

Many Chinese tech giants have been accused of different forms of ‘forced exclusivity,” also known as “choose one of two.” Alibaba’s version forces merchants to sell exclusively on its marketplaces, such as Taobao and Tmall. Changing to a multi-platform format means its merchants can now sell on rival platforms like Pinduoduo and JD.com.

Vendors already operating on multiple platforms are prohibited to join rivals’ promotional events, such as the June shopping festival known as “618” and year-end shopping spree Singles Day. Merchants who don’t comply face punishment such as reduced marketing resources, decreased search result rankings, and even bans from Alibaba’s marketplaces.

September 2010: Fights over forced exclusivity in China’s tech world date back more than a decade ago when Qihoo 360 sued Tencent for forcing hundreds of millions of users to choose between security software offered by Qihoo and Tencent’s QQ. Known as the 3Q war, this landmark case was China’s first first major tech antitrust case and helped to establish jurisdiction for similar cases.
November 2012: Alibaba, which popularized the annual “Singles Day” sales promotion on Nov. 11, trademarked the shopping festival in an attempt to exclude rivals from holding promotions under the same theme. JD.com and other e-commerce companies launched Singles Day sales anyway, forcing merchants to take sides in a battle between platforms.
July 2017: JD and flash sale retailer Vipshop released a joint statement, accusing Alibaba’s Tmall marketplace of monopolizing the market by forcing merchants to sign exclusive deals with Alibaba.
June 2019: Home electronics manufacturer Galanz accused Alibaba’s Tmall of removing its products from search results after the electronics manufacturer refused to remove listings from rival platform Pinduoduo.
October 2019: Alibaba PR head Wang Shuai dismissed concerns over the matter, stating that “so-called forced exclusivity is a non-issue.”
November 2019: China’s market regulator during a forum in Hangzhou reminded more than 20 e-commerce players that forcing businesses into exclusive agreements with one marketplace is illegal.
March 2019: China’s market regulator introduced a set of e-commerce rules, including terms prohibiting practices that facilitate forced exclusivity.
December 2021: Chinese market regulators launch an anti-monopoly investigation targeting Alibaba.

Forced exclusivity practices exist in other platform industries too. Restaurant owners are also pressured to take sides with food delivery platforms like Meituan and Ele.me. Those willing to list exclusively on one of the food delivery platforms enjoy a lower commission fee. Similarly, drivers on ride-hailing platforms benefit from lower commission rates if they only work using one app.

Why forced exclusivity

Alibaba Chairman Zhang said eliminating forced exclusivity would have no material impact on Alibaba’s business. But if the practice didn’t matter, why did the company keep it so long in the face of lawsuits and pressure from regulators?

Alibaba, China’s top e-commerce platform for decades, had faced intensifying competition from rivals like Pinduoduo, JD, and more recently, mini programs on Tencent’s WeChat and short video apps including Douyin and Kuaishou. Forcing exclusivity on its merchants helped fend off rivals, making it harder for them to offer competitive selections of goods.

“It’s a crucial measure in the early development of online marketplaces, but not so important for a business as big as Alibaba (our translation),” said an analyst who asked to stay anonymous for sensitivity of the matter.

Despite forced exclusivity, the SAMR report showed that Alibaba’s market share has been gradually declining over the years. Its annual revenue accounted for 86.0% of earnings from China’s top 10 e-retail platforms in 2015. The figure has been dropping by single-digit percentages each year ever since to 71.2% in 2019. Its overall sales volume in proportion to China’s online retail sales declined to 61.8% in 2019 from 76.1% in 2015.

In March, Pinduoduo overtook Alibaba as China’s largest online selling platform in terms of number of users. Pinduoduo reported that it reached 788.4 million annual active buyers in 2020 compared with Alibaba’s 779 million annual active buyers during the same period.

Although Alibaba’s core e-commerce business still outperforms Pinduoduo in other key metrics, including revenue, gross merchandise volume, and per-order sales, Pinduoduo’s growth in user base is a warning sign for the tech giant that has dominated China’s e-commerce for decades.

Norris said forced exclusivity may also have been a means to keep Alibaba merchants’ digital marketing spend with Alimama, Alibaba’s digital marketing arm, rather than spread across multiple platforms.

Is it a monopoly?

Before accusing Alibaba of monopolizing the e-commerce market, regulators had to answer a question: Is there any such thing as an e-commerce market? E-commerce giants from Alibaba to Amazon have argued that e-commerce is just one among many forms of retail, and that its biggest companies should be seen as reasonably sized players in a retail market that includes malls and supermarkets.

SAMR rejected this argument on Saturday, finding that e-commerce is a separate market, and for the first time laying out a definition of an online services market and a method to measure the market share of a player in such a market.

While SAMR has been pushing to revise laws and regulations to keep up with its antitrust campaign in tech, it relied on established law dating to 2009 in its Alibaba decision, suggesting that the recent tech antitrust push was possible under the old law.

SAMR’s analysis used an approach familiar from traditional antitrust cases, known as “demand-side substitution analysis.” It said that the functions of online marketplaces, such as Alibaba’s Taobao and Tmall, are “non-interchangeable with offline marketplaces,” and that online marketplaces serve different merchants than offline marketplaces because the scope and costs of their services are different.

China’s 2008 Anti-Monopoly Law defines a player with more than 50% of a “relevant market” as a “dominant player.” In defining Alibaba as a dominant player in the online marketplace, SAMR cited data about Alibaba’s service revenue from merchants; China’s e-commerce market’s Herfindahl-Hirschman Index, a standard measure of market concentration; analysis of Alibaba’s leverage in negotiations with merchants; as well as Alibaba’s “strong abundant finance resources and advanced technological abilities.

Regulators are working on changes to antitrust law that may make it easier to prove monopoly status in future internet cases. In January 2020, SAMR proposed an amendment to China’s Anti-Monopoly Law, which will take into consideration factors such as network effects—services that rise in value as their user bases grow—as well as company size and data assets when determining whether a company is a dominant player. SAMR also in March finalized a set of guidelines helping regulators define relevant market share in the internet sector.

Going forward

Alibaba clearly seeks to move on from the antitrust investigation. Vice Chairman Joe Tsai said on Monday during the conference call with investors, media, and partners that the company has “put this matter behind us.” Tsai added that he was not aware of any other investigations involving the company relating to the Anti-Monopoly Law, although the regulators continue to conduct a broad review of Chinese tech firms’ investment transactions.

Levying a sizable fine on one of China’s largest internet sites highlighted the state’s increased scrutiny of conglomerates, sending shivers down the spines of many Chinese tech peers.

Just two days after Alibaba’s fine, regulators announced a $180,000 penalty on Sherpa’s, a Shanghai-based English-language food delivery app targeted toward foreigners.

In the wake of the penalty, regulators summoned on Tuesday 34 of the country’s largest technology companies from various segments, including ByteDance, Baidu, JD, Pinduoduo, Ctrip, Bilibili, and Qihoo 360. The regulator warned every major internet firm in China to heed the Alibaba example.

Beijing gave Chinese online platforms a one-month window to rectify practices that were unfair to competition, such as forced exclusivity, user data leaks, and price discrimination. SAMR said those that failed to comply with regulatory requirements in follow-up checks will be “severely” punished.

Alibaba is already moving to respond to this pressure. For years, China’s tech giants strived to construct their self-sustained ecosystems in order to lock users in. But in a surprising move since mid-March, Alibaba took a step to open up its ecosystem by bringing Taobao Deal and re-commerce service Xianyu to Tencent’s WeChat. This may be a sign that the thick walls tech companies built against one another are beginning to crack.

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Listed crypto mining rig makers in trouble, Filecoin scrutinized: Blockheads

Tue, 13 Apr 2021 08:17:23 +0000

Cryptocurrency mining rig maker Ebang was accused of inflating sales figures in a short report, while competitor Canaan reported declining fourth-quarter revenue. The end may be nigh for distributed ledger protocol Filecoin, while overseas interest in Chinese cryptocurrency exchanges is on the rise. Finally, Chinese researches say that crypto mining energy consumption could undermine sustainability initiatives.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of April 6-13.

The crypto mining rig makers

Cryptocurrency rig maker Ebang’s stock lost 20% of its value in four days after a short report from Hindenburg research accused it of fraud. The stock has dropped another 5% since April 12. (TechNode)
Canaan (finally) reported its fourth quarter and full-year 2020 earnings. The company’s revenues continued to decline though it narrowed its losses. The company’s outlook was more positive: It said that it has laid a “solid foundation” for growth in Q1 2021. (TechNode)
Bitmain sued relative newcomer MicroBT for intellectual property theft for the second time. MicroBT’s founder was a chip engineer at Bitmain. A previous lawsuit over similar claims was dismissed by a Beijing IP court in 2018. (The Block)

The bell tolls for Filecoin

The Distributed Storage Office of China’s Communications Industry Association warned that Chinese companies are using distributed file storage protocol Filecoin to issue unauthorized wealth management products and conduct illegal financing. A new regulation defining illegal fundraising is set to to come into effect on May 1. (China Police Net, in Chinese)

The exchanges

Traffic on Chinese crypto exchanges from outside China is growing quickly, indicating a rising interest on Chinese tokens. (Wu Blockchain Twitter)
Binance launched trading of tokenized stocks, starting with Tesla. The carmaker’s stock on Binance is “backed by a depository portfolio of underlying securities.” (Binance)
The number of transactions on Binance Smart Chain reached an all-time high on Thursday, nearing 5 million. This is more than four times higher than the 1.3 million conducted on Ethereum on the same day. The exchange’s coin, BNB, also reached a historic high of $416 on the same day, and has climbed to $577 since. (BSCScan)
Huobi’s charity arm pledged $1 million in Bitcoin and Ethereum for UNICEF’s crypto fund, the UN agency’s crypto-backed venture capital department. (TechNode)

Mining and threats

Carbon emissions due to crypto mining in China could undermine global sustainability efforts, according to a new research paper by Chinese scientists. Environmental goals set in the central government’s 2021-2025 Five-year plan are a big concern to the industry, which consumes vast amounts of electricity. In March, the province of Inner Mongolia proposed shutting down crypto mines to meet green development goals. (Nature Communications)
On Wednesday, the Sichuan Power Exchange Center said that electricity used for legal crypto mining will increase 150% to 11.3 billion kWh in 2021, with average electricity prices of $0.02/kWh, up 16% from 2020. (Sichuan Power Exchange Center)
Silicon Valley investor Peter Thiel said Bitcoin mining is a weapon for China, due to its high concentration in the country. Thiel was speaking at a virtual roundtable discussion hosted by the Richard Nixon Foundation. (South China Morning Post)

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Sherpa’s fined over monopoly on delivering food to foreigners in Shanghai

Mon, 12 Apr 2021 10:52:09 +0000

In the wake of a record-breaking $2.8 billion fine on Alibaba for abusing a monopoly position in e-commerce, regulators have announced a fine on a somewhat smaller Chinese tech firm: the food delivery app Sherpa’s, or as it’s known to insiders, “Big English-Language, Shanghai-based Food Delivery.” Local market regulators announced a fine of about $180,000 Monday that went lightly viral for the depth of its antitrust reasoning.

What’s a market? Antitrust cases often hinge on defining a market—in fact, until Saturday it was an open question whether there was such a thing as the Chinese e-commerce market. Now we know that there is both a Chinese e-commerce market and an English-language Shanghai food delivery market.

The State Administration for Market Regulation (SAMR), China’s top trustbuster, argued that e-commerce is “non-interchangeable with offline marketplaces” in order to define the market Alibaba was alleged to monopolize.

Geeking out: In the Sherpa case, local antitrust regulator Shanghai Municipal Administration for Market Regulation (SMAMR) cited polls of foreign residents, app design, and the interior decorating of restaurants to prove that delivering food to foreigners in Shanghai is a discrete market, in a statement of 15,727 Chinese characters and seven charts, and jam-packed with economic formulas.

The regulator argued that the app does not compete with Chinese food delivery leaders Meituan and Ele.me because it exists in a separate English-language market.
Sherpa’s grabbed 99.8% daily orders in the English-language food delivery market in the first ten months in 2019, according to the statement.
Around 76% of foreigners living in China only use food delivery platforms that provide an English user interface because of language barriers, SMAMR cited a “relevant market research report” as saying.
The app’s user interface, SMAMR argues, had “thoroughly taken into account western culture“ with design decisions including avoiding the color red, which is “considered to be festive by Chinese users but seen as a warning color in Western countries.”

Details: Sherpa’s was fined RMB 1.2 million (around $178,500), or 3% of the company’s revenue in 2018, SMAMR said in a statement (in Chinese) on Monday. The fine was issued in December 2020, it said.

The regulator said Sherpa’s had “utilized its position of market dominance” to charge excessive delivery fees to users and commissions to restaurants.
Sherpa’s could not immediately be reached for comment.

Context: China’s tech antitrust spree started in November as SAMR imposed antitrust-related fines on three acquisition deals involving Alibaba, Tencent, and parcel service SF Express, a move that legal experts described as the country’s first batch of antitrust enforcements against tech firms.

SAMR said on Saturday it had issued a $2.8 billion fine on Alibaba for antitrust practices including “forced exclusivity.” The fine is the largest antitrust penalty ever issued in China.

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Alibaba pledges end to forced exclusivity after $2.8 billion penalty

Mon, 12 Apr 2021 04:41:25 +0000

Shares in Hong Kong for Alibaba Group jumped 8% after company chairman Daniel Zhang promised on a call with investors on Monday an end to its practice of forced exclusivity following a RMB 18.2 billion ($2.8 billion) penalty for antitrust practices.

Why it matters: The penalty imposed onto Alibaba, a bellwether of China’s tech sector, highlights Beijing’s continued efforts to curb anti-competitive practices at major tech firms, which were seen as practically “immune” to such regulations before.

The RMB 18.2 billion penalty is equivalent to 4% of the group’s 2019 revenue, and is by far China’s largest for antitrust violations, dwarfing recent punishments levied on peers Tencent and Vipshop.

Details: Alibaba Group does not expect a material impact on its business by ending forced exclusivity, Zhang said during a Monday briefing on the company’s response to the penalty. Forced exclusivity is a practice in which e-commerce companies punish merchants who also sell on competitor platforms, and was the primary reason for the penalty, according to the regulator. Zhang also said the e-commerce giant would spend billions to lower merchant costs.

The company will report to regulators on its progress in eliminating exclusive arrangements and platform improvements. Zhang promised that the company will keep communication with regulators “open and transparent.” Alibaba was required to submit a self-examination report plan within 15 days of the penalty announcement.
The company will invest more on improvements in areas like merchant training and development of the merchant back end workstation, Zhang said. “We don’t view this as a one-off cost, but as a necessary investment to enable our merchants to have a better operation on capital,” he added.
Vice Chairman Joe Tsai said he is not aware of any other investigations involving the company relating to the anti-monopoly law, although the regulators continue to conduct a broad review of Chinese tech firms’ investment transactions.
CFO Maggie Wu said the penalty will be reflected in the group’s net income in the March quarter results.
Wu added that the company’s merchant support initiatives will be reflected in both top- and bottom-line growth, with reduced fees and charges to merchants and increased investments in business growth measures. The company has reserved billions of RMB for the expense, she said.

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Niu to open 10,000 stores in China in next five years

Fri, 09 Apr 2021 11:10:29 +0000

Chinese electric scooter maker Niu Technologies said it is on track to open 10,000 stores nationwide over the next five years, as replacement demand stays robust following the implementation of tougher national standards for two-wheelers.

Why it matters: Nasdaq-listed Niu aims to sell 6 million scooters worldwide in 2025, a tenfold increase from 2020, CEO Li Yan said during a press conference on Wednesday.

Details: The company sees lower-tier markets as key to its growth in China.

Speaking to journalists on Wednesday, Li said the company expects to nearly double its annual production capacity to 2.1 million units during the second half of this year.
The company aims to be in a position to accommodate high demand during peak season, which starts in July.
“We are expanding our footprint in lower-tier cities and even rural areas with a growing sales team and a diversified product portfolio… The market is huge and what we’ve covered is only the tip of the iceberg,” said Li (our translation).
The company also launched ten new scooter models on Wednesday.

Context: Niu reported sales of around 602,000 scooters last year, rising 43% year on year. In the same time period, its store count increased by over 50% to 1,616 shops in China, despite the Covid-19 pandemic. The new shops are mainly in first and second-tier cities.

Analysts expect Niu’s sales to rise as new scooter standards force drivers to replace their vehicles.
Most of its competitors use cheaper but heavier lead-acid batteries, making it hard to meet a 55 kg (121 pounds) limit and offer a comparable driving range. Niu’s lithium-ion batteries deliver better range at lower weights.
China International Capital Corporation (CICC) forecast record sales of around 30 million lithium-ion battery scooters in 2021, more than double compared to last year, according to a report (in Chinese) published last month.

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SILICON | What the new Arm v9 architecture means for China

Thu, 08 Apr 2021 07:38:48 +0000

Last week, UK-based semiconductor design company Arm announced plans for the next generation of chips. The v9 architecture comes ten years after the release of v8, which is currently the standard used for mobile phone central processing units (CPUs) and many other processors.

There are some good articles on the new features v9 brings to the table, most notably the Realms feature, which promises to increase security by running applications while data is protected from inspection or intrusion by the host or any other software running on that host. The new architecture will also bring AI/ML extensions for AI support across its CPUs, network processing units (NPUs), and graphics processing units (GPUs), and the ability to improve performance by accelerating workloads in a CPU environment in ways that previously required external hard accelerators.

In short, v9 architecture brings massive new capabilities to Arm CPUs—and OEMs will jump on it for their next lines of high-end equipment and devices. If Chinese companies want to stay competitive globally in the next decade, they need to use it. But the window of opportunity for some of them to buy an architectural license may be closing.

Opinion

Stewart Randall is Head of Electronics and Embedded Software at Intralink, an international business development consultancy which helps western tech businesses expand in East Asia.

Licensing architecture

I’ve written an overview of major architectures in China elsewhere, but here’s a brief recap: Many Chinese companies design Arm-based chips, but most will license complete Arm cores on a single-use or multi-use basis, so they don’t have to design a core themselves.

More ambitious chip design companies may get an architecture license, which allows the licensee to change the design itself. This is what you need to create a customized core like the Kirin line of phone CPUs, designed by Huawei’s HiSilicon for use in its phones. But it’s difficult to build a core from scratch, so you have to be highly skilled.

Currently, only two companies in China have an architecture license for v8: Huawei and Phytium Technology, a fabless chip design company focused on Arm server chips..

Notably absent

Arm’s press release included several quotes from high-profile partners around the world, including representatives of three major Chinese smartphone brands; Xiaomi CEO Lei Jun, Vivo CTO Shi Yujian, and Oppo Head of Research Levin Liu. Notably absent were Huawei and Phytium Technology.

Both Huawei and Phytium previously bought architectural licenses from Arm, in part as a way to advertise their independence and control. To help them sell such a message Arm also created Arm China, a separate company that has its own issues.

The smartphone makers that did make the press release, have never been architectural licensees of Arm v8. This could change as they look to develop their own chips. All these companies have been investing heavily in building their own internal chip design capabilities.

However, I think for the time being they will stick with application processors from Qualcomm or MediaTek. As part of Arm’s presentation MediaTek announced that its first smartphone chip using the v9 architecture will be available by the end of 2021, sooner than any Chinese handset OEM would be able to design their own. That’s a lot sooner than they’re likely to be able to make their own.

Chinese handset companies will likely license Arm cores for individual designs, such as Xiaomi’s recent image signal processor design. Xiaomi’s previous attempt at an application processor was somewhat of a failure, and it makes sense for the company and others like Oppo and Vivo to focus first on simpler designs that can help them differentiate their products and also help them gain valuable real-world chip design experience.

So what are we to make of the absence of current licensees Huawei and Phytium? Are they not considered key partners, can they license v9 architecture, and does it even make sense for them to?

Can Huawei buy the v9 architecture?

Huawei has struggled to access semiconductors and IP since the US placed it on a list of companies which require licenses to buy US or US-linked technology. The absence of either company in Arm’s presser could imply that one or both won’t be able to upgrade to v9.

In response to such speculation, Arm has said that it can continue to license its IP to China including Huawei, concluding that its IP is of UK-origin and so not subject to the US ban. Ian Smythe, vice-president of solutions marketing at Arm said, “Following a comprehensive review, Arm has determined that its Arm v9 architecture is not subject to the US Export Administration Regulations,” adding that Arm had informed US government agencies of this conclusion.

That might not be the last word for Huawei. Ultimately, the US government may conclude that Arm’s Austin facility, which contributes to a lot of its high-performance architectures, means that Arm’s IP is sufficiently of US-origin to face export restrictions.

Phytium on thin ice

Phytium is not on the export ban list, and as such does not face the same restrictions as Huawei. However, it is on a list of “military-linked” companies that face restrictions on cross-border investments.

Also, the Washington Post reported today that that the Trump administration was planning to put Phytium on an export blacklist, but “ran out of time”. The article also reported Phytium chips are used at supercomputing centers that design advanced weapons systems for the People’s Liberation Army. This could heighten Washington’s scrutiny of the company, potentially leading to sanctions.

My best guess is that they will go ahead and secure a v9 license without much trouble, but they may be trying to keep a low profile in the hope that the US will not decide to target them. Watch this space.

Now or never

An architectural license gives Huawei and Phytium a certain amount of security: Once granted, the license is permanent, meaning Huawei would be able to continue designing new v9 chips indefinitely whatever actions Washington takes. But under present circumstances it might not be too useful.

An architectural license does not mean the licensee is licensing a specific core. They receive a set of specs for Arm’s cores and a testing suite. This allows the licensee to customize their own processor to fit their application. They can make cores that are faster, smaller, or less power hungry than standard Arm cores, or otherwise differentiated from standard Arm licensees.

Qualcomm and Apple rely on such licenses to create their chips, as did Huawei for its Kirin series. There are only a handful of such licensees globally, mainly because it costs a lot and requires a lot of time and internal expertise to create your own custom Arm core, while there are perfectly good cores available to license at a much cheaper price.

A license alone isn’t enough to make chips. If Huawei is able to buy an architectural license and does so, it still has no access to the EDA tools it needs and the fabs to actually manufacture a high-end Arm-based chip.

But it could be now or never. As competing companies move to v9, Huawei’s v8 license will soon be obsolete. It could actually make sense for the company to go in on an architectural license it can’t use for now in the hope that further down the line either restrictions on the company are removed or domestic self-sufficiency gets to a point where Huawei can get back into the high-end chip game.

With Nvidia’s acquisition of Arm also on the horizon, Arm could soon become a US-owned company. It could make sense for Huawei to lock in access to its IP now, although the same concerns could also motivate China to block the deal.

Conclusions

Access to IP is a chokepoint for semiconductors in China. As I’ve written before, RISC-V may help with this to some extent, but it isn’t as mature as Arm yet, and processor cores are just one of many different types of IP within a chip.

Despite RISC-V’s growth, Arm’s v9 architecture will be a core component for handset, server, IoT and automotive chips for the coming decade. For Huawei it may make sense to get in now, while it still can.

For its part, Arm will want to be free to license to Chinese companies and will be happy to take Huawei’s money. However, the reach of the US government can be long and if the Nvidia acquisition goes through I struggle to see companies on the entity list being allowed access.

Some domestic analysts argue that Huawei should not rely on architectural licenses. “You may get a v9 license this time, but what about v10 or v11, etc? Does endlessly licensing foreign IP mean independence?” (my translation).

It would be strange to see China without any Arm architectural licensees, but that is a prospect.

We may also see new Arm licensees. Perhaps the likes of Oppo or Vivo will decide it makes sense for them. We all know they are investing huge sums into their own IC design capabilities.

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Digital yuan bonanza continues with cross-border payments: Blockheads

Tue, 06 Apr 2021 10:13:33 +0000

The digital yuan is increasingly going global: A cross-border transaction with Hong Kong was completed last week, and trials for the e-CNY opened in the territory. Domestically, three more companies were added on the digital RMB app, while a university started testing different payment methods using the currency. An established auction house announced it will start selling non-fungible tokens (NFTs), while non-crypto companies continue to pivot to cryptocurrency mining.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than in China. Here’s what you need to know about China’s block-world in the week of March 30-April 6.

The digital yuan arrives in Hong Kong

The People’s Bank of China (PBOC) completed the first cross-border transaction with Hong Kong using the e-CNY in collaboration with the Hong Kong Monetary Authority, Wang Xin, the head of the PBOC’s research department said in a press conference on April 1. (Sina Finance, in Chinese)
The next day, Hong Kong media reported that the PBOC opened e-CNY trials for residents of Hong Kong. The project is a collaboration between the Shenzhen city government, the central bank’s Shenzhen branch, and Bank of China. (The Asset)
The rhetoric over China having a lead over the US by issuing a central bank-backed digital currency first is “overblown,” said Agustín Carstens, the general manager for the Bank of International Settlements. (CoinDesk)
Soaring Bitcoin prices could be driving up interest in the digital yuan, said Xin. (CNBC)

The digital yuan at home

Renmin Univeristy in Beijing launched a trial of the digital yuan. Students and teachers can sign up to be whitelisted for the trial through the e-CNY wallet app. If selected, they can use it to pay for items in the university canteen, laundry, and other on-campus facilities. QR codes and facial recognition can be used for payment, local media reported. (Payments Encyclopedia, in Chinese)
Three Chinese companies were added on the digital RMB app: logistics company SF Express, state-owned petrol giant Sinopec, and EV-charging station provider Star Charge. Users can now pay for their services on the app. Meituan, Bilibili, JD.com, and Didi were already listed on the e-CNY app. (Mobile Payments Network)

READ MORE: UPDATED: We got some digital yuan!

The NFTs

Fine art auction house Yongle is joining the NFT market, Xu Zhao, founder and CEO of the company said in an interview. Xu said he wants Yongle to keep up with new financial models, and not be left behind Christie’s and Sotheby’s, which have already famously sold NFTs. (Artron)
TechNode reviewed the world’s first major crypto art exhibition in Beijing: “It’s an art gallery as a carnival, complete with a claw game for souvenirs, rather than gallery-as-high-culture-church.” (TechNode)

The BSN

Red Date Technology, the company behind the Blockchain Services Network, has acquired the rights to sell Corda, an enterprise blockchain used by global financial firms, to Chinese businesses. This is the first time Red Date has acquired the rights to sell blockchain domestically, as the company is increasingly angling to become a major domestic blockchain player. (TechNode)

The pivots to crypto

New York-based software firm FutureFinTech bought Chinese crypto mining farm Nanjing Ribensi Electronic Technology for $9 million. (CoinDesk)
The9, a Nasdaq-listed gaming company based in Shanghai, has agreed to sell $125 million worth of American Depositary Shares to Maxim Group, a New York-based investment bank. In the last year, The9 is pivoting from gaming to crypto mining. (The9 press release)
500.com, a Shenzhen online lottery company that has ventured into crypto mining, acquired Bee Computing, a small mining hardware manufacturer. (500.com press release)

The smuggled mining equipment

The Hong Kong Coast Guard seized 300 graphics processing units specialized for mining cryptocurrencies in an anti-smuggling operation. This is the first time local authorities have caught smugglers in the act of transporting crypto mining equipment. (IT House, in Chinese)

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INSIGHTS | Antitrust push in China tech

Tue, 06 Apr 2021 06:41:51 +0000

On March 12, China’s top antitrust regulator said it had issued fines to 12 Chinese companies over 10 investment deals in the internet sector that were in violation of the Anti-Monopoly Law. The State Administration for Market Regulation (SAMR) disclosed the 20 companies that were involved in those deals.

Nearly all of the companies mentioned were Chinese companies considered “big tech,” or their subsidiaries. They include Alibaba, Tencent, Didi Chuxing, Baidu, JD.com, ByteDance, Meituan, and Suning. Those firms were fined for failing to report merger and acquisition (M&A) deals in advance, which is considered a violation of China’s antitrust law.

Bottom line: The penalties—RMB 500,000 (around $76,095) each—were trivial for companies of such size. But the regulator’s move was a warning: China’s tech antitrust campaign, which began in November, has not ended and will only grow in scope and severity.

A brief timeline

August 2016: Chinese regulators open an investigation into the merger deal between Chinese ride-hailing platform Didi Chuxing’s merger with US rival Uber. The investigation appeared to be unofficially suspended by the time Uber filed for a public listing in April 2019.
January 2019: SAMR launches an antitrust probe into Tencent Music Entertainment’s dealings with the world’s three largest record labels. A year later, the regulator decided to suspend the investigation.
January 2020: SAMR proposes an overhaul of China’s 2008 Anti-Monopoly Law and introduces a set of antitrust regulations tailored for the internet industry. The revision of the law is in the pipeline to be approved by China’s legislature.
November 2020: The Shanghai technology bourse halts an initial public offering for Alibaba’s Ant Group, citing “changes in the regulatory environment.”
November 2020: SAMR proposes new guidelines targeting anticompetitive behavior to include internet companies. The new rules widen the reach of certain antitrust terms that previously only applied to the physical economy.
December 2020: SAMR imposes antitrust-related fines on three acquisition deals involving Alibaba, Tencent, and SF Express, a move that legal experts described as the country’s first batch of antitrust enforcements against tech firms.
December 2020: SAMR announces an anti-monopoly investigation targeting Alibaba.
February 2021: SAMR’s guidelines targeting internet companies come into effect.
February 2021: SAMR imposes a RMB 3 million penalty on the operator of Chinese flash sale online retailer Vipshop.com for unfair competition.
March 2021: Reuters reports that SAMR is looking into Tencent’s WeChat for monopolistic practices and how the popular messaging app had possibly squeezed smaller competitors.
March 2021: SAMR issues fines to companies including Tencent, Didi Chuxing, and Baidu over 10 investment deals in the internet sector that were in violation of the Anti-Monopoly Law.

Most fines are about unreported deals: SAMR issued three rounds of fines to tech companies over anti-competitive practices. Except for the Vipshop case, the fines were all related to a clause in the 2008 Anti-Monopoly Law that requires companies to report investment or acquisition and merger deals that could create a “market dominant player,” or one that will hold more than 50% share of its relevant market.

In those cases, firms were fined the maximum amount allowed by the existing legal framework, or RMB 500,000 each.
SAMR’s overhaul of the Anti-Monopoly Law will allow regulators to issue fines up to 10% of the offending company’s annual revenue.
Most deals in question can be traced years back. For example, Baidu’s 2014 acquisition of smart home equipment maker Ainemo was fined in the March action.
SAMR hasn’t, so far, asked any of the companies to reverse the deals in question. But lawyers we talked to said the companies may be asked to do so as SAMR steps up enforcement.

SAMR is waiting for the law to catch up: The regulator is pushing for an overhaul of China’s Anti-Monopoly Law and other regulations—its punitive concentration on unreported M&A deals is evidence that it may lack the essential legal vehicles to rein in internet companies. It also may explain why the regulator dropped investigations into the Didi-Uber merger deal and the Tencent Music Entertainment case.

China on Feb. 7 formalized SAMR’s internet antitrust guidelines and, on Feb. 8, the regulator used it to fine Vipshop over unfair competition behaviors identified by the new guidelines.
The guidelines, dubbed the Antitrust Guidelines for the Platform Economy, specifically targets internet companies. It forbids internet platforms from forcing merchants into exclusivity deals, offering different prices based on user data, and using algorithms to manipulate the market.
Vipshop was fined based on clauses about exclusivity deals, according to SAMR.
SAMR’s proposed amendment to China’s Anti-Monopoly Law also asks authorities to consider factors such as network effects—services that rise in value as their user bases grow—as well as company size and data assets when determining whether a company is a dominant player. But the amendment—different from SAMR’s guidelines which were active starting in February—is not effective yet. China’s legislature said in March that it would review and approve the revision “this year.”

What’s next? Growing quickly by buying smaller competitors is a common practice in China’s tech industry. Giants created by merger deals include Meituan, which merged with rival Dianping in 2015; and classified advertising site 58.com, which merged with rival Ganji in the same year.

Didi Chuxing, China’s largest ride-hailing platform, also established its dominance in the market through the 2016 deal with Uber.
The problem is that companies are usually not aware that they may be obligated to report those deals for antitrust review. As China steps up anti-competitive regulations in tech, M&A deals will be more and more subject to market regulator review, potentially stopping tech companies from scaling in size by merging with rivals.

The worst is yet to come: While China’s antitrust regulators have been taking relatively mild measures against tech firms, signs show that more serious moves are on the horizon.

In September, Tencent offered to take NYSE-listed search engine Sogou private in a $3.5 billion deal as its sole owner. In December, Reuters reported that SAMR wanted to “make an example” using the deal and is “planning a thorough review that could mean the deal may miss a July 2021 completion deadline.”

However, existing monopolies may not have to worry about being broken up. “There are no such provisions for breaking up monopolies in China’s antitrust law,” Deng Zhisong, an antitrust lawyer at Dentons law firm in Beijing, told TechNode in December. What the regulator can do is issue steep penalties and veto deals that don’t pass muster.

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BSN architect Red Date to bring R3’s Corda enterprise blockchain to China

Wed, 31 Mar 2021 05:57:20 +0000

Red Date Technology, the firm behind government-backed blockchain platform Blockchain Services Network, has licensed American distributed ledger company R3’s enterprise blockchain to resell in China.

Why it matters: This is the first time Red Date has acquired the rights to resell enterprise blockchain from an overseas provider. Primarily known for its role with the BSN, Red Date is diversifying to become a heavyweight in China’s blockchain industry.

Backed by Bank of America, Merill Lynch, HSBC, and Singapore’s Temasek, the Corda consortium blockchain is a big name overseas but has yet to land in China.
The partnership will allow Corda to tap into China’s banking industry as well as the e-CNY. R3 is also eyeing central bank-backed digital currencies.
The move is likely to attract big Chinese firms to build decentralized applications using Corda.

READ MORE: EXCLUSIVE | Chinese state banks accepting applications for enterprise e-CNY accounts

Details: Corda’s enterprise nodes will connect to notary nodes hosted on China UnionPay’s cloud, forming a single China Corda Network, Yifan He, CEO of Red Date told TechNode. Chinese firms will be able to participate in Corda’s enterprise blockchain through Red Date.

Notary nodes prevent double spending by attesting that a transaction has not already occurred.
China UnionPay is considering an active role in managing the China Corda Network, He said.
Corda’s main clients overseas are banks, so He expects adoption within China’s financial services industry.
Red Date will also roll out an open permissioned version of Corda on the BSN available to developers.
He expects the paid version to be available in the next four months.

We’re aware of R3’s huge success outside China… Red Date will also help to drive Corda and CorDapps’ [Corda decentralized application] adoption among all Chinese banks.
—Yifan He, CEO of Red Date Technology

Context: Following the rollout of the BSN, Beijing-based Red Date has been breaking out its other products.

In December, the company told TechNode that it is working on two projects aimed at capitalizing on central bank-backed digital currencies and stablecoins.
Launched in 2015, R3 was one of the first companies to move into enterprise blockchain adoption.
Corda is used by financial firms around the world; the Nasdaq stock exchange uses it to build market infrastructure and Italian banks use it for interbank payments.
China’s central government is keen on deploying blockchain as infrastructure for data integration.
State Grid announced Tuesday that it is working with Beijing-based Wanglu Tech to integrate blockchain in its data management. Wanglu’s VP of operations told TechNode that Chinese banks are preparing for blockchain adoption.

READ MORE: State Grid to deploy Wanglu Tech’s blockchain for data integration

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Digital yuan bonanza, State Grid blockchain: Blockheads

Tue, 30 Mar 2021 06:49:25 +0000

The first known digital yuan B2B transaction took place in northern China, while regulators called for its accelerated rollout. China’s State Grid is working with a Beijing-based blockchain company to revamp its data management. Singaporean DBS Bank issued bonds using blockchain. Fenbushi Capital raised $23 million to invest in Filecoin projects.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of March 23 – 30.

Digital yuan everywhere

The first B2B transaction using China’s digital currency took place between two companies in Dalian, a city in northeast Liaoning province. Two local companies completed a transaction for fuel using a settlement platform for B2B transactions using the e-CNY. (Grand View News, in Chinese)
Mu Changcun, head of the central bank’s Digital Currency Research Institute, proposed a set of rules for sovereign digital currencies at a seminar at the Bank of International Settlements. (Reuters)
A group of 28 Chinese regulators including the People’s Bank of China, the Ministry of Commerce, and the Cyberspace Administration of China called for accelerating digital yuan pilots, prioritizing cities active in new forms of consumption for pilots, and improving operating efficiency and transaction costs. (Office of the central government statement, in Chinese)
Six state-owned banks have started competing for digital yuan wallet users, and have set user acquisition targets for their staff. The banks are Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, Bank of Communications, and Postal Savings Bank. (Payments Encyclopedia, in Chinese)
Changsha in central Hunan province joined the pilot programs—more than 3,000 local businesses accept the central bank-backed digital currency. (Changsha Evening Post, in Chinese)

SOE chain

China’s State Grid will use Wanglu Tech’s consortium chain to integrate data in a city in eastern China. The state-owned company likely won’t be the last to adopt blockchain: The central government recently named blockchain a strategically important technology. (TechNode)

Blockchain bonds

DBS Bank worked with Shanghai Pudong Development Bank and China Central Depository and Clearing to issue RMB 2 billion ($304 million) of tier-two capital bonds using a consortium blockchain. (China Banking News)

Network upgrade

Neo is launching N3, the third version of its network, which promises faster transaction speeds and low transaction costs, oracles, distributed file storage, and a new governance mechanism. (TechNode)

The investments

Shanghai-based venture capital investor Fenbushi Capital closed a $23 million round for a Filecoin ecosystem fund. The VC said it will not invest in projects related to Filecoin mining. (Fenbushi Capital official Medium account)
Gaming company The9 agreed to purchase 482 MicroBT M31S+ Whatsminer crypto mining rigs. The9 is partnering with MicroBT competitor Canaan Creative to launch a mining business. (The9 statement)

Cryptocurrency heists

Police in Jiangsu province busted an operation that was selling plug-ins used to hack mobile games. The global network of cheat code sellers was using Bitcoin for transactions and had a turnover of hundreds of millions of US dollars. (CCTV, in Chinese)
Six suspects were arrested in Jiangxi province for stealing RMB 14.5 million worth of cryptocurrencies by hacking phones. (Beijing Youth Daily, in Chinese)

The mining

According to the National Development and Reform Commission, the Inner Mongolia autonomous region has been slow to implement energy consumption rules. The province had proposed shutting down cryptocurrency mines in the region, and analysts expect the latest government reprimand to lead to further restrictions. (Wu Blockchain, in Chinese)
Deputy mayor of Ya’an, a city in Sichuan province in China’s southwest, voiced support for the local mining industry. (Wu Blockchain)

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State Grid to deploy Wanglu Tech’s blockchain and smart contracts

Tue, 30 Mar 2021 03:02:00 +0000

The State Grid Corporation of China will trial the use of blockchain and smart contracts using Beijing-based Wanglu Tech’s cross-chain consortium chain, the company told TechNode.

Why it matters: The collaboration is the first concrete step taken by a Chinese state-owned enterprise (SOE) to adopt blockchain technology.

The announcement follows just two weeks after blockchain was named for the first time a strategically important technology in China’s Five-Year Plan.
The news bodes well for Wanglu: State Grid is the world’s largest utility provider and third-largest company by revenue.

Blockchain for privacy: The company will deploy a blockchain-based data-sharing and management platform for State Grid in a city in eastern China, Li Ni, Wanglu’s VP of operations told TechNode.

The company aims to seamlessly integrate massive amounts of data that is currently spread through different departments while preserving consumer privacy.
“Managing and utilizing data is a priority for State Grid,” said an employee of the company who spoke to TechNode on the condition of anonymity.
Using blockchain, State Grid hopes to break through data silos to conduct—often using artificial intelligence—analysis without endangering consumer privacy as it works to modernize its services and capabilities.
Using a privacy-focused field of cryptography called secure multi-party computation and zero knowledge proofs, Wanglu’s chain promises to allow different departments to access specific data without revealing customers’ personal information.
Li explained the problem: “Say I am from the marketing department. I want to know your electricity bill because I’m doing customer analysis. But the bill data is maintained by the sales department, which says personal information like names and addresses cannot be shared with another department,” Li said.
Wanglu’s blockchain will make relevant data available while concealing personal information.
The company declined to publicly disclose the RMB value of its contract with State Grid.

Testbed: State Grid is positive but conservative about using new technology, the SOE employee said.

Li expects the blockchain to be deployed in September. After it is operational for about three months, State Grid will evaluate the blockchain and decide whether it should be deployed to other places, Li said.
“The whole system costs billions or trillions of RMB, they cannot give you the whole system to implement your idea,” Li said. “We need to pick a place or scenario.”

Connecting islands: Several SOEs such as banks and mobile network operators are preparing similar feasibility studies for blockchain, according to Li. “This will be an example for others to follow,” he said. Connecting all the blockchains such that different companies can share data is important for the technology to work.

“All the different chains are considered isolated islands,” Li said.
Wanglu’s interoperability solution will solve this problem, and it was key to landing the contract with State Grid, according to Li.

Long process: The procurement process started in the second quarter last year, when State Grid invited about a dozen companies to submit proposals for data management. In July, they selected Wanglu to proceed with a full feasibility study. After submitting in August, they had to make many changes because the SOE “asked a lot of questions,” Li said.

The feasibility study was submitted and accepted in October, after which Wanglu had to conduct field trips to State Grid and a technical evaluation before the final go-ahead to deploy in other locations.

Wanglu: Founded in 2016 and based in Beijing, Wanglu Tech focuses on government and enterprise blockchain applications. It also runs a public chain called Wanchain.

Wanglu was the first Chinese company to launch a cross-chain solution in 2018.
Unlike other blockchain companies, Wanglu is targeting SOEs because “they have the power, resources to do blockchain innovation,” according to Li.

Context: State Grid is piloting the use of 5G, AI, big data, and internet-of-things solutions to modernize its infrastructure.

Chinese government-affiliated entities are all-in on blockchain for data management, but progress has been lacking. The Beijing municipal government last year announced an ambitious plan to use blockchain in 12 areas of governance.
Hangzhou is using Ant Group’s chain to manage company seals.
State Grid is involved in Chang’an Chain, a “hardware and software” blockchain.

READ MORE: Enterprise blockchain to integrate China’s digital yuan

Update: The headline and first paragraph of this article have been revised to add detail about the services State Grid is testing.

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Digital yuan for business, Filecoin double spend: Blockheads

Tue, 23 Mar 2021 04:06:59 +0000

Two Chinese banks are accepting applications for digital yuan business bank accounts, TechNode has learned. A glitch lead to a $4.6 million Filecoin double deposit on Binance. Chinese authorities want to raise awareness about money laundering using cryptocurrencies, while police in Turkey busted a Chinese-run crypto scam with 101 captive employees. A $2.34 million DeFi heist took place on Binance Smart Chain.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of March 16 – 23.

The digital yuan

Bank of China in Beijing has started accepting applications for enterprise digital yuan accounts, while China Construction Bank in Suzhou is opening merchant accounts using China’s state-backed digital currency. Enterprise accounts will significantly widen the e-CNY’s use cases. (TechNode)
The director of the central bank’s digital currency research institute, Mu Changchun, gave details about controllable anonymity in the e-CNY, a term officials have used to explain the digital currency’s privacy features. The digital yuan wallet will open an encrypted sub-wallet that will connect to e-commerce platforms when shopping online, such that the user’s bank card information and other personal data cannot be accessed by the platform. (STCN, in Chinese)

Filecoin accounting problem

Binance processed a $4.6 million double deposit of Filecoin, the token of the InterPlanetary File System (IPFS) decentralized file storage system. The initiator of the transaction tried to speed up a transaction by issuing a call for a replace-by-fee transaction, essentially asking a miner to confirm the transaction for a higher fee. The system would have normally ignored the first transaction, but it didn’t. This led to the initiators’ money doubling, from 61,000 Filecoin to 120,000. (CoinDesk)

Binance blamed a bug in Filecoin’s code. Filecoin said that the exchange was not using its API correctly. (Filecoin official blog)

Crypto crimes

China’s Supreme Court and the People’s Bank of China jointly wrote about six examples of money laundering, including one that involved Bitcoin. Chen Moubo and his ex-wife Chen Mouzhi used the cryptocurrency in 2019 to launder RMB 900,000 ($138,233). Chen Mouzhi was jailed for two years and fined RMB 200,000. The government is reportedly working to update money laundering laws. (Southeast Network, in Chinese)
Police in Turkey raided a crypto scam operation run by Chinese nationals who held 101 employees captive on the site. (TechNode)

The exchanges

Huobi and Binance, two of China’s top exchanges, quietly increased transaction fees for a version of stablecoin Tether, one of China’s most popular cryptocurrencies, issued on the TRON network. (Wu Blockchain, in Chinese)
Huobi reportedly consolidated all of its operations under the leadership of Du Jun, who was at the exchange’s helm while the CEO Leon Li was missing in action as he was cooperating with Chinese authorities in an investigation. Li only returned to work earlier in March. (Wu Blockchain)

A second Binance heist

Another decentralized finance project on Binance Smart Chain, the cryptocurrency exchange’s DeFi oriented blockchain, disappeared with an estimated 9,000 BNB coins ($2.34 million at the time of writing). The project, dubbed TurtleDex, claimed to be a decentralized file storage solution. (Binance Smart Chain announcement)

READ MORE: Holiday Bitcoin sell-off, $3 million Binance Smart Chain heists

Another Meitu crypto purchase

Meitu announced it will buy close to $50 million in Bitcoin and Ether, just weeks after it announced a $40 million purchase. (Meitu filing)

Some of these [Bitcoin’s] features potentially even render Bitcoin as a superior form to other alternative stores of value such as gold, precious stone and real estate.
—Meitu in its filing about its second cryptocurrency purchase

Blockchain labor

The number of posted jobs in China for blockchain developers decreased 45% year on year in November, an analysis of job postings by blockchain market research firm Zero One found. Average salaries in the country have dropped 1.5% to RMB 22,300 ($3,400) although they remain significantly higher than China’s average monthly pay. Small companies with staff numbering between 50 and 149 people made up the biggest slice of China’s blockchain companies, accounting for 35.3% of the sector, followed by giants with 500 to 4,999 employees, which made up 22.9%. (Zero One, in Chinese)

6nm chips

Cryptocurrency rig maker Ebang announced it completed the design of its first 6-nanometer ASIC chips for Bitcoin mining. Ebang stock rose 4.5% on the back of the announcement.(Ebang press release)

The NFTs

Bart Baker, an American social media influencer with millions of fans on Douyin, will release a series of non-fungible tokens (NFT), a type of crypto collectible, on DefineArt, a new NFT exchange that is targeting Asian investors. (CoinTelegraph)

READ MORE: CHINA VOICES | What China thinks of NFTs

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China Tech Investor: Chinese Antritrust Exceptionalism, with Angela Huyue Zhang

Fri, 19 Mar 2021 11:13:24 +0000

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

Recorded live on Clubhouse, Elliott chats with University of Hong Kong professor Angela Zhang about her new book “Chinese Antitrust Exceptionalism.” They explore the unique structural and cultural frameworks that distinguish China’s antitrust approach from that of other prominent nations, how China may use antitrust in its competition with the US, and what investors can learn from Ant Group’s halted IPO.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

Tencent
Alibaba
Baidu
Bilibili
Xiaomi
JD
Pinduoduo
Meituan-Dianping

Hosts:

Elliott Zaagman– @elliottzaagman
James Hull– @jameshullx

Guest:

Angela Huyue Zhang – @AngelaZhangHK

Editor:

Peter Isachenko

Podcast information:

iTunes
Spotify
RSS Feed
Music: “Hey Ho” by Steve Jackson, Royalty Free Music

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EXCLUSIVE | Chinese state banks accepting applications for enterprise e-CNY accounts

Thu, 18 Mar 2021 10:02:27 +0000

Two major Chinese state banks in Beijing and Suzhou have started opening up e-CNY merchant and enterprise accounts for businesses, bank employees told TechNode.

Why it matters: Chinese banks had only been known to set up personal e-CNY accounts for individuals. Merchant accounts are a step toward widespread retail use of the new currency. Enterprise accounts will significantly widen the scope of use cases to include larger business transactions.

READ MORE: UPDATED: We got some digital yuan!

Details: TechNode contacted two bank branches Wednesday. At the Bank of China in Beijing, staff said they are accepting applications for enterprise e-CNY accounts. Bank staff said that the bank had already started granting applications to businesses, but the accounts were not yet operational.

Enterprise accounts are normally used for financial operations like payroll and taxes rather than retail transactions, although the employee did not specify what the digital RMB accounts will be used for.
All domestically registered businesses are eligible to apply, the employee said.
China Construction Bank in Suzhou has started opening digital yuan accounts for local merchants, an employee told TechNode over the phone on Wednesday. These accounts are typically used for retail transactions with customers.
The Suzhou bank employee said that the accounts cannot currently be used for management operations like payroll and taxes, and did not say whether they will be in the future.
Digital RMB accounts are required to hold the new currency.

Context: Trials for the digital yuan have accelerated in the last few months, and China is likely to be the first major economy to issue a state-backed digital currency.

Closed-door pilots for the digital yuan began in April 2020 in four cities: Chengdu, Shenzhen, Suzhou, and Xiong’an. In November, Shenzhen held the first e-CNY lottery, which made the digital currency available to lucky members of the public. Suzhou and Chengdu followed with their own lotteries.
The digital RMB will soon get to step onto the international stage—China is working with Hong Kong, Thailand, and the United Arab Emirates to test cross-border transactions using state-backed digital currencies.
A Beijing-based enterprise blockchain announced plans earlier this month to integrate the digital yuan.

READ MORE: CHINA VOICES | DCEP class is in session, with Zhou Xiaochuan

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Turkish police bust Chinese crypto scam that held 101 workers captive

Wed, 17 Mar 2021 09:48:51 +0000

Turkish police busted a Chinese-run crypto scam ring that held 101 people captive as they worked for the illicit operation.

Why it matters: A three-year-long crackdown on cryptocurrency-related fraud in China has made it difficult for scams to run domestically. It seems scammers are still targeting Chinese consumers from abroad.

Indentured scamitude: Police forces raided the gang’s villas, where they found $200,000 in fiat currency, 712 mobile phones, 677 SIM cards, and 112 computers, according to a Google translation of a March 13 Turkish-language report from news agency Demirörenon.

Police that that the organization was run by 18 ringleaders, six of whom were detained after the raid.
The leaders brought 101 people, including an unspecified number of Chinese nationals, to Turkey on tourist visas to work for the operation. They then took their passports and prevented them from leaving the site. The captive employees earned a monthly salary of RMB 7,000 ($1,000).
The scam was run out of nine villas in Silivri, a coastal city near Istanbul, Turkey’s capital.
The raid happened after two captives sneaked out at night and alerted authorities.
The 101 captives were taken to provincial authorities for “appropriate action,” according to the report.

Crypto pyramid: The operation was advertising a consultancy to help Chinese consumers who were looking to manage their crypto assets. “Hand over your virtual money to us, we will double it and give it back to you,” their online ads wrote, according to the Demirören report. The report does not specify whether the organization in fact doubled users’ money and gave it back to them.

Context: Crypto scams in China were abundant before 2017, when the government started cracking down severely on the industry. Known instances of Chinese nationals running crypto gangs from overseas are few and far between.

In December 2020, police in Jiangsu province seized $4 billion in various cryptocurrencies when they busted an international crypto Ponzi scheme.
In late January, Croatian authorities exposed scammers claiming they are selling China’s digital currency on Facebook. The digital RMB is currently in closed trials in the mainland.
Days after the incident in Silvrisi, a senior Turkish minister said that the country is laying the foundations for a regulated cryptocurrency industry.

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New e-commerce laws address livestreams, forced exclusivity

Tue, 16 Mar 2021 17:31:23 +0000

China’s market regulator introduced on Monday a set of e-commerce laws pertaining to more recent developments in the sector, including livestreamed sales, user data privacy, and forced exclusivity.

Why it matters: The new rules addressing newer innovations in China’s massive e-commerce industry are an important complement to the E-commerce Law that came to effect in 2019.

Details: The State Administration for Market Regulation, China’s market regulator, unfurled (in Chinese) rules regulating transactions made online at the annual 315 consumer rights protection gala held Monday.

The rules require platforms which sell via social e-commerce and livestream e-commerce as well as merchants on these platforms to comply with the responsibilities of online transaction marketplaces as described in the law. Selling via livestreams and social media are innovations that have gained popularity since the release of the e-commerce law in 2019.
Livestream e-commerce platforms are required keep the videos for at least three years after the end date of the live video session.
The platforms have to gain user consent for the collection and utilization of personal information including biometric data, medical and health information, and financial accounts.
The new rules will also ban services that engage in misleading practices such as falsifying selling volume and audience numbers, or promoting favorable reviews over others.
The guidelines also prohibit practices that facilitate “forced exclusivity,” including suppressing product listing rankings of merchants who decline to sell exclusively on one platform, removing or blocking such online stores, and raising service fees for such sellers.
The measures are important for “improving the online transaction supervision system, regulating the online transaction space, maintaining fair competition, and creating secure online consumption,” a report from state-backed news agency Xinhua cited the regulator as saying.

READ MORE: New law brings structure, discipline to the willful world of Chinese e-commerce

Context: China has stepped up regulation of the flourishing e-commerce industry over the past few years.

China’s Electronic Commerce Law came into effect in 2019.
In June, the China Advertising Association (CAA) issued rules banning false and misleading advertising on livestreams and requiring real-name registration from both merchants and individual livestreamers.

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China clamps down on 136 apps for privacy violations

Tue, 16 Mar 2021 16:13:40 +0000

Chinese regulators have given more than 130 apps including those developed by dronemaker DJI, social media and gaming giant Tencent, and artificial intelligence firm iFlyTek until Wednesday to fix privacy violations that include overcollecting users’ personal information.

Why it matters: China has increased scrutiny on how private companies handle the data of its nearly 1 billion internet users.

The country’s latest Five-Year Plan set out goals to develop systems and standards for data security rights and protections, as China pushes its digital economy.
The amount of data that companies collect has become a major concern for Beijing. Regulators have led several crackdowns on the digital sector aiming to curb rampant data collection.

READ MORE: The loophole in China’s privacy regime: anonymization

Details: China’s Ministry of Industry and Information Technology (MIIT) said on Friday the companies had overcollected personal information and misled users into downloading their software.

The MIIT said that the companies had been notified about the issues after an investigation but had yet to resolve the issues. The ministry has given the firms until Wednesday to deal with the violations.
Apps included on the list include DJI GO 4, iFlyTek’s speech-to-text dubbing platform Peiyin, and Tencent’s mobile security app.
The 136 apps are the third batch of the MIIT has cracked down on so far in 2021, according to the ministry.

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China is traveling with a digital vaccine passport

Tue, 16 Mar 2021 10:55:35 +0000

China on March 9 rolled out its own “vaccine passport” amid global controversy around potential equality and privacy issues of the health document.

China’s vaccine passport, the International Travel Health Certificate (ITHC), serves as an international version of China’s year-old health code system that helped the country resume domestic travel after the initial outbreak early last year. It contains information such as the holder’s coronavirus test results, vaccination records, and antibody test results, according to China’s foreign ministry (in Chinese).

To sign up, users enter their passport number in a foreign ministry-owned mini program on Tencent’s WeChat instant-messaging platform. Verify your identity using face recognition, and the certificate is instantly available. It is currently only available for Chinese nationals. China hasn’t revealed plans to issue the certificate to foreign nationals living inside or outside of the country.

(Image credit: Ministry of Foreign Affairs of the People’s Republic of China)

The health code system began as a patchwork of different apps rolled out by local governments to track residents’ travel history and body temperatures, often with varying standards. It has since evolved into a nationwide database network of individuals’ health information. It appears that the newly launched vaccine passport also has access to the same data.

Like the health code system, China’s vaccine passport may provide the world with a new option in the quest to resume normal international travel. China is promoting its standards for post-Covid travel documents. Experts have expressed concerns that the use of such certificates may exceed the scope of containing the coronavirus and empower governments to reinforce social control.

International health code

China joins a host of countries experimenting with vaccine-certificate systems. The EU and the G7 are developing a regional system that will allow vaccinated travelers between participating countries to cross borders without quarantines. Thailand is issuing single-country certificates to enter—a vaccine visa, if you will. Israel and Bahrain have deployed digital certificates for domestic re-opening. China, with mostly closed borders and a largely re-opened domestic economy, is deploying a one-country system to vouch for outbound citizens

Beijing hopes to persuade other countries to accept its system as proof of vaccination. Wang Yi, China’s foreign minister, said at the announcement of the ITHC last Tuesday that the document “fulfills Chinese President Xi Jinping’s proposal to inter-recognize health codes internationally” (our translation).

Xi first made the comment about a “global mechanism” of the health code system to allow international travel at an online meeting at the G-20 summit in November. “We need to further harmonize policies and standards and establish ‘fast tracks’ to facilitate the orderly flow of people,” he said at the time.

A spokesman for China’s foreign ministry Zhao Lijian told reporters (in Chinese) on Thursday that the country had promoted and introduced the ITHC to “countries and relevant international organizations.” He added that some countries and international organizations had “expressed willingness” to cooperate with China, without naming them.

Nations are scrambling to set up standards for vaccine passports. The British government said last month that it would work with other countries through the World Health Organization (WHO) and the G-7 on “a clear international framework with standards that provide consistency for passengers and industry alike.” The European Commission said earlier this month that it would put forward legislation this month that will lay out the details on the format of a common EU vaccination certificate.

But unlike the EU and G7 nations, which are discussing regional vaccine passports that will allow people to travel freely, China seems to be unilaterally pushing for recognition of its vaccine passport for its citizens, said Nicole Hassoun, a professor at Binghamton University and the author of the book Health Impact: Extending Access on Essential Medicines for the Poor.

Hassoun suggested that China will need reciprocal arrangements. “They hope that other countries will eventually recognize their citizens’ certificates and allow them to skip quarantine, but right now China does not have a plan to let visitors skip quarantine,” she told TechNode.

Will it work?

It’s too early to say if China’s vaccine passport will be a success, but it used a similar health code system to tackle the virus and resume domestic travel. The effectiveness of the system and other key measures—including its strict mandatory lockdown in early 2020—is difficult to deny, as life within China nears normalcy while many other countries struggle to contain the virus a year later.

The eastern city of Hangzhou was the first city in China to roll out the health code system in January 2020.

The QR code-based system allowed people to travel inside China with greater freedom. A green code usually meant that the holder was a low risk for carrying the coronavirus and could thus be freed from quarantine after traveling. Accordingly, a yellow code meant medium risk and a red code, high.

In the early stages of the system, code colors were given based on individuals’ self-declaration of Covid-related symptoms, travel history, and body temperatures. Now, the system has become a nationwide network of databases that contains information like Covid test results and vaccination history.

For the past year, China’s domestic public transportation system, which was one of the busiest in the world, has relied on those codes to manage and track travelers.

What are the concerns?

Experts have warned that vaccine passports could deepen inequality as residents of countries with access to vaccines can now do things that others cannot, including traveling.

Michael Ryan, executive director of the World Health Organization’s Health Emergencies Programme, said on March 8 that “vaccine passports” for Covid-19 should not be used for international travel because of ethical considerations that coronavirus vaccines are not easily available globally.

“Immunity passports inherit all the inequity in vaccine distribution,” said Hassoun of Binghamton University. “Most people are not eligible because most people cannot access the vaccines.”

China’s vaccine passport also inherits the health code system’s privacy concerns. While the health code system is widely used to track the spread of the virus, it also captures data about people’s whereabouts on a vast scale.

In Beijing, people are now required to scan and register using health code mini-apps embedded in the WeChat and Alipay smartphone apps every time they enter a shopping mall or take a taxi. But in most Chinese cities, people are only required to show their health code at checkpoints, and their location information is not logged.

Nonetheless, governments around the world are introducing or considering such systems. Their attraction is that they “may provide validated clinical information to facilitate expanded social engagement including travel,” John Nosta, president of healthcare think tank NostaLab and a member of the WHO’s Digital Health Roster of Experts, wrote in an email. “The danger is that some assessments go beyond Covid-19 and reveal other clinical realities that the individual may not wish to reveal.” He also warned that countries may limit the entry of people with other conditions such as mental health issues.

A city in eastern China had sought to make the health code system the norm even beyond the pandemic, but was met with backlash from netizens. In May, Hangzhou revealed plans to “normalize” (in Chinese) the city’s health code, monitoring people’s medical records, physical examination results, and lifestyle.

Behaviors such as consuming alcohol would degrade the holder’s “health score,” while physical exertion such as long-distance walking would increase the score, according to local media reports about plans for the system. The plan was widely criticized on social media and has not been mentioned ever since.

“I’m fearful that once the toothpaste of a vaccine passport is out of the tube, there’s no putting it back,” Nosta said. “Other diseases and conditions may be flagged and establish new restrictions—from mental health to other infectious diseases—that can excessively empower governments for a new level of social engineering.”

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CHINA VOICES | What China thinks of NFTs

Mon, 15 Mar 2021 06:02:50 +0000

Will blockchain-powered digital collectibles revolutionize the art world, or are they just another bubble waiting to burst? Collectors have dropped millions of dollars on crypto keepsakes, known as Non-Fungible Tokens (NFTs), in the last two weeks, and Chinese social media is buzzing.

As the novel assets start to sell for millions in the West in forms ranging from fine art to trading cards, Chinese tech and art influencers have been asking whether they’re a real investment, and what they mean for the art industry. So far, art and blockchain outlets have been mostly positive, while social media users have been more mixed.

As far as we can tell, China is not a big consumer of tokenized art yet, although there is no hard data on the regional spread of NFT transactions. A Chinese-developed chain Binance Smart Chain, is powering some NFTs, although most use Ethereum.

What’s an NFT?

NFTs are crypto assets based on blockchain: Whenever a token is bought or sold, the transaction is recorded on an ever-growing digital ledger.

Unlike Bitcoin, each NFT is unique and can’t be duplicated, so they can’t function as a currency, but as collectibles. In digital art, encrypting works into NFTs acts like a signature: The original can always be identified by the signature while countless copies are created.

NFTs currently exist in a legal grey zone in China. Their future is uncertain: They are not currencies, which is the prohibited use of Bitcoin. Holding crypto assets like collectibles is likely ok. But NFTs can foster speculation, which is what Chinese authorities were trying to stomp out when they banned crypto-public listings known as Initial Coin Offerings in 2017.

Four events pushed NFTs into the trending column of the Twitter-like Weibo in the last couple of weeks.

March 2: US artist Beeple sold a 10-second video titled “Crossroads” for $6.6 million on an online Christie’s auction. The related hashtags have been viewed over 1.63 million times on Weibo as of the time of writing.
March 8: the founder and CEO of Twitter Jack Dorsey announced he is auctioning the first Tweet as an NFT. The CEO of Oracle Hina Estavi reportedly bid $2.5 million. Related hashtags have been viewed over 3 million times on Weibo.
March 10: a group of self-described “art and NFT enthusiasts” bought a Banksy artwork for $98,000, burned it, and sold it as an NFT for $380,000. The hashtag “burn an artwork so that it can be sold for over four times the price” gained over 44 million views on Weibo in 24 hours.
March 12: Beeple sold a digital painting for $69 million, the hashtags have been seen almost 2.4 million times.

Welcome change

Many in the art world have rushed to welcome NFTs as a breath of fresh air in what they see as a dinosaur industry with a strict hierarchy.

Traditional art trading is a rather conservative industry. It is highly hierarchical, highly opaque, and often slow to accept new things. All attempts to challenge its structure are questioned for a long time.
Sonia Xie, Vogue China, March 11

Crypto collectibles could bring tech-savvy, or tech-hungry, millennials into auction houses.

The entry of NFT encrypted art works into the auction market marks a possible trend: that auctions need to attract a new generation of customers who are not in the field of traditional art collection.
Yu Yi Collection Auction Magazine, March 4

Or it could get really metaphysical.

Art investment will be able to transcend material forms.
Yu Yi Collection Auction Magazine

Power to the people

Others don’t see auction houses and collectors as the benefactors of tokenized art. Instead, they see technology fueling a revolution in art markets. This techno-optimistic argument is that NFTs will change the relationship between artists, sellers, and buyers, to the benefit of artists and small-time art investors.

It is not only a change in artistic form, but also a change in production relations.
Yuan Yan, Art Business, Feb. 25

Digital art creators will be able to wrangle some power over their works from the collectors by maintaining ultimate ownership of their own creations even after it is sold, the magazine wrote.

In the traditional art industry, after a buyer purchases a work, the buyer holds its ownership, exhibition rights, sales rights, and even copyright. […] Digital art collectors who own the NFT may only have the reputation rights and trading rights as the supporters of the artist, while other rights need to be determined by the artist, the collector, and the market.
Yuan Yan, Art Business

The most techno-utopian of the takes imagined a world in which NFTs provide financial tools that could allow artists to capitalize on their art in new ways, and the general public to invest in artwork as stocks.

In the traditional art market, artists usually only get a share when their works are sold for the first time. After that, the profits generated by each resale of their works all belong to the seller. In the field of encrypted art, artists can hold “shares” of works through customized smart contracts, and a portion of the premium generated by each exchange in the future will be distributed to artists in proportion.
Sonia Xie, Vogue China

Tulip mania?

But not everyone was into the hype, especially on Weibo. Some voices warned that NFT art might be the next bubble.

Often due to lack of artistic professionalism or financial risk management capabilities, it has become a fundraising test ground for speculators…
The value of NFTs is often more dependent on market behavior than the value of the underlying assets. […] When we look to the beautiful picture of a decentralized, free, and open encrypted art ecosystem, where everyone is an artist, and everyone can set a price for the art they like, please also remember that no matter what platform is used, the exposure of the work is also directly affected by the platform and its popularity, and people’s attention is often directly linked to the economic value of the work.
The Art Newspaper, March 4

A report by HashKey Capital, one of China’s biggest blockchain venture capital firms, said that art is the “most suitable application” of NFT technology, but that regulation is lagging.

NFT development is in the stage of unregulated “barbaric growth”. According to the characteristics of NFT non-homogeneous tokens against physical objects, criminals may use NFT to launder money and in criminal activities such as trading prohibited items. In addition, as the value of NFT assets continues to increase and the ecosystem gradually expands, it may become a new target for hackers.
Fan Xiaoqi, HashKey Capital Research, March 3

Weibo users saw the recent NFT headlines as a gimmick to inflate the value of the tokenized art.

“The burned Mona Lisa seems to be more valuable than the Mona Lisa,” said the top voted comment on a Weibo news post about the burning of the Banksy artwork, with over 18,000 likes.

“Isn’t it just hype? They do a gimmick so that they can sell at a high price,” said the second most-liked comment on the same post, with 4,000 likes .

“Burn the person and sell their photo,” said a popular comment on another post.

FOMO

Awareness of the risks didn’t stop some blockchain publications from offering NFT investment advice. One article said that eager investors don’t want to be left out of the next big crypto market.

The NFT market is gradually gaining traction, art creators are actively exploring the production of NFT works, and investors are looking for new investment opportunities because they feel FOMO (fear of missing out).
Li Xiaoping, 8BTC.com, March 8

Instead of worrying about fine art, the article recommends investing in crypto basketball trading cards in the virtual collectors game NBA Topshot.

The NFT product that the author invests the most is NBA Top Shot, which is a blockchain-based NBA digital collection card launched by DapperLabs in cooperation with the NBA. Most of the people who play the NBA TopShot card game are born in the 90s. They have a deep affection for basketball and the NBA in their student days.
Li Xiaoping, 8BTC.com

The author describes WeChat groups in which people are discussing how to best capitalize on the NFT hype, concluding that even if the market is a bubble, it is a good opportunity to make money.

Innovation and hype, value and bubbles, are never contradictory. NFT is on the ascent.
Li Xiaoping, 8BTC.com

If prices keep rising, Chinese investors are likely to jump on the bandwagon.

This article is not currently available as an NFT, but if you have a few million dollars lying around, make us an offer!

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Chinese regulator fines Alibaba, Tencent, Didi for antitrust violations

Fri, 12 Mar 2021 08:09:26 +0000

China’s top antitrust regulator said Friday it has issued fines to companies including social media giant Tencent, ride-hailing platform Didi Chuxing, and search engine Baidu over 10 investment deals in the internet sector that were in violation of the Anti-Monopoly Law.

Why it matters: China has in recent months stepped up scrutiny of tech firms over antitrust regulations. Friday’s disciplinary action involves the largest number of companies so far and the fines issued were the maximum amount allowed by China’s existing legal framework.

A proposed overhaul to China’s Anti-Monopoly Law will allow regulators to issue fines up to 10% of the offending company’s annual revenue.

Details: The State Administration for Market Regulation (SAMR) said in a statement (in Chinese) on Friday that the deals include Tencent’s 2018 investment in edtech firm Yuanfudao, Baidu’s 2014 acquisition of smart home equipment maker Ainemo, and a joint venture set up by Didi and Japanese conglomerate SoftBank.

Other deals include a merger deal involving a subsidiary of Alibaba, and a joint venture set up by TikTok parent ByteDance and a Shanghai newspaper group.
Twelve companies including Tencent and Baidu were each fined RMB 500,000 (around $77,000) for their involvement in the deals. The penalty is the maximum for unreported anti-competitive deals according to China’s current antitrust law.
China’s Anti-Monopoly Law requires companies to report investment or acquisition and merger deals that could create a “market dominant player,” or one that will hold more than 50% share of its relevant market.

Context: In December, SAMR issued fines to Alibaba and affiliates of Tencent and logistics giant SF Express over three separate acquisition deals, a move that legal experts said was the country’s first batch of antitrust enforcements against tech firms.

In February, China put into effect new antitrust guidelines targeting internet platforms, which bans internet platforms from forcing merchants into exclusivity deals, offering different prices based on user data, and using algorithms to manipulate the market.

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Blockchain in Five-Year Plan, Meitu buys crypto: Blockheads

Tue, 09 Mar 2021 07:01:43 +0000

Blockchain was mentioned in China’s Five-Year Plan for the first time in history, while photo-editing app Meitu invested in cryptocurrencies. The digital yuan got its first domestic blockchain application, and cryptocurrency exchange Huobi nabbed an asset management license in Hong Kong.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of March 2-9.

Blockchain name check

Blockchain and the digital yuan were directly mentioned in a draft of the 14th Five-Year Plan for the first time in history, signaling a turning point in the government’s support for the technologies. The draft plan is unlikely to change substantially, analysts said. (TechNode)

Meitu purchase

Meitu, the company behind one of China’s most popular photo editing apps, bought $22.1 million worth of Ether and $17.9 million of Bitcoin. The company is China’s first major non-cryptocurrency firm to invest in virtual money. Meitu shares rose 14% immediately after the announcement. (Meitu filing)

Digital yuan

A Beijing government-backed hardware and software enterprise blockchain, Chang’an Chain, will integrate the digital RMB. It is the first known domestic application of blockchain on the digital yuan. (TechNode)
The head of the People’s Bank of China in Guangzhou, Bai Hexiang, called for cross-border payments using China’s central bank-backed digital currency in the Greater Bay Area in order to accelerate the region’s financial development. China’s Greater Bay Area includes Guangdong province, Hong Kong, and Macau. (Mobile Payment Network, in Chinese)

The exchanges

Huobi secured a coveted license to manage digital asset portfolios from the Hong Kong Securities and Futures Commission, giving hope to other Chinese cryptocurrency companies which have applied for similar license in Hong Kong. (TechNode)
In 2020, Coinbase CEO Brian Armstrong surpassed Zhao Changpeng, CEO and founder of Binance, as the world’s richest blockchain entrepreneur. (Hurun List)

China blockchain paranoia

The founder and president of Chamber of Digital Commerce, Perianne Boring, told Fox Business that China is “years ahead” of the US in blockchain technology and that it will be used to monitor US citizens. “I cannot stress enough how much is at stake for the US right now,” Boring said. (Fox Business)

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Little mention of China’s EV industry in Five-Year Plan bodes well: experts

Tue, 09 Mar 2021 05:59:29 +0000

China’s ambition to become a world leader in electric vehicles was barely mentioned in this year’s annual government work report, presented Friday—a good sign, experts said, that the market is maturing.

After strong policy support over the past several years, the market is now evolving into a demand-driven model amid waning government stimulus, Cui Dongshu, secretary general of the China Passenger Car Association, wrote in a post published Saturday. “We expect auto consumption to grow robustly beginning this year,” (our translation) Cui added.

Growing the adoption of new energy vehicles (NEVs), a catchall term referring to all-electric, plug-in hybrid, and hydrogen cars in China, has been a major agenda item for the country’s annual parliament meetings since 2015. The government had set a sales target of 5 million NEVs in its 13^th Five-Year Plan (FYP) ending in 2020 which propelled China to the top spot as the world’s biggest EV market by sales volume in 2015.

Beijing’s next goal is even loftier. It aims for NEV sales to account for 20% of overall new car sales in China by 2025 from the 2020 level of around 5%, according to a policy paper released November as part of the 14^th FYP ending in 2025. In the report delivered by Chinese Premier Li Keqiang on Friday, policymakers plan to offer more targeted measures to remove barriers and allow for massive EV adoption in the next five years. Here are the key points.

Investment

Li said Friday during the annual meetings of the National People’s Congress (NPC) that Beijing will create a comprehensive regulatory structure for market access of industrial products such as automobiles, including enhanced after-deal scrutiny and cross-functional supervision. The path to reducing red tape is such regulation, Li said, which would benefit market competition.

The main purpose of such regulation is to cool investment in the EV sector and prevent the current supply glut from worsening, Fu Bingfeng, executive vice-chairman of the China Association of Automobile Manufacturers (CAAM) told Chinese media on Saturday. Fu called for “rational development” rather than the stoking of production capacity through investment plans from certain local governments and private investors.

China in April lowered the barrier for entry into the EV market after the Covid-19 pandemic took hold, removing requirements such as design and development capabilities for new entrants, reported China Daily.

EV infrastructure

China will also continue to help boost consumption via stimulus measures, including growing the number of public charging piles and swapping stations, according to Li. It was the first mention of EV battery swapping facilities in the annual government work report.

Fu expects the initiative will spur demand by providing charging facilities for those who do not have private parking spaces with home chargers, a major pain point that has deterred EV adoption. Prior to that, the central government had announced a RMB 10 billion ($1.5 billion) investment to expand the country’s charging network by 50% to more than 1.8 million public and private charging piles by 2020.

China’s power network for electric vehicles exceeded 1.67 million charging points and 555 swap stations as of December, according to figures from the China Electric Vehicle Charging Infrastructure Promotion Association.

EV battery recycling

EV battery second-life usage was also a key topic during this year’s meeting. Li noted that China will accelerate plans for a comprehensive recycling and reuse policy for electric vehicle batteries. Policymakers in the 14^th five-year-plan pledged to “promote the use of second-life energy resources in less-demanding applications” (our translation).

China began its NEV initiatives in 2009 and most EV batteries are designed to have around a decade of use during the first life phase. Officials from the Ministry of Ecology and Environment had estimated in September that more than 200,000 tons of EV batteries would reach the end of the first life phase by 2020 and that number will more than triple in 2025, according to a Caixin report (in Chinese).

The central government in 2018 had made battery manufacturers responsible for addressing battery end-of-life issues, but the market is largely unregulated, lacking mandatory technical standards to ensure safety during the recycling process. This has also overburdened battery manufacturers, which have struggled to recoup the costs for repurposing batteries.

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Blockchain, fintech get name checks in 14th Five-Year Plan

Fri, 05 Mar 2021 10:50:27 +0000

Blockchain and fintech are to be mentioned by name in a draft of China’s 14th Five-Year Plan, marking increased focus on these technologies.

Why it matters: The Five-Year Plan is China’s most senior economic planning document. This is the first time for either technology to earn a mention by name.

But the draft plan also calls for more regulatory scrutiny of fintech.

READ MORE: INSIGHTS | Tech in the Five-Year plan

Details: China’s National Legislature opened its annual meeting in Beijing today. It is expected to approve the draft plan during the week-long session.

“Drafts are often tweaked during the Lianghui (Two Sessions), but are rarely substantively changed,” Kendra Schaefer, head of tech policy research at Beijing-based strategic advisory firm Trivium told TechNode.

All aboard the China chain: The plan declares blockchain a key technology, along with cloud computing, the Internet of Things, big data, AI, and virtual reality.

Specifically, the draft plan calls for work on smart contracts, multiple consensus algorithms, asymmetric encryption, and distributed fault tolerance mechanisms.
Distributed ledger technology is to be applied in fintech, supply chain management, and e-governance, the draft plan said.
Blockchain emerged as a priority in late 2019, when President Xi Jinping publicly endorsed the technology.
Just yesterday, a Beijing-based hardware and software solution announced that it will integrate the digital RMB, China’s central bank-backed digital currency. This is the first known domestic application of blockchain to the digital yuan project.

READ MORE: Enterprise blockchain to integrate China’s digital yuan

Fintech: The phrase “fintech” (jinrong keji) got three direct mentions; under blockchain development, in a section on regulating tech, and financial reforms. This is the first time a reference by name to fintech has made it in the plan.

The 13th Five-Year plan made one reference to “internet finance,” and several to fintech-related themes such as “microfinance” and “inclusive finance,” as well as, once, as “internet finance.” Similar language is present in the new draft plan.
The plan also called for continued R&D in the digital RMB and China’s participation in the creation of global standards for digital currencies.

READ MORE: DCEP class is in session, with Zhou Xiaochuan

More rules: The draft plan calls for enhanced antitrust rules and licensing regimes for tech platforms, and the establishment of new regulatory frameworks for fintech, telemedicine, autonomous driving, and smart logistics.

The plan also called for increased oversight of financial holding companies, a type of corporate structure that is likely (in Chinese) to come to dominate the fintech industry. After months of negotiations with authorities, Ant Group will reportedly reorganize itself as a financial holding company.
It also calls for strengthening the use of regtech and risk assessments on financial innovation products, including potentially suspending some products.
Today, China’s legislators also called on commercial banks to increase lending to individuals and small and medium enterprises by 30% in the rest of the year. This will potentially substitute for fintech companies. Facilitating small loans is Ant’s single largest revenue stream.

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INSIGHTS | Tech in the five-year plan

Fri, 05 Mar 2021 07:36:33 +0000

As China’s legislature prepares to meet tomorrow, we’re bringing you a special edition of our Insights column: a preview of tech in the 14th Five-Year Plan. We’ve looked through the last plan, and the documents describing priorities for the new one, to give you our baseline expectations for key tech areas in the new plan.

Greetings from Beijing, where the weather is just turning to spring, the air this week feels like taking a bath in an ashtray, and, across town, about 3,000 people are getting together Friday to kick off the annual meeting of China’s national legislature.

This is one of the big meetings: This year, the National People’s Congress will approve China’s 14th Five-Year Plan, which will set out the government’s economic priorities for the next half-decade. The meeting lasts from March 5 to March 11, and in previous years the plan has come toward the end of the session.

Technology and innovation are sure to play a leading role. “Innovation-driven development” was one of the first topics addressed in the 13th Five-Year Plan, issued in 2016, and the phrase is equally prominent in previews of the new plan.

What is (likely) new is emphasis on another key phrase: “self-sufficiency.” As the US has used its control of key technologies as a weapon, China’s efforts to produce its own have a new urgency.

For people with tech projects, the start of a new plan period means opportunity. The “money spigot” for homegrown tech and innovation is likely to get even more generous, said Uny Cao, vice president at the Zhejiang University Intellectual Property Exchange Center and friend of TechNode.

What are we looking for when the new plan is published next week? What’s likely to get the most attention—and which will get less? Below, you’ll find TechNode’s roundup of key mentions of technologies we expect to see highlighted in the 14th Five-Year Plan.

How to read a five-year plan
Data
Environment
Autos
Semiconductors
E-commerce
Blockchain
Antitrust
Rural areas and agriculture
Fintech + digital yuan

How to read a five-year plan

Macro focus: Above all, five-year economic plans are strategic documents. The most important decisions will be macro goals for the economy as a whole: whether to set a GDP target and how high; how to pace the economy’s transition to meet a 2060 carbon neutrality goal; and how to balance such factors as imports, exports, investment, and consumption. We’re not going to cover all those issues below: You’ll find lots of sharper macro commentary from our friends and colleagues at other outlets.

Don’t expect details: A five-year plan gives you a 10,000-foot view of the government’s priorities, reflecting agreement on goals but probably not how to reach them. If you’re interested in a topic, look for more specialized plans issued by ministries and provinces for implementation.

Compare, compare, compare: Most important political documents don’t make much sense in isolation. To identify key decisions, policy analysts compare successive versions of the same plan to see what’s changed—additions, subtractions, or even changes in the order of topics may indicate shifting priorities. We’ve looked at the 13th Five-Year Plan (full text in English), which ended in 2020, to set a baseline for key technology issues.

Decisions, not surprises: You probably have already heard of most topics to be covered by the Five-Year Plan. Stakeholders across the Chinese political system have been advocating, piloting, and negotiating ideas for years in the hopes of influencing this plan. Much like a major plan in any political system, it bears the fingerprints of hundreds or thousands of political actors of all kinds.

Basis for our expectations: Last October, the Party’s Central Committee met in Beijing to discuss the upcoming five-year plan in a meeting called the Fifth Plenum. The most relevant of the reports that meeting produced was the Central Committee’s “Suggestions” or “Guidelines” for the 14th Five-Year Plan. Although much shorter—around three pages compared to three hundred—the structure of this document usually parallels that of the published five-year plan. We heavily relied on it to make the predictions below.

Data

A new approach to data management will reverberate across tech industries. The next stage of China’s tech policy will shift from an emphasis on developing cybersecurity and big data, to building up the data economy.

Mentions in the 13th Five-Year Plan: The last five-year development plan focused on building up cybersecurity and control over data. But it also set goals to get government offices to share data with each other and industry.

The 13th plan promised crackdowns on black markets for personal data, and strengthened privacy protection for big datasets, including government credit information systems. The government also aimed at opening up government big data to the public through a digital platform.
The 2017 Cybersecurity Law was the first big step for reform of China’s information security. Implementation of the Multi-Level Protection Scheme, a key part of the CSL, picked up in the summer of 2020, Carly Ramsey, who leads regulatory and political risk consulting at Control Risks in Shanghai, told TechNode.

READ MORE: Dust has yet to settle two years after China’s landmark cybersecurity law

Expectations in the 14th Five-Year Plan: In the Fifth Plenum guidelines, data has joined an impressive new crowd: “[We will] advance the marketization and reform of the economic factors of land, labor, capital, technology, and data.” When a Communist Party puts you on the same level as labor and capital, you know you’ve made it big.

The Fifth Plenum guidelines call for the development of a rules-based data economy. Or as they put it: Establish basic systems and standards for data property rights, transactions and circulation, cross-border transmission, and security protection to promote the development and utilization of data resources.

“Ensuring the fluid circulation of data is now an economic imperative,” said Kendra Schaefer, head of tech policy research at Beijing-based strategic advisory firm Trivium. “In practical terms, that means that the overarching theme of China’s data policy over the next five years will focus on allowing data to be shared, transferred, bought, sold, and utilized,” Schaefer said. The plenum’s recommendations called for “systems and standards” in data property rights, market mechanisms for data, as well as cross-border data transfers.

READ MORE: China sets the rules for its new data economy

So what? “The 14th Five-Year Plan will mark the beginning of a new era in China’s approach to data policy,” Schaefer said. China is stepping up from the securitization of data resources to developing a system in which data can be exploited as a resource. In the upcoming plan period, we can expect more support for trade in data alongside a continued crackdown on bad cybersecurity practices and insufficient privacy protections.

Environment

One of the biggest components of the 14th five-year plan deals with action to combat the environmental damage that followed years of rapid industrialization and economic growth. In the wake of a vow to set China on a path to carbon neutrality by 2060, economic planners will be under pressure to come up with big changes. China’s tech sector stands to benefit: To reach the country’s emissions goals, investment in clean technology could reach $16 trillion in the next 40 years.

In the 13th Five-Year Plan: The 2016 plan laid out targets to reduce carbon emissions by cutting the country’s carbon intensity—the amount of carbon dioxide produced for every unit of GDP. Through subsidies, state planners pushed prices in the solar industry so low that it effectively went from being a high-tech sector to a commodity business.

The document laid out action plans to combat air, water, and soil pollution. By last year, Chinese cities were expected to meet “good” air quality standards for more than 80% of the year.
The plan sought to reduce the country’s reliance on coal-fired power plants, and promote environmentally friendly construction and mining.
Also included were “improvements in supportive policies” for renewable energy sources.

Expectations: The new plan will likely clarify how China will reach peak carbon emissions by 2030 and carbon net zero by 2060, goals laid out to the UN General Assembly by President Xi Jinping in September.

The thrust of Xi’s speech has been factored into energy and environmental planning in the new five-year plan.
The new plan will likely outline ambitious capacity and consumption targets for wind and solar energy production, while placing further caps on coal-fired power plants.
Energy storage is also expected to play an important role in the new plan, as China seeks to improve grid and power security.
It is unlikely that there will be a move away from carbon intensity caps to hard carbon caps, as the country attempts to balance economic growth and cutting emissions, analysts said.
While the last five-year plan placed emphasis on reducing emissions from energy production, the new plan will place increased focus on minimizing pollution from industry, including steel and transportation.
Further integration between China tech and energy industries is expected, a goal laid out in the 13th five-year plan.

So what? The world is waiting to see how China plans to reach its emissions targets by 2060. We expect the plan to create more targets and pressure on local governments to improve carbon emissions, but details on how these will be implemented—and how cleantech investment will be affected—will likely be spelled out in lower-level plans.

Autos

A pillar of China’s economic growth, the automotive sector has long been dominated by well-established foreign brands, which hold more than 60% of the market share, while domestic automakers are concentrated in the low-end segment. But that is changing as China’s strength in electric vehicles is boosting its position on the global industry value chain, thanks to strong policy support over the past five years.

In the 13th Five-Year Plan: When China’s cabinet in 2010 initiated a development plan (in Chinese) for seven strategic emerging industries, new energy vehicles (NEVs) was one of them. In 2016, Beijing set an ambitious target of 5 million sales of NEVs in the coming five years, a number which would mark the beginning of mass adoption. This initiative became part of Beijing’s larger goal of becoming the world’s next innovation powerhouse.

The central government carried out a series of stimuli to foster a new source of economic growth—by offering subsidies for NEV purchases, especially for all-electrics and plug-in hybrids—in both public and private transport sectors.
China’s top policymakers also vowed to achieve major breakthroughs in battery technologies, such as a higher energy-density level, which enables a longer driving range as well as better resistance to extreme temperatures.

Expectations: NEVs were briefly mentioned as one of the strategic emerging industries in the fifth plenum guidelines, but with no detail about the growth outlook.

However, according to a policy paper released by the State Council in November, NEV sales were projected to account for 20% of total new car sales by 2025, up from the 2020 level of just 5.4%.
Beijing also expected “significant improvement in the competitiveness” of its homegrown players in the fields of battery safety and in-car operating systems, among others, while promoting highly autonomous vehicles for commercial use cases in pilot programs.

So what? China’s electric vehicle market staged a strong rebound after disruptions caused by the Covid-19 pandemic last year and has remained the world’s biggest market since 2014. However, there have been bumps on the road, including electric car fires and the ongoing auto chip shortages.

China also lags the US in the vehicle autonomy competition, raising calls for more effort put toward core technology advancement. Pledging for quality growth amid rising superpower tensions in the next five years, Beijing would have to stay the course in boosting the sector, while realizing little near-term profit.

Semiconductors

Chinese leaders have long vowed to achieve “self-reliance” in strategic technologies, and semiconductors are one of the priorities. The sector is expected to get major attention as China issues its development blueprint for the next five years.

In the 13th Five-Year Plan: The five-year plan ending in 2020 saw semiconductors, along with other high-tech sectors like robotics, smart transportation, and virtual reality, as “new areas of growth” for the nation’s economy, but didn’t make production of semiconductors a strategic priority.

Priorities certainly have changed over the past five years as Chinese leaders realized how troublesome it is to rely on foreign imports of semiconductors. Huawei is a brutal example.

Expectations: In 2015, China set a goal to make 70% of the chips it uses by 2025 as part of its “Made in China 2025” initiative. Now the question is how China will achieve that goal. The country only produced 6% of the semiconductors it consumed in 2020.

The fifth plenum vowed to implement a series of “foresightful and strategic” technology research projects including integrated circuits, quantum information, AI, and neural science.
Despite the industry’s importance, the National Development and Reform Commission didn’t include semiconductors on a list published last September of “strategic emerging industries.” Electric vehicles and artificial intelligence were on the list.
The central government will increase investment in the domestic semiconductors industry through vehicles like the National Integrated Circuit Industry Investment Fund.
More favorable policies towards domestic chip companies are likely such as tax breaks and heavier tariffs on imported electronic components.
Bloomberg cited sources as saying that Beijing has added in a draft of the 14th five-year plan “a suite of measures to bolster research, education, and financing” for the semiconductors industry.

E-commerce

E-commerce falls under the broader concept of the digital economy, a major theme in the plan that also covers 5G, artificial intelligence, and big data. E-commerce is expected to play a greater role in driving China’s economic growth in the next plan period.

In the 13th Five-Year Plan: The development plan that ended in 2020 set out to expand the e-commerce sector by facilitating its deep integration with traditional industries and prioritizing its governance. China sought to integrate e-commerce into various areas including education, healthcare, culture, and tourism to drive innovation.

The 13th five-year plan set out expectations for China’s e-commerce transactions to exceed RMB 40 trillion ($6.19 trillion) in 2020, the last year of the plan—double the transaction value in 2015. The figure includes RMB 10 trillion from online retail businesses. The sector was projected to employ more than 50 million people by the end of 2020.
The period of the 13th plan showed mixed results for e-commerce. The country missed the plan’s goal of RMB 37.21 trillion in e-commerce transactions in 2020. Online retail sales hit their target, however, totaling RMB 11.76 trillion in 2020, data from the National Bureau of Statistics showed.

Expectations: China expects online commerce to continue supporting its macro strategies, notably poverty alleviation and the One Belt One Road initiative. E-commerce has become an important means for China’s rural dwellers to sell their agricultural products. With more free trade zones on the horizon, China looks to expand its cross-border e-commerce market in the next five years.

As a booster for both domestic and international commerce, the industry plays a central role in goals set for the “dual circulation” concept, which refers to spurring domestic as well as global demand, creating circumstances where the two boost each other’s growth. The idea featured predominantly in recent policy statements, although the term has been a policy meme for several years.
Chinese regulators are stepping up monitoring for unfair competition and monopolistic practices.
Consulting agency Jiuhou Zongheng has forecast that China’s e-commerce transactions will reach RMB 50 trillion by 2024.

Blockchain

Blockchain could be a new item in the 14th plan. It’s had plenty of attention at top levels in the past year.

In the 13th Five-Year Plan: Zilch. Blockchain was not on top policymakers’ agenda back in 2016.

Push from the top: The technology had its breakout moment in Chinese policy in October 2019, when President Xi Jinping praised the technology at a Politburo study session.

Since then, local governments have embraced blockchain governance projects and tried to spur innovation in the field.
The National Development and Reform Commission is supporting the development of the Blockchain Services Network, an “internet of blockchains.”

No crypto: Chinese regulators are not big fans of one of the technology’s most popular applications: cryptocurrencies. The past year’s clampdown on unregulated cryptocurrencies “is meant to clear a path to regulated forms of digital assets, starting first with DCEP [the central bank’s R&D project that includes the digital RMB],” said Michael Sung, co-director of the Fintech Research Center at the Fanhai International School of Finance at Fudan University, told TechNode.

Expectations: The technology was not mentioned in the 14th plan guidelines issued after the Fifth Plenum.

The cryptocurrency mining industry might be negatively affected by financial de-risking campaigns and sustainability goals. The industry consumes vast amounts of electricity and is dependent on volatile crypto assets.

READ MORE: Inner Mongolia may ban crypto mining: Blockheads

So what? China is already very interested in blockchain, but has not given the technology the same level of support as, say, electric vehicles. A name-check in the 14th plan would seal its status as a key technology and could pave the way for a national blockchain roadmap.

Antitrust

China has recently tightened antitrust regulations on tech companies. Regulators started at the end of last year to look at tech giants’ market dominance and to use anti-monopoly tools to limit them. The country also changed antitrust laws and rules to better rein in big tech. As top leaders of China repeatedly vow to “strengthen anti-monopoly” and “rein in disorderly capital expansion,” what has affected tech companies so far seems to be just the start of severer crackdowns.

In the 13th Five-Year Plan: The 13th development plan mentioned breaking industry monopolies and rooting out market barriers. It also intended to establish an “efficient antitrust law enforcement system,” deepen international antitrust law enforcement cooperation, and check administrative monopolies.

In 2018, China created the State Administration for Market Regulation (SAMR), a trustbuster that centralized antitrust power previously dispersed among four market regulators.

Expectations: China is already on the move to rein in big tech with anti-monopoly tools. If the new plan pushes government agencies to impose stricter antitrust regulations and break monopolies, tech giants like Tencent, Alibaba, and Bytedance may feel a lot more pain.

China’s antitrust regulator drafted an amendment to the Anti-Monopoly Law in January 2020; China may push to finalize the law during the period of the 14th five-year plan.
The fifth plenum also called for the establishment of an “efficient antitrust law enforcement system” and to “break industry monopoly.”
SAMR has said tightening antitrust regulations leads the 2021 agenda for the agency.
While companies like Tencent and Alibaba are already under the spotlight, SAMR may launch more antitrust investigations into big tech companies.
A few antitrust lawsuits between tech companies are set for court hearings this year. Among them are the Douyin vs. WeChat, and JD.com vs. Alibaba cases. The results of cases will provide precedents for how the antitrust rules that took effect in February will be interpreted by the courts.

Rural areas and agriculture

Agriculture, the foundation for feeding China’s 1.4 billion population, is facing a new round of restructuring and modernization. The countryside is a growing focus for tech companies because it is home to a group of maturing consumers as well as being a lower-cost manufacturing hub. That makes aligning with rural developments a big goal for these internet firms.

In the 13th Five-Year Plan: The last plan placed a high priority on continuous modernization of rural areas and the agricultural sector. The plan promoted integration of agriculture and e-commerce and encouraged the application of big data and internet of things tech in agriculture.

President Xi Jinping announced China’s “complete victory” in eliminating “absolute poverty” at a grand gathering held February 25 in Beijing. In the past eight years, nearly 100 million rural residents were lifted from poverty, Xi says.
Tech giants including Alibaba, Pinduoduo, and Didi Chuxing were rewarded for contributions in the poverty alleviation initiative.

Expectations: China is expected to continue to focus on improving the quality, safety, and profitability of the sector, goals that require technological assistance.

The focus of China’s agricultural development will shift from increasing production to improving quality, according to The China Agriculture Outlook (2020-2019) released this past April.

Policymakers are counting on tech in a plan to improve both farmers’ output and their incomes, said Even Pay, an associate director at Trivium:

“Policymakers are preparing for a future where there are fewer farmers. Some of them may be older, and in need of equipment to make their jobs easier. They also hope to attract some young people back into farming by making the work easier and more interesting—like operating ag machinery or flying drones.”
“Another big reason the government is supporting agtech is the “dual circulation strategy”—which looks to make domestic consumption the main driver of China’s macroeconomic growth. Right now China’s rural areas have the greatest growth potential of anywhere in the country—provided farmers’ incomes go up.”

Fintech + digital yuan

Fintech and the digital yuan might get a direct mention in the 14th plan.

In the 13th Five-Year Plan: Fintech was directly mentioned only once in the last plan. That plan called for a risk monitoring and crisis management system for all financial activity, including “internet finance.”

“Microfinance,” “inclusive finance,” and “green finance” were included in the plan, but these categories also refer to traditional financial tools, said Jonas Short, head of the Beijing office at Everbright Sun Hung Kai.
The plan called for microfinance to be made more “transparent” and regulated, while “Internet+inclusive finance” was to be promoted, and a green finance system was to be set up.
The 13th plan also mentioned the development of “multilayered” and “non-cash” “payment systems,” although it didn’t mention digital payments specifically.

Fintech development: Since the release of the 2016-2020 plan, the use of fintech has skyrocketed, and an overwhelming majority of Chinese citizens now make use of some sort of digital finance, whether that’s for lending, investment, or insurance.

The Ministry of Commerce released a fintech development plan in 2017, focused on cybersecurity, digital payments, and risk prevention.
As big tech came to play an increasingly important role in China’s finance, especially with regards to consumers and SMEs, authorities started laying down the rules: In 2020, Chinese regulators ramped up their efforts to regulate fintech companies, especially after Ant Group’s IPO was suspended in November 2020. Rules for microlending, antitrust, and digital payments have been released since.

Digital yuan: China’s central bank has been working on a digital form of cash, the digital yuan, since 2014. If implemented, it will be the first state-backed digital currency by a major economy. The central bank appears to have accelerated the development of the currency in 2019 after Facebook announced its Libra project. Trials for the e-CNY started in late 2020 in four Chinese cities: Chengdu, Shenzhen, Suzhou, and Xiong’an.

Expectations: The guidelines directly called for the improvement of “the level of financial technology.” They also included language similar to the previous plan’s regarding inclusive and green finance, as well as on financial risk prevention and monitoring.

The guidelines called for continuing R&D on digital currency.

So what? China’s fintech industry will continue to grow, especially given a lift in the 14th plan. But incumbents will face more competition as a result of antitrust regulations and the opening up of payments systems that DCEP will bring. Tech companies dabbling in finance will also be increasingly brought under the fold of financial regulation.

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Huobi subsidiary nabs Hong Kong asset management license

Thu, 04 Mar 2021 08:07:56 +0000

Hong Kong authorities granted a digital asset portfolio management license to a subsidiary of cryptocurrency exchange Huobi Technology, the company said on Thursday.

Why it matters: The news bodes well for a number of Chinese cryptocurrency companies which face regulatory pressures at home and are looking to set up shop elsewhere. Hong Kong and Singapore are among the primary destinations.

Details: The Hong Kong Securities and Futures Commission (SFC) granted Huobi Asset Management a license to manage virtual asset portfolios, according to a company announcement on Thursday.

Huobi Asset Management is a wholly-owned subsidiary of Huobi Technology Holdings, the Hong Kong-listed company behind Huobi Global, the world’s fourth-largest cryptocurrency exchange by volume, according to CoinMarketCap data as of the time of writing.
The subsidiary plans to start three virtual asset funds, Chinese media reported.
Huobi Tech’s success “reflects a larger trend of regulators taking a positive approach toward the crypto finance industry,” Flex Yang, CEO of Babel Finance, a Hong Kong cryptocurrency company that has applied for the Type 9 license in the territory, told TechNode. The new regulation will “help prepare Hong Kong’s leadership role in the increasingly competitive global regulatory environment,” he said.

Context: Huobi Asset Management received two licenses for cryptocurrency asset management in July 2020; Type 4, for advising in securities, and Type 9, for asset management.

Chinese authorities chased crypto exchanges out of China in 2017 and cracked down on initial coin offerings, the crypto equivalent to IPOs, in an attempt to banish investment in the highly volatile assets.
Many companies offering crypto financial services have continued to operate in the shadows, serving China’s investors and large population of cryptocurrency miners.
In 2020, regulators started a renewed crackdown on the digital assets, targeting over-the-counter exchanges. The founder of crypto exchange OKEx was missing for weeks while he assisted the police in an investigation.

READ MORE: Digital yuan rush and OTC crackdown: Blockheads

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Enterprise blockchain to integrate China’s digital yuan

Thu, 04 Mar 2021 06:37:31 +0000

Chang’an Chain, an enterprise blockchain developed by a state-backed Beijing consortium, will integrate China’s digital yuan, as the capital city readies the e-CNY for testing during the 2022 Winter Olympics.

Why it matters: This is the first known domestic application of blockchain technology using the digital yuan, China’s state-backed digital currency. It creates a path for enterprise applications of the e-CNY, which have so far taken a backseat in the development of the digital currency.

READ MORE: CHINA VOICES | DCEP class is in session, with Zhou Xiaochuan

Details: The Beijing Academy of Blockchain and Edge Computing (BABEC)—the research institute behind Chang’an Chain—and the People’s Bank of China (PBOC) Digital Currency Research Institute signed a strategic partnership on Monday, state-owned newspaper Beijing Daily reported on Thursday.

The digital RMB could be the first central bank-backed digital currency to be issued by a major economy. Trials have been ongoing since April, but have so far been focused on retail transactions.
China, Hong Kong, Thailand, and the United Arab Emirates are experimenting with blockchain to enable cross-border transactions using state-backed digital currencies, the group announced last week.

The China Chain: Chang’An Chain, known as Chain Maker, is a hardware and blockchain project with major government support. BABEC, backed by the municipal governments of Beijing and the city’s Haidian district, aims to help China achieve blockchain independence, according to its founder, Dong Jin.

BABEC released Chang’an Chain on Jan. 27, and launched the Chang’an Chain Ecosystem Alliance.
The Alliance is a 27 member-strong consortium that will integrate Chang’an Chain across government departments. It includes the State Power Grid operator, China Construction Bank, the PBOC’s Digital Currency Research Institute, Tencent, and Tsinghua University, as well as semiconductor companies.
The Alliance is supervised by the National Development and Reform Commission, the Ministry of Science and Technology, the PBOC’s Digital Currency Research Institute, the Ministry of Industry and Information Technology, the State Administration of Taxation, the State Administration of Market Supervision, and the State Council’s Asset Supervision Commission.
Chang’an Chain debuted in late January and is meant to unify Beijing’s disparate information systems across ministries and enterprises. The city aims to build a “digital economy” based on the chain, Beijing News reported.

Context: The project and its linkage to the digital RMB show that the Chinese government increasingly sees blockchain as a key technology, and is willing to invest accordingly.

The city of Beijing has been a frontrunner among municipalities, with a plan to integrate blockchain in several areas of governance.
After the integration of the digital RMB into Chang’an Chain, the city will speed up its preparations for the Beijing Winter Olympics trial.

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China issues maximum fines on community group-buy firms

Wed, 03 Mar 2021 07:24:15 +0000

China has imposed fines totaling RMB 6.5 million (around $1 million) on five community group-buy platforms for irregular pricing.

Why it matters: Beijing is moving to regulate the red hot community group-buy industry as part of a recent campaign to curb the power of China’s internet giants.

Fines targeting the growing sector comes as the state has stepped up regulation of internet giants over the past few months. China has extended various degrees of penalties on tech majors including Alibaba, Tencent, JD.com, and Vipshop.

READ MORE: Friendly neighbors are the key to China’s community group-buying craze

Details: The State Administration of Market Regulation (SAMR) said Wednesday that it decided to levy fines on five community group-buy companies after more than two months of investigation. The platforms are some of the biggest in the sector, and hold “a large share of the group-buy market,” according to regulator.

Didi’s Chengxin Youxuan, Pinduoduo’s Duoduo Maicai, Meituan’s Meituan Youxuan, and Alibaba-backed Nicetuan are each subject to a fine of RMB 1.5 million. Wuhan-based Shixianghui was fined RMB 500,000, according to the notice.
The investigation showed Chengxin Youxuan, Duoduo Maicai, Meituan Youxuan, and Nicetuan leverage their capital advantage to compete for market share by selling products at prices lower than cost, according to SAMR. All of the five falsely advertised discounted prices to boost orders.
The companies were fined the maximum penalties due to the negative impact of their practices, a SAMR spokesperson said in a press conference (in Chinese) on Wednesday.
The spokesperson said that using irregular measures to squeeze offline community economies will create market disorder and lead to social instability. At the same time, unfair competition among the tech firms will hurt consumer interests in the long run.

Context: The government summoned representatives from tech majors including Alibaba, JD.com, Meituan, Tencent, Pinduoduo, and Didi for a meeting in December to discuss oversight of the group-buy sector.

Regulators issued a list of restrictions on group-buy businesses, forbidding predatory pricing to beat out competition as well as falsely advertising discounted prices and posting misleading product information.
The state-run People’s Daily said in a commentary that tech companies should focus on innovation for bigger benefits instead of “thinking about the traffic of a few bundles of cabbage and a few pounds of fruits” (our translation).

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Inner Mongolia may ban crypto mining: Blockheads

Tue, 02 Mar 2021 05:55:33 +0000

Global crypto mining hotspot Inner Mongolia is considering shutting down mining within its borders as it pushes for zero carbon emissions. China’s central bank is joining hands with three other economies to test cross-border transactions using digital currencies. Domestic media research said that Chinese government procurement of blockchain technology has more than doubled in the last year.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Feb. 23-March 2.

Crypto mining in danger

The municipal government of Inner Mongolia autonomous region proposed shutting down all cryptocurrency mining facilities in the region in pursuit of carbon neutrality, a major policy goal for the central government. Inner Mongolia is one of the areas in China that contributes significantly to the global Bitcoin hashrate, along with Sichuan and Xinjiang. (CoinDesk)

The digital yuan bridge

China, Hong Kong, Thailand, and the United Arab Emirates announced a joint experimental project to test cross-border transactions using central bank-backed digital currencies. The program aims to develop a proof-of-concept prototype using blockchain technology. (TechNode)

READ MORE: CHINA VOICES | DCEP class is in session, with Zhou Xiaochuan

Government-led blockchain

Chinese government agencies more than doubled the number of tenders to procure blockchain technology to 72 in 2020 compared with 28 in 2019, and only 9 in 2018. Beijing, Guangdong, Fujian, and Shanghai were the largest investors in blockchain technology. (Blockchain Stronghold, in Chinese)
The Blockchain Services Network is integrating the public chain initially developed by TON Labs, an offshoot of messaging network Telegram, in its Chinese version. (Cointelegraph)

The return of crypto trading

In a bull market last seen in 2017, Chinese investors are back at it: They are investing in cryptocurrencies, despite a domestic ban of cryptocurrency exchanges. (Reuters)

ZT investment

A press release from Sunday stated that Japanese fund SoftBank’s UK subsidiary had invested “millions of dollars” in Chinese crypto exchange ZT. Some industry insiders are skeptical about the investment, in part because ZT has reportedly had trouble with the police, and is not a well-known company. (Wu Blockchain)

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CHINA VOICES | DCEP class is in session, with Zhou Xiaochuan

Mon, 01 Mar 2021 06:51:27 +0000

A recently published speech by Zhou Xiaochuan, who spearheaded China’s foray into digital currencies when he was chairman of the People’s Bank of China (PBOC), has shaken some basic assumptions about the digital yuan, or e-CNY.

China has been working on a digital currency for years, much anticipated by fans of virtual payments and opponents of leather wallets. It’s likely to be the first major economy to adopt a digital currency. Details were scarce until April 2020, when a series of four pilot programs gave us our first look at e-CNY payments.

Just in time for the annual meeting of China’s legislature, its most famous monetary policy authority has released the text of a talk on the central bank’s digital currency plans. Zhou said that these plans are a lot broader than the launch of a new form of currency.

The text has a messy pedigree: We first saw it when finance and business newspaper Caixin published an abridgement in English on Feb. 22. A longer Chinese version was published on Caixin on Feb. 16. These articles were based on a speech Zhou gave at Peking University back in November 2020, which according to him used slides prepared for an even earlier conference, the Budapest Eurasia Forum hosted by Hungary’s central bank.

China Voices

In TechNode’s members-only translation column, we bring you selections from discussions about tech on the Chinese internet. TechNode has not independently verified the claims made below.

We recommend reading the whole Chinese Caixin text, even if it means using Google Translate—it’s a lot easier to follow than the translation. We’re relying on Caixin’s English where available, and our own translation where not.

DCEP vs. digital yuan

First off, Zhou’s first point: “DCEP”—short for “digital currency/electronic payments” is not the same as the digital RMB. Many writers—us very much included—have understood them to be near identical.

According to Zhou, this is a misunderstanding. The currency is called the digital yuan, or e-CNY. DCEP is the central bank’s broader research project into digital currencies and electronic payments.

I’d like to make it clear that DCEP is a two-tier research and development (R&D) and pilot program, rather than a payment product. In other words, the DCEP program may involve several payment products that can be trialed and rolled out.
Our translation

The central bank’s job is to provide underlying infrastructure and oversight, not build payments products, he wrote.

The bank shouldn’t pick one technology roadmap at all, Zhou wrote.

It’s best if the central bank doesn’t pre-determine, or endorse, a certain technological route, because technology is constantly evolving, and it is not easy to judge which technology is better or worse when the technology is advancing very fast.
Our trans.

Two tiers

Zhou’s next key theme is the “two-tier” approach to managing DCEP.

On the first tier sits the PBOC. The central bank’s job, Zhou said, is providing infrastructure and oversight.

The second tier is where you’ll find digital currency and payments. It comprises everyone else; commercial banks, telecom operators, and third-party payment platforms like Alipay and WeChat Pay.

According to Zhou, tier-two institutions will be tasked with developing payments products, which includes e-CNY. This means, Zhou wrote, that the digital yuan isn’t a mainstream central bank digital currency (CBDC).

Zhou likened the two-tier approach to Hong Kong’s semi-private banknotes. Most money in Hong Kong is printed by private banks, backed by deposits of American dollars with the city’s equivalent of a central bank.

To some extent, this design draws lessons from Hong Kong’s three note-issuing banks. The three banks need to give $1 [ed: US dollar] to the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, as a reserve for every HK$7.80 they issue. The HKMA then hand outs certificates of indebtedness to the issuing banks. On the banks’ balance sheets, the notes they issue are entered as liabilities. And for the HKMA, the certificates of indebtedness are its liabilities. In this sense, DCEP is different from the typical CBDC, which is owned and indebted by a central bank.
Caixin translation

On the Hong Kong model, banks would have to deposit one yuan RMB at the central bank to issue a digital RMB. But Zhou doesn’t seem to say that DCEP will adopt this exact approach.

Secondly, the PBOC can ensure the stability of the digital yuan’s value through multiple approaches, including requiring banks to set aside money as reserves and then issuing them certificates of indebtedness or letters of comfort. Therefore, the composition of the two-tier system of DCEP can be different.
Caixin trans.

“I believe that he is suggesting that DCEP can be either in CBDC form (direct claims on PBOC) or in narrow bank form. The latter is a claim on a bank which is based on segregated claims on PBOC. He is a little unclear on that, going one way in part of the essay and the other way in a different part. ” Darrell Duffie, Professor of Finance at the Stanford Graduate School of Business, told TechNode.

But at one point, Zhou seems to have it both ways on whether the PBOC should get involved in designing the system:

Theoretically speaking, under the two-tier system, the central bank’s own R&D focus may not be on the digital currency product itself (of course, it has the foundation, so there are also many people inside who are enthusiastic to do research in this area, which is not unreasonable), the central bank should focus more on building reliable settlement and clearing infrastructure…
Our trans.

So what?

Zhou wrote that China is not really working on a CBDC—at least, not a “mainstream” one.

He advised the reader to focus on a long-term R&D program, rather than current digital yuan experiments, which he seems to see as one model among many.

Pilots for the e-CNY launched in 2020 in four cities: Chengdu, Shenzhen, Suzhou, and Xiong’an. Six public trials have taken place in the four cities in the form of lotteries, starting in Shenzhen in October 2020. It appears that these have all tested the same system—all use the same app.

There are some differences between banks visible in this app. The e-CNY displayed on the pilot digital wallets currently tested in Suzhou comes in different colors, depending on the bank card connected to the account. Users were also able to spend the money in different places depending on which bank card they connected, suggesting that the major Chinese banks may in fact be implementing the system at least somewhat independently.

READ MORE: UPDATED: We got some digital yuan!

During the latest Chengdu lottery, winners could also use the JD.com app as an e-wallet.

Other products built by second-tier institutions under DCEP could include “smart contracts, like programmed payments, delayed payments, contingent payments, and so on. This could also mean API service provision, super Apps for cross applications, and so on,” Duffie said.

Zhou also commented on a few other key issues:

No disintermediation

The PBOC should be careful to avoid cutting banks out of the equation, Zhou wrote—something known as “disintermediation.” Many early digital currencies have encouraged users to do without bank accounts, often advertising it as a feature.

Chinese DCEP architects want to keep traditional financial institutions in the loop. “Commercial banks serve a critical function in implementing monetary policy. So, in considering digital currencies strategies, central banks specifically focus on implementations that would not disintermediate these banks,” Michael Sung, founding co-director of the Fudan Fanhai Fintech Research Center and chairman of CarbonBlue Innovations.

All about Ant?

Some observers have seen DCEP as a rebuke to Alipay and WeChat Pay, the privately-developed electronics payments platforms that dominate transactions in contemporary China.

Zhou seems to say that DCEP will not replace Alipay and WeChat Pay, but it will bring more competitors. Zhou describeed the two companies behind China’s most popular payment solutions as fundamental to the project, including them in a list of eight major two tier institutions.

Tier-two institutions are already quite motivated to come up with payment solutions, to acquire more users, Zhou wrote. But they will shirk responsibility without oversight, he writes.

In the digital yuan system, the second tier institutions will “own” the digital yuan, and thus will be forced to have enough reserves to back it up, but will also be responsible for know-your-customer requirements and protecting privacy, Zhou said.

For that matter, Zhou thinks that QR codes may be replaced:

QR codes are not very high-tech, so some people say that they might disappear sooner or later, and it may not be so long.
Our trans.

Zhou lists near-field communication and subway-style prepaid cards as other possible ways to make payments happen. Both of these QR code alternatives are being tested in digital yuan trials.

Blockchain

The former central banker said blockchain is not ready to be part of DCEP, but he didn’t shut the door completely.

In the field of payment, due to the huge transaction throughput, distributed ledger technology is not yet able to play a core role in the retail payment system, but it can wait for the development of technology.
Our trans.

Zhou highlighted the difficulty of unwinding transactions made in error as a downside to blockchain.

RMB internationalization

Several observers have taken DCEP as a challenge to the US dollar’s global status. But Zhou played down the international side of digital currency.

Just this week, the PBOC joined a project called “m-CBDC bridge,” to test cross-border transactions using digital currencies with Thailand, the United Arab Emirates, and Hong Kong.

But Zhou argues that new technology won’t fundamentally change cross-border transactions. The real issues, he says, are financial obstacles like exchange rates.

The difficulties linked to cross-border payments don’t really involve technical systems, but risks related to currency exchange and management of capital inflow and outflow. For example, if Mexican migrants in the US want to transfer money back home using Libra, they have to exchange it for pesos if Libra is not widely accepted in Mexico. Therefore, it’s necessary to focus more on the retail application rather than on cross-border money transfer.
Caixin trans.

However, Zhou does see opportunities for digitalization to help with some retail transactions, naming e-commerce, remittances, and tourism, which will “fit with” RMB internationalization.

He cautioned against getting a reputation for “dollarization,” referring to countries in which the dollar has partly or wholly replaced local currency.

China and other East Asian countries, can steadily advance cross-border payments using new payment solutions. This requires countries to build on the solid development of domestic retail payment systems, and then focus on solving current account payments such as cross-border travel, while respecting the needs of some countries to prevent dollarization. Of course, this process may be accompanied by the internationalization of the RMB, but this should not be forced. It is more important to avoid being accused of promoting “yuanization.”
Our trans.

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Li Auto may have controlled its costs in 2020 too well

Fri, 26 Feb 2021 08:58:38 +0000

Li Auto reported losses of RMB 792 million ($121 million) in its first annual result as a public company, significantly reducing losses from a year earlier, but has drawn criticism for underinvesting in future innovation. Its shares declined 9.8% on Thursday.

Benefiting from rising electric-vehicle demand in China, Li Auto earned nearly RMB 9.5 billion in 2020. Its first model, the Li One, was China’s best-selling electric SUV during the year, according to figures from China Passenger Car Association. However, its delivery guidance of 11,500 vehicles in the first quarter of this year was almost 30% lower than the preceding quarter, which it attributed to the Spring Festival holiday and an uptick of Covid-19 cases in parts of the country.

Cost controls gone too far

The company narrowed its loss per share of $0.28, or net loss attributable to shareholders of $121.4 million, a 76% decrease from the previous year. This was partly aided by net income of $16.5 million in the fourth quarter from “short-term investment income” according to CFO Li Tie during the call with analysts. The EV maker also benefited from streamlining its sales operations, spending RMB 1.1 billion on selling, general, and administrative costs for the full year, 40% of what NIO spent on the same expense in the first three quarters of the year.

However, Li Auto’s investment into research and development was substantially less than its peers, raising concern among investors. Company executives had promised investors during an online briefing held a few weeks ago that it will accelerate the launch of new models to ease concern about its transition from EREV to all-electrics, according to a report released by investment bank China International Capital Corporation (CICC) last week.

In a conference call with analysts on Thursday, CEO Li Xiang said it has been on track to expand its range of products as part of a strategic move to prioritize business growth over cost control. The company promised to launch at least one new model every year starting 2022, including its first all-electric model scheduled for 2023.

Ambitious outlook

The goal is to occupy a larger share of the market from mainstream to premium for an annual sales target of “several hundreds of thousands of vehicles” by the end of 2024, Li said (our translation). It also expects to build out a retail network of at least 1,000 stores by that time. The company had 52 stores in 41 Chinese cities as of December; NIO and Xpeng Motors had promised a respective 200 and 150 shops by year end.

The Beijing-based EV maker currently has only one model for sale and mainly focuses on extended-range electric vehicles (EREVs), a technology which features a small internal combustion engine dedicated to recharging the vehicle battery, designed to resolve range anxiety. However, recent policy changes in China is pressuring the company to accelerate its transition to all-electric.

Policy influence

Following Beijing, the Shanghai municipal government early this month unveiled a new policy for new energy vehicles, which excludes new purchases of plug-in hybrid vehicles, including EREVs, from free vehicle registration starting in 2023. Company president Kevin Shen on Thursday reassured investors, saying he expects EREV sales will continue to be strong until then. The company confirmed that it will release its second EREV model, a full-sized SUV with advanced driver assistance capabilities, in 2022.

Li Auto vehicles combine popular features and an affordable price tag, making it a more attractive choice than most internal combustion and electric vehicles in China over the past year. However, the company lags significantly rivals where self-driving technology is concerned— NIO and Xpeng Motor have emerged as major rivals to Tesla. The Li One crossover does not offer intermediate self-driving capabilities, such as navigation from on-ramp to off-ramp on Chinese highways, similar to Tesla’s Navigate on Autopilot and those NIO and Xpeng have both introduced in their vehicles.

CFO Li said the company will increase its R&D investment to at least $464 million this year and it will exceed $1 billion by end-2024, with half of the budget to be used in vehicle autonomy. CTO Wang Kai said that the size of its self-driving team will double to around 600 engineers by the end of this year as it opens its new R&D center in Shanghai with the end goal of 2,000 total employees.

Bigger rivals, including Tesla and a number of Chinese tech giants, pose a real and urgent threat. Wang said 2021 will be “the year of preparation” for the release of Li Auto’s new vehicle architecture next year, powered by Nvidia’s most advanced auto processor, Orin. “Similar features offered by our rivals, along with some brand new features, will also provided to customers for sure,” Wang said.

Correction: An earlier version of this article incorrectly stated that Li Auto plans to double the size of its R&D team to 600 engineers this year, not that of the self-driving team.

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China Tech Investor: Ant Group, DCEP, crypto mining, and all things China fintech with Eliza Gkritsi

Fri, 26 Feb 2021 06:53:14 +0000

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, James and Elliott are joined by TechNode’s own Eliza Gkritsi. Eliza gives an update on how Ant Group’s fate may change as a result of new regulations. She also gives her takeaways at this current point of China’s digital currency rollout. The conversation also touches on China’s crypto-mining industry, and the rig-makers who have been benefiting from Bitcoin’s latest bull run.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

Tencent
Alibaba
Baidu
Bilibili
Xiaomi
JD
Pinduoduo
Meituan-Dianping

Hosts:

Elliott Zaagman– @elliottzaagman
James Hull– @jameshullx

Guest:

Eliza Gkritsi – @egreechee

Editor:

Peter Isachenko

Podcast information:

iTunes
Spotify
RSS Feed
Music: “Hey Ho” by Steve Jackson, Royalty Free Music

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Cleantech is about to become very big tech

Thu, 25 Feb 2021 08:33:11 +0000

China is the world’s biggest polluter. Rivers around some of the country’s largest cities have become unfit for human use. Urban areas produce mountains of waste. And—most important to the rest of the world—China’s carbon emissions have increased fourfold in three decades.

Rapid industrialization and urbanization turned the country’s skies gray. As cities expanded, landfills have filled up ahead of schedule. With the rise of e-commerce and ubiquitous food delivery, the World Bank expects China to produce twice as much municipal waste as the US by 2030, just 25 years after it became the world’s largest producer of refuse.

Cleantech

Cleantech is TechNode’s monthly in-focus newsletter looking at China’s push to clean up its environment using technology.

We’re making this issue free as a sample of our work. Sign up for membership to read every issue!

Meanwhile, between 2010 and 2018, the number of pollution sources in China rose by half, according to China’s environmental ministry, increasing from 5.9 million to 9 million in less than a decade. These include polluters of air, water, and soil. Of that total, 7.4 million are industrial sources.

Now, Beijing is taking forceful action. In September, Chinese President Xi Jinping surprised the world by announcing that China would dramatically reduce its carbon footprint in the next 40 years, effectively cutting net emissions to zero. The commitment follows years of tightening policies aimed at reducing carbon intensity.

Xi did not give any details on immediate targets, which are expected to be included in China’s new five-year plan, set to be released March 5. If fulfilled, the pledge could drastically reduce global carbon emissions and slow global warming while creating a $16 trillion industry in the next 40 years, driving investment in green technologies. To reach its goal, China will have to overhaul its economy—and rally its tech sector.

We’ve been asking ourselves how China’s tech sector will play a role in this transformation. That’s why we’ve decided to start this newsletter. For the next few months, we’re going to take you on a deep dive into clean technology, or cleantech, in China. We’ll be identifying promising technologies and companies, and looking into who is investing in the industry.

We will support green technology innovation, promote clean production, develop the environmental protection industry, and promote green retrofitting of key industries and important fields.
China’s 14th Five-Year Plan guidelines, published in November

What is cleantech?

What do we mean by cleantech? The name is applied to everything from energy production to trash sorting startups. We’ve decided to go broad and thematic, so we’ll hazard a broad definition: Cleantech encompasses technologies that reduce our negative impact on the environment by improving energy efficiency and using resources in a more sustainable way.

Within this scope, we’ll find a lot of activity. In 2016, Chinese lawmakers announced plans to rapidly decrease pollution, calling for “significant integration” between the country’s energy and tech sectors. At the same time, authorities laid out plans to create green cities, complete with electrified transport and eco-friendly buildings.

Underpinning these projects is a smorgasbord of new construction technologies, smart waste management systems, new energy vehicles, air treatment and carbon capture technologies, better water treatment, new forms of distributed energy production, and energy storage.

Deployment

Several of these technologies have already been deployed around the country. In 2019, the Chinese government rolled out smart trash-sorting systems in a mass recycling push aiming to cut down on municipal waste. These devices began appearing in cities around the country amid the government’s mandatory trash-sorting campaigns. They aim to lessen the effort involved in the recycling process.

One company that runs the automatic waste-sorting stations is Dog (Xiaohuanggou). The firm has raised more than RMB 1 billion and operates in 41 cities around China. It has 6 million registered users, according to its website (in Chinese).

Meanwhile, Alibaba affiliate Ant Group started providing services to connect its users with online recycling platforms, allowing them to sell their recyclable waste to these companies.

Mobility has long been a significant focus, particularly as a means of reducing carbon emissions. China has subsequently become the biggest electric vehicle (EV) market in the world. Private companies and the government have rallied to set up a network of EV charging stations to match the scale of EV sales.

The country is now home to 807,000 charging stations, though growth up to this point has been slow. Meanwhile, EV makers like Nio have experimented with battery swap systems. The aim is to reduce worries about the range of EVs by attempting to reach access parity to gas stations and electrify China’s auto sector.

China has already invested more than any other country in cleantech, and shown that when the state backs an industry, it can get results. Apart from being the world’s biggest EV manufacturer, it is also the world’s largest producer of solar panels. Unlike its EVs, which are largely sold in the domestic market, China supplies the world with tech needed to harness the sun’s energy.

JinkoSolar is one example. The New York-listed company expected to sell 19 gigawatts of solar panel capacity in 2020, according to its third-quarter earnings call. That figure represents around half of all the solar capacity installed in China during 2020.

China, and companies like JinkoSolar, have driven the price of solar panels so low that they are now barely considered tech.

Huge investments

Nonetheless, China’s government and private enterprises are going to have to do a lot more if national emissions goals are to be reached by 2060. In order to hit the country’s net zero-goals, Chinese investment could reach up to $16 trillion by 2060— generating perhaps 40 million jobs, according to a report by Goldman Sachs.

The company’s analysts expect investment to peak at $650 billion in 2040. That would represent up to 2% of China’s GDP for that year.

Meanwhile, researchers from China’s prestigious Tsinghua University have made similar predictions, saying that the country would need to spend RMB 100 trillion ($15 trillion) over the next 30 years to reach carbon net zero by 2060.

On Feb. 1, the country rolled out a national carbon trading system to reduce carbon intensity. Participation is currently mandatory for companies in the energy sector, and allows these firms to buy and sell emissions credits. A company enrolled in the system must either meet its emissions targets or buy credits from other firms that have been more successful at lowering their emissions. The government is expected to expand the trading system to other industries in the future.

Caps on emissions and programs that reduce intensity such as this could prompt investment in eco-friendly technologies, further spurring investment in tech that cuts emissions.

Numerous Chinese venture capital firms have been established to fund startups focused on clean technologies ranging from energy generation and efficiency to sustainable agriculture. One of these companies is Tsing Capital. The firm has invested in a slew of startups that have become household names in cleantech, including drone maker eHang, China Hydro, and US-based Lucid Motors.

Coal and construction

China has a long way to go to clean up its pollution. The country has spent big on solar panels but has struggled to ditch coal. It continues to rely on one of its mosted trusted, but dirty, methods of stimulating the economy.

Construction is huge in China, accounting for around 7% of China’s GDP. In times of crisis, the country accelerates spending on infrastructure projects to stimulate the economy. In 2008, after the global financial crisis, the country pushed spending on massive road and rail developments.

Now, it’s doing the same to mitigate the economic effects of the coronavirus pandemic, spending hundreds of billions of yuan on some of its most ambitious projects.

But infrastructure investment has consequences. More than a third of all pollution around the globe is generated by construction and buildings—and China is the most prolific builder in the world. In China, that share appears to be lower, with some research indicating that China’s construction industry could be responsible for only a fifth of its total carbon emissions.

The country is actually building coal-burning power plants, partly as a means to drive its post-COVID-19 economy. In 2020 alone, China’s power industry proposed adding nearly 41 gigawatts of coal-burning capacity, according to an analysis by the Global Energy Monitor and the Centre for Research on Energy and Clean Air (CREA). That figure is the equivalent to the output of all the coal-burning power stations in South Africa. The central government may attempt to rein in construction of these power sources in the upcoming five-year plan.

Pressure to act

Meanwhile, several government agencies have failed to buy into environmental protection policies and to promote low carbon energy sources. The central government is finally reacting. In a harshly worded report last month (in Chinese), government inspectors hit out at the China National Energy Administration (NEA), the country’s energy authority, for failing to protect the environment and for building coal power plants in polluted areas.

This is as big as it gets in China’s energy policy … the final report is brutal in calling out failure to rein in coal.
Lauri Myllyvirta, lead analyst at CREA, who has written about China’s environmental policies, on Twitter

The NEA is not alone. China’s forestry agency was criticized for not providing sufficient environmental protections to improve forest quality. The government inspection group has also censured officials from six cities on branches of the Yangtze River for failing to deal with pollution leaking into the Yangtze River Basin. These areas included Suining in China’s southwestern Sichuan Province and Xiaogan in the central Chinese province of Hubei.

But as the country’s current five-year plan winds down, there appears to be a real push to move the needle on emissions. This will mean even bigger investments in clean technology.

We’ll be back next month with a look at the biggest players in China’s cleantech industry.

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Chinese user sues Apple over app prices, citing antitrust law

Wed, 24 Feb 2021 07:29:17 +0000

A Chinese Apple user has sued the American tech giant over its higher prices for apps and services compared with Android marketplaces, citing China’s antitrust law, local media reported on Wednesday.

Why it matters: China has recently tightened regulations on tech companies’ anti-competitive practices. While those moves mainly targeting local firms, the suit may thrust Apple into the spotlight.

Firms that have been fined or investigated in recent months include Alibaba and affiliates of Tencent and logistics giant SF Express.

Details: Jin Xin, an Apple user has accused the company of “abusing its market dominant position” for charging developers high commissions, and barring users from using payment methods other than Apple’s in-app purchase feature, local newspaper Southern Metropolis Daily reported Wednesday.

Jin, whose gender and age were not disclosed, said in a court filing that pricing for apps and services like video-streaming app iQiyi, podcast app Himalaya, and music app NetEase Music are higher in Apple’s App Store than in Android app stores.
The plaintiff said that was because Apple charges app developers commissions as high as 30% of sales, which were ultimately transferred to consumers.
Users cannot choose payment methods other than Apple’s in-app payment so that they have to accept higher prices, Jin said.
Citing China’s Anti-Monopoly Law, the plaintiff said in the court filing that those practices were “anti-competitive behavior” and had deprived users of their rights of fair trade, according to the report.
The Shanghai Intellectual Property Court will hear the case, said the report, but the hearing date is not finalized.
Jin could not be reached for comment. Apple did not respond to a request for comment on Wednesday.

Context: China has recently formalized new antitrust guidelines targeting tech companies, which forbid online platforms from forcing merchants into exclusivity deals, and offering different prices based on user data.

State Administration for Market Regulation (SAMR), China’s top antitrust watchdog, in January 2020 proposed an overhaul of the country’s Anti-Monopoly Law to include internet-based services in the scope of antitrust regulations.

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China to test digital currency transactions with Thailand, UAE

Wed, 24 Feb 2021 06:21:00 +0000

China, Hong Kong, Thailand, and the United Arab Emirates announced they will be testing central bank digital currencies in cross-border payments.

Why it matters: The collaboration between the four economies is a milestone in the digital yuan’s development. Nailing down cross-border payments is a key step in achieving a long-term strategic goal of using the digital RMB to internationalize China’s currency.

All four governments are exploring digital currencies. The digital yuan is the closest of the four to launch, making it likely to take center stage in the trials.

Details: The project, dubbed m-CBDC Bridge, will explore the potential of blockchain in international CBDC transactions. It aims to develop a proof-of-concept prototype that uses the distributed ledger technology to process in real time cross-border transactions that involve multiple currencies, a joint press release said.

The Bridge will also explore possible use cases in cross-border payments using domestic and foreign currencies.
The four central banks want to “foster a conducive environment” for more countries to join the project, helping to determine the feasibility of using blockchain in international trade settlements and capital market transactions.
China is participating through the Digital Currency Institute at the People’s Bank of China (PBOC).

Context: The Bank of Thailand and Hong Kong’s Monetary Authority completed a similar test in Q4 2019, called Project Inthanon-LionRock.

Hong Kong’s Monetary Authority said in December that it was discussing testing cross-border CBDC transactions with the PBOC.
The RMB has been slowly gaining ground in international payments; its share of global payments in January was 2.42%, compared with 2.15% in the same time period last year, data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) said.
The PBOC has been conducting closed-door trials of the digital RMB since April, and has completed six public trials in Shenzhen, Suzhou, Beijing, and Chengdu since October.

READ MORE: UPDATED: We got some digital yuan!

CLARIFICATION: This article was revised Feb. 25, 2021, to add context on the trial participants.

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Tencent, Ant Group banks to take part in digital yuan trials: report

Mon, 22 Feb 2021 06:27:10 +0000

Tencent’s WeBank and Ant Group’s MyBank will be the first two privately owned banks to participate in digital yuan trials, Chinese media reported.

Why it matters: The two online banks will be the first fintech companies to participate in the tests, possibly gaining an edge over their competitors despite widespread speculation that developing the currency was in part to curb their influence.

The report comes just weeks after Ant Group reportedly reached a deal with Chinese regulators to restructure its operations amid a crackdown on fintech and big tech.

Details: Under the supervision of the People’s Bank of China (PBOC), the two banks are preparing to join trials such as those already underway, which are run by six state-owned banks, China Securities Journal reported citing anonymous sources.

WeBank and MyBank accounts will soon become available on the digital yuan wallet app, the report said. Much like Ant’s and Tencent’s respective digital payment apps, the e-CNY app works by connecting to different bank accounts and transferring money to the wallet.
Zhou Xiaochuan, former PBOC governor who spearheaded China’s digital currency efforts during his tenure, stated that Ant and Tencent were involved in digital yuan trials in an op-ed published in Caixin earlier in February, based on a speech he gave in late November.

READ MORE: UPDATED: We got some digital yuan!

Context: Ant Group’s Alipay and Tencent’s WeChat Pay digital payment platforms account for a respective 56% and 38.8% of China’s digital payment market, according to a report from market research firm iResearch. Holding such portions of the market fulfill criteria for the pair to be considered a duopoly, according to draft antitrust rules released by the PBOC in January.

The digital RMB will enable other players, including traditional banks, to compete with the two fintech giants.
Ant Group and Tencent each hold around 30% share of their respective licensed digital banks.
E-commerce giant and Alibaba rival JD.com has been a high-profile participant in the digital RMB trials, even funding a $4.6 million lottery to distribute the currency in Suzhou.
Some Ant employees in Shanghai have reportedly been participating in digital yuan trials.

Updated: added detail about Zhou Xiaochuan’s statements.

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Will a Chinese app inherit the Clubhouse throne?

Wed, 10 Feb 2021 08:05:18 +0000

Catalyzed by the explosive popularity of Clubhouse, several Chinese Clubhouse-like apps are picking up steam.

The invite-only audio app’s selling point is access to celebrities. But many users joining Clubhouse’s Chinese equivalents—Two, Dizhua, Yalla, and Tiya—weren’t looking to meet celebrities. They were after casual conversations and online dating.

These apps saw an uptick in downloads starting early last week, around the time that Elon Musk appeared on Clubhouse. China’s block of Clubhouse on Monday evening hasn’t changed the overall download trend as of the time of writing, according to data shown on app data provider Chan Dashi.

READ MORE: Clubhouse no longer accessible in China

While the Clubhouse-like apps saw a jump in interest compared to their own histories, none of these networks are exactly topping the charts. On Feb. 7, Dizhua peaked as the 153rd most popular app in the social category in the Chinese iOS app store, according to Chan Dashi data—a big step up from its January place in the 700s and 800s—while Two hit 421st as of Feb. 9. Clubhouse is not listed in the Chinese app store, so TechNode could not make a direct comparison.

Clubhouse was not easy to access in China even before the ban, requiring an iOS device, an overseas Apple ID and an invitation. According to web analytics service Statcounter, Apple’s iOS only accounts for 20% of the market share in China as of January, 2021.

Clubhouse-likes

Justin Sun, founder of the cryptocurrency platform TRON and known for shelling out $4.57 million on a lunch date with Warren Buffett, announced on Twitter the launch of a Chinese version of Clubhouse called “Two.” The app is available to download in China on both the Apple and Android app stores.

Although Sun described Two as a new app, TechNode has found 482 user reviews on the Apple store dated as far back as August 2020. As of the time of writing, on the Android app store alone, Two has 2,892,031 total downloads, according to Chan Dashi Data. New downloads saw a jump on the Apple app store on Feb. 2.

Tiya, an audio chat social network app backed by China’s leading podcast platform Lizhi, also gained significant market share in the west and users in more than 200 countries. Catalyzed by the popularity of Clubhouse, Lizhi share prices soared by more than 300% in a five day period in the beginning of February, reaching a historic high.

Clubhouse’s celebrity affiliation has made membership in the app a token of status. “Clubhouse brings true KOLs, celebrities, elites, and industry leaders into the conversation, instead of live-streamers and influencers who accumulated fans and followers over time,” Rui Ma, China media and tech analyst Rui Ma told TechNode.

Prices for a Clubhouse invitation on Alibaba’s secondhand marketplace range from RMB 180 ($28) to RMB 500.

READ MORE: Clubhouse invites for sale on Alibaba’s used goods app

The homegrown networks offer a different vibe to the KOL-heavy Clubhouse. “A lot of the existing apps focus on connecting strangers and providing a place for them to socialize,” Ma said.

Dizhua, an audio social networking app launched by the knowledge sharing community guokr.com in August, 2019, has seen a significant leap in downloads since late January, according to Chan Dashi data.

A few users who reviewed the app in the Apple app store comment that they found their romantic partner on Dizhua.

“I found lots of interesting people and there are always things to talk about. Audio chatting is very efficient; you know right away who you get along with,” user Miaoeima commented (our translation).

“It’s nice to talk to strangers willing to listen to your stories, whether it’s silly or sad things in your life, they are patient and supportive,” another user said (our translation).

Many comments on the Apple app store said that Tiya is a good place for socially awkward people to make friends.

“Personally, I am socially afraid,” user “Brooks Heg|mann” wrote in a review on the Apple app store on Nov. 24, 2020. “I meet like-minded people here.”

The clone

Another developer created a clone platform as a performance. Huancheng Bai wrote in a blog post that he wanted to create a clone app to better understand the software and show that it wasn’t hard to replicate.

Bai successfully completed it within 55 hours, less than his original goal of 72 hours. He used the Agora API, the platform-as-a-service technology underlying Clubhouse. He livestreamed the entire cloning process on Bilibili.

Bai named the project NESHouse and made its source code available to anyone interested in building a Clubhouse-style platform or studying the logic of the network.

“NESHouse is not a commercial project, but more of an experimental product for programmers and geeks,” he tweeted on Feb.4.

“I made it just for fun,” he told Technode.

Prospects

A number of homegrown apps offer audio chat rooms in China, but none have captured the same kind of KOL-heavy user population. Clubhouse essentially paved its way to success by combining the rising popularity of podcasts with a real time social network allowing 5,000 people in a conversation.

It wouldn’t be surprising if more players—perhaps Chinese podcast platforms such as Xiaoyuzhou FM—try to bottle the Clubhouse lightning by throwing in a livestream chat room feature into its app.

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Huawei in talks to acquire digital payment firm: report

Wed, 10 Feb 2021 05:40:42 +0000

Huawei is seeking approval from authorities to acquire licensed digital payment provider Xunlian Zhifu, Chinese media reported.

Why it matters: The telecommunications giant is the latest of China’s big tech firms to expand into the digital payment industry, just as regulators are trying to break Ant Group and Tencent’s duopoly in the market with new antitrust laws.

Staffing: In addition to acquiring the Shenzhen-based licensed payment provider, Huawei is recruiting a “large number” of digital payment-related positions, such as deposit management, clearance, and bank cooperation, Chinese media reported on Sunday citing anonymous sources.

The acquisition: Founded in 2013 by Huawei’s competitor ZTE, Xunlian Zhifu was issued a nationwide online payment license in 2014. ZTE sold 90% of its stake in the payment provider to a Shanghai-based holding company in 2016.

Huawei has operated Huawei Pay, a payment service that uses Near Field Communication and has been built into its smartphones since 2016. But bank card provider China UnionPay is responsible for transaction processing.

Antitrust: Regulators have ramped up anti-monopoly regulation in the last few months, following the suspension in November of Ant Group’s mega dual listing.

Ant Group accounted for 55.6% of China’s digital payment market and Tencent for 38.8% as of June 30, 2020, according to market research firm iResearch.
The two companies fulfill the criteria of a duopoly in the third-party payment sector, according to a a draft regulatory definition released in late January.

READ MORE: New digital payment rules likely to hit Ant Group, Tencent

New entrants: Several internet companies bought licensed digital payment operators in 2020, including Pinduoduo in January, and Bytedance and Trip.com in September.

Bytedance launched an in-app payment tool in domestic short video app Douyin in January. The TikTok operator also launched a lending app in 2019.

READ MORE: Bytedance unveils Douyin mobile payment tool to rival Alipay, WeChat

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BSN adding compliance tools, new public chains: Blockheads

Tue, 09 Feb 2021 06:51:00 +0000

The Blockchain Services Network (BSN) is working on compliance solutions for Chinese developers while integrating more decentralized chains in its international network. Two digital yuan trials were announced; Suzhou’s second and Beijing’s first. Investments in cryptocurrency mining continued as Bitcoin prices begin to climb again.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Feb. 2-9.

BSN powers on

Big Four accounting and consulting firm Ernst & Young will provide compliance and audit solutions to developers on the BSN, a state-backed “internet of blockchains” platform. Two of the firm’s blockchain products, OpsChain and Blockchain Analyzer, will be available to developers using Ethereum or FISCO BCOS to build their applications on the BSN. (EY press release)
The BSN will add a permissioned version of inter-chain protocol Cosmos to Chinese network. (Ledger Insights)
The network’s international version is adding three public chains.

READ MORE: EXCLUSIVE: International BSN to add Casper, NEAR, Findora

Digital yuan

Beijing announced its first lottery to distribute RMB 10 million ($1.5 million) of the digital yuan. The lottery is one of a number of ongoing trials preceding the digital currency’s launch. (Beijing News official Weibo, in Chinese)
Suzhou announced a second lottery to distribute $4.6 million in digital RMB red envelopes. The funds will be provided by e-commerce giant JD.com. (TechNode)

The mining

Authorities in Sichuan visited cryptocurrency mines between Jan. 15 to 30. The local government is cracking down on mines operating in legal gray areas, and encouraging larger compliant mines to tap into the region’s abundant cheap hydroelectric power. (Wu Blockchain Twitter)
Chinese mining pool Poolin acquired North American pool NovaBlock, increasing its total hashrate to 23 exahash per second (EH/s) and solidifying its position in the top three Bitcoin mining pools. (NovaBlock press release)
Chinese US-listed sports lottery provider 500.com will buy an additional 5,900 cryptocurrency mining machines for RMB 55.2 million. The online lottery provider announced in January the purchase of $14.5 million worth of Bitmain and MicroBT rigs. (500.com statement)

Top 6 Chinese blockchain firms

Six Chinese companies were among a list of 50 top blockchain companies in the world according to Forbes: Ant Group, Baidu, China Construction Bank, Industrial Commercial Bank of China, Ping An insurance, and Tencent. (Forbes)

The unlikely commentator

Gene Simmons, the bassist for world-famous rock band KISS, said that he believes China is behind the US Securities and Exchange Commission lawsuit against Ripple, in an appearance on a podcast hosted by news site Bitcoin.com. In December 2020, the US SEC sued the cryptocurrency for selling $1.3 billion in unregistered securities. (Bitcoin.com)

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EXCLUSIVE: International BSN to add Casper, NEAR, Findora

Tue, 09 Feb 2021 04:52:47 +0000

The Blockchain Services Network announced plans to integrate three public blockchains into its international network, the BSN architect told TechNode on Monday.

Why it matters: The Chinese government-affiliated project pushes ahead with its ambition to connect all of the world’s blockchain ecosystems and provide blockchain infrastructure internationally.

Details: Once the three chains—Casper, NEAR, and Findora—are integrated into the BSN, developers will be able to access them through public city nodes and build decentralized applications (dapps).

The integration process usually takes a couple of weeks. However, Casper and Findora’s mainnets will be launched later in the quarter, so it is likely they won’t be available to BSN developers until then.
“Through the BSN, developers now can access nodes of 15 public chains through one gateway and play around at ultralow cost,” He Yifan, CEO of Red Date Technology, the firm building the BSN, said in a statement to TechNode.
The new protocols will not be available to Chinese developers. The BSN operates two separate networks, one domestic and one international, to ensure compliance in China.

Context: Casper and NEAR are Ethereum alternatives and layer-one proof-of-stake blockchains. Findora is a network for decentralized finance (DeFi) with an emphasis on privacy-preserving architecture.

Developments in the China version of the BSN are going in a different direction: Last week, Big Four consulting firm Ernst & Young announced it will integrate blockchain compliance and audit tools on the BSN.
Red Date is working on its two projects aimed at riding the wave of central bank digital currencies, TechNode previously reported.

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China formalizes antitrust rules targeting tech giants

Mon, 08 Feb 2021 05:47:48 +0000

China on Sunday put into effect new antitrust guidelines targeting internet platforms, subjecting the country’s tech industry to tougher rules on competition.

Why it matters: The guidelines formalize earlier draft rules announced by China’s State Administration for Market Regulation (SAMR), the nation’s top trustbuster.

Some of the country’s top internet-based services, including Ant Group’s Alipay, food delivery app Meituan, Tencent’s instant-messaging app WeChat, and online marketplace Taobao, will be subject to the new guidelines.

Details: The new rules forbid internet platforms from forcing merchants into exclusivity deals, offering different prices based on user data, and using algorithms to manipulate the market.

Pricing products or services differently according to customer purchasing power, consumption history, or user preference is now considered monopolistic behavior, according to the guidelines.
The guidelines widen the parameters for determining a firm’s “market-dominant position” to include factors such as transaction volume, user base page views, and technological barriers.
SAMR, which issued the rules, said the guidelines will provide a legal basis (in Chinese) for the country to tighten antitrust regulation of internet platforms.

Context: In December, SAMR issued fines to Alibaba and affiliates of Tencent and logistics giant SF Express over three separate acquisition deals, a move that legal experts described as the country’s first batch of antitrust enforcements against tech firms.

SAMR in January 2020 proposed an overhaul of the country’s Anti-Monopoly Law to include internet firms in the scope of antitrust regulations.
Last week, Douyin, ByteDance’s Chinese version of TikTok, said it had sued Tencent for monopolistic behavior including blocking Douyin’s content on WeChat.

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China fines Tencent-backed Vipshop for unfair competition

Mon, 08 Feb 2021 04:51:35 +0000

Beijing has imposed a RMB 3 million fine on the operator of Chinese flash sale online retailer Vipshop.com for unfair competition.

Why it matters: Coupled with a RMB 500,000 penalty for irregular pricing dealt out in December, regulation pressure is rising as Tencent-backed Vipshop’s share prices reach historical highs after doubling over 2020.

How the government addresses Vipshop, a major Chinese e-commerce player, could signal what’s ahead in the ongoing anti-monopoly investigation of its bigger peer, Alibaba.

Details: China’s State Administration for Market Regulation, the country’s antitrust watchdog, announced Monday it will fine Vipshop RMB 3 million (around $464,000) for unfair competition.

In order to gain a competitive advantage, Vipshop had developed and utilized a system to obtain information about brands that sell through its and competitor’s platforms from August to December last year, according to the announcement.
The data collected were referenced for monopolistic practices such as pressuring brands or merchants to only sell on its platform, a practice called “forced exclusivity.” It would throttle traffic, block, or even remove from the platform products from merchants that sell on multiple platforms, and boost traffic to sellers that sold exclusively on Vipshop.

READ MORE: Forcing sellers into exclusivity deals on marketplaces is illegal: regulator

The company confirmed the news in a Weibo post, saying that it did not object to the facts in the ruling, and that it will comply and “rectify and reform” to maintain market order.

Context: China has stepped up regulation of internet giants over the past few months.

In December, Beijing issued antitrust-related fines for three acquisition deals involving Alibaba, Tencent-backed China Literature, and an SF Express subsidiary. Each of the companies was fined about RMB 500,000.
China’s market regulator fined JD.com, Alibaba’s Tmall, and Vipshop RMB 500,000 each for irregular pricing in the same month.
Vipshop is reportedly considering a secondary listing in Hong Kong. The Beijing-based company went public on the New York Stock Exchange in 2012, raising a total of $71.5 million.

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JD.com funds $4.6 million Suzhou digital yuan test

Fri, 05 Feb 2021 05:22:08 +0000

E-commerce giant JD.com is stuffing virtual red envelopes of digital yuan to be distributed in Suzhou’s second public lottery, which opened for registration on Friday.

Why it matters: This is China’s fifth digital currency trial open to the public, and the fourth one within the last two months. The acceleration of public tests this year compared with 2020 signals that a rollout could be close.

JD.com’s involvement in the trial is the first known instance of a private company providing funds to test China’s digital currency.

READ MORE: EXCLUSIVE: We got some digital yuan!

Details: The Suzhou government will distribute to lucky lottery winners red envelopes containing a total of RMB 30 million ($4.6 million) paid for by JD.com, an official WeChat announcement said.

Suzhou residents can register for the lottery through the JD.com or Suzhou city apps on Friday and Saturday. Previously, potential winners could only register via city government apps.
But to receive and use their funds, the winners have to download the digital RMB app through the JD.com or Suzhou government app, depending which one they used for registration.
The winners will be announced starting Feb. 10 and the red envelopes can be used for shopping from Feb. 18 to 26.
The Suzhou government has also added a query function to its app, allowing citizens to search for offline stores that accept the digital currency.

Context: The first trial of the digital money in Chengdu, the capital of China’s southwestern Sichuan province, is underway. The Chengdu trial will distribute RMB 50 million, nearly double the amount other cities are distributing through public lotteries.

The southern city of Shenzhen has already held two lotteries in October and January.
Suzhou, Shenzhen, Xiong’an, and Chengdu are also running closed trials involving only whitelisted individuals.
China will likely be the first major world economy to roll out a digital currency, giving Beijing a first-mover advantage in the technology. Only the Bahamas and Cambodia have launched their own digital currencies.

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Ant Group reaches deal with regulators for restructuring: report

Thu, 04 Feb 2021 04:42:54 +0000

Ant Group has reportedly reached a deal with Chinese authorities to become a financial holding company, making it subject to bank-like capital requirements.

Why it matters: The restructuring is likely to ease regulatory pressure for the fintech giant, but could also drastically alter its operations and curb its rapid pace of growth.

Details: Ant Group will be putting all of its business into a financial holding company, including all of its non-financial technology operations, such as its blockchain platform AntChain, Bloomberg reported.

Previous reports said that Ant initially tried to only relegate business units that fall under the purview of financial regulators to the holding company, including consumer and small- to medium-sized business lending, wealth and asset management, insurance, digital payments, and MYBank, its licensed bank.
An official announcement could come before the Spring Festival holiday, which starts on Feb. 11.
Regulators are still ironing out the exact requirements for financial holding companies, after announcing the corporate framework in September.
An Ant Group representative declined to comment.
Share prices in New York for its e-commerce affiliate Alibaba on Wednesday rose 3.5% on the news.

Context: Since the suspension of Ant Group’s highly anticipated blockbuster dual public listings, it has been facing intense regulatory headwinds as Chinese authorities move to rein in fintech giants.

Just last week, Ant Group removed all bank deposit products from its platform to appease authorities which deemed them too risky.
On Jan. 21, China’s central bank released new antitrust rules for third-party digital payments providers that will likely hit Ant, among other fintech companies.
JD.com’s fintech arm JD Digits also restructured in January, but took a different approach: It joined the finance unit with its artificial intelligence and cloud businesses into a new company called JD Technology.

READ MORE: CHINA VOICES | The unsigned op-eds that foreshadowed Ant Group IPO suspension

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INSIGHTS | No going back for US-China tech under Biden?

Mon, 01 Feb 2021 04:52:57 +0000

As the Biden administration takes office in the US, there’s a bipartisan, arguably multilateral, appetite to mess with China tech.

The new president has promised to make a U-turn on many of Trump’s policies, but China isn’t on this list. Cabinet picks have said that they support an aggressive stance on China and have made it clear that technology is a key aspect of their foreign policy, but haven’t revealed details as to how they will be tough on tech.

“The view that the two countries are competitors is now firmly held in both Beijing and Washington. In turn, there is little prospect for a meaningful improvement in US-China relations under the Biden administration,” Agathe Demarais, global forecasting director of The Economist Intelligence Unit, told TechNode.

“Biden will need to appease China hawks in both political parties in order to get support for his more ambitious domestic programs, such as building new infrastructure and healthcare,” Alex Capri, visiting senior fellow at the National University of Singapore, told TechNode.

Bottom line: China’s tech companies have seen big changes in their relationship with the US during the past four years, and a new US administration probably won’t undo many of those changes. The Biden administration is likely to put a pause on surprise moves like app bans, and be less unpredictable, but there’s almost certainly no going back to 2015.

Trump era policies

‘Buy American’ initiative: Trump tried to encourage US federal agencies to buy homegrown products from the very beginning of his presidency. The American federal government is likely not a big client for Chinese companies, with some exceptions.

An LA Times investigation found that from 2016 to 2019, direct federal procurement of foreign-made goods increased by 0.1%: from 3.5% of total federal spending to 3.6%.
Several federal agencies stopped buying drones from Shenzhen-based DJI between 2017 and 2020.
The initiative turned into a “Don’t Buy Chinese” policy in August 2020, when a law barred federal agencies from buying goods or services from companies that use equipment from Huawei, Hikvision, and Dahua Technology. While the US federal government is not a big direct client for these companies, contractors like Amazon are.

The Entity List: More serious threats to China tech began in 2016 with the short-lived addition of telecoms manufacturer ZTE to a list that limits exports of US technology, a move that temporarily cut it off from crucial supplies of semiconductors. In 2019, ZTE peer Huawei was added to this list in a move called a potential “death blow.”

ZTE was added after accusations that the firm sold equipment to North Korea. The telecoms equipment vendor paid a $1.19 billion fine the next year and pleaded guilty to violating US sanctions, and was removed from the list.
Surveillance equipment manufacturers Hikvision, Dahua Technologies, and AI companies Megvii and iFlytek were added to the list in October 2019. SMIC and drone maker DJI were added in December 2020.
In Aug 2020, the Commerce Department expanded the scope of export restrictions on trading with Huawei. In an explicit attempt to target Huawei’s semiconductor supply, the department effectively banned any chips that include US tech to be sold to the Chinese telecoms company.

Transaction bans: Perhaps Trump’s most confusing tech policy, if anyone is keeping score. On Aug. 6, 2020, Trump signed an executive order to bar US companies from making transactions with TikTok and WeChat over alleged privacy violations. Both bans were suspended by courts before coming into effect.

On Jan. 5, 2021, Trump banned transactions with another eight Chinese companies: Alipay, CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay, and WPS Office.
The new Commerce Secretary will have to decide which transactions fall under the ban.

Investment bans: Trump banned investments in companies designated as affiliated with the Chinese military by the Department of Defense (DoD) including China Mobile, China Telecom, and China Unicom, starting Jan. 11, 2021. Shares of the three telcos in Hong Kong fell sharply on the announcement. The list also includes Huawei and Hikvision.

Trump later added that US investors must divest from Chinese companies by Nov. 11, 2021.
On Dec. 3, 2020 the DoD added chipmaker SMIC to this list, and on Jan.14, Xiaomi.

Delisting: Not a Trump policy per se, but a potentially major hassle for US-listed Chinese tech companies. US lawmakers voted unanimously to pass the Holding Foreign Companies Accountable Act, which threatens to force Chinese companies off US stock markets within three years.

CFIUS: The Committee on Foreign Investment in the US blocked Chinese investments on several occasions, and expanded its jurisdiction in 2018.

The committee blocked Ant Group’s acquisition of MoneyGram in 2018.
In 2019, CFIUS forced Chinese gaming company Beijing Kunlun Tech to sell gay dating app Grindr, which is popular in the US, citing privacy concerns. The sale finally went through in March 2020.

Clean Network: First launched on April 29, 2020 as “Clean Path,” and later expanded in August 2020, the initiative seeks to rid US allies’ tech networks and infrastructure from Chinese technology.

Various countries have reportedly signed on, although it is unclear what commitments they had to make to be part of it.

Tariffs: Trump slapped tariffs on several Chinese tech products, starting with solar panels in January 2018, and later on electronics, including laptops and phones.

Apple dodged tariffs on its China-made products at the last minute, when the US and China agreed on the phase one trade deal.
Tariffs have not severely affected China tech companies, with US firms bearing the brunt of the duties.

I could go on, but these are the most important.

How China tech responded

Funding: Chinese VC activity in the US fell dramatically in 2019 and 2020, as Chris Udemans documented, when the techwar heated up.

Many market factors affected Chinese VC investments in US startups, but the drop is partly attributable to the changes to CFIUS rules in late 2018.

By contrast, US funding is still flowing into China. Beijing-based VC Qiming Venture Partners closed a $1.2 billion round of financing in September, mainly led by US university endowments and pension funds.

(Image credit: TechNode/Chris Udemans)

Semiconductors: Export controls have also inspired big efforts in China to achieve semiconductor independence, or at least limit reliance on US chipmaking technology. This is a very long road and several US companies guard key chokepoints, but there is probably no going back.

Stewart Randall has written about how the open-source RISC-V chip architecture is a promising avenue for Chinese chipmakers to free themselves from reliance on American companies, and is reportedly being used more frequently.

Grand strategy

The Trump administration aimed to decouple the US and China in the tech sphere, Scott Kennedy, senior adviser at the Center for Strategic and International Studies in Washington, told TechNode.

Biden will be using similar policy tools, but his goal will likely be risk mitigation rather than complete separation, Kennedy said.

Biden’s team has begun to describe an approach that could lower the temperature without changing the basic fact of rivalry.

Kurt Campbell, Biden’s Indo-Pacific Advisor, and Jake Sullivan, Biden’s National Security Advisor, summarized an alternative approach in a 2019 Foreign Affairs article:

Washington, for its part, will have to invest in the core sources of American economic strength, build a united front of like-minded partners to help establish reciprocity, and safeguard its technological leadership while avoiding self-inflicted wounds.
-Kurt Campbell and Jake Sullivan, “Competition Without Catastrophe,” Foreign Affairs

Competition: Biden’s early appointees have said that his administration will continue competing with China on technology issues. However, Biden-style competition could mean more efforts to boost US innovation and fewer surprise app bans.

Antony Blinken, Biden’s Secretary of State, said he approves of the direction of Trump’s tough China policy, but disagrees with the former president’s tactics, during his confirmation hearing.
Even the relatively cautious Campbell and Sullivan say the US should get comfortable with “considerable friction.”
Biden is looking to strengthen the US’ domestically, boosting innovation and production capacity. Campbell and Sullivan wrote that this “domestic foundation” is what Washington needs to build on to deal with the China challenge.
Biden has promised to call up US allies trying to mend relations, so that they can exert united pressure on China at international institutions.

Cooperation: The new administration doesn’t only want to ramp up competition with China. Cabinet picks including Antony Blinken have said they want to find ways to work with Beijing on global issues such as climate change. Biden’s Secretary of State said in September that a full decoupling is “unrealistic and ultimately counter-productive.”

In Foreign Affairs, Campbell and Sullivan wrote that Washington should adopt a compete first, cooperate second approach.

Sullivan cautioned against making China an “existential threat” in the minds of American people and policymakers in a ChinaTalk podcast episode recorded in 2019.
Other than the environment, one area of cooperation could be regulation to rein in big tech, Xue Lei, research fellow of the Institute for World Economic Studies at the Shanghai Institute of International Studies, said in an event on Jan. 20.

Biden’s China team

Biden’s cabinet picks have almost unanimously expressed a desire to be tough on China on issues ranging from trade to human rights. They have also stressed the rising importance of technology on geopolitics.

President Biden and his incoming team have not detailed how they will deal with the US-China tech war. “I have not heard them whisper a word,” Kennedy said.

Biden’s top cabinet picks have often dodged making specific comments on technology issues. Here’s some exceptions on what they have said on China tech:

Laura Rosenberg, China senior director
- Rosenberg is the head of the Alliance for Securing Democracy in Washington DC. She is expected to bring attention to China’s censorship and allegations of surveillance technology.
- In a Dec. 31, 2020 report, the advocacy group argued for an alliance of democratic countries to counter China’s influence over global internet governance.
Tarun Chhabra, senior director for Technology and National Security
- Chhabra argues that American progressives should use rivalry to get Republicans to agree policies including increases in federal spending for R&D and education, as well as immigration policy changes to counter China’s Thousand Talents Program that attracts top tech talent from abroad.
Jessica Rosenworcel, chairwoman of the Federal Communications Committee
- Rosenworcel supported December 2020 decisions to revoke China Telecom’s US license and to reject an application from Huawei to review its designation as a national security threat.
Ely Ratner, top China advisor to the Pentagon chief
- A report co-authored by Ratner made several specific recommendations to the incoming administration on China tech, including expanding export controls based on end use of tech equipment, diversifying rare earth supply chains away from China, and coordinating with US allies on semiconductor export controls.

Tactics

“Democracies must employ scalpels rather than sledgehammers,” Rosenberg said. CSIS analyst Kennedy said he expects the administration to “carry out a top-bottom review of China policy and the entire foreign policy of their tactics and strategy.”

There’s some policy areas where experts expect to see movement from the new administration, albeit further down the line.

Made in America: Biden signed an executive order on Jan. 25 that will narrow the definition of American-made products and make it harder for federal agencies to justify buying foreign-made goods.

Backseat for tariffs: Experts expect tariffs on imported goods to take a backseat in Biden’s administration, giving way to strategic tools that confront China’s tech companies in different ways, like sanctions. “Rather than tariffs, the Biden administration will increasingly shift to sanctions and export controls to confront China’s rise in the technological sector and to try to re-assert the US global dominance in this area,” Demarais told TechNode.

Export controls: Campbell expressed support for “enhanced restrictions on the flow of technology investment and trade in both directions,” but not in a wholesale manner to avoid the Balkanization of the internet.

In the same op-ed, he identified the Huawei ban as a “cautionary tale” and called for creative policymaking, such as “establishing a multilateral lending initiative to subsidize the purchase of alternatives to Huawei’s equipment.”
China is “too big” to be steered with “traditional” financial sanctions, said Demarais. The new White House is likely to rely more heavily on export controls, and “this trend is likely to be a long-term one that will outlive the Biden administration,” she said.
“Biden is not likely to walk away from chip restrictions that are fueling China’s technology ambitions. Nor is Biden likely to walk away from blacklisting Chinese tech companies that have ties with the” People’s Liberation Army, Abishur Prakash, futurist at the Center for Innovating the Future in Toronto, told TechNode.
At the same time, Biden could finally give US firms “an audience,” a chance to “air their grievances regarding the suffering of collateral damage from Huawei restrictions,” Capri said.
A US semiconductor industry group wrote to the Commerce Department asking a review of the export restrictions to Huawei, Reuters reported on Jan. 26.

Standards setting: Some Biden advisors have said that they want the US to play a stronger role in international standard settings institutions to curb China’s influence in global tech standards.

At her Senate Confirmation hearing, Commerce Secretary nominee Gina Raimondo said Washington should “play offense” when it comes to standards setting.
In a Dec. 22, 2020 op-ed Laura Rosenberg, China senior director for the Biden administration, said Huawei’s “New IP” standard proposed at the International Telecommunication Union and the company’s 6G proposals are an attempt to “redesign the underlying architecture of the Internet to allow nation-states to exert greater control over Internet traffic and access.” Democracies have been “too passive” in international institutions, and they should work together to counter states like China, she wrote.

China tech in suspense

At this point, the broad strokes of the Biden team’s China approach are fairly clear. But tech companies and investors have a lot riding on the specifics. US policy won’t be going back to the rosier times of 2015, but China tech companies will have to wait to see how their access to US markets and stock exchanges will shape up in the next four years.

Kennedy said that US presidents usually don’t make decisions on foreign policy until the summer after they take office.

In the meantime, several of Trump’s policies will remain intact, chiefly entity lists. If you are Huawei or Hikvision, you will have to continue living with US export controls for the foreseeable future. If you are WeChat or Alipay, you can take a breather and expect to hear an update on whether you can operate in the US in a few months’ time.

Unfinished business: Analysts don’t expect any new moves any time soon, but the new administration has some homework due within the next two months.

The new Commerce Secretary has to define the scope of the Jan. 5 transaction ban on eight Chinese bans, including Alipay and WeChat Pay, by Feb. 19.
CFIUS has put its review of the TikTok deal on hold. Oracle and Walmart are reportedly still committed to buying the short video app, as they said four months ago.
“I fully expect CFIUS to continue blocking tech acquisitions in the US and to keep lobbying its allies to choose firms from America,” Capri said.
According to one of Trump’s last executive orders, by November 2021, US companies must have divested from 35 Chinese companies considered to have ties to the Chinese army, including chipmaker SMIC.

Stalling: Kennedy says Biden might try to hit the pause button on these actions until he has finished his policy review.

On Jan. 27, the Treasury Department extended the deadline by which US investors would be barred from investing in Chinese military companies by five months.

“In terms of the larger arc in figuring out how to manage the relationship with China, I am fairly optimistic,” Kennedy said. “The Trump administration highlighted the concerns of a Xi Jinping-led China. I think Biden will show more care in the tools to get effective action,” he said.

Update: This article has been updated to include the full name and title of Abishur Prakash, futurist at the Center for Innovating the Future, Toronto.

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Xiaomi sues US government over investment ban

Mon, 01 Feb 2021 04:46:18 +0000

Chinese smartphone maker Xiaomi said on Sunday it had sued the US government over a move by the Trump administration which bars American investment in the company.

Why it matters: This is the first legal challenge launched by Chinese firms on the Trump administration’s investment blacklist. The US Department of Defense (DOD) alleges that the entities are “Communist Chinese military companies,” meaning they are owned or controlled by the People’s Liberation Army.

Chinese tech companies have won legal challenges against the US government sanctions before. In December, a district judge fully blocked the Trump administration’s attempt to ban the Chinese video-sharing app TikTok in the US.
But Huawei, a Xiaomi rival, has found little respite pursuing legal challenges. In February, a federal judge rejected Huawei’s constitutional challenge to a US law that restricts it from doing business with US federal agencies.

Details: Xiaomi said in a statement filed with the Hong Kong exchange on Sunday that it had filed proceedings in the US District Court for the District of Columbia against the DOD and the Department of the Treasury on Friday.

Xiaomi said that it believes its inclusion on the blacklist was “factually incorrect and has deprived the company of legal due process.”
The firm has asked the court to declare the decision illegal and to reverse the course, it said.
Defendants of the suit also include the US defense secretary, Lloyd Austin, and Janet Yellen, the Treasury secretary, according to a court filing.
The DOD didn’t “provide any explanation for its decision to designate Xiaomi as a Communist Chinese military company,” nor did it give Xiaomi any opportunity to explain, the company said in the court filing on Friday.
Xiaomi denied any allegations that it is owned, controlled, or does business with China’s defense industry.
The Defense and Treasury haven’t responded to the lawsuit.

Context: An executive order signed by former US President Donald Trump in November bans American investment in companies that are deemed to be linked with the Chinese military.

American investors will be prohibited from buying Xiaomi shares and will have to divest their holdings by November, according to the executive order.

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Alipay, JD Digits, Didi remove all bank deposit products: report

Thu, 28 Jan 2021 08:01:35 +0000

Alipay, JD Digits, and Didi Finance have completely removed all interest-bearing time deposit products from their apps, just days after authorities released relevant regulations. TechNode has independently confirmed that bank deposit products have been banished from Alipay.

Why it matters: The move is the culmination of a month-long crackdown on time deposits sold through third-party fintech platforms, which is part of a wider regulatory clampdown on fintech as regulators try to rein in China’s Big Tech.

China’s Banking and Insurance Regulatory Commission (CBIRC) said on Jan. 27 that it will further scrutinize the cooperation of banks and insurers with fintech companies.

Full measures: As of Dec. 27, Alipay, JD Digits, and Didi Finance closed the app portals through which users could increase their existing deposits with banks, Chinese media reported. The outstanding balances will be returned to their accounts once the deposits have matured.

Half measures: On Dec. 15, Sun Tianqi, head of the central bank’s financial stability department, likened the partnership between banks and fintech platforms on deposit products to “driving without a license” and warned that regulatory supervision would intensify.

On Dec. 18, Ant Group was the first of China’s biggest internet platforms to stop selling bank deposit products on the Alipay financial marketplace. The company said it was following regulator demands.
Tencent, JD Digits, and Baidu’s Du Xiaoman followed three days later.
The relevant portals could still be accessed by app users who had purchased the time deposits in the past.
The CBIRC completely banned on Jan. 15 the sale of bank deposit products, including fixed-time deposits, on third-party internet platforms.

The risk: Small regional banks had been advertising time deposits with interest rates as high as 7% through fintech platforms.

Regulators have said that these banks are high-risk and use online platforms to pump liquidity on their balance sheets and release pressure from their liabilities, without going through the more stringent process of interbank lending.
After the Jan. 15 rules were implemented, small regional banks are still allowed to sell time deposits, but they must use their own channels to advertise and sell. Xin’an Bank, Blue Ocean Bank, and Wuxi Xishang Bank announced that they are moving their time deposits to their own apps, the Global Times reported.

READ MORE: CHINA VOICES | The unsigned op-eds that foreshadowed Ant Group IPO suspension

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Exclusive: Faraday Future to get $310 million lifeline from Chinese state-owned enterprises

Wed, 27 Jan 2021 11:02:02 +0000

Electric vehicle startup Faraday Future is close to finalizing a $310 million round of funding from a group of China’s state-owned enterprises and national funds, as the company is set to go public via special purpose acquisition company in the US.

Why it matters: The new investment will ease near-term cash flow pressure on the embattled EV maker and clear some roadblocks for the company resuming its expansion plan into the Chinese EV market, the world’s biggest of its kind.

Details: Faraday will receive around RMB 2 billion ($310 million) from a consortium of investors led by two Chinese state-owned enterprises, Zhuhai Gree Group and Zhuhai Huafa Group, TechNode has confirmed.

The cash injection is under the direction of the municipal government of Zhuhai, a city in the southern Chinese province of Guangdong, a person close to the matter told TechNode on Wednesday, speaking on condition of anonymity.
The state-owned Nanfang Media Group first reported the news (in Chinese). Faraday Future declined to comment when contacted by TechNode on Wednesday.
The Los Angeles-headquartered EV startup has been in touch with the government since late last year. This was followed by the incorporation of a fully-owned subsidiary with registered capital of $250 million in the city in late December, according to Chinese business research platform Tianyancha.
Zhuhai is among the regional governments aiming to play a major role in China’s leadership in electric vehicles, in September revealing plans to make new energy carmaking one of its five pillar industries by 2025. Chinese media reported that local authorities have been preparing plans to build a new vehicle assembly plant with Faraday.
Gree Group is a former major shareholder of Gree Electric Appliances Inc, China’s biggest air conditioner maker, while Huafa, also fully owned by Zhuhai municipality, is the city’s biggest real estate developer. Gree and Huafa did not respond to TechNode’s request for comment.

Context: Faraday has struggled for years to secure funds to get its first car, a luxury EV model called FF91, into production, in part due to the debt issues of founder Jia Yueting. The company’s second chance comes as Chinese local governments are racing to back EV startups amidst a Wall Street craze for EV stocks.

Zhuhai is not the first city to pay to bring an EV maker to town. Hefei provided a lifeline to EV maker Nio in February in return for establishing its Chinese headquarters in the central Chinese city.
Faraday is expected to file for listing through a merger with Property Solutions Acquisition Corp, a special purpose acquisition company (SPAC) within the next two weeks, Chinese media reported. It has hired Credit Suisse as an underwriter, the person close to the matter told TechNode.
The company is also looking to source manufacturing from Chinese private automaker Geely, with plans to build a plant with annual capacity of 100,000 vehicles, Reuters reported Monday.

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Chengdu to distribute $7.7 million in its first digital yuan lottery: report

Tue, 26 Jan 2021 04:44:25 +0000

Chengdu will distribute $7.7 million to winners of its first digital yuan lottery on Jan. 27, on the heels of similar trials for the currency in Shenzhen and Suzhou.

Why it matters: The lottery is the third digital currency trial open to the public, signaling that rollout is underway. It is also the biggest: Chengdu is giving out more than double the amount of funds distributed in each of the previous lotteries.

China’s digital yuan is likely to be the first digital currency issued by the central bank of a major economy.

READ MORE: EXCLUSIVE: We got some digital yuan!

Details: The trial will start on Jan. 27 and will last until Feb. 26, Chinese media reported. Residents of Chengdu, the capital of southwestern Sichuan province, can enter the lucky draw via a local government application. The RMB 50 million ($7.7 million) in funds will be distributed in red envelopes.

Unlike other lotteries, the Chengdu red envelopes will be earmarked for use online or offline. RMB 30 million can be used in offline stores, and the remaining RMB 20 million can be spent on e-commerce site JD.com.

Context: The lotteries distribute the digital currency and usually set a time limit for when it can be used so that the relevant authorities can gather and study data from the trial.

Shenzhen has held two lotteries, one in October and the second in January, while another took place in Suzhou in December. Prior to the public lotteries, the digital currency was only available to whitelisted individuals who were selected to take part in the trials held in Chengdu, Suzhou, Shenzhen, and Xiong’an.
In 2021, the digital currency started popping up in other places, including a cafe in Beijing and a hospital in Shanghai.
Chinese authorities have said that the digital yuan, also known as the Digital Currency/Electronic Payments (DCEP) project, will be tested during the Beijing 2022 Winter Olympics.

READ MORE: INSIGHTS | China’s digital currency has a long way to go

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Huawei in Greece: How Snowden shaped EU’s approach to Huawei

Thu, 21 Jan 2021 10:02:11 +0000

Based on more than 10 interviews with industry insiders and regulators, TechNode tells the story of how Huawei established itself in the Greek market—and how the tables have turned for the Chinese telecom giant.

In the first part of this three-part series, we explored how Huawei entrenched itself in Greek networks. This installment expands beyond Greece to the European Union, examining how the bloc’s and consequently Greece’s policy on telecommunications security changed over the years, thanks to espionage and a global anti-Huawei campaign from the US.

A wiretapping scandal involving the 2004 Olympics, the US National Security Agency (NSA), and the mysterious death of a Vodafone employee erupted in Greece in 2005. As the mystery unraveled, the Greek government, telecommunications industry, as well as the public at large found out the hard way that Washington would not hesitate to spy on Athens’ top leadership. US security agencies had taken advantage of the 2004 Olympics to eavesdrop on the Prime Minister.

In 2018, when the US began imploring its allies to avoid Huawei, it was essentially asking Greek telecoms firms to end their relationship with a reliable partner—one that had stood by them in hard times—in favor of a government that offered them military and political support, but had spied on Greeks for months.

Greece wasn’t the only European country to be shocked by American espionage activities that decade. Starting in 2013, the bloc found out through Edward Snowden’s whistleblowing just how extensively the NSA was snooping on member-states, including heads of state.

The diplomatic fallout with the US was quickly patched up, but Snowden’s revelations contributed to the European Union’s growing concern over cybersecurity.

Decisions made in Brussels would affect Huawei’s prospects in Greece as much as those made in Athens. Over the next few years, the EU Commission rolled out key cybersecurity legislation.

In interviews with TechNode, industry and regulatory insiders stressed that Greece abides by EU rules when it comes to cybersecurity. As the bloc responded to the Snowden revelations and later, Washington’s warnings about Huawei, the effects trickled down from Brussels to Athens.

As the EU prioritized cybersecurity and made new rules, Greek governments gradually implemented them.

The US embassy in Athens, Greece. (Image credit: Wikimedia Commons)

Our man in Athens

In the wake of the financial crisis, Huawei earned trust in Athens as it “stood by” Greece during its moment of need, as described in part one of this series.

At the same time, Huawei’s European rivals and US security agencies were caught engaging in clumsy episodes of corruption and espionage. Between 2005 and 2015, a major scandal shook Athens’ trust in its long-standing alliance with the US.

In January 2005, Vodafone found a glitch in its text-messaging service and notified Stockholm-based Ericsson, which had supplied the equipment. Two months later, Ericsson told the telecoms operator that it had found a complex piece of malware—6,500 lines of unidentified wiretapping code in the text-messaging function.

Ericsson gave Vodafone a list of over 100 tapped phone numbers, including those belonging to then-Prime Minister Kostas Karamanlis, Minister of Justice Anastasios Papaligouras, Minister of Public Order George Voulgarakis, and Minister of the Interior Theodoros Roussopoulos.

Two days later, a network planning manager at Vodafone by the name of Kostas Tsalikidis was found hanged in his Athens apartment. Two days after Tsalikidis’s death, Vodafone informed the Greek prime minister’s office of the wiretapping.

The Greek government proceeded with an 11-month preliminary investigation before breaking the news to the public.

On Feb. 2, 2006, the three ministers whose phones had been tapped called a press conference (in Greek) to inform the public of the wiretapping. By March, the government was accused of covering up the scandal in parliament. These accusations largely overshadowed the actual wiretapping in public and parliamentary discourse over the next few years.

At that point, Greek prosecutors, telcos, and the government knew that they had stumbled onto a massive security breach, but they couldn’t find hard evidence to prove who was behind the wiretapping. The highest levels of the Greek administration understood that the US had its hands dirty, but they did not discuss this publicly.

This “major scandal” made the industry and government uneasy in the years to come. The culprit of the “unprecedented data breach,” as 30-year telco veteran Andreas Polycarpou called it, was still out there. Instead of resolution and convictions, the incident left a trail of whispers and suspicions in its wake.

In 2008, the Greek Parliament passed two bills, in part to respond to the Vodafone wiretapping: In February, they voted to increase the powers but also checks and balances of the country’s intelligence service, which is responsible for counter-espionage activities. In June, they changed the legal framework on violating telecoms privacy, launching a new strategy for cybersecurity. The Greek anti-corruption watchdog disapproved of the new strategy, claiming that it would put politicians with little technical expertise at the helm of a rapidly changing technological environment.

The Vodafone case was still a mystery in September 2011, when the telco operator informed prosecutors that one of the mobile phones used for the wiretapping had made frequent calls to the US Embassy in Athens.

The Greek public had largely forgotten the Vodafone scandal, but behind the scenes the anti-corruption prosecutor was still working to hold the culprits accountable. In 2015 then-Greek prosecutor Dimitris Foukas issued a warrant for the arrest of William Basil, a US Embassy employee who was suspected to be an undercover CIA agent key in the wiretapping. The prosecutors were also investigating Basil’s connection to a plot to assassinate the former prime minister, Kostas Karamanlis.

Foukas was not reachable by phone. His staff told TechNode that the only way to speak to him would be to meet him in person at the Athens first instance court, which he now presides over.

When Edward Snowden blew the whistle on NSA surveillance, the Vodafone mystery was cracked open. Unveiled documents showed that the NSA had never removed its wiretapping system installed during the 2004 Olympics in Athens.

While giving the NSA access to Greek telephone networks was not unusual during such a high-profile event, the US intelligence agency turned it around to spy on top Greek officials. Neither the CIA’s operation in Greece, the US Embassy, nor the Greek government had any knowledge of the operation until Vodafone discovered it, the Intercept and Greek newspaper Kathimerini reported in 2015.

In 2018, the death of Kostas Tsalikidis was ruled a premeditated murder, and prosecutors pressed charges against unknown suspects. His family claimed he was murdered because he knew too much about the NSA’s abuse of Vodafone networks. Subsequent Greek governments and prosecutors refuse to officially comment on this theory.

The US was caught red-handed peeking into Vodafone’s telecoms networks to spy on Greece, its ally, without the knowledge or permission of local authorities.

Yet the Vodafone scandal didn’t make a big difference on Greece-US relations, according to Nikos Moumouris, a journalist who covered the story for newspaper Eleftherotypia at the time. It was like throwing a “pebble in the sea,” he told TechNode. “Maybe it wasn’t a pebble, maybe it was a rock. But once the story died down, it was back to business as usual [with the US].”

“Those were different times” when Greece’s capacity to investigate the breach was limited, Moumouris said.

The NSA headquarters in Fort Meade, Maryland. (Image credit: Store norske leksikon)

The Snowden files

Back in the 2000s, Greece wasn’t the only country glossing over telecommunications security. “Historically, operators simply didn’t pay a lot of attention to IT security. Other operators simply didn’t care,” said Jan-Peter Kleinhans, Project Director of Security in the Internet of Things at Berlin-based think tank Stiftung Neue Verantwortung.

The 2013 Snowden leaks were a big shock to the EU. The NSA’s privacy abuses cut deep among politicians and the public. It was a “very loud wakeup call as regards to potential threats to our fundamental rights, data protection and privacy,” an EU Commission spokesperson said.

The EU’s most powerful countries were among the biggest targets of US surveillance: France, Germany, Italy, and the Netherlands.

Greece was the target of so-called Blarney, an NSA program designed to get access to fiber optic cables, switches, and routers, wrote journalist Glenn Greenwald, who worked closely with Snowden to publish the NSA documents, in his book No Place to Hide.

But TechNode hasn’t found any records of the Snowden revelations being discussed extensively in the Greek parliament.

One prominent member of the Greek parliament, Theodoros Pangkalos, said he wasn’t surprised by the revelations: The Greek intelligence service had also spied on the US embassy decades ago, he said.

Given its history with the Stasi, East Germany’s massive secret police and intelligence agency, Germany is extremely touchy about surveillance. Relations between Washington and Berlin plunged. German Chancellor Angela Merkel, whose phone was allegedly tapped for 10 years, expelled the CIA chief from the country.

The diplomatic fallout from the NSA revelations was quickly patched up. In February 2014, French President Francois Hollande said “mutual trust has been restored” between the two countries, less than a year after he found out the NSA had collected data for 70 million phone calls in France in a single month.

But the EU had woken up to the importance of cybersecurity—and started tightening cybersecurity legislation for member-states.

European Union flags in Brussels. (Image credit: Needpix/NakNakNak)

Baby steps

In July 2016 the EU began to take steps that would push Greece to act on cybersecurity: the “first EU-wide legislation on cybersecurity,” as the EU Commission called it, came into force. The same year, the EU Commission published the EU Directive on Security of Network and Information Systems (known as the NIS Directive), an “action plan” for the bloc’s transition to 5G networks, outlining key considerations. The document didn’t mention security of 5G networks.

Huawei was not the controversial company that it is today, so it wasn’t a prominent part of the conversation as implementation took place. The original NIS Directive didn’t spell any trouble for Huawei: It was relaxed compared to later iterations.

As an EU member, Greece had to follow the Commission guidelines. But Greece had consistently lagged other EU countries when it came to digital policy, including cybersecurity.

The 2016 NIS Directive was geared more broadly toward digital service providers; the word “telecommunications” is mentioned only once in the law, in an article about security in the shipping industry.

Greek Prime Minister Alexis Tsipras set up a dedicated cybersecurity agency (in Greek) in 2017 by presidential decree—four years after Spain, itself seen as a late mover. The Ministry of Digital Policy under Nikos Pappas published an 18-page National Cybersecurity Strategy in March 2018—five years after Italy, another member-state viewed as late to the party.

In July 2018, the EU Commission told Greece to hurry up and adopt the NIS Directive into its national law. In November, the parliament conferred on the legislation. The debate transcript is 130 pages long, but not because the merits of the bill were hotly contested.

Members of parliament took the November debate on the cybersecurity legislation as an opportunity to hash out unrelated grievances: farmers’ strikes, taxes on broadcast operators, austerity measures, protests, the reputation of Kostas Simitis, who served as prime minister from 1996 to 2004, and so on. Huawei was not mentioned.

The only parties that voted against the cybersecurity law and managed to stay relatively on the matter at hand during the debate were members of the far-right Golden Dawn, which was recently ruled a criminal organization, and the Greek Communist Party. Golden Dawn brought up surveillance by US security agencies and big tech to argue that digital policy is used against nationalist and conservative groups. The communists argued that the cybersecurity legislation will trample the right to privacy to serve US and NATO interests.

After the marathon meandering debate, the law was passed and came into force a few weeks later.

Over the next few years, the proliferation of cyberattacks, privacy scandals, increasing digitalization, and US pressure brought telecommunications security to the center of the bloc’s digital policy. The conversation was slow to take off, but quickly ramped up in 2018 and 2019.

“The issue of security is moving up in the EU agenda,” and so Greek governments and companies are increasingly prioritizing it, George Tsaprounis, head of corporate affairs at Greek network operator Wind Hellas, told TechNode.

The squeeze on the EU

Because Athens faithfully follows EU rules on digital infrastructure, Washington’s anti-Huawei pressure on the EU trickled down to Greece.

With the EU and member-states already on edge over cybersecurity, the Trump administration started its global campaign against Huawei in 2018. By December of that year, it started to bear fruit: The EU Commission’s then-Vice President for the Digital Single Market Andrus Ansip said that the bloc should be “worried” about Chinese companies like Huawei because they might install “mandatory backdoors […] It is not a good sign when companies have to open their systems to this kind of secret services,” he said.

In 2019, the US ramped up its anti-Huawei lobbying in Europe. In a visit to Germany in May 2019, US Secretary of State Mike Pompeo threatened that European countries which use Huawei equipment could be cut off from US intelligence.

That wasn’t enough for Pompeo, who continued to argue for more restrictions on the company. Ahead of a key meeting between EU leaders to discuss security measures for 5G, Pompeo published an anti-Huawei op-ed on Politico EU.

Pompeo asserted that “it’s critical that European countries not give control of their critical infrastructure to Chinese tech giants like Huawei, or ZTE.”

Brussels conceded to the US argument that the country of origin of an equipment vendor can pose a security risk, but has not been willing to go all the way and ban Huawei.

But Washington wanted more assurances. It launched a renewed campaign to rid telecom networks from Chinese technology in August 2020. Under the banner of the so-called Clean Network, the US started collecting pledges from countries to preclude “untrustworthy vendors,” like Huawei, from their networks.

Trust no one

Some within the EU and Greece disagreed with Pompeo’s campaign. They argued there was no evidence that Huawei was doing anything the US wasn’t already doing, using gear from Huawei competitors.

According to many cybersecurity experts, no vendor is completely trustworthy or infallible. The only solution is to diversify and mitigate risks. The more vendors you buy from, the less you are exposed to any one, and you set up security checks and balances; one supplier might catch the others’ mistakes.

“As German industry, you’re between two camps. You can choose which backdoor you want: A Chinese backdoor or a US backdoor,” Steffen Zimmermann, the lead expert on industrial security at German industrial lobby organization VDMA, said in March 2018. VDMA members include heavyweights like Bosch and Siemens.

While Pompeo was making the rounds in European capitals, Greek officials kept quiet on Huawei. Greek President Prokopis Pavlopoulos visited Huawei’s Beijing office in May 2019 during a five-day official visit to China. He commended the company’s work in Greece and the two sides promised to continue their cooperation. Back in 2008, the same politician had proposed the bill to revamp the Greek intelligence service after the Vodafone wiretapping scandal.

To Greek insiders, the debate felt somewhat moot. From a technical perspective, the risk of espionage or compromised communications is not affected by the country of origin or the equipment, they told TechNode.

“There are countries that do not rely on Huawei’s infrastructure. That doesn’t mean that they don’t have cybersecurity issues to solve,” Antonia Petrovits, a spokesperson for Huawei Greece, told TechNode.

Whichever company builds a network will have some capacity to use the infrastructure for its own purposes, the Greek telecom technical experts TechNode spoke with agreed.

Europe’s large telcos have recognized this risk for years. To avoid becoming dependent on any single supplier, and the backdoors or vulnerabilities in their equipment, many of Europe’s carriers have diversified their supply chains, procuring equipment from different vendors.

In January 2020, the EU Commission officially included procurement diversification in the bloc’s guideline for developing 5G networks. ”Dependency of one or several networks also significantly affects national and EU-wide resilience and creates single points of failure,” the Commission said.

Greece’s latest cybersecurity strategy, released on Dec. 3, made the same recommendation.

Delegating the Huawei decision

In January 2020, Brussels again tried to resolve the Huawei issue—by passing the buck to member states. In its official guidance on 5G adoption, the EU Commission asked national regulators to consider elaborate technical issues—in addition to equipment suppliers’ country of origin.

The EU has limited jurisdiction over member-states and, at least on paper, didn’t want to single out China. Directives “do not target or single out individual countries or suppliers,” the EU Commission spokesperson said.

The EU’s directive on 5G handed the decision on Huawei back to member-states. Every company which complies with EU rules can access the market, but individual countries reserve the right to exclude companies for national security reasons, the spokesperson said.

The January 2020 EU’s 5G cybersecurity “toolbox” places a lot of responsibility on member-states’ regulators and network operators, Kleinhans said. It’s up to them to decide whether Huawei will be excluded from 5G networks.

The 5G toolbox asks countries to consider the “risk of interference by a non-EU country” when evaluating equipment—in other words, deeming Chinese-made equipment a risk simply because it’s Chinese.

The Greek network regulator did not respond to TechNode’s multiple requests for comment.

The Commission’s delegation of the choice on Huawei has led to a patchwork of responses reflecting the bloc’s political diversity, from Sweden’s hard ban, to Estonia’s “Huawei law,” to Ireland’s continued relationship with the Chinese company. Some telecom operators like Vodafone have taken matters into their own hands and are replacing Huawei gear with alternatives.

It is hard to assess how much ground Huawei has lost, given the patchwork of responses and lack of public information.

European countries are making moves to exclude Huawei from their 5G networks. (Image credit: TechNode/Wei Sheng)

Playing politics

Greek policy-makers face a diplomatic dilemma with Huawei. The company has a good track record of helping the market and offers competitive products. Security is a concern, but from a technical perspective Huawei’s gear is not more risky than its competitors, industry insiders said.

All equipment manufacturers, regardless of their country of origin, can open a backdoor to spy on communications. “There might be access points to the equipment, but these are for service purposes. Anyone can open a backdoor that is intended for service,” Polycarpou said.

Many operators told TechNode that they don’t see Huawei as a threat to their security—at least, not a bigger threat than the US. To them, security is a technical question that has been politicized. From a purely technical perspective, Huawei is at least on par with its Western counterparts.

But the diplomatic balance around Huawei is delicate. Greece needs its friendships with both the US and China.

Keep buying Huawei, and the US threatens to cut off military ties. To Athens, Washington’s support in defense issues is key to keeping Turkey, a country with four times Greece’s GDP, at bay: The two neighbours have a long history of military confrontation which flared up in August when Turkey threatened to go to war over a maritime dispute.

But giving Huawei up could be an affront to China. The EU is well aware of the political nature of an anti-Huawei decision. Considering the threats posed by state or state-backed actors is a “non-technical” issue, it said in its October 2019 5G security assessment.

When Sweden banned Huawei in October, the local telecommunications regulator said it was following the advice of military intelligence, which had found China to be “one of the biggest threats against Sweden.”

An outright Huawei ban would inevitably call China out as a threat to Greece’s security when the two countries remain, at least on paper, allies. In Greece, such a statement would incur a high political cost. Despite its longstanding alliance with the US, Athens has been courting China to invest in Greece.

Aerial view of Athens-adjacent Pireaus port. Chinese shipping giant Cosco owns a 51% stake in the commerce hub. (Image credit: Cristo Vlahos/Wikimedia Commons)

In a landmark privatization deal in 2016, Chinese state-owned shipping giant Cosco acquired a 51% stake in Piraeus port, adjacent to Athens, for €280 million ($343 million), and is due to gain another 16% should it spend an additional €400 million on the port by the end of 2021.

Five days after Turkish president Recep Tayyip Erdoğan threatened military action against Greece, the US ambassador to Athens Geoffrey Pyatt tweeted that Greece had joined the Clean Network, which is widely regarded as an anti-Huawei initiative.

The next month, Pompeo visited Mitsotakis’ hometown on Crete island to talk about defense issues for which Greece is looking to the US for support, and vice versa; Mitsotakis’ focus was Greece’s dispute with Turkey, and Pompeo’s was Russia’s involvement in the Mediterrenean, particularly in Libya.

The secretary of state also visited a naval base on the island that offers support to US war and logistics ships. He announced the “US Navy’s newest expeditionary sea base,” a $498 million ship, would be moved to the Greek port.

At a joint press conference with the Greek Prime Minister during this visit, the two politicians announced enhanced cooperation on military issues—and Pompeo welcomed Greece to the Clean Network. However, Mitsotakis didn’t mention “clean” telecoms, during the press conference or anywhere else.

https://www.instagram.com/p/CFuqnxcjGUw/c/17857776629236101/

Pompeo claims Clean Network members will make “efforts” to rid their networks of untrusted vendors, including Huawei. So do international media outlets.

The Greek government has never confirmed whether it will make such efforts—or that it has joined the Clean Network.

It’s not clear what this means. The current Greek administration has long kept a “no comment” policy on the Huawei controversy, and in 2020 its alliance with the US has deepened, so it could be that it has joined the Clean Network and is merely letting Pompeo do all the talking.

If Greece has entered into an agreement on 5G networks with Washington, it could face retaliation from Beijing.

It’s not clear whether the small Mediterrenean nation will embrace the Clean Network and if so, how it will interpret it.

The next installment of this series explores what the Clean Network means in the Greek context, if anything, and Huawei’s position in the Greek market.

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New digital payment rules likely to hit Ant Group, Tencent

Thu, 21 Jan 2021 05:05:46 +0000

The People’s Bank of China has proposed new antitrust rules for non-bank digital payment companies, which are likely to pressure the duopoly held by Ant Group and Tencent over the market.

Why it matters: The rules set the standard for monopolistic behavior in China’s third party digital payment market. If implemented, they are likely to trigger regulatory scrutiny of Ant Group and Tencent.

The move is part of a wider regulatory antitrust clampdown on tech companies and particularly on fintech, but it is the first to target the digital payment sector.
Sources have told TechNode that Ant Group and Tencent’s online payment duopoly does not sit well with banks and authorities, but there had been little to no regulatory movement to curb their power.

READ MORE: CHINA VOICES | The unsigned op-eds that foreshadowed Ant Group IPO suspension

Details: The new rules set market share thresholds for the “confirmation of market dominant position,” which might trigger a regulatory review. If non-bank online payment companies exceed these thresholds, the central bank will consult with the antitrust watchdog to determine whether the company or companies have engaged in monopolistic behaviors.

For a single third-party payments provider, the market share threshold is half of the market; two-thirds of the market for two providers’ combined share; for three providers’ combined market share, the limit is 75% of the market.
If one of the multiple-party payment providers accounts for less than 10% of the market, it will not be included in the anti-monopoly review.
Ant Group individually and in combination with Tencent exceeds these thresholds. Ant Group holds 55.6% of China’s market for digital payments, and Tencent accounts for 38.8%, a June 30 report from market intelligence firm iResearch said.
The rules also set early warning thresholds, which are lower than the “confirmation” thresholds, and might mean key personnel is called in for interviews.
The draft rules are open for comment until Feb. 19.

Context: Regulators have been trying to rein in big tech in the last few years. Regulatory efforts have intensified, however, since Ant Group’s initial public offering in Shanghai was abruptly halted in November.

Sweeping antitrust rules were released in the days following the Ant Group listing fiasco. Soon after, Alibaba, an SF Express subsidiary, and a Tencent-backed platform were fined for failing to report acquisition deals for antitrust reviews.
The central bank released a technical document to standardize the use of AI and big data in payment risk prevention on Jan. 4.

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Jack Ma resurfaces amid regulatory clampdown

Wed, 20 Jan 2021 06:59:08 +0000

Jack Ma made his first public appearance after months of avoiding the spotlight, following rampant speculation attributing his disappearance to a regulatory crackdown on his businesses.

Why it matters: Ma had not appeared in public since Oct. 25, when he made a speech at a gathering of China’s top financiers and regulators criticizing Chinese regulation on fintech. The speech reportedly contributed to the negative attention from regulators that led to the suspension of Ant Group’s initial public offering just days later.

Ma’s reappearance will likely quell speculation that his disappearance was not a deliberate choice to lay low, but a sign that he might be arrested—or worse.
The resurfacing follows just five days after China’s central bank said Ant Group had established a rectification team to work with regulators.

Details: China’s most recognized tech billionaire held a video conference (in Chinese) with 100 teachers in remote parts of China on the morning of Jan. 20.

“When the epidemic is over, we will meet again,” Ma said in the video.
The event to recognize rural teachers’ achievements is usually held in the city of Sanya, in China’s southern island province of Hainan, state media reported.
At the time of writing, the hashtag “Jack Ma made his first public appearance” has been viewed over 1.3 million times on China’s Twitter-like social media platform, Weibo.

Ma, who used to be an English teacher and founder of #Alibaba, also gives wishes to village teachers via a video on Wednesday, saying usually the activity is held in Sanya in southern Hainan but this year, due to #Covid19 it has to be done via video conference. pic.twitter.com/yfi7oPB5Sb
— Qingqing_Chen (@qingqingparis) January 20, 2021

Context: Within a few days of the fateful Oct. 25 appearance, regulators in November halted Ant Group’s planned $35 billion listing on the Shanghai stock exchange and released new antitrust rules that severely curb the fintech giant’s operations, as well as those of its e-commerce affiliate, Alibaba.

In December, regulators fined Alibaba, Tencent, and SF Express for failing to report acquisitions to China’s market competition authorities.
Ten days later, they launched an antitrust probe into Alibaba over allegations of “forced exclusivity.” On the same day, the People’s Bank of China called Ant Group in for a meeting.

READ MORE: CHINA VOICES | The unsigned op-eds that foreshadowed Ant Group IPO suspension

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Ant Group digital yuan tests, Iran’s Chinese miners: Blockheads

Tue, 19 Jan 2021 08:06:25 +0000

Ant Group employees are reportedly using Alipay to conduct transactions in digital yuan; one of China’s big four banks opened applications for digital RMB wallets to customers in Shenzhen. Authorities in Iran shut down the operations of Chinese cryptocurrency miners. Binance and Poly Network join hands in China’s the latest cross-chain venture.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Jan. 12-19.

Digital yuan progress

Ant Group employees can use the Alipay app for digital yuan transactions in select locations, including the Lujiazui district in Shanghai. The fintech giant is working with the People’s Bank of China to develop infrastructure to support the digital currency. (Mobile Payment News, in Chinese)
The Industrial and Commercial Bank of China, one of the country’s big four banks, is accepting applications from customers in Shenzhen who want to open digital yuan wallets. (China Banking News)

Chinese miners in Iran

Iranian authorities halted all cryptocurrency mining operations operated by Chinese people on Jan. 14. Chinese crypto entrepreneurs flocked to Iran during the Bitcoin surge to take advantage of its cheap electricity.

An Iranian tech entrepreneur, Nasim Tavakol, tweeted on Jan. 8, “The Chinese have built a 175 MW bitcoin mining farm in the Rafsanjan Special Economic Zone,” (translation via Twitter), and added the mine’s coordinates. (Wu Blockchain, in Chinese)

More interoperability

Binance and Poly Network are launching cross-chain interoperability. Binance Smart Chain, the cryptocurrency exchange’s decentralized finance-oriented public blockchain, and Poly, founded by Neo’s Da Hongfei, are the latest two blockchain projects to try cross-chain transactions and data exchange.

READ MORE: Binance, Poly Network to launch cross-chain interoperability

Conflux lands $5 million grant

Public blockchain startup Conflux landed a $5 million research grant from the local government in Shanghai’s Xuhui district. Conflux is one of few decentralized chains to work with Chinese authorities. It received funding from Shanghai authorities in 2019 for a research lab, and scored a contract to revamp government data architecture in Hunan province in August 2020. (CoinDesk)

READ MORE: Public blockchain Conflux lands second government deal

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Thrills, suspense, Flash updates: Dalian railway tech support goes viral

Tue, 19 Jan 2021 07:57:37 +0000

Dalian, China—“1411 hours. The station is back in crisis. Once again, we cannot use the printer.”

A railway depot in the northeastern city of Dalian held China’s technically savvy readers in suspense—or, perhaps, stitches—with a minute-by-minute bulletin of its 20-hour “battle” to revert a Flash update on Jan. 15, which achieved brief viral fame before being deleted. Screenshots are still available on programming forum Github.

Depot staff were confused when their computers lost access to the local dispatch system on the morning of Jan. 12, according to the bulletin. The reason: Adobe’s last update to its Flash Player included a kill-switch set to go off that day, when the company ended support for the notoriously virus-prone web standard. Flash was little missed—except in the Chinese government, where it remains in widespread use.

“0816 hours: After calls and online searches, we confirmed the source of the issue is American company Adobe’s comprehensive ban of Flash content.”

So began the “insurmountable challenge of updating Flash”—a process the depot chronicled on its WeChat public account in the style of a military thriller, written with all the self-awareness of Dwight from “The Office.” As journalist Tony Lin, who first flagged the post in English, wrote on Twitter, it was “the Y2K content the world owes us for 20 years.”

The post was later deleted after catching on with technically minded online wags, many of whom asked why the depot didn’t plan for the retirement of Flash despite three years’ advance warning.

The staff divided into hardware and software task forces, and attempted to restore an older version of Flash from a backup “GHOST system,” an effort marked by triumphs and defeats. By 10 p.m., they had mostly restored computers to backup states—when, suddenly, automatic updates caused the systems to disable Flash again.

According to a brief statement which later replaced the viral post, the issue was limited to newer computers in the depot and no trains were affected.

After midnight, the team began to chalk up lasting victories:

“Jan. 13, 0113 hours: ‘Wan Jia Ling station is fixed! Ling Ma shouted…we all gathered and confirmed. The room burst with cheers and applause.”

Finally, after 20 hours, the team had Flash up and running again on all its computers. Flush with victory, the author of the bulletin reflected on what they’d learned:

“During more than 20 hours of fighting, no one complained and no one gave up. The slim hope motivated each and every one and turned into the fuel to push forward. In the solving of the Flash malfunction, the depot displayed true initiative, innovation, and brilliance.”

All translations are TechNode’s own. Featuring contributions from hardware and regulations reporter, Wei Sheng.

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US revokes licenses to sell to Huawei, to deny more: report

Mon, 18 Jan 2021 04:19:16 +0000

The Trump administration is revoking certain licenses for some suppliers of Chinese telecommunications firm Huawei, Reuters reported Monday, and it warned it would deny more applications.

Details: The Semiconductor Industry Association, an American industry group, said on Friday that the US Department of Commerce had issued “intents to deny a significant number of license requests for exports to Huawei and a revocation of at least one previously issued license,” Reuters reported, citing people familiar with the matter.

One of the sources in the report said eight licenses were revoked from four companies. Intel, which supplies Huawei with systems-on-a-chip (SoCs) used in smartphones and personal computers, was among the companies.
Another affected company was Kioxia Corp, a Japanese flash memory chip maker formerly known as Toshiba. The company had at least one license revoked, said two Reuters sources.
Some 150 licenses for $120 billion worth of goods and technology ready to ship to Huawei were pending approval before the latest action.
Another $280 billion of license applications for goods and technology for Huawei have not been processed, according to Reuters.
The Commerce Department has told companies that it “intends to deny” those applications.

Context: According to two US government regulations issued in 2019 and 2020, companies around the world have to seek a special license from Washington if they want to sell products that contain US technology to Huawei.

In September, Intel received a license from the US government to sell to Huawei. In November, US chipmaker Qualcomm was approved to sell 4G chips to the Chinese company.

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A widening technology gap is leaving the elderly behind

Sat, 16 Jan 2021 04:37:55 +0000

Using your smartphone at restaurants has become the standard, and sometimes the only, way to order food at eateries in China. Customers scan the QR code displayed on their table and can place an order on their smartphones right away without assistance from waitstaff.

To access the ordering page and digital menu, customers are often required to follow the restaurant’s social media page. Oftentimes physical menus are not in sight; some restaurants won’t provide them at all.

While some customers view mobile phone ordering as an efficient innovation, many still prefer browsing a physical menu and in-person ordering. Aside from feeling impersonal and intrusive, requiring food orders via phone also places the elderly and the digitally unskilled at a disadvantage.

In response, Nanjing Consumer Association said last week that consumers have the right to say no to mandatory phone ordering, and restaurants should offer services that all customers can access. As a government-backed organization, consumer associations in China handle consumer complaints and work with regulators and law enforcement to protect their rights.

“Services without options encroach on consumer rights,” (our translation) Wei Cao, deputy secretary general of the Nanjing Consumer Association said in an interview (in Chinese) with China National Radio.

In late November, China’s State Council introduced a set of measures aimed at bridging the technology gap for seniors. Specifically, the guidelines require the technology used in existing services including transportation, consumption, and healthcare be evaluated to guarantee accessibility for the elderly. The guidelines also encourage the development of tech innovations aimed at seniors.

Boon for business, bad for user privacy

For restaurants, the smartphone ordering system is more cost efficient—it’s cheaper than making physical menus and saves on manpower. It also helps speed up the ordering process, thus allowing more customers to dine during busy hours.

Having customers place their orders via smartphone can save restaurants about 30% of their labor costs, Yu Xuerong, president of the Jiangsu Catering Industry Association, said in the report.

It has also proven a boon for business marketing. In order to access a menu, diners are frequently required to “follow” restaurants on social media and subscribe to promotions, driving down marketing expenses while boosting user engagement.

Those cost savings can come at the expense of user privacy. Customers are often required to fill out personal information such as names and phone numbers, and agree to share their locations, which helps businesses collect user data, analyze what dishes are more popular, and raise prices accordingly.

Felix Lee, a frequent restaurant-goer in Beijing, doesn’t like ordering on his phone at restaurants, even as a digitally savvy millennial.

“It deprives my freedom to subscribe to pages at my own will and I am annoyed by their occasional pop-up ads,” he said.

Lee normally unfollows the restaurant pages to unsubscribe from the promotions as soon as he completes his order.

But for the elderly and the digitally unskilled, requiring food orders via smartphone is more than a nuisance and unpleasant privacy invasion.

According to a report by the China Internet Network Information Center, there were 463 million Chinese not on the internet as of June. They are nearly evenly divided by location: 43.8% live in urban areas and rural residents account for 56.2%.

Increasingly widespread mobile adoption has marginalized this segment of China’s population. Some businesses have even transitioned to mobile-only ordering, and refuse to take cash.

In November, an elderly woman was denied the ability to pay in cash for her medical insurance. She was told to either pay on her phone or have a relative help her, according to a video posted to Chinese microblogging site Weibo. The video attracted more than 23 million views and 20,000 reposts, spurring netizen backlash against the bank.

The same month, a video of a 94-year-old woman being propped up by family members in order to activate face recognition for her social security card at a bank in Hubei province went viral on Weibo. It sparked discussions about the burden forced upon the elderly by increasingly digitized services and the technology gap.

Restaurants need to develop and advance digitally to cater to customers using more efficient methods, while maintaining service channels for those accustomed to traditional ways, Yu of the Jiangsu Catering Association said.

Covid-19 widens technology gap

The Covid-19 pandemic has further compounded the technology gap. Essential information and services such as opening hours for public places and reservation systems at hospitals require using the internet, while digital health codes are required to enter public spaces. Digital reservation and registration is often required at tourist sites as well.

An elderly man over the summer in the northeastern Chinese city of Harbin, and another senior citizen in Fushun in nearby Liaoning province earlier this month were barred from boarding buses because neither had a smartphone to scan the health code required for entry, according to Chinese news reports.

Seniors are often forced out of such digital checkpoints, and vital tasks such as hospital visits and Covid-19 tests commonly require online reservations during the pandemic. Chunhui Wang, professor and economist with Zhejiang University said in an interview (in Chinese) that senior citizens need to receive digital education while guidance and assistance should also be provided to those in need for mobile payments, health code scans, and digital reservations.

Correction: an earlier version of this story incorrectly stated that Yu Xuerong of the Jiangsu Catering Industry Association said restaurants could save 30% of labor costs through marketing and promotions, rather than through the practice of placing food orders via customer smartphones.

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Digital yuan goes physical, mining rig prices rise: Blockheads

Tue, 12 Jan 2021 04:49:11 +0000

A Shanghai hospital started trialing a digital yuan smart card, and China’s third lottery to distribute the digital currency took place in Shenzhen. The prices of cryptocurrency mining rigs skyrocketed in the last two months during the Bitcoin bull run, while state media discouraged investors from buying into the craze.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Jan. 5-12.

Digital yuan trials

A hospital in Shanghai started trialing the first “hard wallet” designed for the digital yuan, state media reported on Jan. 7. Employees of Tongren Hospital can use a smart card, as opposed to a smartphone, to pay with the digital currency at the hospital’s staff canteen. (The Paper on YouTube, in Chinese)

“The Shanghai DCEP pilot uses an ink screen similar to Amazon Kindle, which means that DCEP can be used without an Internet connection or mobile phone.”
—Colin Wu on Twitter

China’s third lottery to distribute China’s digital currency took place last week in Shenzhen, the second to take place in the city. The lottery is part of the central bank’s ongoing trials. RMB 20 million ($3 million) were distributed in this trial. (China Banking News)
Local media in Shenzhen reported that the Agricultural Bank of China is testing the use of ATMs for digital yuan deposits and withdrawals. (Shenzhen News)

The scramble for mining rigs

As Bitcoin prices soared in the last month, demand for China-made cryptocurrency mining rigs surged alongside. The world’s top cryptocurrency exceeded $40,000 last week.
Prices of new mining rigs have doubled in the last two months, and Bitmain’s inventory have been sold out for months. (CoinDesk)
The bull market has even brought back old models that were on shelves. Previous rig models are also being sold for higher prices in second-hand markets, data from crypto intelligence portal Hash Rate Index showed. (8BTC.com)
The topic was trending on Chinese social media platform Weibo, with more than 8.9 million views on Jan. 9.
500.com, a US-listed Chinese sports lottery company, plans to buy $14.4 million worth of Bitmain and MicroBT crypto mining equipment. The lottery operator will issue 11.9 million Class A ordinary shares priced at $1.21 to raise funds for the purchase. (500.com statement)

State media on Bitcoin

The China Economic Daily said that Bitcoin trading is still in a legal gray area, and that the cryptocurrency will become worthless when governments ban it. The newspaper said it expects regulatory crackdowns on Bitcoin to intensify. (8BTC.com)
State-owned People’s Daily discouraged readers from leveraged Bitcoin trading amid the coin’s bull run in a lengthy op-ed on Jan. 5. (People’s Daily)
Mentions of blockchain in People’s Daily multiplied 700% from 2017 to 2020, research from policy analysis firm Macro Polo said. (Macro Polo)

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Drive I/O | The five trends that will reshape ride-hailing in China

Thu, 07 Jan 2021 05:52:24 +0000

One of the prime industries slammed by the pandemic-induced economic downturn, China’s ride-hailing market is unlikely to recover its freewheeling, easy money ways.

Even before the coronavirus lockdowns, ride-hailing platforms in China struggled with increasing competition, as their usage slowed significantly in the country’s maturing transportation market.

Although the government has now eased travel restrictions, social distancing practices and public fears of catching the virus continue to weigh on ride-hailing demand. In early 2020, ride-hailing and taxi companies imposed measures including mandatory face masks for drivers and passengers to normalize their businesses.

Drive I/O

Drive I/O is TechNode’s monthly newsletter on the cutting edge of mobility: EVs, AVs, and the companies trying to build them. Available to TechNode Squared members.

The safety measures may not have been enough. Giant players seek to thrive, not just to survive, in a post-coronavirus world. To ensure growth, they have been introducing low-cost services and entering smaller cities. But the road to recovery of ridership could be slow and bumpy.

Standing at a crossroads, China’s ride-hailing industry faces economic uncertainty, increased competition, and more regulation as the government steps up to offset the disruption caused by Covid-19. Looking ahead, as Chinese taxi companies and automakers ramp up, ride-hailing giant Didi could pay a heavy price to maintain its dominance.

This month, we review what happened in 2020 and what these trends mean for the future of ride-hailing in China.

Taxis vs ride-hailing

China’s ride-hailing and taxi sectors are converging after years of clashes, as both sides seek a level playing field and additional room for growth amid a deep economic downturn.

Traditional taxi services have battered heads with Didi, charging the country’s biggest ride-hailing platform with unfair competition, partly because Didi’s ride-hailing drivers could offer cheaper fares with a dynamic pricing model. Taxi drivers have also been angered by Didi’s dispatch algorithms. These are the real-time mechanisms that match drivers with passengers; taxi drivers believe they favor Didi’s own vehicles over taxis, especially for long trips.
A Didi spokesperson told TechNode that its technology facilitates matching of demand and supply and therefore helps drivers to grow their income, by dispatching, for example, a ride in the same direction as a driver’s route home when he comes off duty.
Didi has offered taxi-hailing services since its inception, but it now only facilitates 3 million taxi rides per day. That’s only around 6% of the country’s daily taxi trips, suggesting massive growth potential. Until recently, the company didn’t charge state-backed taxi fleets that offered rides on its platform, while Didi drivers pay the company a 20% commission for every ride.
Things started to change last summer, when Didi for the first time announced plans to charge taxi drivers. The company introduced the charges in lower-tier cities in August and then extended them to some of the country’s biggest cities. In Shanghai, Didi takes a fee of at least RMB 1,000 ($153) from a cab driver each month, around 10% of the driver’s monthly income. This made some drivers unhappy, a driver surnamed He told TechNode in late December.
Didi explained that revenue from taxis will cover costs and boost demand by offering subsidies to drivers and passengers, and add an IT system for taxi fleets that helps with efficiency. Meanwhile, Alibaba’s mobility service, AutoNavi, has said that taxis and private vehicles will be treated equally on its platform, although drivers like He remain skeptical of the claims.

Untapped markets

Chinese mobility giants are hoping that expansion in the country’s hinterland will compensate for the steady chilling of the once red-hot markets of major cities.

Didi has launched a budget ride-hailing app called Huaxiaozhu. The platform takes a leaf out of social e-commerce giant Pinduoduo’s book: It offers discounted rides to people who share the app with their friends on social networks.
Didi expects Huaxiaozhu to carve out a niche by winning the hearts of young, price-sensitive passengers in the 300 or so lower-tier cities where it operates. Currently, around 20 of China’s biggest cities account for 60% of Didi’s ride volume in its home market, but growth of its core business has been stagnating since 2017. The company’s woes were compounded by a drastic drop in rides early last year due to Covid-19.
Looking ahead, another round of subsidy wars seems inevitable for Didi: more big tech companies are looking to tap new growth opportunities by offering cheaper services. In December, Alibaba-backed bike rental platform Hellobike launched a ride-hailing service in China’s southern Guangdong province. It claims its fares are 40% cheaper than its competitors. Early last year, Didi launched a RMB 10 billion subsidy program to attract drivers and riders in more than 130 cities across China.

Traditional automakers

Chinese automakers are collectively pushing into the ride-hailing market in order to gain a foothold in a world where vehicle ownership would no longer be a preferred choice for customers.

Volkswagen’s Chinese partner SAIC Motor is one of the automakers that could become a contender for Didi. Last month, the company closed a RMB 300 million Series A round from Alibaba and China’s top battery supplier CATL for its mobility service platform Xiangdao Chuxing. The platform offers on-demand ride-hailing and car rental for individual and enterprise customers, among other services.
State-owned SAIC says its premium ride-hailing service has 20 million users after two years of operation, although its number of active users is only 1% of Didi’s, according to market research firm Analysys.
Still, Didi has reason to worry. In September, SAIC launched a separate online taxi-hailing service in Shanghai with the support of the city government. Each driver is currently given as much as RMB 200 per day for taking orders on the platform, local taxi driver He told TechNode. Nearly every licensed taxi in the city is accessible through the app, SAIC said.
More automakers are nibbling away market share from Didi. T3, a ride-hailing service launched by three state-owned automakers, last month said it plans to triple its order volume by entering 48 cities around China this year. The service currently offers 1 million rides a day after going live in mid-2019.

Regulation

Ride-hailing services face increased government intervention and regulatory uncertainty, as Beijing seeks more control to boost an economy hard hit by the pandemic and its aftermath.

As the central government tightens the reins on big tech firms with anti-monopoly measures, a regulatory storm might be brewing for Didi. The China Taxi Industry Alliance last month called for regulators to review Didi’s 2016 acquisition of Uber’s China unit, according to an open letter published on its WeChat account (in Chinese).
The industry group, formed by more than 50 licensed taxi companies, also called for Didi to be punished for its alleged monopolistic practices including offering expensive subsidies to promote Huaxiaozhu. A week after the proposal, Minister of Transport Li Xiaopeng pledged to enhance anti-monopoly regulation in China’s transportation sector as one of his ministry’s top priorities in 2021.
Beijing is also looking to increase its influence in the technology sector as part of its five-year plan to boost its domestic market, last month requiring ride-hailing services to develop “hailing by one-click” features to accelerate adoption among senior citizens.
Experts believe such moves could help reduce government expenditures for seniors’ medical care and unlock new sources of economic growth. Didi and seven ride-hailing platforms are now required to simplify their apps and launch the specially-designed feature before the upcoming Chinese New Year holidays in February, reported Chinese media.

Capital

Chinese ride-hailing companies are flocking to mainland and Hong Kong stock markets for IPOs, hoping to build their war chests to weather economic uncertainties and strengthen their balance sheets.

Didi has finally resumed its efforts to go public, two years after putting the plan on hold following the murders of two female passengers using its popular carpooling service, Hitch. Claiming back in May that its “core business” was finally profitable, the company is reportedly (in Chinese) looking to list this year in Hong Kong at a valuation of HK$600 million ($80 billion). Didi has been in early talks with Goldman Sachs among other banks about possibly underwriting the offering.
Didi has been diversifying businesses outside of its ride-hailing roots in search of new growth markets to justify its valuation, when its core business still struggles due to Covid-19. Its grocery delivery business in late 2020 exceeded 10 million orders per day, putting it at odds with Meituan, Pinduoduo, and more giants rushing into the grocery delivery sector.
NIO-backed Dida, a distant second to Didi in China’s massive ride-hailing market, in October raced ahead by filing in Hong Kong for what looks to be Asia’s first ride-hailing IPO. Meanwhile, Geely’s ride-share unit Caocao in November hired UBS to raise its Series B and finally list on the public market, without revealing further details.

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NYSE changes course again, to delist three Chinese telcos

Thu, 07 Jan 2021 04:39:30 +0000

The New York Stock Exchange said Wednesday it will stick to the original plan to delist three Chinese state-owned telecommunications companies after an earlier reversal of the decision that caused much confusion.

Details: Trading in the securities of China Mobile, China Telecom, and China Unicom Hong Kong on the NYSE will be suspended at 4 p.m. on Jan. 11 local time, the bourse said in a statement Wednesday.

The NYSE said the decision was based on new guidance received from the US Department of Treasury’s Office of Foreign Assets Control on Tuesday.
The three Chinese companies have a right to a review of the decision, the NYSE said.

Context: The second twist of the plot came a day after the US Treasury Secretary Steve Mnuchin reportedly disagreed with the NYSE’s earlier reversal.

The bourse on Dec. 31 said it would delist the three Chinese companies on Jan. 7, citing an executive order signed by US President Donald Trump which bans American investment in companies deemed to be owned or controlled by the Chinese military, including the three telcos.
On Monday, the NYSE said it would not delist the three firms after “consultation with relevant regulatory authorities.”

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China telecom shares drop in Hong Kong on US delisting

Mon, 04 Jan 2021 09:27:41 +0000

Share prices in Hong Kong for China’s three major telecommunication companies dropped as much as 5% Monday on news of a likely delisting from US stock markets. The telecom firms are among a batch of Chinese companies the US government has deemed to be affiliated with the Chinese military.

Why it matters: Shares of the three state-owned telcos dropped even as Chinese regulators tried to downplay the impact of the New York Stock Exchange’s (NYSE) decision to delist them. China’s top securities regulator has said the plan was “politically motivated” and that it will have a “limited impact” on the three companies.

Details: The NYSE said Thursday it would delist China Mobile, China Telecom, and China Unicom Hong Kong on Jan. 7, citing an executive order signed by US President Donald Trump in November.

On Monday, shares of China Telecom fell 5.6% in Hong Kong. China Mobile and China Unicom saw their shares drop 4.5% and 3.4%, respectively.
The order bans transactions in securities “designed to provide investment exposure to such securities, of any Communist Chinese military company” by any person in the US. The order included 31 entities that were deemed to be such companies, including the three telcos.
The NYSE said it had decided that the companies were “no longer suitable for listing,” but added that they have the right to request a review of the decision.
All three telecom firms said in statements to their Hong Kong investors that they had not been notified by the NYSE about the delisting decision.

Context: China Mobile went public in 1997 and was one of the first Chinese state-owned companies to go public in the US, followed by China Unicom in 2000, and China Telecom in 2002. All three are also listed on the Hong Kong Stock Exchange.

The three companies earn most of their revenue from providing telecommunication services in China and have little presence in the US.
China Telecom was previously allowed to provide international communications service in the US. In December, the US Federal Communications Commission (FCC) decided to revoke this authorization, citing national security concerns.
The FCC rejected an application from China Mobile to provide services in the US in May 2019.

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Apartment rental firm Danke has repaid $201 million in loans to WeBank

Thu, 31 Dec 2020 06:52:49 +0000

Troubled rental platform Danke has repaid 86% or around RMB 1.3 billion ($201 million) of tenant loans underwritten by Tencent-backed WeBank, the bank’s chairman Gu Min said on Dec. 29.

Why it matters: The rental loan rescue plan is a positive sign for the survival of Danke, whose debt-fueled expansion led to public outcry and threatened the company’s future. The move may also release some pressure from WeBank, which faces questions about its exposure to Danke’s debt, as well as its due diligence and risk assessment processes.

Neither WeBank nor Danke responded to TechNode’s requests for comment.

The Danke incident: In November, the local government of Beijing set up a special team to handle Danke, which was reportedly on the verge of bankruptcy and facing a $400 million cash shortfall.

In the prior months, thousands of Danke tenants found themselves evicted from their apartments but still contractually obligated to pay rent—a result of landlords halting their collaboration with the platform, saying they hadn’t received their payments.
Regulators reportedly spoke to Danke’s competitors Ziroom and 5j5j to take over its business. No agreement was reached due to Danke’s cash flow problems.
On Dec. 2, an evicted tenant in Guangzhou committed suicide.

WeBank to the rescue: Just days after the suicide, WeBank announced two separate plans to help tenants in debt to the bank—and save Danke from collapse.

On Dec. 3, WeBank announced it would extend by three years all outstanding rental loans for tenants whose contracts had been terminated early, waiving both the principal and interest payments.
On Dec. 4 (in Chinese), the Tencent-backed bank announced it would transfer tenant debt to Danke, which alleviates some of the immediate risks around the platform’s business model and grants it some leeway with regulators.
More than RMB 1.3 billion of loans from 136,100 tenants were repaid to WeBank under the debt transfer scheme as of Dec. 27, Gu said. Danke owed RMB 1.6 billion to WeBank for 161,845 loans as of early December.
Gu stressed that WeBank has had a steady year for profits, and that its assets are enough to cover its exposure to Danke.

The Danke model: Under New York-listed Danke’s original business model, tenants would borrow a year’s worth of rent from a bank, like WeBank, when signing an annual lease with the rental platform.

The bank would then pay the year’s rent to the platform upfront, which would repay the landlord in quarterly installments. Tenants would pay back their loan to the bank in monthly payments.
At the end of 2019, 91% of tenants paid rent via loans, compared to 75.8% in 2018 and 65.9% in 2017, Caixin reported citing Danke.
The company was using bank’s upfront payments to fuel its expansion, racking up debt without turning any profits. In November, it reportedly couldn’t pay its staff.

READ MORE: CHINA VOICES | Crisis at Danke has China worrying about out of control fintech

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Self-driving startup WeRide raised $200 million in Series B1

Thu, 24 Dec 2020 11:17:32 +0000

Xpeng-backed self-driving startup WeRide has raised $200 million in a round of fresh funding from China’s biggest electric bus maker Yutong, it announced Dec. 23. The two companies also announced the development of a fully automated minibus with no controls.

Why it matters: The deal comes as Chinese automakers are pushing into the country’s autonomous vehicle industry, and as local authorities are allowing AV testing on public roads in bid to catch up in the global battle for tech dominance.

The central government has reaffirmed a goal to “adopt highly autonomous cars on a massive scale” by 2025 in its finalized blueprint (in Chinese) for intelligent and electric vehicles released late October.

Details: Yutong put $200 million into WeRide in a solo Series B1 investment, according to a joint announcement released Wednesday. Based in the central Henan province, Yutong is China’s biggest medium and large-sized electric bus maker with more than a third market share in its domestic market, followed by BYD and Dongfeng Motors, among others.

WeRide said that it and Yutong have jointly developed an autonomous minibus, which has no steering wheel, accelerator, or brake, without revealing details.
The Guangzhou-based company did not disclose its valuation, nor details of other investors involved in its Series B.

Context: WeRide has been testing fully driverless vehicles on open roads in Guangzhou since July. It is the second company in the world to test fully driverless vehicles on open roads, following the US’s Waymo.

The company in December 2018 closed an undisclosed amount in a Series A from the Renault-Nissan-Mitsubishi Alliance, along with Chinese artificial intelligence unicorn Sensetime, Xpeng CEO He Xiaopeng, and others.
WeRide claimed to have offered more than 147,000 rides to 60,000 passengers in a robotaxi pilot program in a 55-square-mile area on the outskirts of the city as of November.
WeRide peer Pony.ai revealed last month an undisclosed amount of funding from the state-owned FAW Group, which it claimed was the first bet on AV by a Chinese state-owned automaker.

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Ant Group to meet regulators ‘in the coming days’

Thu, 24 Dec 2020 04:30:00 +0000

Fintech giant Ant Group has been called in for a meeting with financial regulators, China’s central bank announced today, the same day that market regulators announced an anti-monopoly probe into sister company and e-commerce giant Alibaba.

Why it matters: This is the first publicly announced high-level meeting between regulators and Ant Group since the fintech giant’s IPO was abruptly suspended, days after another similar meeting.

The company has been under regulatory pressure as China’s authorities tighten the screws on fintech, who are concerned that unbridled tech giants bring systemic risk to the economy.

Details: “In the coming days,” the Alibaba affiliate will be “interviewed” (our translation) by the People’s Bank of China (PBOC), the Insurance and Banking Regulatory Commission, the China Securities and Exchange Commission, and the Foreign Exchange Commission, the PBOC said in a statement this morning.

Authorities will also “urge” Ant Group to comply with regulatory financial, antitrust, and consumer protection requirements, the notice from the PBOC said.
Ant Group responded to the news just ten minutes after the central bank’s announcement with a post on its official WeChat account, say that it will “seriously study” and “strictly comply” with regulatory requirements.
At the same time, Alibaba is trying to satisfy regulators concerned about its market power in an investigation into accusations of monopolistic behavior.

READ MORE: China launches anti-monopoly investigation into Alibaba

Context: On the same day that Jack Ma met with regulators, Nov. 2, new rules on microfinancing were released. Credittech makes up around 40% of Ant Group’s revenue, according to its IPO prospectus.

On Nov. 3, the Shanghai Stock Exchange suspended Ant Group’s hotly anticipated $34 billion IPO, saying that the company didn’t meet disclosure requirements about regulatory risk.
Since, Ant Group has made changes to its operations. Just yesterday, it lowered credit limits for younger users of its Huabei microlending platform. Last week, it stopped providing bank deposit products on Alipay.
New draft antitrust rules were released on Nov. 10 by the State Administration for Market Regulation. Alibaba, Tencent, and and SF Express were fined over anticompetitive behavior on Dec. 14.
Earlier in December, Guo Shuqing, the head of the China Insurance and Banking Regulatory Commission, called for more national level regulations on fintech.

READ MORE: CHINA VOICES | The unsigned op-eds that foreshadowed Ant Group IPO suspension

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SaaS is starting to sell Chinese companies on software: GGV’s Joshua Wu

Wed, 23 Dec 2020 07:48:19 +0000

I’m excited to share a conversation with Joshua Wu of GGV this week. As discussed previously, Chinese software-as-a-service (SaaS) is shaping up to be a big investment trend in China tech. Joshua has a seat at the front lines through his work at B2B-focused venture capital firm GGV, one of the top global VC firms in China, whose partners regularly make the Forbes Midas list. Joshua led or contributed to GGV’s investments in PingCAP, Black Lake, Moka HR, Meicai, Smartmi, WPS, and more.

Opinion

Lillian Li recently returned to China after working at Salesforce Ventures and Eight Roads Ventures in London.

A version of this article originally appeared in Lillian’s longform China tech newsletter, Chinese Characteristics.

We spoke about the range of B2B and SaaS companies in China, key challenges facing Chinese SaaS companies, and its potential to converge with the trajectories of Western SaaS companies, among many other things. Some of the key takeaways include:

The Chinese public sector dominates total spending on software, and its attitudes influence how much can be fully cloud-native and standardized.
Chinese organizations often don’t conceptualize their issues as software problems, which leads to a lack of concrete inbound and outbound sales channels for SaaS sellers.
Horizontal SaaS, or software that is universal rather than customized, is hard in the Chinese market, since there’s so much diversity among enterprise clients. Specialized products have a much higher chance of delighting customers.
But Chinese companies are very willing to change and adopt new software if they see high ROI.

Lillian Li: I’m trying to figure out whether China’s B2B is in an earlier development stage relative to the West, or there are some Chinese-specific characteristics that we need to be mindful of. For example, Western companies also went through a phase of using private cloud, and then upgraded to SaaS once they realized the cost benefits and features upgrade that it provides. Will the same happen in China?

Joshua Wu: The Chinese-specific aspect is that the Chinese public sector dominates total spending on software, and that influences how much can be fully cloud-native and standardized.

For the private sector, industries like tech, real estate, and retail are standardized in their processes. Their concerns are partly development stage-based but also partly Chinese specific. For example, their concern with public cloud and SaaS isn’t against the model itself, but whether it provides value. Either that’s because their data hasn’t been fully digitalized, or they are using labor to solve these pain points today.

These companies’ need for organizational efficiency and collaboration also hasn’t reached a stage for software yet. These capabilities are not must-haves for them today; they don’t feel like everything should be collaboration first, digital, or on a platform. But I think this mindset will change soon.

The second barrier for the private sector’s adoption path is a price ceiling for SaaS. For an enterprise buyer, RMB 100,000 (around $15,000) per year is the upper price limit they are willing to consider. A typical white-collar worker’s annual salary is RMB 100,000 per year. It only makes sense to them if you’re pricing on a basis that’s lower than RMB 100,000 per year.

The third aspect is related to the customer’s trust in the privacy of public cloud, which is a matter of time. It’s not a significant matter for the private sector, so I’m not too worried about this.

LL: Do you think B2B companies will develop and follow the same paths as Western companies?

JW: That’s a good question, and I don’t know the answer. A pure SaaS model (which uses public cloud and recurring revenue) will never dominate in China. Hybrid clouds are huge in China, partly enabled by the government. In the rest of the world, the public cloud is eating the world. In China, the cloud is eating the world. There’s a difference.

LL: What are the differences between Chinese SaaS and Western SaaS companies?

JW: This starts with terminology. In China we talk about “enterprise services,” or “to business” (2B), which includes many sectors that are not included in SaaS in the West.

The first sub-category is B2B platforms, such as Manbang for logistics, Meicai for grocery supply chain, Baibu—in which I invested alongside GGV partner Eric Xu—for clothing supply logistics. These offerings could be called B2B marketplaces, but they also facilitate transactions on the platforms with tools. For example, an artificial intelligence (AI) image search which enables better matching for textiles. So it’s not quite SaaS, but the tools allow the seller to have more transactions. So this is a substantial sub-category in what we call enterprise services.

Another sub-category is called the industrial internet, which is a vertical sector solution. They aren’t exactly SaaS, but they are B2B and they focus on servicing the needs of a sector with a variety of hands-on help if needed.

For pure SaaS models, there’s a fair amount of infrastructure tech and middleware technology. We invested in a company called PingCAP, which is an open source database. In the SaaS category, there are the typical horizontal SaaS offerings, such as customer relationship management (CRM), human capital management (HCM), and applicants tracking system (ATS) such as our investment in Moka HR.

The last category is vertical SaaS, which is not completely standardized software. These companies try to charge recurring fees, and use their software as the wedge into an industry. The lack of standardization increases as the customer base moves from small and medium businesses (SMBs) to large enterprises.

These enterprise customers tend to be very particular. They prefer licenses over recurring payment. They also want hands-on support from on-premise implementation all the way to configuration. While these enterprises have large budgets, it’s difficult for startups to serve them economically. As a result, pure SaaS companies are scarce in China right now.

“There’s no concrete way to reach customers from a sales channel perspective. “

LL: What do you think are the biggest challenges facing B2B companies right now?

JW: The biggest challenge is the lack of suitable sales channels for SaaS, as customers aren’t coming in through inbound marketing. If an organization is having issues tracking candidates from different channels in a recruitment process, they wouldn’t know to search for an Applicant Tracking System (ATS) on Baidu. They don’t think this is a software issue. Tech companies are the only customers who conceptualize problems this way, and they are a minority. There’s no concrete way to reach customers from a sales channel perspective.

Most target customers don’t know the use of software products, and also have unrealistic expectations. When you’re deploying a product in a company, you’re also deploying a new management process. These new processes will solve the same issues but will do so with different approaches, they wouldn’t give the customer exactly what they want.

Similar to B2C examples like Apple, if you ask consumers what they wanted, you wouldn’t be able to get a breakthrough product from their response. The same principle applies to B2B products: you can’t give the customer exactly what they want. Navigating this well is down to sales capabilities. The sales, solution, and customer success team needs to find a balance between current customer needs and the future. Bridging this gap is very difficult for most, but easier for vertical SaaS, which is why they’ve been successful.

LL: Do you think Chinese companies are resistant to change?

JW: Chinese companies are happy to change if they see the value of changing. This is especially true for the pragmatic private sector. If they see high ROI, then they’ll do it. Even in public sector organizations, there’s a relatively quick turnover of the central decision-makers. They change about every two to three years. When a new decision-maker comes on board, it’s normal for them to adopt a new system. Reality is also forcing them, since the legacy tech in these organizations can’t fulfill their current needs.

The critical issue is the right value proposition. If you have a general product, the addressable market is more prominent. But this is going to be a shallower product which doesn’t solve the customers’ issues. If you make a specialized product, that’s a smaller target market but more likely to have an impact on the customer.

LL: So it sounds like you prefer to invest in a software that solves a specialized problem as a general starting niche to tackle the enterprise?

“Horizontal SaaS is hard for the Chinese market, since there’s so much diversity among enterprise clients.”

JW: Yes, I think it’s a good zero-to-one process that’s suitable for today’s Chinese market. If you look at the customer relationship management market, Fengxiang and Xiaoshuoyi are not bad, per se, but they should be doing much better given that category.

Horizontal SaaS is hard for the Chinese market, since there’s so much diversity among enterprise clients. It’s hard to make something that pleases everyone. Specialized products have a much higher chance of delighting customers.

LL: Do you think the Chinese SaaS founders realize this?

JW: Yes, there is a growing realization. It might not be explicit, but they are finding out through experimentation. They get a sense that they need to find their niche, find the right product-market fit, and then get investment from VCs like us. So it’s a space that’s influenced by both market needs and investors.

Though everyone’s endowment is different, some people might have a background in serving big enterprises. If they came from Microsoft or IBM, they are naturally apt at this. We also have the example of Palantir in the US, whose customers are predominantly government.

LL: Out of market, team, and product, which aspect do you give the most weight to when you invest?

JW: That would be the product, since that’s reflective of the capabilities of the team as a whole. They can pivot to find the market, but they have to have sound business logic behind it all. If a team is good at making a product, then I can assume that you have good organizational structure and collaboration style. These capabilities can be leveraged for any market and any product.

LL: What area of investment interests you currently?

JW: Similar to [investors in] the US, I’m interested in next generation cloud native infrastructure. I think these will have a lot of room in China. Their architecture structure is very on par with the US, since these infrastructures tech is technology-neutral. Apart from that, I’m interested in industrial internet enabled by AI.

LL: What’s your advice to Chinese SaaS entrepreneurs?

JW: I think this is a great time to start a business in this category. Focus on the product and deliver value. Look at what the US is doing and read up on SaaS metrics too. A lot of CEOs are good at making a product, but don’t have the best practice benchmarks for a company as it scales. They should study this aspect, and there’s a lot of public companies in the US for them to learn from.

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Why edtech AI hasn’t caught on in China’s public schools

Tue, 22 Dec 2020 08:14:44 +0000

China is pegged as a world leader when it comes to applying artificial intelligence in edtech. Former Google China president Kai-Fu Lee said that “China may soon be leading the world” in AI for education. Media reports talk about an AI “boom” in Chinese classrooms. But the technology has barely made a dent in China’s public education system.

It’s not for lack of trying. ALO7, the largest K12 digital English language teaching content producer in China, works with 10,000 private schools. They have been trying to partner with public schools for two years, but have only managed to enter 80 Chinese public schools.

Opinion

Ekaterina Kologrivaya is a researcher and Yenching scholar at Peking University. She holds an M.A. in Asian studies from the Higher School of Economics in Moscow.

Emma Shleifer graduated in War Studies from King’s College, London, and is now researching Chinese foreign policy as a Yenching Scholar at Peking University.

China’s 500,000 public schools are a big market for edtech companies. But companies offering AI-powered edtech have found it difficult to set up partnerships with them.

Dhonam Pemba, who has founded several AI product development companies, said his first firm Kadho “didn’t do well in China because business-to-government (B2G) wasn’t profitable,” and he struggled to scale. Facing competition from companies like Chivox in Jiangsu, or iFlytek in Anhui with strong public relations offices, he said they had to “switch to a business-to-consumer (B2C) model” for his second company Kidx.

Most schools in China that have let AI into their classrooms use it to measure attendance and monitor the overall situation in the room, rather than to improve learning. High School No. 11 in Hangzhou, are piloting an AI system to analyze the teaching process, children’s emotions, and manage canteen meals, but the pilot’s results are not yet released.

Two approaches to edtech AI

The first approach to AI in edtech is that of platforms like Liulishuo, which claims the world’s largest speech bank of Chinese speakers learning English. This so-called intelligent solution analysis collects audio data through an automatic speech recognition system and analyzes it through natural language processing. The algorithm then recommends content suited to the student’s level and gives feedback via text-to-speech.

The second approach is based on adaptive learning. Edtech companies like Onion Academy, a Chinese provider of AI-powered STEM classes, use it to deliver customized courses to address each student’s needs. In contrast to standardized numerical tests, these apps compile an outline of an individual’s competence that includes all the problems the learner has mastered. Based on this, the app gives a list of topics a student is ready to learn.

Work in progress

Elusive breakthroughs in emotional and cognitive computing make “the development of AI in the education sector slower than that in other fields like security, finance, or customer service,” said a spokesperson of i2, a leading English learning center in China.

i2 only began testing AI tools for assisted teaching in the academic year starting summer-fall 2020. Until now, the company coordinated on offline teaching with public schools in second- and third-tier cities, reaching 35,000 students. A company representative said that they provide courses “with native language speakers, so that Chinese students can better understand the culture of other countries. AI cannot do that.”

A hard sell

Public schools’ reluctance to bring AI into classrooms is not only because the technology is still evolving. Cooperation is also hindered by budget constraints and risk perceptions.

Schools are more likely to pay for edtech services if they can justify the cost to their superiors or parents. This usually means that services must offer unique advantages that are hard to replace through traditional education tools.

The majority of the edtech services on the market that fulfill these criteria have nothing to do with AI.

The most popular form of computerized classes does not use AI, but is rather a simple web-based assignment. Despite concerns that gadgets may replace teachers, they only complement their work. Educators get access to an online library of exercises and get answers graded by the computer.

ALO7’s popular software connects students with native English speakers that supplement schools’ teaching of language skills like grammar. “The alternative is for schools to scout their own language teachers, and that’s resource-intensive, while we can offer easy access to qualified native English educators,” said Andrew Shewbart, a board member of ALO7.

Procurement headaches

All large procurement decisions for edtech are made at the district level. According to a report by impact investment firm Omidyar Network, schools’ buying power increases per level; primary schools have the least purchasing discretion, while “top-tier ones in major cities are completely autonomous.”

“Budgets in prosperous provinces or cities may further the rural-urban chasms if city schools use money to get services [that] less prosperous areas can’t,” said Andrew Shewbart. Individual schools may sometimes make smaller transactions. But given that the technology at its current stage of development is unlikely to bring any major benefits, they have little to no incentive to bend over backwards and adopt expensive AI tools.

Making procurement more complicated, edtech companies have to pass through cumbersome regulatory hurdles before releasing online courses and use AI at schools.

China’s regulators are weary of potential privacy abuses creeping in the public education system through edtech apps. The Ministry of Education alleges that several apps used by schools in 2018 contained inappropriate content, online gaming, and advertisements. In 2019, the Shenzhen government began investigating an app that required parents to pay for IQ test analysis, running pseudoscientific brain scans to determine a child’s IQ.

Regulators want schools to collect data about the students as little as possible, which limits the scope of AI-assisted learning and makes schools hesitant. As Lei Chaozi, director of science and technology at the Ministry of Education, put it: “Personal data collection should follow the principle of minimization, and the large-scale collection of information should be subject to the collective decision-making consent of the school leadership team.”

What does the future hold?

Trust-building is a big challenge for edtech companies, as schools and parents are distrustful of the content, external teachers, and wary of splurging on expensive educational technologies.

“It’s hard to foresee how AI can transform the public education system in the longer term,” said He Zijia, a future product developer at Onion Academy. Embracing new technologies may take time, “especially for teachers who are less tech-savvy, even though most managed to take up new means of teaching during the lockdown,” He said.

Real progress is underway, but, nationwide, schools’ adoption is still in the pilot phase.

The rush to online post-Covid-19 may accelerate AI adoption in public schools, but for now it remains limited.

READ MORE: Edtech and Covid-19: It’s complicated

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Luckin agrees to $180 million fine for US fraud

Fri, 18 Dec 2020 07:11:41 +0000

Troubled Chinese beverage chain Luckin Coffee has agreed to pay a $180 million penalty to settle accounting fraud charges brought by the US market regulator.

The US Securities and Exchange Commission (SEC) said on Wednesday it levied the penalty against Luckin for defrauding investors. The company “intentionally fabricated” more than $300 million in retail sales from April 2019 to January 2020 by using related parties to create false sales transactions through three separate purchasing schemes, according to the statement.

“Luckin employees attempted to conceal the fraud by inflating the company’s expenses by more than $190 million, creating a fake operations database, and altering accounting and bank records to reflect the false sales,” the SEC said.

The SEC penalty followed four months after the Chinese market regulator imposed a RMB 61 million ($9 million) fine on Luckin and a group of affiliated companies for creating unfair competition by engaging in sales fraud.

Shares of the company, still available on the OTC market after delisting in July, surged 96% to close at $7.35 on Thursday, well below its historic peak of $50 per share reached in January when it was listed on the Nasdaq.

Some view the surge as a sign that traders expect a turnaround for the disgraced coffee chain. The company may be readying for a “better version of its former self” after business restructuring and fines, according to Luke Lango, analyst at InvestorPlace research firm.

Luckin’s credibility, however, has been badly damaged. Industry watchers hold Luckin up as an example of the deception possible when US investors trade shares of foreign companies where due diligence is difficult. Further, the accounting fraud has helped position Chinese tech companies in the crosshairs of regulators and short sellers.

Luckin Coffee will have paid a combined $190 million for its fabricated sales scandal to domestic and US regulators. The company will also be held accountable for charges from China’s Ministry of Finance, which overseas violations of China’s Accounting Law, stock investors, and owners of its convertible bonds.

The company claimed it had $780 million cash or cash equivalents on its balance sheet as of late June.

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China’s tech giants aren’t ‘immune’ to antitrust any more

Fri, 18 Dec 2020 05:25:28 +0000

When Zhang Zhengxin sued the internet giant Tencent for anti-competitive behavior in April 2019, it seemed like the action of a quixotic lawyer tilting at windmills.

Zhang had challenged the company’s practice of blocking links to Alibaba’s Taobao stores from its flagship WeChat messaging app. Tencent’s lawyers simply denied that there was an instant-messaging market to monopolize. The case resulted in a standoff on this basis—debating the existence of such a market and how to define Tencent’s share of it. In January, Zhang dropped the case for “lack of evidence.” He came away feeling that big tech was “immune” to antitrust law, he told TechNode at the time.

Barely a year later, powerful Chinese regulators are coming around to Zhang’s point of view. They’ve dusted off China’s 12-year-old Anti-Monopoly Law and are applying it to big tech companies for the first time. Meanwhile, revisions to the law are giving it more teeth to go after tech.

“If my case hit the courts again today, my odds to win could increase by a lot,” Zhang, a lawyer at Beijing-based Yingke Law Firm, told TechNode on Wednesday.

On Monday, the State Administration of Market Regulation (SAMR), China’s top antitrust regulator, issued fines to Alibaba and affiliates of Tencent and logistics giant SF Express over three separate acquisition deals, a move that legal experts described as the country’s first batch of antitrust enforcements against tech firms. The regulator in January and November began laying the groundwork via multiple proposal laws and rules to tackle infractions by internet companies.

China is clearly looking to tighten its grip on some of its biggest tech companies. Its suspension of Alibaba subsidiary Ant Group’s mega public offering, expected to be the world’s largest public fundraise ever, was a clear shot across tech company bows. Regulators are also stepping up scrutiny of data security measures and online content moderation, signaling the end of the relatively lax regulatory environment tech firms once enjoyed.

Tolerant no more

The fines were issued for failing to flag merger and acquisition (M&A) deals as possible antitrust issues, a sign that regulators are gearing up to enforce the anti-monopoly law against big tech, experts said. The penalties cited the existing Anti-Monopoly Law framework, which stipulates that such behavior would be subject to a fine of up to RMB 500,000 (around $76,556) or a reversal of the deal.

Applying the law to punish internet companies is a distinct shift in attitude toward tech companies.

SAMR’s recent moves are a response to the state’s call for “strengthening scientific and effective regulations on internet platforms,” Deng Zhisong, an antitrust lawyer at Dentons law firm in Beijing, told TechNode. “[The state] has changed its previous ‘tolerant and cautious’ attitude towards internet companies,” he said.

In 2017, Chinese Premier Li Keqiang encouraged a “tolerant and cautious” approach to tech regulation in a speech (in Chinese).

Questionable acquisitions

The three deals in question are Alibaba’s 2017 acquisition of Intime, a retail firm; Tencent-backed China Literature’s acquisition of television series studio New Classics Media in 2018; and the acquisition of China Post Smart Logistics by SF Express-backed Hive Box in May. Each is being fined the maximum amount of RMB 500,000, though none of the deals are being reversed.

While investigations into tech company acquisition deals are not new, until now none have resulted in any punitive measures. When Chinese ride-hailing platform Didi Chuxing merged with US rival Uber’s China unit in 2016, regulators opened an investigation into the deal. The case appeared to be unofficially suspended when Uber filed for an IPO in April 2019, according to Bloomberg. SAMR launched in January 2019 an antitrust probe into Tencent Music Entertainment’s dealings with the world’s three largest record labels after rivals complained that Tencent paid excessive fees for the initial rights and then passed those costs along to competitors. A year later, the regulator decided to suspend the investigation.

“With this latest development, regulators are signaling that they will no longer tolerate internet giants’ [monopolistic actions],” said Zhang, the lawyer who sued Tencent. He added, “They used to be more indulgent than tolerant.”

Beijing’s shift in attitude toward tech giants coincides with a global antitrust storm in which US and EU regulators are restarting efforts to check tech giants including Google and Facebook. In the US, several states filed Wednesday a lawsuit against Google over the search firm’s alleged antitrust violations in the online advertising market. In Europe, regulators proposed this week to designate companies with EU user bases exceeding 45 million as “gatekeepers,” making them subject to stricter antitrust regulations.

Changes to the law

Prior to the fines issued Monday, SAMR had proposed an overhaul of the Anti-Monopoly Law in January and introduced a set of antitrust guidelines tailored for the internet industry in November.

While the fines are relatively trivial amounts for the three companies—the smallest of which generated RMB 1.6 billion in revenue in 2019—future offenders may pay a much higher price for similar violations, according to the draft revision of the Anti-Monopoly Law. Companies will be fined up to 10% of their annual revenue if they don’t report M&A deals that could create a monopoly, according to the draft revision.

The proposed amendment also asks authorities to consider factors such as network effects—services which rise in value as their user bases grow—as well as company size and data assets when determining whether a company is a dominant player.

The November guidelines further explain what is allowed and what is not. The draft, dubbed the Antitrust Guidelines for the Platform Economy, specifically targets tech firms that run online platforms connecting businesses and consumers such as Didi Chuxing and Taobao.

With the new rules in place, Tencent may no longer be able to argue that it doesn’t hold a dominant position in the instant-messaging market or that such a market does not exist. A dominant player in a market under the existing Anti-Monopoly Law is a company with more than 50% of market share. According to the newly proposed guidelines, a market could be determined by how hard it is for users to switch platforms. The proposed rules also expanded the parameters for determining market share to include factors such as transaction volume, user base, and page views.

The changes could pave the way for further probes into tech firms over possible violations such as abuse of dominance and reaching monopoly agreements.

Pruning for long-term benefit

In November, the draft antitrust regulations sent Chinese tech stocks crashing. Bloomberg estimated that the shares slump wiped out more than $200 billion of value from Chinese tech companies within two days.

Analysts, however, are optimistic about the prospects brought by tougher antitrust regulations. Liu Zejing, analyst at brokerage Huaxi Securities, wrote in an investment note (in Chinese) that the government is not aiming to clamp down on the internet industry, but rather is making the “inevitable move” to curb potential monopolistic behavior, contributing to the health of the sector.

Commenting on SAMR’s Monday fines on tech giants, Huachuang Securities analyst Jin Xiangyi wrote (in Chinese) that tech giants are bound to fall under the purview of China’s antitrust law and that it is beneficial for them to return to technological innovation, thus boosting the industry.

Nevertheless, the merger and acquisition tactic that formed incumbents such as Didi Chuxing, online classifieds marketplace 58.com, and Meituan will meet with greater regulatory resistance, said Zhang. Tech giants may have to reverse merger deals that run afoul of the antitrust law, he said.

Cause for tech company concern

Both Zhang and Deng of Dentons agree that Chinese tech giants don’t have to worry about being broken up as they grow bigger. “There are no such provisions for breaking up monopolies in China’s antitrust law,” Deng said.

Monopolists may be forced to open up their platforms or share their data with rivals as a consequence for abusing dominance, but also as a method of remedy, according to Deng.

Antitrust lawsuits against or between tech giants will likely to see the impact of recent changes. In the past, similar lawsuits were usually mired in stalemates on technicalities like Zhang’s suit against Tencent, and court rulings were usually in favor of defendants. A suit between Tencent-backed e-commerce platform JD.com and Alibaba will enter a court hearing stage in Beijing, Chinese media reported in November, without mentioning a specific date. The case, in which JD.com alleges Alibaba abused its market-dominant position in forcing platform exclusivity, will likely provide a clearer picture of how the new rules and antitrust law amendment will be used in legal practices.

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Digital yuan lottery, financial blockchain rules in Shenzhen: Blockheads

Tue, 15 Dec 2020 04:56:40 +0000

The second digital yuan test involving the public started in Suzhou, and TechNode nabbed some of the coveted digital currency. A former central bank governor said that China isn’t looking to challenge other currencies with its digital money. Two local governments made steps in blockchain adoption: Xiong’an launched a city-level blockchain operating system and Shenzhen released standards for blockchain in finance. In Sichuan province, authorities cut off electricity to miners.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Dec. 8-15.

The digital yuan wallet. (Image credit: TechNode/Shi Jiayi)

The digital yuan

A second public trial for the digital yuan kicked off in Suzhou, a city in eastern China. A total of RMB 20 million ($3 million) was dispersed in red envelopes containing RMB 200 each to 100,000 lucky lottery winners.
The digital yuan wallet can connect to one of five different bank cards. Each gives users the option to use the digital currency on different e-commerce platforms; e-commerce site JD.com, ride-hailing platform Didi, video-streaming site Bilibili, and services app Meituan.
The wallet also has an option to pay Party membership fees.
Lottery winners can use the money by Dec. 27.
JD.com processed 20,000 orders using the digital yuan on Saturday, the day of its Dec. 12 “Double 12” shopping promotion. (South China Morning Post)

READ MORE: EXCLUSIVE: We got some digital yuan!

China doesn’t aim to replace existing fiat currencies used in global trade with the digital yuan, Zhou Xiaochuan, the former governor of the People’s Bank of China and a towering figure in Chinese finance, said on Monday.
Nonetheless, the digital currency might transform international trade because it can handle cross-border transactions simultaneously and in real time, he said. (South China Morning Post)

“Some countries are worried about the internationalization of the yuan. We can’t push them on sensitive issues and we can’t impose our will. We must avoid the perception of great power chauvinism.“
—Zhou Xiaochuan, former governor of the PBOC, as translated by the SCMP

The local governments

The city of Xiong’an in northern Hebei province launched China’s first city-level blockchain operating system. It is a multi-layer chain that handles both the base architecture and applications built on top of it. (Xiong’an People’s Daily, in Chinese)
Shenzhen in southern Guangdong province released a local standard for blockchain in finance. The Shenzhen Stock Exchange and Tencent’s WeBank were involved in drafting the standard. The new standard focuses on identity authentication, permissions management, and support for anti-money laundering, anti-fraud, and regulatory audits. (Fintech Micro Insights, in Chinese)

The bad Bitcoin news

Sichuan authorities cut off electricity to cryptocurrency mines starting on Dec. 8. The southwestern province’s abundance of cheap power from its hydroelectric plants has made it home to many miners. But this electricity is scarce in winter, so authorities wanted to prioritize other industries. (Wu Blockchain Twitter)

READ MORE: INSIGHTS | Markets, not floods, will drown bitcoin miners

A man in Dalian killed his daughter and together with his wife attempted suicide after losing RMB 20 million by trading in cryptocurrencies, some of which he had borrowed from his wife and parents. The man survived, but his wife and daughter did not. (Wu Blockchain)

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Deals involving Tencent, Alibaba fined over antitrust

Mon, 14 Dec 2020 11:27:39 +0000

Chinese regulators imposed antitrust-related fines on three acquisition deals involving Alibaba, Tencent, and SF Express on Monday, in a sign of increasing concern about monopolistic behavior by internet giants.

Why it matters: The actions are fresh signs that Beijing is tightening its grip on internet firms, which once enjoyed a relatively lax regulatory environment. Officials have recently stepped up scrutiny on data security and content moderation. Regulators, meanwhile, have proposed stricter antitrust rules aimed at internet firms.

Details: The State Administration of Market Regulation (SAMR) said Monday it had decided to fine e-commerce giant Alibaba, Tencent-backed China Literature, and an SF Logistics-backed logistics firm for failing to report past acquisition deals properly to the regulator for antitrust reviews. Each is being fined about RMB 500,000 (around $76,410). It is not clear if regulators intend to pursue further action on these deals.

Penalties for such behavior include reversing the deal or a fine of up to RMB 500,000, according to China’s Anti-Monopoly Law, which first took effect in 2008.
The three deals involved were Alibaba’s 2017 acquisition of Intime, a retail firm; China Literature’s acquisition of New Classics Media, a television series studio, in 2018; and the acquisition of China Post Smart Logistics by Hive Box, a logistics firm backed by parcel giant SF Express.
While the fines are trivial for companies involved, regulators warned that they plan to scrutinize more internet firms. “The internet industry is not a lawless domain for antitrust, and all companies should strictly comply with antitrust laws and rules,” a SAMR spokesperson said in a press conference (in Chinese) on Monday.
Hive Box has said the company “sincerely accepts” the fine, according to local media. Both China Literature and Alibaba said they would “actively rectify and reform” to meet the regulator’s demands.

The next shoe to drop? SAMR said during the press conference that it is also looking into a merger agreement between gaming streaming platforms Huya and Douyu announced in October and planned to close in 2021. Both firms are backed by Tencent.

Huya said it had previously reported the merger deal to the SAMR and that the company would “give active cooperation to” the authorities (Links in Chinese).

Context: China has this year tightened antitrust oversights on internet firms. In November, SAMR proposed new rules that could pave the way for antitrust authorities to launch more such probes into internet firms.

The new rules widened the reach of certain antitrust terms that previously only applied to the physical economy. One example was the definition of “relative market,” in which players may pose a “dominant position” if they control more than 50% of the market and thus fell under the jurisdiction of China’s Anti-Monopoly Law.
Legal experts have long criticized the 2008 law because it was designed to regulate companies in traditional industries and in most cases did not apply to companies operating on the internet, an increasingly important segment of the country’s economy.
The new rules expanded the parameters for determining market share to include factors such as transaction volume, user base, and page views.
A draft revision of the Anti-Monopoly Law unveiled in January, also announced by SAMR, included similar provisions.

Read more: China’s antitrust law doesn’t seem to apply to internet giants

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INSIGHTS | China’s corporate social credit system: A librarian’s dream

Mon, 14 Dec 2020 08:29:17 +0000

As Christmas is approaching, many children might be wondering whether they’re on Santa’s naughty or nice list. Meanwhile, as China’s corporate social credit system is rolled out, companies in China are asking themselves whether they’re on any of 42 national-level naughty lists or one of eight nice lists.

At the end of 2020, the planned first phase of development of China’s corporate social credit system is wrapping up. Announcements that will shed light on the next phase are expected by the end of the year.

A report by China-based policy research firm Trivium released last week provided one of the most level-headed and comprehensive looks into the emerging regulatory technology yet. Below, here’s what we learned from it:

Bottom line: Corporate social credit isn’t as complicated—or exotic—as it sounds: It’s a giant corporate registry, with consequences for records of non-compliance. The system is still being rolled out, but large parts of it are already operational, and accounts for a wide array of corporate activities. There is little indication of discriminating against foreign companies, but government officials have indicated global ambitions for this regtech innovation, with implications for financial markets.

A brief timeline

According to the report:

1999: A research team at the Chinese Academy of Social Sciences proposes “The National Credit Management System” as a solution to bad market behaviour.
2000: The development of a social credit system is discussed at the annual meeting of China’s legislature.
2002: An updated version of the 1999 paper states that credit—perhaps best understood as trustworthiness—is key to a healthy economy and to socialist society as a whole. The revamped paper also examined US credit regulations and financial risk assessments.
2003: Shanghai launches social credit pilot.
2014: The government officially starts working on the social credit system, and creates a 15-year plan for its development.
- The creation of blacklists and their opposite, redlists, is formalized, as well as punishment mechanisms.
2015: The State Council approves the construction of a national unified social credit system for legal persons, including companies. Business registration numbers are replaced by so-called the Unified Social Credit Identifier, a unique number that ties every company to its corporate social credit record.
- This sets the legal basis for the rollout of the corporate social credit system.
2016-2018: Most blacklists and redlists are created.
2019: The State Council urges regulators to ramp up implementation of the SCS and ties the system to algorithmic regulation.

Real problems: The Trivium-USCC report writes that the social credit system began as a response to real problems with compliance: companies frequently ignored court judgments, and even if companies faced consequences the individuals behind them could simply move on and start new companies. The 1999 treatise that first proposed the CSCS complained that a large portion of contract violations are not persecuted and swathes of violators go unpunished.

The system was designed to name, shame, and punish companies with a history of bad behavior—and individuals running those companies.
To this day, the largest blacklist in China is the Supreme Court’s list of court defaulters.

READ MORE: INSIGHTS | Social credit: A roadmap for a sincere and virtuous marketplace

A librarian’s dream

At its heart, the CSCS is a massive record-keeping system that brings together company information from different government agencies, as well as some non-government organizations.

The data: Every company has a folder, tracked by a unique identifying number, in which an assortment of data is stored.

The folder contains basic facts about the company, such as equity information, annual reports, corporate structure etc.
Different government departments from all levels of government contribute additional information: records on taxation, personnel (including how many Party members work for the company), judicial, and compliance of all sorts, from markers of anticompetitive behavior to violations of environmental standards.
Information from government agencies is the foundation of a company’s record. As of 2016, it contains over 400 categories, but this list could be updated in the near future, Trivium said.
Authorities also encourage non-government entities, such as private firms, industry associations, and consumers, to contribute data. This part of corporate social credit is “vague and poorly defined,” and its scope is ambiguous, Trivium said.
“In most cases, participation is voluntary,” Kinzius said, adding that it’s mostly related to what the government wants to build on top of the CSCS.

Access: Much data collected by the system is made public through online credit platforms, such as the publicly run Credit China and the private Tianyancha.

About 75% of data collated from government agencies is meant to be shared publicly, Trivium calculated. The National Development and Reform Commission (NDRC) has created an online platform where the information is public, Credit China.

Work in progress: But data integration between agencies is incomplete, limiting the reach of the national platform, said Luisa Kinzius, project lead at Sinolytics, a Berlin-based consultancy that helps foreign companies navigate Chinese policies (and which authored a August 2019 CSCS report with the European Chamber of Commerce in China).

One reason is that much information trickles from the bottom up, from local governments to the national platform, she said.
The CSCS is “a bit like a jigsaw puzzle,” Kendra Schaefer, lead author of the Trivium report and head of tech policy research at the firm, told TechNode: , “The parts that are done are launched as they are completed, and upgraded on an ongoing basis.”
Trivium found that 89% of blacklist records from the customs authority are on the publicly available Credit China platform, compared to 25% of Ministry of Transport records, and 20% of Ministry of Industry and Information.
The Trivium report said that Shanghai is leading in system completion. At the end of 2018, the local government had centralized data from 88 government agencies on 11.3 million enterprises.

Carrots and sticks

The CSCS doesn’t just keep records—it also creates incentives for compliance. Among the data on the platform are two systems to reward and punish companies: black- and redlists, and scores.

Lists: Government agencies can place companies on blacklists—or their opposite, positive “redlists”—as punishments for breaking rules, or rewards for good behavior. If a company ends up on one of these lists, it will be noted in its CSCS record.

Blacklists are more developed than redlists, Kinzius said. The “bigger focus” is detecting violations, she said.
But the redlists show “a new way of thinking about compliance” in that overcompliance can have positive consequences, she said.
The lists come with cross-agency disciplinary actions. Some authorities have made deals so that a violation of one regulation can lead to punishments from a range of agencies.
A company that ends up on the Ministry of Agriculture’s naughty list for violating agricultural regulations will face 25 punishments across different sectors, Trivium said: the Ministry of Natural Resources might restrict its use of government land, while the People’s Bank of China and the Securities Regulatory Commission might stop it from issuing stocks and bonds.
A logistics firm that is on the Ministry of Transport’s good list will have access to 63 rewards: from fast-tracked licenses for imports and exports from the Ministry of Commerce, to preferential access to financing from the PBOC, the report found.

Personal liability: The CSCS links the behavior of key personnel to the company’s records; they might be punished if the company is blacklisted, and the company’s record is affected by the personnel it hires. But these linkages only exist in “very specific areas,” in part because the personal social credit system is not as advanced as the CSCS, Kinzius said.

To get on the Ministry of Emergency Management’s redlist, the company’s legal representative and top level management must not have any record of violations in the last three years, Trivium said. To get a good customs score, key personnel must not have criminal records, Kinzius said.
One US company was barred from participating at a trade expo because senior staff was blacklisted for legal violations unrelated to the company, Trivium told TechNode.

Grades: The corporate social credit record also includes several kinds of ratings, calculated using government data available on firms’ files by different local and national agencies, as well as some non-governmental entities. These include both letter grades and numerical point scores.

Compliance grades score the extent to which firms’ abide by regulatory standards. Broadly speaking, the analysis is automated but data collection isn’t, Kinzius said.
Getting the lowest or highest grade can lead to the same consequences as being on one of the lists, Kinzius said. Being second worst might also bring on sanctions, and so on, she said.
Some are national, such as the score of companies building waterways and roads, compiled by the Ministry of Transport. Others are generated by local authorities, such as systems to grade hospitals, the report by Trivium said.
Agencies also grade companies based on the quality of the goods they produce. Many of these are compiled by industry associations based on government data.
Financial credit scores are granted by licensed credit rating agencies.

The GPA: The NDRC has promised a unified “comprehensive credit evaluation” that rates a company’s overall social credit profile from poor to excellent. The evaluation is said to take into account compliance, quality, and financial scores. Officials haven’t clarified exactly how it is calculated.

The NDRC said in September 2019 that 33 million companies (in Chinese) have a Master Grade. Most of these scores are not public yet.

How far along?

It’s used for, well, credit: As of 2014, corporate records are used to supplement financial data in lending risk assessments, particularly for small and medium enterprises (SMEs).

In 2018, the NDRC and China’s banking regulator launched an initiative to encourage the use of CSCS government data when assessing lending risk for SMEs.
The 130 licensed credit rating agencies that rate corporate bonds and debt instruments are encouraged to align their assessment with government data.
The PBOC’s “second generation” personal credit reports for individuals include CSCS government information, which could affect entrepreneurs’ ability to take out loans when starting a new business, Schaefer said.

Localization: Provinces and province-level cities are responsible for legislation on the local level, developing data collection infrastructure, and coming up with rewards and punishments.

This trickle-down legislative process has proved problematic in a project that requires a high degree of inter-agency coordination, Trivium said.
“All the local authorities tried to make their own blacklists” Kinzius said, “Now the government is quickly trying to get back control at the central level” so that the blacklisting can be standardized and only happens in severe cases.
Local governments have tried to leverage the system in ways that the public and the central government thinks lie beyond its intended purpose, the Trivium report said.
In April 2019, the government of Zhejiang announced plans to use the social credit system to penalize job-hoppers. There was public outcry in response and the plan was eventually dropped.
Beijing is working to rein in (in Chinese) provincial autonomy as it relates to the CSCS.

A huge legal project: Corporate social credit requires a massive legal undertaking: Hundreds of laws must be updated to link to the CSCS.

The legal basis for the CSCS, including data aggregation, blacklists, redlists, and the resulting rewards and punishments has been broadly defined on a national level, but details are still being hammered out.
Out of China’s 33 provincial-level units, 14 have drafted or finalized regulation for collecting and managing government data for the CSCS, Trivium said.

Next steps: The CSCS will continue being iterated in the next few years. The plan outlined by the State Council in 2014 aimed to have established the foundation for the corporate credit system by 2020. Progress has been made, although the system is not complete.

Premier Li Keqiang recently outlined a vision for a “Differentiated Supervision System” which will process data from the CSCS to create predictive regulatory risk estimates wich will then inform regulators’ behavior, Kinzius said.
Kinzius expects an update on this phase of the CSCS development in the next few weeks.
The next step to the CSCS will integrate more data coming from non-governmental sources like industry associations, she said.

Global implications

Discrimination? A January report by the US Congress Research Service identified corporate social credit as a “major concern” to Washington. The system could be used to align US citizens and companies with Beijing’s interests and expand China’s influence overseas, it said.

The current policy framework and implementation of the CSCS doesn’t discriminate against foreign companies, Trivium said. Google and FedEx have been blacklisted for tax violations, but so have 1,391 state-owned enterprises, Trivium said.

Tightened control? While the system is not targeting foreign companies, it does create incentives or foreign companies with Chinese operations to toe the government’s line on political questions, Trivium wrote.

In 2018, numerous foreign airlines changed their websites to list Taiwan as the same country as China after the Ministry of Aviation threatened to blacklist them.

Leading regtech? China is a first mover in this use case of regulation technology, and, some government officials have expressed an ambition to take the CSCS global.

As the system is refined, and especially its algorithms, it could be sold or imitated by other countries and eventually “could underpin a shift towards a Chinese-led model of urban regulatory frameworks,” Trivium said.

Taking on the US: Some members of the government see company credit ratings as an area of strategic competition where the US currently reigns supreme. They have expressed a goal to create a competing credit model, like the CSCS, Trivium said.

Currently, the big three credit rating agencies are US-based; S&P Global, Moody’s, and Fitch, which gives the US an advantage in international financial markets. This view has been expressed by policymakers such as China’s Finance Minister in 2016, Lou Jiwei.
“Under the all-round opening up of international competition, [control over] credit standards … is also an important area of competition between countries, and is a manifestation of national soft power,” (Trivium’s translation), Wu Weihai, member of the NDRC’s International Cooperation Center member, said in a 2017 publication.

At its core, the CSCS is not such an exciting concept: it’s a massive filing cabinet. Companies have already felt its consequences, but the full extent of its scope is yet to be determined. Authorities continue developing it and have not been clear on what the endgame is.

LISTEN MORE: China Tech Investor podcast: China’s social credit system—everything you know is wrong with Kendra Schaefer

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UPDATED: We got some digital yuan!

Fri, 11 Dec 2020 10:53:35 +0000

The digital yuan wallet. (Image credit: TechNode/Shi Jiayi)

Lucky winners of Suzhou’s digital yuan lottery can spend their digital currency on JD.com, Meituan, Bilibili, and Didi, depending on their bank card, a look at the wallet app reveals. TechNode has seen the app in action through screen recordings sent by a user in Suzhou.

TechNode is the first English language outlet to see the digital yuan wallet in action during the Suzhou trial.

The trials are still limited: The winners received only RMB 200—about $30, enough to buy 10 coffees at Luckin or five at Starbucks. There’s no way to load more money on the digital yuan wallet. Users only have access to a few online shopping platforms, with the exact options depending on which bank card they used to register with the app. They can also spend the currency in some offline stores in the city.

The digital yuan also knows a trick that cash doesn’t: It has to be used by Dec. 27 otherwise, it pulls a disappearing act. Poof. It’s gone.

If you can’t see the YouTube player above, try watching here instead.

Why it matters: This is the first time consumers can use the digital currency to pay directly on e-commerce apps in the digital yuan’s public trials.

The Suzhou lottery is only the second time the digital currency has been made available to the public. Another lottery took place in Shenzhen in October.

Connected to bank cards: Users are asked to link their bank cards to the digital wallet to get the digital currency. Only cards from China’s big five banks are eligible: Bank of China (BOC), Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), China Construction Bank (CCB), and Postal Savings Bank.

The local government said users don’t have to register a bank card to use the digital wallet. If they do register a bank card, it has to be one of the five.

Where to spend it: All bank cards can connect to e-commerce platform JD.com, where users can spend their money. ICBC cards also connect to ride-hailing platform Didi and lifestyle app Meituan. BOC cardholders can connect to streaming platform Bilibili, and users of CCB cards can use the digital yuan on own CCB’s e-commerce platform.

The city said it will enable nearly 10,000 offline merchants to accept the digital yuan. A list can be queried through the city’s app.
The app has a button to pay Communist Party dues. But when TechNode tried, the app said that it was not available for the user’s Party branch.

No withdrawals: The digital currency cannot be transferred to other users’ digital wallets. It also cannot be converted to ordinary RMB in the bank account of the owner. If users wind up returning goods they buy with the digital currency, the Suzhou government said, they will be refunded only for regular currency used in the purchase.

Screenshots from the digital yuan wallet: Left, the homepage, including the option to pay Party membership fees. Middle: When connected to an ICBC card, the app can be used to pay on Meituan, Didi, and JD.com. Right: When linked to a BOC card, the digital yuan wallet can be used on Bilibili and JD.com. (Image credit: TechNode/Shi Jiayi and Eliza Gkritsi)

Context: In a lottery (in Chinese) announced on Dec. 4, Suzhou distributed RMB 200 million ($30.6 million) of the digital yuan to 100,000 people in digital red envelopes of RMB 200. Only residents of the city who have paid monthly social security at least once in the last three years are eligible to participate in the lottery.

The results of the lottery were announced today, and winners can spend their winning from 8 p.m. on Dec. 11 to Dec. 27. They money will be taken back from the account if it is not spent within this time window. The Suzhou government said the unspent red envelopes will be “recycled,” but did not clarify how.
Prior to the Suzhou and Shenzhen lotteries, only a few whitelisted individuals were taking part in the digital currency trials.

READ MORE: INSIGHTS | China’s digital currency has a long way to go

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Fintech risks call for unified oversight, better data security: regulator

Wed, 09 Dec 2020 08:49:30 +0000

Spillover of technology companies into critical financial sectors such as micropayments require unified oversight of China’s fintech sector, the chairman of China’s Banking and Insurance Regulatory Commission said Tuesday at an event in Singapore.

Why it matters: The CBIRC chairman’s remarks about fintech giants were conciliatory, but he also called for more regulation of the industry on the national level.

Delivered as the dust settles following Ant Group’s suspended public listing, the speech brings rare insight into Chinese regulator plans.
Guo Shuqing did not mention Ant Group by name, but he appeared to refer to regulator criticism about the fintech giant.

READ MORE: CHINA VOICES | The unsigned op-eds that foreshadowed Ant Group IPO suspension

The challenges ahead: Echoing criticism of Ant Group from other regulators, Guo spoke about “too big to fail” risks during a speech at the Switch conference on Tuesday. This phrase featured prominently in three anonymous op-eds that appeared in the PBOC’s official journal.

Some companies are dominant in digital payments, which make them “important financial infrastructure,” Guo said. The PBOC updated its mandate to include such institutions in late October.
Fintech is a “winner takes all” industry, according to Guo. While traditional antitrust regulation focuses on “monopoly agreements, market abuses, and the concentration of operators,” fintech has created many new monopolistic phenomena which Guo said must be addressed.
China released new antitrust regulations in early November.
Fintech regulation should be unified across segments of the industry to preclude regulatory inconsistencies, leading to systemic risk, according to Guo. Some fintech platforms issue credit card overdrafts and loans to induce excessive consumption, often giving loans to people who can’t afford to pay them back. Laws should be unified to prevent such behavior.

The data road ahead: Guo emphasized the role of security and privacy laws, and said that regulators are working to build a framework for the protection of financial data. Three out of the five “problems to be studied and solved” Guo referred to in his speech were about data management.

Network security is crucial to China’s banking system because 90% of transactions happen online.
Data rights must be clarified so that the data economy in China can flourish. “The laws of various countries seem to have not accurately defined the ownership of data property rights, and large technology companies actually have control over the data,” Guo said.
Countries should work together on cross-border data flows. China’s Global Data Security Initiative calls for “all countries to respect the sovereignty, jurisdiction, and security management rights of other countries.”

READ MORE: INSIGHTS | Data localization is going global

Pat on the back: He said the sector has promoted inclusive finance, particularly in the areas of credit and insurance.

Loans to small and medium enterprises this year as of end-October were up 30% year on year, and loans to farmers rose 14.3% in the same time period, he said.
Fintech firms have also contributed to poverty alleviation, according to Guo. Microfinance platforms had issued more than RMB 5 billion ($766 million) nationwide to support 12 million households year to date as of end-September.
The chairman also praised the role of digital payments in epidemic prevention during Covid-19.

Cautionary tales: Guo said that regulators have taken a cautious approach in regulating China’s nascent fintech industry, “crossing the river by feeling the stones” (our translation). He cited two examples where authorities stepped in when companies were behaving as banks without following the relevant regulations.

He pointed to peer-to-peer lending, an industry that fell as quickly as it rose once Chinese regulators started clamping down. P2P companies were poised to be “financial information intermediaries” but ended up underwriting loans and selling investment products, Guo said.
As of November, there are no longer any P2P platforms in China.
Another important lesson was the management of third party payment platforms’ investment functions. When digital payment platforms added investment and financial management functions to online shopping services, they started chipping away at bank deposits and taking over the asset management market without following regulations that banks have to abide by.
Consumers preferred to keep their money on fintech apps because of higher interest yields, and the apps were able to invest these deposits. In 2018, China’s central bank told fintech apps that they must keep 100% of user deposits with the People’s Bank of China.

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Apple to remove all unlicensed games from China App Store

Wed, 09 Dec 2020 07:15:16 +0000

Apple has told developers worldwide it would remove any remaining paid games that are not approved by Chinese authorities after Dec. 31, ending a six-month-long purge of unlicensed games.

Why it matters: The move means it will be almost impossible for international mobile games makers to access the Chinese market if they don’t comply with the country’s strict content rules. Chinese Android app stores have long required game makers to obtain such licenses if their apps contain paid features.

Details: In an email to developers on Dec. 2, Apple said that games without a valid game license number will be removed by Dec. 31, according to a report shared with TechNode Wednesday by AppInChina, a mobile services company that helps foreign apps enter the country.

“As you may know, Chinese law requires games to obtain an approval number from China’s National Press and Publication Administration,” Apple said in the email. “After Dec. 31, your game will no longer be available on the App Store in China mainland until an approval number is provided with your next submission.”
Apple did not reply to TechNode’s request for comment on Wednesday.
It is unknown how many titles will be affected. Apple has removed more than 90,000 games from the China App Store since July, according to AppInChina, though these may include removals for other reasons.

READ MORE: Apple purges 3,300 games from China App Store in 2 days

Context: The purge of unlicensed games kicked off in July when Apple started to act on a February warning to developers to submit a valid license number or face removal. The company removed some 1,571 and 1,805 games from its App Store in China on July 1 and July 2, respectively, versus an average of around 200 titles removed in June.

Since 2016, Chinese regulators have required all paid games or games that offer in-app purchases to obtain a publication license before they can be uploaded to app stores.
Foreign companies are not allowed to apply for the license. They have to partner with local companies to legally launch their paid games in China. So far, only 97 foreign games were issued game licenses this year, according to AppInChina.

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How Huawei hooked Greek telcos

Wed, 09 Dec 2020 02:32:02 +0000

Based on ten interviews with industry insiders and regulators, TechNode tells the story of how Huawei established itself in the Greek market—and how the tables have turned for the Chinese telco giant. This is the first part of a three-part series.

In 2011, the Greek government was just embarking on what would turn out to be a years-long journey of bankruptcy avoidance with a cost of harsh austerity. Social welfare cuts, increased taxes and drastic public sector reforms sent unemployment and inflation soaring—and Greeks took to the streets en masse.

Thousands of people were being laid off. Many businesses didn’t know if they would make it to the end of the year. The Greek government was so cash-strapped that it had to be bailed out by international credit institutions.

During this chaos, a small telco operator decided to upgrade its network (in Greek) to 4G. Wind Hellas wanted to spend three years rebuilding infrastructure that previously took 18 years to complete.

Wind Hellas had a secret weapon: a relatively unknown Chinese company called Huawei. While the country was in deep trouble, Huawei helped Wind Hellas build a brand-new network.

Wind Hellas’s headquarters in Athens, less than two kilometers away from Huawei’s office. (Image credit: TechNode/Eliza Gkritsi)

By 2014, the pair had built a 4G network that they claimed was the country’s fastest.

Today, Wind Hellas is Greece’s only surviving network operator that isn’t affiliated with a European telco conglomerate, and its relationship with Huawei runs so deep that its experience of other vendors is virtually non-existent.

“We cannot compare with other suppliers, but from what we know, [Huawei’s] performance is on par with them,” Nikos Panopoulos, chief network and supply chain manager at Wind Hellas told TechNode.

Huawei has been building relationships with Greek telcos for 15 years. When capital controls were implemented in the recession-struck country, it was Huawei’s time to shine. (Image credit: TechNode/Eliza Gkritsi)

The telco wars

To China, Huawei is a national champion, proof that the Chinese model can birth global tech leaders. To the US, it is a Trojan horse, Chinese interests and state capitalism masquerading as a run-of-the-mill tech firm.

But to Greece’s three telco operators, including Wind Hellas, Huawei—or “Hua,” as Greek telecoms professionals call it—has been a reliable partner for 10 years. It is a trusted supplier with a proven track record.

Huawei equipment is everywhere in Greece. Although it has not been used in Greece’s core network, Huawei equipment makes up more than half of Greece’s 4G radio access network (RAN), the grid of cell towers that speak directly to cellphones. Wind Hellas built its RAN system almost entirely with Huawei equipment.

RAN is the infrastructure that connects the end-user with the core network. If you’re sending an email, the first thing your phone does is to connect to the network using RAN. The EU considers RAN “highly sensitive” but not “critical” to network security.

It’s not just telecoms. The warehouses of IT providers in the country are full of Huawei products, ready to be integrated into server centers around the country. The Shenzhen-based company is so deeply entrenched in the systems of a US ally that it is all but impossible to imagine the country rejecting it.

With its most important military ally on one side and a vital trading partner on the other, Greece faces a dilemma that’s become common in 2020.

We’re going to spend the next few weeks exploring what the fight over Huawei looks like when you’re caught in the middle, using Greece as our case study. Greece’s story is unique (as we’ll see next week, it includes the suspicious death of a Vodafone employee possibly involving a US security agency), but it exemplifies the conflicts US allies face as Washington tries to drop a Silicon Curtain.

For the past two years, US diplomats around the world have implored allies not to use Huawei gear in their 5G networks. The company is “an arm of the Chinese Communist Party’s surveillance state,” said US Secretary of State Mike Pompeo in an official press release. He has called on countries to form a coalition and “push back” against China.

Some of the US’s closest allies have decided to exclude Huawei from 5G buildouts: Australia, New Zealand, Sweden, the UK, and, reportedly, France. The rest of Europe has so far resisted singling out Huawei for a complete ban.

Even three countries that signed 5G security agreements early on with the US—Estonia, Poland, and Romania—are trying to find ways to increase security without singling out Huawei.

Many European countries are still undecided: Austria, Finland, Luxembourg, the Netherlands, Norway, Portugal, and Spain. Some, like Switzerland and Hungary, have committed to buy from Huawei.

European countries are making moves to exclude Huawei from their 5G networks. (Image credit: TechNode/Wei Sheng)

Huawei’s journey to the west

In the early 2000s, Ericsson and Nokia were the world’s biggest telecoms vendors, and China was still considered a developing country by the World Trade Organization. From 2000-2005, only about one in five people in China had either a mobile phone or a landline, according to data from the International Telecommunication Union.

Huawei was a budget alternative at best. It started to explore business in Africa in 1998 and set off on its international expansion around 2000, Antonia Petrovits, a spokesperson for Huawei Greece, told TechNode.

Telecoms equipment manufacturer Cisco was the first US entity to take aim at Huawei in 2003, alleging that the then-upstart had infringed on five Cisco patents. But Washington had yet to come up with an aggressive and comprehensive policy centered around a national security argument, which is what we see today.

Low key

Huawei’s office in Athens is hard to find, but is located a stone’s throw away from the headquarters of Greece’s three telcos. (Image credit: TechNode/Eliza Gkritsi)

Huawei’s Athens office doesn’t have a big sign. The company doesn’t even list the address on their website. Unless you are invited, the only way to find out where they are is by accident (as TechNode did).

It’s a far cry from Huawei’s grandiose Shenzhen headquarters. A simple four-floor building houses a women’s health clinic, and the national headquarters of Huawei and Media Markt, a nationwide electronics retailer.

But its strategic location more than makes up for its modest appearance. It is a stone’s throw away from the headquarters of Greece’s telco providers.

The Chinese telco giant approached Europe via the Middle East, Paul Scanlan, head of Huawei’s Carrier Group, told TechNode. They wanted to build a good brand and understand the region better before dealing with more “mature customers,” he said.

When Huawei opened its offices in Athens in 2005, it was a China-focused company with a few branches in developing countries. The same year it inaugurated its offices in Greece, it opened an office in Kenya.

Greece appeals to Chinese companies as a “landing point” for Europe. As a member of the European Union, it follows EU rules and is an entry point into Europe’s southern and eastern blocs, Andreas Polycarpou, who worked in Athens as an executive consultant for strategy and innovation at ZTE for six years, told TechNode.

Good products, great service

At first, Huawei undercut competition with lower prices and aggressive marketing tactics. One person with direct knowledge of the procurement process said Huawei would directly compare technical specifications and pricing with competitors’ at sales meetings.

The company’s ownership structure allowed it to keep prices low while charging into new markets, like Greece. As a privately owned company, it can afford to be patient about turning profits.

“If their prices are lower, it’s not necessarily because they’re being heavily subsidized by the Chinese government. It’s because they don’t have to answer on their margins for shareholders,” Paul Triolo, practice head of geotechnology at advisory firm Eurasia Group, told TechNode.

Greek telcos OTE and Wind Hellas first bought Huawei equipment eight years ago, OTE’s Director of Strategic Planning Pavlos Vihos and Wind Hellas’s Head of Communications George Tsaprounis told TechNode in separate interviews.

Over time, Huawei’s products got better and its prices increased. But their relationships with local telcos had been established, and their equipment earned a reputation as reliable.

Industry insiders in Greece said Huawei’s equipment is excellent. Some even said that it is superior to Nokia and Ericsson equivalents, Huawei’s only real competitors.

But Huawei’s success in the Greek market goes beyond technicalities. It is largely attributable to a knack for localizing to the market and providing technical support. “Localization has always been our strategy,” Petrovits said, adding that the company “combines the best of the Chinese and international approach.”

At first, “communication was very difficult,” but Huawei developed a very good team of Greek employees and, over time, they managed to make the partnership work, Wind Hellas’s Panopoulos said.

Today, out of Huawei’s 120 employees in Greece, 70% are locals, Kostas Vasiliiou, wireless solution sales manager at Huawei Greece, told TechNode. Half of the 120 are technical staff, he said.

Huawei earned its place in Europe by delivering what was most important to the Greek market: world-class equipment at irresistible prices, and support throughout the products’ life cycle.

The Huawei secret sauce

Huawei’s commitment to localization allowed it to distinguish itself from other low-cost suppliers. As fellow Shenzhen equipment maker ZTE learned the hard way, this was key to winning over new markets like Greece.

ZTE entered the market in 2002 with a big sale of ADSL equipment—a type of broadband—to network provider OTE, Polycarpou said.

But ZTE never managed to form relationships with Greek telcos the way Huawei did. Huawei was able to convince Greek telcos that it would provide dedicated support. ZTE wasn’t.

“When you buy telecoms equipment, you don’t buy it for a year. You buy it for decades. You need to convince the buyer that you will be there to support them,” Polycarpou said.

Huawei had a technical service team tailored to the market from the moment it set foot in Greece. While ZTE improved its localization efforts from 2011 to 2017 and gained some market share, Huawei quickly rolled out new products to counter ZTE’s success.

ZTE’s technical staff currently numbers two people. They can’t compete with Huawei’s “army” of 60 technical service specialists.

“When they [Huawei] installed the IMS systems [IP Multimedia Core Network Subsystem], they brought armies of engineers with them,” Andreas Rigas, Senior Manager of strategy and development at OTE, told TechNode.

ZTE also did not navigate the local business landscape well, sometimes trying to sell products by talking to the wrong people, Polycarpou said.

“When the manager changes, he doesn’t listen to the locals’ advice. He wants to go meet a minister. But in Greece, the minister has nothing to do with sales of telco equipment,” he said.

ZTE never gained traction in Greece. Today, Huawei is cozily nestled in the country’s RAN system, while ZTE mainly sells peripheral network products, such as routers.

Seizing the moment

When the financial crisis spiraled into strict capital controls in 2015, the stars aligned for Huawei. Domestic politics, monetary controls, and other vendors’ finances came together for Huawei to embed itself deeper in Greece’s networks.

Since 2010, the Greek government had been agreeing to difficult austerity measures in exchange for bailouts from international creditors, chiefly the European Central Bank and International Monetary Fund. Foreign direct investment, including from US companies, dried up.

Washington itself sat out the Greek crisis, leaving the fate of its close ally to the hands of its creditors—other than the occasional diplomatic assurance.

Frustrated by austerity and “capitulating” governments, in 2015, the Greek people elected a “radical left” government which promised to stand up to its European creditors.

Shortly after the election, a dramatic sequence of events led to the implementation of capital controls to avoid a run on the banks and the catastrophic collapse of the financial system.

Transfers of money overseas were banned, unless with explicit permission from financial authorities. Cash withdrawals were limited to €60 per day. Greeks spent their summer of 2015 waiting in long ATM lines around the country.

Huawei seized the moment.

When capital controls were introduced, European and US companies stopped most shipments to Greece. Many would only sell if they were paid in advance. With public and private debt reaching unprecedented levels in Greece, advance payments were basically impossible.

Chinese companies like Huawei and ZTE had more cash on hand, and a willingness to bet on the Greek economy—or the country’s geopolitical position. They turned a blind eye to the capital controls by offering generous terms.

These companies let Greek buyers have equipment on credit, accepting deferred payments of up to 15 months.

Such agreements were commonplace during the crisis across industries, an unspoken secret in Greek business. In the case of telco equipment, they boosted the Chinese vendors’ position in Greece’s systems.

The Greek government could barely pay its healthcare suppliers. But Huawei and ZTE’s support allowed Greek telcos to continue investing in their networks.

(Image credit: TechNode/Eliza Gkritsi)

While Greek telcos were basically unable to buy from Western suppliers, their customers enjoyed substantial improvements in service

Between 2015 and 2018, the last year for which the EU Commission has released relevant data, one-third of Greek households gained access to very high-speed digital subscriber lines (VDSL). In the same time period, coverage of Long Term Network Evolution networks (LTE) increased by 20 percentage points. LTE is the technology that supports 4G connectivity.

In the context of the crisis, these facts are astounding. As Huawei equipment was being used to build up capacity during the capital controls era, about 22% of people in Greece were unemployed, 35% of the population was at risk of poverty and annual GDP growth averaged a meager 0.7%.

Huawei was pivotal in achieving these gains in connectivity. It is unlikely that telcos would have updated their networks so drastically in the midst of a financial crisis without an equipment vendor that was willing to make concessions in payment schedules—Huawei.

The Greek sector took note: when Western firms fled, the Chinese stayed. They “stood by the market,” an industry insider said.

As Huawei ties with Greek telcos were growing tighter, Washington damaged its credibility when it was caught red-handed spying on Greek telecoms networks.

By 2018, when the US began lobbying long-standing allies around the world about the security risks of Huawei products, Huawei equipment was thoroughly embedded in Greek networks. Meanwhile, European leaders in Brussels were finally waking up to the importance of telecoms security.

But in more than a decade in the market, Huawei had already made good friends in Greece. When the Huawei debate started, Greek decision makers had years of experience—and trust—with the company.

Part II of this series will explore how the US campaign against Huawei—and its own espionage activities—have affected EU policy.

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Digital yuan trials for Hong Kong, JD.com: Blockheads

Tue, 08 Dec 2020 04:58:34 +0000

Hong Kong authorities are working with China’s central bank to test the digital yuan in payment scenarios. E-commerce giant JD.com will accept the digital currency during a trial on Dec. 12. Another crypto exchange founder is taken into custody by Chinese authorities, and Yunnan officials shut off power to crypto mines. Singapore’s new blockchain-based trading platform will be interoperable with China’s BSN.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Dec. 1-8.

Digital yuan partnerships

The chief executive of Hong Kong’s Monetary Authority said it is in talks with the People’s Bank of China Digital Currency Research Institute to test the digital yuan for cross-border payments. (Hong Kong Monetary Authority)
JD.com will be the first online platform to accept digital yuan payments during a trial in Suzhou starting on Dec. 12. (Reuters)

READ MORE: Second digital yuan lottery to launch in Suzhou: report

Crypto crackdown continues

Authorities in China’s southwestern Yunnan province turned off the electricity supply to several miners in the region on Nov. 30, according to blockchain reporter Colin Wu. Wu added that it is a local government initiative rather than a nationwide crackdown. (Wu Blockchain)
The founder of Hong Kong-based cryptocurrency exchange CEO Global has been taken away by Chinese authorities who are investigating fraudulent bank cards. The platform said it will indefinitely suspend all over-the-counter trading. (CEO Global, in Chinese)

BSN in Singapore

Singapore is launching a platform to test blockchain-based innovations for international trade. The platform, led by the city’s innovation agency and the Singapore University of Social Sciences, will be integrated with the Blockchain Services Network, a Chinese government-supported blockchain framework. (Singapore University of Social Sciences)

WATCH MORE: VIDEO | Can the BSN succeed in its global expansion?

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CHINA VOICES | Crisis at Danke has China worrying about out of control fintech

Mon, 07 Dec 2020 08:13:56 +0000

Facing eviction from an apartment managed by “second landlord” platform Danke Apartment, a young graduate jumped out of his 18th story apartment after setting it on fire in Guangzhou Dec. 3.

The tragedy was only the latest fallout from the troubled second landlord industry. Numerous tenants of Danke Apartment flocked to social media in recent weeks to share their experiences of being evicted by landlords from their apartments. Some said that the locks of their rooms were changed and they couldn’t go back home after coming back from a business trip. Some said their water, electricity and gas were cut off.

The crisis at Danke, fueled by mismanagement of small loans and a race for growth, is further spurring a conversation about financial risks associated with major tech platforms—one that’s recently had serious consequences for Ant Group’s IPO.

Thousands of landlords claim they haven’t received the rent from the company for months, while tenants insist that they have been making payments. Many Danke tenants borrow money to pay the platform a year’s rent in advance in return for discounted rates.

It’s not just landlords and tenants. On Nov. 10, hundreds protested at the company’s Beijing headquarters, including suppliers and maintenance workers. Similar protests have happened at Danke offices in different cities across China.

(Image credit: TechNode/Chris Udemans)

Danke, which means “eggshell” in Chinese, is a second landlord platform in China. Similar to Wework, second landlord platforms rent whole apartments on a long-term lease, then divide them into smaller units and furnish each one before subletting them. The company was listed on the New York Stock Exchange in January this year, becoming the second Chinese long-term rental player to list in the US. However, since its founding in 2015, Danke is yet to make a profit.

The company has relied on rental loans to fuel its growth. Under this model, Danke gets one year’s rent upfront directly from a partner bank, while tenants make monthly loan payments in lieu of paying rent. Meanwhile, Danke pays landlords on a quarterly or monthly basis, creating free cash for rapid expansion. But the loans model meant that when a platform runs out of money to make rent payments, tenants can face eviction while still owing money to a bank.

READ MORE: ‘Second landlord’ platforms get tenants in debt to fund growth

By March this year, Danke reported operating over 415,000 apartments in 13 cities. According to Danke’s financial reports, it recorded a net loss of $174.3 million in the first quarter this year, 51% wider compared to the same time a year earlier. In 2019, its annual net loss stood at $493.7 million.

We don’t know the exact number of tenants affected, but Danke partner Webank said Dec. 2 that about 40,000 evicted tenants have registered with them. On Dec. 4, Webank began allowing evicted tenants to assign responsibility for the debt to Danke, in a measure widely assumed to be a response to the Guangzhou suicide.

Anger at Danke

The suicide of the fresh graduate fueled people’s mounting anger towards Danke, many expressed sorrow and anger online. In a typical post, a Weibo commentator wrote:

When will the government deal with this case? Those cheated are mostly poor young people who have just stepped out of the ivory tower. Danke operates [around] 500,000 apartments and serves more than 1 millions tenants around major cities in China, it’s a big issue relating to people’s life. It’s now in a crisis, but no one deals with it—so disappointing.

Danke’s flawed business model has also been condemned by establishment voices:

More evilly, this business model transferred its potential risk from the apartment operator to the landlord and tenants. The company took the profits while leaving the risks for financial institutions or even the whole society.
— Caixin editor Zhang Hong, in a Dec. 2 podcast.

Who’s to blame?

But other voices argue that the model isn’t all bad. Business outlet Latepost argued that the second landlord model is a good idea brought down by risky finance:

An investigation into Danke crisis: in this game of chance, the whole society pays

Latepost
Nov. 27, 2020

The business of long-term apartment rental is not irrational: It has real demand. The “floating population” accounts for nearly 20% of the whole population of China. When renting a house, the quality of its decorations cannot be guaranteed, and disputes always happen when a tenant checks out.
However, long-term apartment operators can change this situation. They improve living experience with standardized decoration and use technology to match supply and demand efficiently. Tenants can find their ideal apartments more easily, while property owners can rent out their houses more quickly. It’s a win-win strategy.
…
But when startups go with the flow of the internet industry and focus on unrestrained expansion, risks will build up quickly. As the industry deliberately pushes tenants to take out rental loans in order to take advantage of the time gap to fuel its expansion, the main risk bearers will no longer be the startups and venture capital investors.
…
If the company fails, founders and investors take the risks of entrepreneurship; but property owners’ rent will also be delayed; tenants may be evicted while still having to pay the loans; suppliers bear the debts and workers cannot receive their wages.
Now everything is in a mess.
…
No matter how this farce ends, one truth cannot be hidden: business growth relying merely on debt increase will inevitably accumulate risk. Leverage can multiply gains, but also intensify loss. They will not disappear into thin air.

Webank, an online bank owned by Tencent, also found itself at the center of the crisis. As Danke’s rental loan partner, Webank helped fund Danke’s wild expansion and allowed Danke to get away with loaning more than 30% of the rent to its tenants, which is the upper limit set by the government.

Several state media outlets blamed internet financial institutions like Webank for lax enforcement of lending rules—such as this article in the state-owned Economic Daily, later deleted.

Regulation of rental loans should be strengthened

Economic Daily
Dec. 2, 2020

The government has required companies to open a custodial account to manage rent and deposits. If related rules were implemented strictly, the money would not be appropriated. Of course, it’s difficult to to count on banks to enforce this rule, so the relevant authorities should take the lead to strengthen oversight of rental loans.

If the company is paying rent monthly, the article recommended, the bank should issue the loans month by month.

According to the rule, if tenants paid rent monthly, then Webank should not pay Danke the whole year’s rent at one time. Traditional banks would have to evaluate every month when they lend; the whole process is complicated. But online banks can innovate payment methods, simplifying operations and allowing rental loans to be granted and repaid on a monthly basis.

A broader moral?

Another piece from Guangming Wang, a state media website, drew a broader lesson from this crisis.

The broken “eggshell” (Danke) shows the embarrassment of the regulatory environment

Guangming Wang
Dec. 2, 2020

The crisis, the article wrote, was the inevitable result of a new business model under an old regulatory system. It also tied this crisis to the failure of P2P lending—a disastrous case of under-regulation that’s remembered as the original sin of Chinese tech regulation—stating that “the improvement and innovation of related systems have reached a critical point.”

“To solve this kind of problems, we should seize the momentum, accelerate reform and innovation of related systems, enhance effectiveness in the operation of the systems, so as to boost the development of new business and new models,” the article read.

Guangming Wang wasn’t alone in connecting the dots between high-profile failures of star Chinese tech companies.

An article from Digital People TMT, a website belonging to the People’s Daily group, compared Danke to three other failed Chinese companies—LeEco, Ofo, and Luckin Coffee—all of which relied on immense funding for “blitzscaling” growth before flaming out. But what the article has to say about small loans could be most relevant as regulators consider a new approach to fintech firms like Ant Group.

From LeEco to Ofo, from Luckin to Danke, it’s time for an era to end

Digital People TMT
Nov. 25, 2020

This is an era when the virtual economy has misled the real economy…
If Danke really wants to protect young people like an eggshell, it should have a business model that respects its users, instead of trapping them into debts and leaving them homeless.
…
This is an era when financial tools and leverage prevail. Because the real economy is being bullied by the virtual economy, whether it is for survival or “exponential growth” businesses have to rely more on financial and leverage tools, which leads to “novel financial services” permeating these so-called “new economy” enterprises, fueling their growth while hollowing them out.
…
Chinese internet companies’ fascination with finance is increasingly a widespread syndrome– from top giants to unicorns, all want to get involved in making small cash loans… When the systematic financial risks caused by this twisted growth mentality penetrates every aspect of our life through so-called “innovative enterprises,” it’s everybody’s problem.
…
It’s time for this era to end.

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US blacklists China’s top chipmaker SMIC: report

Fri, 04 Dec 2020 06:04:09 +0000

Donald Trump’s administration on Thursday added China’s biggest chipmaker, SMIC, to a blacklist that could cut it off from American investment in the US president’s last days in the White House, Reuters reported.

Details: The Trump administration on Thursday added Shanghai-based Semiconductor Manufacturing International Corp. (SMIC) and state-owned oil giant China National Offshore Oil Corp. (CNOOC) to a list of entities designated as owned or controlled by the Chinese military, according to Reuters.

The list, mandated by a 1999 law requiring the US Department of Defense to compile a catalog of firms “owned or controlled” by the People’s Liberation Army, did not trigger any penalties. However, a recent executive order issued by President Trump will bar US investors from buying shares of the blacklisted firms starting late next year, said the Reuters report.
SMIC is listed in both Hong Kong and Shanghai, while CNOOC has a unit that is listed in Hong Kong. SMIC shares declined by more than 2% on Friday morning before trading for the company’s Hong Kong-listed shares was suspended.
SMIC said in a stock market statement that it was assessing the impact of its addition to the list and said investors should be aware of the investment risks, according to Reuters.

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Police seize $4 billion, US worried about China’s crypto lead: Blockheads

Tue, 01 Dec 2020 08:04:00 +0000

Authorities in Jiangsu province seized $4 billion in cryptocurrencies in a Ponzi scheme bust, court filings showed. The US spy chief alerts regulators about China’s crypto dominance. Outflows from Okex reached $482 million in Bitcoin after it resumed withdrawals. Crypto mining rig maker Canaan reported a 400% surge in losses.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Nov. 24-Dec. 1.

The $4 billion bust

Authorities in Jiangsu province seized more than $4 billion in cryptocurrency in a crackdown on Plustoken, a Ponzi scheme.

According to a court filing dated Nov. 19 first and reported on Friday, authorities in Jiangsu seized 194,775 bitcoins; 833,083 Ether; 487 million Ripple; 79,581 Bitcoin Cash; 1.4 million Litecoin; 27.6 million EOS; 74,167 Dash; 6 billion Dogecoin; and 213,724 of the stablecoin Tether.

More than 2 million people were swindled out of RMB 50 billion ($7.59 billion) from the Plustoken scheme during its two years of operation.

A total of 15 people have been convicted so far in relation to the scheme, the court filing said, with fines ranging from $100,000 to $1 million and prison sentences from two to 15 years.

One of the members also laundered RMB 145 million, most of which was spent by the Plustoken team and their families on expensive cars, real estate, and insurance packages in Hong Kong, the filing said.

In total, 109 of Plustoken’s core members have been arrested, according to local media reports (in Chinese). Some had initially fled to the Pacific island nation of Vanuatu, where the scheme was allegedly active.

The latest court filing said the Ponzi scheme started in May 2018 by promoting a fake cryptocurrency trading platform. Investigations into its operators began in 2019.

The first ruling on the case came on Sept. 22 by a low-level district court in the city of Yancheng in Jiangsu. The latest ruling rejected appeals and is final. (The Block)

US crypto concerns

The Trump administration’s Director of National Intelligence, John Ratcliffe, sent a letter to the chairman of the US Securities and Exchange Commission, Jay Clayton, earlier this month, warning of China’s influence over digital currency technology, the Washington Examiner reported.

Ratcliffe said that China holds significant power over cryptocurrencies because it has the world’s biggest mining capacity, the computational process by which new cryptocurrencies are minted. He also warned that the US has been left behind in the race to a central bank digital currency as China is already piloting its own.

Ratcliffe proposed to have a team of “senior economic intelligence officials” brief Clayton, the report said.

Okex outflows

Cryptocurrency exchange Okex saw 24,631 Bitcoin ($482 million in Tuesday’s prices) leave its platform when it resumed withdrawals on Nov. 26 after pausing for nearly six weeks, Coindesk reported using data from crypto intelligence site Cryptoquant.

This is the largest outflow the exchange has seen since March, when Bitcoin markets were in free fall.

Okex halted withdrawals suddenly on Oct. 16 when one of the exchange’s key holders became “out of touch” because he were assisting with a government investigation.

The exchange’s founder was released by authorities on Nov. 20 after being held by authorities for weeks while he was cooperating with an investigation. It is unclear whether he was the key holder who was missing.

READ MORE: Okex founder is back, second digital yuan lottery: Blockheads

Canaan reports losses, again

Crypto mining rig maker Canaan’s losses widened by 400% to $12.7 million quarter on quarter in the three months ending September 30, 2020, its earnings report said. The disappointing results are made even more bleak by the fact that Bitcoin prices have risen by 30% in the same time period, and Canaan has reduced its product prices by almost 69%.

READ MORE: Rig maker Canaan misses Bitcoin surge, losses top $12 million

The TV blockchain

China’s National Television and Radio Authority released a white paper in collaboration with privacy-focused blockchain company Arpa to outline the potential applications of blockchain in media.

The white paper aims to”introduce the traceability, authenticity, and security of blockchain in radio, television, and other media,” Arpa said in an announcement. (Arpa on Medium)

The traceability project

Vechain, a Chinese blockchain company that works closely with government officials, released insights on its food traceability program with Walmart. It said that it expects the government to soon release a food traceability system to build trust after the Covid-19 pandemic.

The company rolled out a blockchain-based food traceability platform at Walmart China in June 2019. Consumers can scan QR codes on products to find out information about them. The data are compiled from different parts of the supply chain, and are stored on an enterprise blockchain.

The platform has been updated seven times, Vechain said, to connect with local government bureaus.

Videos to watch

TechNode hosted an online panel to discuss the global expansion of the BSN with three experts from Shanghai, Singapore, and Hong Kong .
An “old lady” talks about decentralized finance eloquently while she is promoting an allegedly fraudulent project.

PlusToken, the world's largest crypto fraud case, ended in China. Another real and very funny video is popular on the Chinese Internet these days. An old lady from country is promoting a defi crypto fraud project(Pangu) to her friends, which means the god who created the world. pic.twitter.com/7cXlA9Iz22
— Wu Blockchain（Chinese Crypto Reporter） (@WuBlockchain) November 28, 2020

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EXCLUSIVE: EU diplomat says China favors domestic 5G suppliers

Tue, 01 Dec 2020 05:59:23 +0000

China’s preference for its own 5G equipment vendors over European suppliers has created an unfair playing field in the country’s telecommunications market, according to the EU ambassador to China in a speech given during a major telecommunications event in Guangzhou on Thursday.

Nicolas Chapuis said Chinese telecommunication operators had “massively privileged their national suppliers” and complained about a market share “free fall” for European vendors in China’s telecom infrastructure sector during a pre-recorded speech at the opening ceremony of the World 5G Convention (W5GC) held in the capital city of southern Guangdong province.

Chapuis’s speech was not included in the detailed video recording of the opening ceremony published on the W5GC website. Instead, the 130-minute video recording of the opening ceremony includes around 40 minutes of a static image with music in the background. A representative of the Beijing-based nonprofit Future Mobile Communication Forum, which co-hosted the event along with provincial government bodies, said all speeches given by high-level politicians were not “live-streamed, published in video recording, nor included in the agenda of the event.”

“The bottom line is a free fall of European market share in the telecom infrastructure sector [of China], standing today at less than 11%, while their market share in other countries stands at more than 30%,” Chapuis said according to the text of the speech sent to TechNode. “This raises major questions on fair competition.”

The EU “is urging China to ensure openness, transparency, and equal opportunities for domestic and foreign suppliers,” he said, adding that the bloc will continue to press for “meaningful market access” for both 5G infrastructure and 5G-related services in China.

China has insisted that it is not biased in choosing 5G kit suppliers. “China always sticks to equal and fair principles when purchasing 5G telecom equipment. We never preset the market shares for domestic and foreign enterprises,” Miao Wei, minister of China’s top telecom regulator, said during a keynote speech at last year’s W5GC in Beijing.

China’s three state-owned carriers in April assigned more than 80% of their 5G base station buildout contracts this year to Chinese telecom equipment makers Huawei and ZTE. A small portion of their budget went to Swedish company Ericsson, while Finland-based Nokia was not awarded any contracts.

The Finnish firm, however, said in June that it had been selected by China Unicom, one of the state-owned carriers, to supply around 10% of its 5G core network.

Chapuis’s remarks are a rare direct complaint from the EU about its access to China’s telecommunications market, aligning with the bloc’s recent stance that calls for a Europe-China relationship based on “fairness.”

“We have a robust trading relationship with China… Trade can energize our economic recovery. But we want more fairness. We want a more balanced relationship. That also means reciprocity and a level playing field,” Charles Michel, president of the European Council, said in September.

China’s Huawei, the world’s largest supplier of telecom equipment, is facing a raft of challenges in Europe. Some member nations including the UK and Sweden have decided to exclude Huawei products from their 5G networks. Several other European countries, including France and Germany, have made moves to heavily restrict its participation in their 5G buildout. Experts have said the company could be completely excluded from the continent’s 5G core networks.

READ MORE: INSIGHTS | More European countries are turning their backs on Huawei

For more than a year, the US government has continued to pressure its allies to exclude Huawei equipment. Not doing so, it said, poses the potential risk of Beijing using vulnerabilities in the company’s gear to spy on foreign 5G networks, an allegation Huawei has repeatedly denied.

Without mentioning Huawei, Chapuis said during the speech that 5G gear suppliers are subject to the same security scrutiny in Europe.

“Suppliers, be they European as well as non European, have been required to prove their compliance with a set of rules, known as the EU 5G tool box,” he said. “Chinese companies have welcomed this framework, which is based on a solid, thorough, transparent, and objective assessment of risks and applies to all players.”

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INSIGHTS | What we learned from China’s World 5G Convention

Mon, 30 Nov 2020 04:36:54 +0000

About a year after China launched its first public 5G networks, it held a major telecommunications event in the southern city of Guangzhou on Nov. 26-27. The second annual World 5G Convention (W5GC) attracted top executives from the country’s three state-owned carriers (China Mobile, China Telecom, and China Unicom) and high-level officials from telecom regulators to the event.

Representatives of several overseas carriers including Spain’s Telefonica, Singapore’s Singtel, Deutsche Telekom, and America’s AT&T also attended by video link. But W5GC was more China than world: the agenda centered on China’s deployment and applications of next-generation 5G networks, while almost all foreign speakers were allocated to a “global forum.”

Not all information from the world-level conference was new, but the message delivered by officials is important: China is counting for future economic growth on a series of cutting-edge technologies enabled by ultra-fast 5G networks, which includes electric vehicles, artificial intelligence, and big data. In the short term, 5G is seen as a remedy for the country’s virus-hit economy.

Bottom line:

5G cellular service is already widely available in China—if you live in a city, you should be able to use it. But networks are far from complete, and China expects to spend hundreds of billions on base stations in the coming year.
But 5G still isn’t essential. We haven’t seen a “killer app.” Authorities still talk about it as a future technology rather than something paying off now.
Compared to last year’s W5GC (held in Beijing), this year focused more on the domestic market, whereas last year China tried to export its approach to 5G to the world.

Widely available:

Liu Liehong, deputy minister of China’s Ministry of Industry and Information Technology (MIIT), said China has built more than 700,000 base stations with more than 180 million 5G subscribers as of October.
Dong Xin, chief executive officer of China Mobile, said the world’s largest telecom carrier by subscribers had built 385,000 base stations with more than 90 million 5G end users. He said the company had provided 5G service in all Chinese prefecture-level cities.
Wang Xiaochu, president of China Unicom, said the company is now providing standalone 5G service in more than 300 cities, meaning that its 5G network does not rely on older 4G infrastructure.

Growth forecast:

Feng Yi, director at China Unicom’s 5G Innovation Center, said China’s 5G users could grow by 20% in the next year.
John Hoffman, CEO of GSMA, a telecoms industry body, predicted that around 20% of global telecom users will choose 5G services by 2025, with the penetration rate reaching 50% in countries like the US, Japan, and South Korea. “China will be the world’s biggest 5G market in terms of subscribers, though its penetration rate will only be 30% by 2025.”

Message from Europe: After a year in which Huawei has lost ground in Europe, Nicolas Chapuis, European ambassador to China, argued that the bloc assesses vendors neutrally:

“In Europe, operators and suppliers are also ready to proceed, frequencies have been allocated, but governments and security agencies want to first make sure that the impact of this new technology on industry and services is well managed and regulated. Suppliers, be they European as well as non European, have been required to prove their compliance with a set of rules, known as the EU 5G tool box. Chinese companies have welcomed this framework, which is based on a solid, thorough, transparent and objective assessment of risks and applies to all players.”
Nicolas Chapuis, European ambassador to China

READ MORE: INSIGHTS | More European countries are turning their backs on Huawei

5G spending push to continue: In June 2019, China issued 5G licenses to its three major carriers and a broadcasting company, with commercial use of the service starting last November. Though China launched the service later than countries like the US and South Korea, the country is now—according to officials speaking at this week’s event—is “taking a lead” globally in the deployment of 5G networks.

The buildout of the country’s 5G networks is largely backed by the state. China in April kicked off a “new infrastructure” initiative, promising to spend RMB 1 trillion (around $152 billion) on seven cutting-edge technologies including 5G, artificial intelligence, and electric vehicles in 2020 alone. China Sinolink Securities, a broker, expects total investment by local governments and telecom companies into base stations to reach RMB 300 billion this year.
The Chinese government is calling for a quick rollout of the next-generation wireless network, which prompted China Telecom and China Unicom, the smaller rivals of China Mobile, to jointly build a next-generation network. On Thursday, Wang of China Unicom said the company saved RMB 60 billion “for the state” from the partnership with China Telecom.
Most 5G base station buildout contracts have gone to China Tower, a state-owned telecommunications tower infrastructure service provider. Tong Jilu, chairman of China Tower, said Thursday that the company had constructed more than 700,000 5G base stations for local carriers. He said 97% of those stations were built on existing 4G stations.

5G as stimulus: Speakers tied the protocol to hopes for growth from the “digital economy.” China’s economy could have taken a much deeper hit this year without the “digital economy,” according to a former government official.

“2020 is a year of troubles. Under this circumstance, people all looked at the digital world for economic growth,” said Li Ming, executive director of the China Institute of Digital Economy Research. “5G will be a growth engine of the digital economy,” he said.
Xu Xianchun, director at the Tsinghua University’s China Data Center, said China’s digital economy grew 13.2% year on year in the first quarter while the country’s gross domestic product (GDP) was down 6.8% in the same period because of the Covid-19 outbreak.
Xu, who is also the former deputy director of the National Bureau of Statistics of China, said the country’s GDP could be down more than 8% in the first quarter if the digital economy shrank as well, highlighting the importance of the sector in China’s economy.

A subdued Huawei? You can’t talk about 5G in China without talking about Huawei. But Huawei was relatively inconspicuous at this year’s W5GC. Last year, one Huawei executive appealed (in Chinese) called for the digital “Berlin Wall” to come down, and the company’s then rotating chairman vowed to build “the world’s best 5G.” This year, attendees from the company focused on products and devices.

Internal circulation: Things have changed a lot between the two W5GCs. Last year’s conference featured a session (in Chinese) that aimed at promoting China’s participation in global 5G standards; this year’s “world” conference overwhelmingly focused on developments in China. Of course, closed borders and a pandemic make international events much harder, but the changes also reflect the change in economic strategy known as “dual circulation,” which calls for the country to rely less on international markets. If China was still hoping to shape the 5G conversation around the world when it launched the conference last year, this November’s event suggests a more modest focus on the home market.

UPDATE: The quote from EU Ambassador Nicolas Chapuis has been updated based on a text provided by the EU Delegation to China. An earlier version of this article relied on a translation printed in Chinese media reports.

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VIDEO | Can the BSN succeed in its global expansion?

Fri, 27 Nov 2020 10:12:08 +0000

The Blockchain Services Network (BSN) is one of the Chinese government’s most ambitious global blockchain projects. But can it succeed in its goal to become a global “internet of blockchains” in the face of rising tensions between the US and China?

“The BSN has already achieved this critical mass and it will have a snowball effect, as a lot more of worldwide technology infrastructure companies will want to come to it. The challenge is mainly geopolitical. Because of the current climate, this is going to be framed as the China Chain,” said Michael Sung, founding co-director at the Fanhai International School of Finance at Fudan University in Shanghai, at a panel discussion recorded on Nov. 16.

Moderated by TechNode’s blockchain and fintech reporter Eliza Gkritsi, three scholars and entrepreneurs from China, Singapore, and Hong Kong discussed what the future holds for the BSN—and whether its connection to the Chinese government will prove a blessing or a curse.

Making interoperability really work will be a real technical challenge, said Wai-shun Lo, adjunct professor The Chinese University of Hong Kong and partner at a Hong Kong angel investment fund. There is also a business challenge for portal operators around the world “to work in their own communities to really get people on board to develop dapps [decentralized applications],” said Lo.

The technology challenge will be overcome, “given time,” said David Lee, who teaches blockchain and fintech as a professor at the Singapore University of Social Sciences. But convincing “governments and incumbents to see the potential of BSN” might also be difficult in the short term, Lee said.

Blockchain Services Network (BSN)
What: A platform for blockchain development, bringing together cloud services and different chain protocols on city nodes.
Why: To reduce the cost of blockchain application design and deployment while powering communication between chains. It will be made available around the world through local cloud providers, ultimately creating a global internet of blockchains. The BSN is aligned with Beijing’s ambition to position China as a global blockchain leader.
Who: The BSN is led by the China State Information Center, China Mobile, China Union Pay, and Red Date Technology.

Speakers

Michael Sung

Michael Sung is the chairman of Carbonblue Innovations, a tech-transfer and commercialization platform focused on rapidly scaling internationally-sourced high-tech innovation, the founding co-director of the Fintech Research Center at the Fanhai International School of Finance at Fudan University, and a member of the faculty at the Chinese Institute of Economics and Finance, a national-level think tank focused on developing finance innovation policy for the central government in China.

Sung has served in advisory roles over the years for the Hong Kong, Taiwan, and China governments on international tech transfer, innovation ecosystem building, AI, blockchain, and fintech policy.

David Lee

David Lee Kuo Chuen owns Blockasset Ventures, a blockchain- and cryptocurrency-focused investment company. He has founded several companies, including Dlee Capital Management, Left Coast, and Ferrell Financial Group.

Lee is also a professor of fintech and blockchain at Singapore University of Social Sciences. He is an advisor to several blockchain organizations, including the British Blockchain Association, and was the director of the Sim Kee Boon Institute for Financial Economics (SKBI) at Singapore Management University (SMU). His research interests include digital and internet finance, digital banking, Asia, finance, impact investing, blockchain, financial inclusion, and asset allocation.

Wai-shun Lo

Lo is an adjunct professor at The Chinese University of Hong Kong and a visiting Professor at Peking University’s School of Innovation and Entrepreneurship. Lo is currently a general partner of DL Capitals, an angel investment fund focused on disruptive and exponential technologies and has over 20 years of experience in intellectual property commercialization, business models innovation and technology transfer. Lo has also served as a senior researcher at Harvard Business School’s Asia-Pacific Research Center.

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Beijing urges local authorities to step up EV sector scrutiny

Thu, 26 Nov 2020 05:54:19 +0000

China’s top economic planner has asked provincial governments to submit detailed reports about electrical vehicle firms’ investment and business activities in order to minimize financial risk, according to a notice seen by Chinese media.

Why it matters: The Chinese central government is addressing massive overcapacity in the EV industry in an attempt to head off financial crises in regional economies.

Beijing is mulling further reductions in production capacity, concerned about an overheating EV sector. Tesla’s Shanghai factory is widely seen as an industry success story, reinvigorating the Chinese EV market and spurring local governments’ search for the country’s own Tesla.
Poorly performing companies face higher default risk, compounded by significant overvaluation.

Details: National Development and Reform Commission (NDRC) had urged regional authorities in a notice issued Nov. 13 to provide updates on local EV manufacturing projects. Requested details include production progress and the implementation of investments over the past five years, Chinese financial media outlet Yicai reported on Wednesday.

More notably, the country’s state planner in the notice asked local governments to report on EV projects from Chinese property developers Evergrande and Baoneng.
Evergrande is known for its ambitious output goal of 5 million EVs per year over the next decade as well as a RMB 45 billion ($6.8 billion) investment project to build 10 manufacturing facilities around the globe by 2021.
The would-be EV maker in August debuted six EV models which are scheduled for release in the second half of 2021. It began preparing a month later for a secondary listing on China’s Nasdaq-style STAR Market technology board.
Concerns about Evergrande’s liquidity began to arise in September when the Guangzhou-based company reportedly resorted to asking a local government to approve a restructuring plan in order to repay as much as RMB 130 billion to strategic investors by January. The restructuring had been holding up a long-delayed backdoor listing on the Shenzhen stock exchange.
The share price of China Evergrande New Energy Vehicle Group fell 5.2% to HKD 22.8 ($2.94) on Wednesday in Hong Kong. The property developer’s EV subsidiary still has a market capitalization of HKD 201 billion ($25.9 billion), close to that of Fiat Chrysler.
Evergrande did not respond to a request for comment on Wednesday.

Context: China cracked down on EV overcapacity by suspending new plant approvals in mid-2017, when planned capacity reached 20 million EVs—more than 20 times total sales that year, according to state-owned China Securities Journal.

This was followed by the enforcement of new rules in early 2019 that conditionally allowed new EV plant approvals. The new rules reopened the door to new plant approvals for EV makers and granted local governments with more discretion to oversee auto investments.
Sales of new energy vehicles, mainly all-electrics and plug-in hybrids, declined 4% year-on-year to 1.2 million units last year in China, figures from the China Association of Automobile Manufacturers (CAAM) showed.

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China’s new NEV plan targets battery electrics, ‘quality brands’

Wed, 25 Nov 2020 08:42:50 +0000

China’s plan for new energy vehicles (NEV) in the next 15 years aims to promote the transition from a state-led to a market-led industry. In the eyes of the policy makers, Chinese brands should lead the way and control the domestic market. Whether the plan (in Chinese) will succeed hinges on how the government manages the phase-out of purchase subsidies after 2022.

Issued by the State Council on Nov. 2, The Development Plan for the New Energy Vehicle Industry (2021-2035) leaves no doubt about China’s commitment to NEVs, calling it a “major direction in the transformation of the global automotive industry.”

Opinion

Jost Wübbeke is a director at Sinolytics, a research-based consultancy focused on China, in Berlin.

In China’s state economy and politically-steered markets, these industry-specific plans play the primary role in setting growth incentives, planning regulations, allocating financial resources, and even building markets.

China’s leaders perceive the NEV revolution as the big opportunity to build strong domestic automotive brands that can dominate the home market and compete in global markets. On visits to the factories of China’s oldest carmaker FAW in June, President Xi Jinping stated that “we… have to raise domestic brands.” China’s “quality brands” should be able to compete equally with international peers, the plan states. This refers to brands such as BAIC’s Beijing Electric Vehicle and Nio. The plan stipulates that China should “reach an internationally advanced level in NEV key technology” by 2035.

Clear focus on battery electrics

China’s policymakers have never officially favored a specific alternative fuel or powertrain technology. But it’s been obvious for more than five years that they prioritize battery electric vehicles—think Byton, Li Auto, Nio, or any other all-electric plug-in car brand. Now, they’ve made it official: The NEV plan highlights battery electrics as “the main force of new vehicle sales”.

The related, but less official, NEV Technology Roadmap, as presented in a publication event (in Chinese) shortly before the 15-year plan by automotive experts close to the state, estimates that battery electrics will account for 95% of NEV sales in 2035.

By contrast, these experts see plug-in hybrid electric vehicles as a bridging technology. The roadmap dismisses hydrogen-based fuel cells as not a serious option for passenger vehicles, but concedes that they will have a distinct niche in the commercial vehicle market.

Transitioning from state to market

A more challenging element of the plan will be the transition from a state-driven to a market-driven NEV industry.

The growth of China’s NEV fleet over the past five years has been impressive. About 4.9 million battery electrics and plug-in hybrids have been sold since 2015. China aims to sell a total of 5 million NEVs by 2020. However, the recent sales surge was to a large degree only possible with the support of massive purchase subsidies from both the central and local governments. The central government wants to eliminate all these subsidies.

The first attempt to ditch them failed badly. In mid-2019, the central government ordered a complete halt to local purchase subsidies and tremendously scaled back national ones, with a target to fully phase out subsidies by the end of this year.

READ MORE: Money’s too tight to mention for China’s outsized electric vehicle industry

But lower subsidies caused the sales of passenger NEVs to plummet in the second half of 2019 by 30% year on year. It took the market until mid-2020 to rebound. China lost its status as the largest NEV market to Europe in the first half of 2020, a shock that still reverberates in Chinese public discussion. As Covid-19 also wreaked havoc on the auto market, the government extended subsidies until end 2022, and even allowed local governments to provide temporary subsidies once again.

The new plan clearly takes account of this policy failure and is less ambitious when it comes to NEV sales targets. Early drafts of the plan in 2019 estimated that NEVs would account for 25% of total vehicle sales in 2025. The final plan lowers this target to 20%, and does not set any targets beyond 2025. However, the semi-official NEV Technology Roadmap estimates an NEV market share of 50% by 2035.

Despite these challenges, the plan is still set to phase out national subsidies as soon as possible—and for good reasons. They have become a heavy burden on state finances: Between 2016 and 2018, the government handed over about RMB 21.5 billion ($3.3 billion) for vehicle subsidies.

NEV quota and benefits to replace subsidies

But a lack of subsidies does not mean a lack of state support. Instead, the government is putting its trust in other incentives.

The core instrument to replace the subsidies, as the plan also puts it, is an NEV quota, which has been gradually introduced since 2017. The quota sets a minimum amount of “credits” carmakers have to earn by selling a certain number of NEVs. If they are below the quota, they will have to purchase positive credits from other carmakers that do meet the quota. This puts pressure on carmakers to prioritize NEV sales. The quota is becoming increasingly stringent: NEV credits collected by carmakers must reach 18% of traditional car production and imports by 2023. That will be a challenge for many companies.

The plan also emphasizes a range of local-level benefits such as discounts for battery charging, special parking slots, and special NEV lanes. However, fast NEV registration in first-tier cities is becoming less important as the quotas for registration of traditional vehicles have recently come under fire by authorities and were relaxed by many cities to stimulate car sales.

The experiences of summer 2019 indicate that these demand-oriented incentives and the NEV quota won’t be enough to replace purchase subsidies and create stable NEV market growth. The situation might change as vehicle and battery costs go further down, but the transition to a market-driven demand is still at a challenging stage.

Industry restructuring

The plan also conceives of substantial consolidation in the coming years.

Following a typical pattern in Chinese industrial policy, the government intensely promoted the growth of the number of industry players during the emergence of the NEV market until 2019. Since then, the government has taken actions to restrict overcapacities and new manufacturing projects. The plan now officially launches the period of industry concentration in a “survival of the fittest” manner, reflecting the government’s ambition to forge national NEV champions.

Climate change and energy consumption

While the plan extensively focuses on industrial development, it puts less emphasis on overarching climate change targets. This is in stark contrast to the active Chinese climate policy and international emission commitments. China has pledged that its emissions will peak before 2030 and that it will reduce its carbon intensity by 60%-65% below 2005 levels by 2030. Recently Xi vowed China would reach “carbon neutrality” by 2060.

The NEV plan neither includes targets for carbon emissions in the automotive industry nor considers life-cycle emissions of NEVs. Nor does it consider targets for the use of green energy in charging. The NEV Technology Roadmap does estimate that the automotive industry will reach its peak emissions by 2028, but this is not a binding target.

While overarching climate goals are missing, existing regulations exert more pressure to reduce emissions, especially through the NEV credits and fuel consumption credits. Energy consumption of NEVs is also increasingly important, especially in the calculation of NEV credits. As battery electric cars are mostly charged with coal power, improving their energy efficiency is one way to reduce their carbon footprint. The plan aims for an average energy consumption of 12 kWh/100km by 2025. This is ambitious by current standards: some Tesla Model S 75 cars consume around 14.6 kWh/100km.

Tackling the sticking points

In sum, the thrust of the 15-year plan is a clear commitment to the development of the NEV industry and to battery electrics in particular. Important instruments such as the NEV quota system developed over the past few years and will become more prominent.

Yet a major question mark remains. There is no effective strategy yet for the post-subsidy phase after 2022. How policymakers will handle this sticking point will determine the success of the plan and the pace of NEV development in China.

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India bans Alibaba apps, JD Logistics readies $5 billion IPO: Retailheads

Wed, 25 Nov 2020 05:43:08 +0000

This week, India added 43 Chinese apps to its lengthy blacklist including Alibaba platforms. Chinese online retailer JD.com’s quest to publicly list its affiliate companies came a step closer to reality with both logistics and healthcare subsidiaries preparing their stock market debuts. China’s media regulator tightened its grip over the livestream industry. A Tencent-backed online recruiting platform was again under fire for failing to screen job postings.

Retail
headlines

India expands China ban

Border tensions have escalated to a broader tech war—India blocked another 43 Chinese apps on Tuesday, expanding the total number to more than 200. Alibaba’s global marketplace Aliexpress and livestreaming platform Taobao Live as well as several other dating and gaming platforms were added to the blacklist, joining a lengthy roster that already include some of China’s biggest apps such as Wechat, Tiktok, Weibo, and Alipay. Similar to earlier bans targeting Chinese apps, the government cited national security as the reason for the move. (Bloomberg)

IPOs and acquisitions

JD Logistics, the logistics unit of Chinese online retailer JD.com, is looking to raise $5 billion in its IPO, a figure that would value the company at $40 billion. The valuation is much higher than its reportedly $30 billion valuation from late 2019. The public offering could come in 2021 and JD is choosing between Hong Kong and the US for the listing, according to a source cited in the IFR report. The JD affiliate operated approximately 750 warehouses that covered an aggregate gross floor area of over 18 million square meters, according to an internal letter (in Chinese) written in August by JD Logistics CEO, Wang Zhenhui. (IFR)
JD Health, the healthcare arm of JD.com, is looking to raise $4 billion in Hong Kong’s largest listing of this year, potentially valuing the company at $29 billion. The offering is scheduled for Dec. 8, local media reported. The deal has attracted cornerstone investors including Hillhouse Capital Group, Singapore sovereign wealth fund GIC, and several long-term funds, according to Hong Kong-based media. (Reuters)
Yatsen Holding, parent company of Chinese online cosmetics brand Perfect Diary, raised $617 million in its New York debut on Nov. 19, selling 59 million American Depositary Shares for $10.5 apiece. The four-year-old firm said the proceeds will be used for company operations, strategic investments and acquisitions, product and technology development, and offline expansion. (Beijing News, in Chinese)
Bluecity, the Nasdaq-listed parent of China’s largest gay dating app Blued, has fully acquired local rival Finka for RMB 240 million ($36.4 million). The acquisition comes three months after Bluecity acquired China’s lesbian social networking app Lesdo. (Bluecity)

Regulating livestreams

China’s National Radio and Television Administration rolled out on Monday a new rule that requires hosts and audiences of live-streaming platforms to register using their real names in a move to tighten control over China’s flourishing livestream market. The rule also banned teenagers from sending virtual gifts after several teenagers bankrupted their parents by tipping livestream hosts tens of thousands of yuan. The move could significantly impact revenue for companies including Kuaishou, Huya, Douyin, and YY Live. (Nikkei)
US short seller Muddy Waters said revenue from livestreams for China-focused platform YY Live is “around 90% fraudulent” in a 71-page report released Nov. 18. The report said the company’s international livestream platform Bigo could also be inflating figures. The report followed shortly after Baidu announced its plan to acquire YY Live.(Muddy Waters)

READ MORE: US-listed Chinese firms are on thin ice

China tech’s dark side

Tencent-backed online recruiting app Boss Zhipin drew public ire this week after local media reported that employers are using the platform for recruiting prostitutes. The company denied the claim, saying that it has rigid rules in place to control job postings and block accounts once sensitive words are detected. The company was criticized in 2017 for failing to screen jobs involving a pyramid scheme, which reportedly lead to the death of a 21-year-old university graduate. (Beijing News, in Chinese)
Shi Miao, formerly vice president of Cainiao Logistics, was arrested in September, accused of receiving improper payments of several million yuan, according to an internal announcement made public last week. Shi, who began working at Cainiao in 2016, resigned from his roles at Cainiao in June. (Late Post, in Chinese)

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Okex founder is back, second digital yuan lottery: Blockheads

Tue, 24 Nov 2020 06:57:46 +0000

The founder of cryptocurrency exchange Okex re-appeared after a month after cooperating with authorities in an investigation. Xi Jinping called on countries to work together on digital currency standards. Goldman Sachs expects the digital yuan will reach 1 billion users in 10 years, while news surfaced of a second lottery to test China’s digital currency.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Nov. 18-24.

Crypto mogul emerges

The CEO of OK Group and founder of cryptocurrency exchange Okex resurfaced on Thursday after being unreachable for over a month, Bloomberg reported.

Xu Mingxing, also known as Star, posted on his Wechat moments that he had been cooperating with authorities investigating OK Group’s backdoor listing in 2017.

“The authorities have clarified the matter and proved me innocent,” Xu said, according to the report. The exchange said it expects to resume withdrawals by Nov. 27.

Okex paused cryptocurrency withdrawals on Oct. 16 because one of the key holders was unreachable, the exchange said. Rumors then began circulating that it was Xu.

Okex’s token, OKB, has gained about 19% since the news broke last week of Xu’s reappearance.

READ MORE: Major disruption at Okex, Filecoin strike: Blockheads

Xi urges cooperation on digital currencies

Countries need to come together to build standards for digital currencies “with an open and accommodating attitude,” Chinese President Xi Jinping said during the virtual G20 summit on Nov. 21.

The Chinese president said that digitalization is key to handling the global Covid-19 pandemic, but that a “digital divide” is emerging between countries that are pushing ahead with innovation and those that are being left behind.

1 billion users in 10 years

The digital yuan will reach 1 billion users in the next 10 years and account for 15% of China’s consumption, or RMB 19 trillion, in annual total payment value, Goldman Sachs said in a report.

The investment bank expects heated competition between banks and fintech companies for consumption transactions as the digital yuan is rolled out. (Coindesk)

Second digital yuan lottery

The city of Suzhou in eastern Jiangsu province on Dec. 12 will hold China’s second lottery to disperse and test the digital yuan, local media reported, part of ongoing trials.

Suzhou is one of four cities where China’s central bank digital currency is being tested, in addition to Xiong’an, Shenzhen, and Chengdu.

The testing in these cities had been limited to select individuals only until last month when Shenzhen held a public lottery and distributed RMB 100 million (about $1.5 million) worth of the digital currency to citizens in RMB 200 red envelopes.

The Dec. 12 giveaway will test new features, such as the digital yuan’s offline functionality, the report said. (TechNode)

READ MORE: Digital yuan rush and OTC crackdown: Blockheads

Chinese investors MIA

Bitcoin, the world’s biggest cryptocurrency by market cap, has been on a bull run. It is currently trading at an excess of $18,000—a historical high.

But Chinese investors are reportedly sitting out the bull run, potentially the result of a number of reasons including the ongoing cryptocurrency crackdown and the 2018 crash. (Decrypt)

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Second digital yuan lottery to launch in Suzhou: report

Tue, 24 Nov 2020 06:43:07 +0000

The city of Suzhou will launch the second lottery to distribute the digital yuan on Dec. 12 and trial previously untested features, Chinese media reported.

Why it matters: China is racing to be the first major country to issue a central bank digital currency. If successful, it could spearhead a new era of government oversight of the monetary system.

Details about the digital currency have been scarce, and testing has mostly been limited to select individuals.

READ MORE: INSIGHTS | China’s digital currency has a long way to go

Details: The city of Suzhou in eastern Jiangsu province will distribute 100,000 red envelopes. Still undetermined are key details such as the amount of digital currency each will contain, where users can spend the currency, as well as the method of distribution, the report said.

The Suzhou pilot will test the digital currency’s offline capabilities, which use Near Field Communication (NFC), a set of protocols for mobile devices to communicate in close proximity.
NFC allows users to send and receive money even when they are not connected to the internet, authorities have said.
Merchants in Suzhou’s Xiangcheng district, where the pilot will be conducted, have already installed NFC QR codes, the report said.

Context: In October, a district of Shenzhen distributed through a lottery RMB 10 million ($1.48 million) in 50,000 red envelopes of RMB 200 each. It was the first digital yuan test that was open to the public.

The lottery opened on Oct. 9, and the envelopes were usable between Oct. 12 and 18.
Shenzhen users were reportedly unimpressed by the digital yuan, saying it was very similar to digital payment platforms Wechat Pay and Alipay.
On Oct. 25, China’s central bank issued a draft regulation to legalize the digital yuan.
The new law has “opened up further space for pilot cities to test and build the digital yuan payment infrastructure,” Flex Yang, CEO of digital asset lender Babel Finance, told TechNode.
The digital yuan is being tested in the southern city of Shenzhen and Suzhou as well as Chengdu in southwestern Sichuan province and Xiong’an in northern China.
Until Shenzhen’s lottery, only individuals whitelisted by authorities had been able to participate.
More than RMB 2 billion worth of the digital yuan have been processed in more than 4 million transactions, Yi Gang, the deputy governor of the People’s Bank of China said on Nov. 1.

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Huawei sells Honor brand to state-backed group

Tue, 17 Nov 2020 07:18:25 +0000

Huawei is selling its budget smartphone unit Honor, the company said Tuesday, to a consortium that is majority-owned by the local Shenzhen government in a deal to keep the brand alive.

Why it matters: The sale is a direct consequence of US technology export restrictions imposed on the Shenzhen-based company over the past year and a half. The world’s second-largest smartphone maker has lost access to most high-end semiconductors as well as Google apps and services on the Android operating system crucial to its handset offerings.

The Honor brand buyer is majority held by the Shenzhen government. Huawei has been trying to shake off its connections with the Chinese state.
A change of ownership may help Honor regain access to semiconductors it needs. However, the company’s premium Huawei smartphone brand—more dependent on sourcing advanced chips—is still subject to US restrictions.

Details: Newly founded Shenzhen Zhixin New Information Technology will acquire all of the business assets of the Honor brand, according to a joint statement published in a local newspaper on Tuesday.

Shenzhen Zhixin New Information Technology is 98.6% owned by a company that is wholly owned by the State-owned Assets Supervision and Administration Commission (SASAC) of the municipal government in the southern Chinese city of Shenzhen, according to Chinese corporate information platform Tianyancha.
A limited partner holds the remaining 1.4% of the company, which is 62.34% held by an investment firm owned by the Shenzhen SASAC and the Finance Commission of Shenzhen Municipality.
Huawei said in its statement that more than 30 Honor agents and dealers, including retail giant Suning.com, co-founded Shenzhen Zhixin New Information Technology along with the majority owner. However, there was no public record of such entities holding stakes in the new Honor owner.
A Huawei spokesperson declined to comment when contacted by TechNode on Tuesday.
Huawei said in a statement Tuesday that its consumer business had been under “tremendous pressure” because of “a persistent unavailability of technical elements needed for our mobile phone business.” The US government previously imposed license requirements on global semiconductor foundries and vendors that ship to Huawei products which contain US technology.
“This sale will help Honor’s channel sellers and suppliers make it through this difficult time,” Huawei said.
The statement did not disclose details of the deal. Reuters previously reported that it might be an all-cash sale worth between RMB 15 billion (around $2.2 billion) and RMB 25 billion.

Context: Honor is a budget smartphone brand that Huawei established in 2013. It completes with other budget brands such as Xiaomi and Oppo while the Huawei brand sells to the high-end handset market.

The Honor brand now sells more than 70 million units annually, Huawei said.

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Crypto exchange crackdown, bond on hold: Blockheads

Tue, 17 Nov 2020 05:18:00 +0000

A government crackdown on cryptocurrency exchanges continues to wash over China’s crypto industry. A promised issuance of blockchain-based bonds by one of China’s big four banks was indefinitely postponed. The government reveals more numbers on the digital yuan rollout.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Nov. 11-17.

Crackdown continues

On Wednesday, $300 million worth of bitcoins moved from crypto exchange Huobi to Binance, following rumors that Huobi’s COO is missing while being investigated by the Chinese government. (Coindesk)

Rumors that Huobi COO, Zhu Jiawei, had been arrested began circulating on Chinese social media on Nov. 2.

READ MORE: Reports of Huobi COO arrest spurs whale transactions as token sinks

Huobi denied the allegations, but Zhu’s whereabouts are still unclear.

The fact that Xu Mingxing, one of the co-founders of crypto exchange Okex, had been arrested has only intensified speculation that Zhu is also under arrest.

On Nov. 3, another $400 million moved from Huobi to Binance, this time in the form of stablecoin Tether.

Another crypto exchange, Token Better, said in a Weibo post on Nov. 9 that it was under investigation by Sichuan authorities.

Miners out of power

Crypto miners are having trouble paying electricity bills, as the crackdown on crypto expands to the mining industry. Many have had their bank cards frozen by authorities and are unable to pay for electricity, without which they cannot operate their mining rigs.

About 74% of miners have been affected by the “frozen card tide,” an informal survey by crypto blogger Colin Wu found. (WuBlockchain, in Chinese)

M.I.A. blockchain bonds

On Wednesday, Malaysian digital asset exchange Fusang announced it would be issuing $3 billion worth of blockchain-based bonds in collaboration with China Construction Bank. The bonds could be purchased using bitcoins, among other forms of currency, and would mature in February 2021.

It would be the first time that a Chinese bank issued blockchain-based bonds, and the crypto world was alight with excitement.

On Friday, CCB clarified that it was not issuing the bonds, but was merely a sponsor, and that it would not be accepting bitcoins in exchange for the debt.

On the same day, Fusang said it would postpone the bond issuance without specifying why or when the bonds would eventually become available. (The Block)

Digital yuan updates

The digital yuan is in use in more than 6,700 locations around China, including transportation, government services, restaurants, and shops.

Transactions worth RMB 8.76 million ($1.33 million) using digital yuan were processed during a red envelope pilot program in Shenzhen. The digital currency has been used for RMB 1.1 billion in transactions in total across pilots nationwide.

The People’s Bank of China Digital Currency Institute has reached strategic agreements with Didi and JD.com, the article said, but there were no further details. (People’s Daily Finance, in Chinese)

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INSIGHTS | More European countries are turning their backs on Huawei

Mon, 16 Nov 2020 06:33:16 +0000

China’s Huawei is falling behind in the race to supply telecommunications equipment for 5G networks in Europe, its largest market outside of its home turf.

As Sweden decided in October to exclude Huawei from its next-generation mobile networks, seven out of 27 European Union member states have made moves to heavily restrict the Shenzhen company’s participation in the buildout of 5G. The list includes heavyweights like France and the UK.

Among countries that have not made decisions on Huawei, six have signed a declaration of intent to keep their networks “clean” of Chinese technology under the US “Clean Network” initiative. Signing the Clean Network initiative does not appear to bind countries to bar Huawei gear.

While regulators are driving the shift against Huawei, telcos are jumping the gun. In another five countries, telco operators have signed contracts to procure 5G equipment from Huawei’s competitors, Nokia and Ericsson, likely anticipating regulation.

(Image credit: TechNode/Wei Sheng)

Experts say that the Shenzhen-based company may eventually face de facto expulsion from Europe’s 5G networks as countries move to make their final decisions.

Huawei supplied around 50% of the equipment for Europe’s 4G networks, according to a 2017 report by the European Trade Union Institute, an EU-backed research center. However, the company now faces a much less welcoming environment for 5G—at least two countries have banned its gear outright, and a dozen others are considering heavy restrictions.

“Chinese vendors will play a minuscule role in parts of Europe’s mobile networks that are considered sensitive or critical,” Jan-Peter Kleinhans, director of the project Geopolitics & Technology at German think tank Stiftung Neue Verantwortung told TechNode.

Kleinhans said that he could imagine a full exclusion of Huawei equipment from Europe’s 5G core networks “in the long run.”

“Since the European Union put the onus on member states to objectively assess risks and adopt mitigating measures to ensure the security of 5G rollouts, most countries have increased their scrutiny of Huawei,” Jan Stryjak, associate director at market research firm Counterpoint, told TechNode. “Since no country would want to be alone in bucking the trend, solidarity seems to be the name of the game.”

European countries so far haven’t banned Huawei from all of their 5G core networks, a Huawei spokesperson told TechNode on Friday. “Huawei calls and pushes for the establishment of network security standards, and hopes all vendors to be subject to the same scrutiny.”

The company said its commitment towards the European market is “unchanged.”

The EU toolbox

The first step towards an EU-wide policy on 5G security came in January, when the EU Commission released the so-called EU 5G toolbox: A blueprint for how the 27 member states should evaluate 5G gear provider risks and trustworthiness.

The toolbox requires member states to assess supplier risk profiles on a national or EU level and apply restrictions on those deemed high-risk.

“The EU toolbox recommends a set of key measures that should be taken by all member states and by the Commission. These measures will apply to everybody, without targeting any actor or country in particular,” Marietta Grammenou, a European Commission spokesperson, told TechNode in an email.

The toolbox does not mention Huawei or China by name, but instructs national regulators to consider the “risk of interference by non-EU state or state-backed actors,” echoing US rhetoric.

Some countries have taken a middle-of-the-road approach: They have chosen to raise security requirements for all vendors in a way that amounts to a ban on Huawei without naming it.

The EU toolbox was rolled out after the US government embarked on a campaign to pressure allies into excluding Huawei equipment from their 5G networks, and marked a sharp shift from earlier guidance in EU security directives, where country of origin did not feature prominently as a concern.

Scholars have said that Huawei is owned and controlled by the Chinese state but the company maintains that it is a private company 100% owned by its employees.

The toolbox leaves the decision to ban Huawei up to member states: “While everyone who complies with our rules can access the European market, member states have the right to decide whether to exclude companies from their markets for national security reasons,” Grammenou said.

“Since mobile networks are considered a critical infrastructure with a direct impact on national security, member states are free to develop their own strategy and thus balance between costs and security,” Kleinhans said.

As countries set their own paths, a likely result is “a highly fragmented regulatory landscape,” Kleinhans said.

Security concerns

As more regulators and telecommunication operators put limits on Huawei, it’s getting more tempting to jump on the bandwagon. Europe’s military and intelligence community, meanwhile, has been voicing objections to Huawei gear, citing national security concerns.

“With no country wanting to be the odd one out, it wouldn’t be surprising if all member states follow the same trend,” Stryjak said.

While only two countries have specifically banned Huawei from future network buildouts, lawmakers and politicians are signaling that other European countries will likely follow their example or heavily restrict the company’s involvement.

In July, the UK banned Huawei from its 5G networks and ordered its telecommunication operators to remove existing Huawei gear from their networks by 2027, citing a US ban on the company in May that could cut the company off from the global semiconductor supply chain.

In a similar move, a Swedish telecom regulator said in October that potential grantees of the country’s 5G spectrum must not use products from Huawei in new core networks and existing Huawei gear must be phased out before 2025.

Sweden’s Huawei decision was made based on assessments by the country’s Armed Forces and the Security Service, the Swedish Post and Telecom Authority (PTS) said. On the announcement of the Huawei ban, Klas Friberg, head of the Swedish Security Service, said “China is one of the biggest threats to Sweden.” The country, Friberg added, must not forget when constructing its 5G network that China “is conducting cyber espionage to promote its own economic development and develop its military capabilities.”

Europe’s biggest economies and political epicenters, including Germany and France, have also indicated that they are turning against Huawei.

In October 2019, Germany’s spy chief Bruno Kahl said Huawei “can’t fully be trusted” to participate in the country’s 5G network rollout. While German Chancellor Angela Merkel was in September reportedly vehemently opposed to any restrictions that would single out Huawei, she faced a contingent of politicians who sought to effectively ban Huawei from German 5G networks. Later in the month, they appeared to have won.

In July, Reuters reported that the French National Cybersecurity Authority (ANSSI) had granted licenses to some operators that use Huawei gear. But the bulk of the authorizations were for three or five years, whereas most applications for 5G kit from European rivals Ericsson or Nokia received eight-year licenses.

Notably, the ANSSI informed operators during informal conversations, not stated formally in documents, that licenses granted for Huawei equipment would not be renewed once expired, according to the report.

The Huawei issue has been a flash point in escalating tensions between China and the US. For more than a year, the US government has continued to pressure its allies to exclude Huawei equipment. Not doing so, it said, poses the potential risk of Beijing using vulnerabilities in the company’s gear to spy on foreign 5G networks, an allegation Huawei has repeatedly denied.

A full ban on Huawei equipment would almost certainly be seen by Beijing as choosing sides, and fodder for retaliation.

Most recently, a UK oversight body said in October that Huawei had failed to adequately solve security flaws including a “vulnerability of national significance” in gear used in the country’s telecom networks despite previous warnings.

In April 2019, Vodafone told Bloomberg that it found “hidden backdoors” in the software that could have given Huawei unauthorized access to the carrier’s system providing internet service in Italy. The carrier said at the time that the issues had been resolved after it asked Huawei to remove them.

‘A matter of time’

Huawei has not disclosed how much revenue it earns from Europe. According to the company’s annual results, it generated RMB 206 billion (around $31.1 billion) from Europe, the Middle East, and Africa in 2019, or around 24% of its total revenue for the year.

Stryjak of Counterpoint said that there could still be a play for Huawei in the radio access network (RAN) market, the less sensitive area of 5G networks that connect end devices to core networks. However, he said, Huawei’s RAN business in the continent is still subject to the “suspicion that governments and operators now hold.”

“It seems only a matter of time before all of Europe’s core 5G networks are Huawei-free,” Stryjak said.

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Ant Group: the biggest IPO that wasn’t

Fri, 13 Nov 2020 19:53:00 +0000

The Ant Group IPO suspension is one of the biggest stories of 2020. TechNode editors have selected this article as one of our favourite longform analyses. Let us know if you would like to see more content like this.

Timeline

Aug. 25: Ant Group files for IPO on the Hong Kong Stock Exchange in the world’s largest expected offering. Dual listing expected on the Shanghai exchange.
Oct. 24: Jack Ma gives speech at Bund Summit; Ant Group IPO pricing is determined.
Nov. 2: Jack Ma and Ant Group management summoned for meeting with regulators; new draft regulations on microlending released.
Nov. 3: Ant Group IPO halted on both HKSE and SSE.

The product

If you need a refresher when it comes to Ant Group, may I suggest our Tech Buzz Ep. 74 on the company, which I dare say provides pretty good context into the history of the company, and why it has created the product lines that it has: CreditTech (39%), Payments (36%), InvestmentTech (16%) and InsureTech (8%). The names are self-explanatory, but you can always read the draft prospectus and/or our podcast transcript if you are uncertain.

Opinion

This story was originally featured in the Tech Buzz China “Extra Buzz” newsletter, a biweekly, paid newsletter on the latest trends in China tech by Rui Ma and Ying Lu.

Of these, we can neglect the Investment and Insure segments for now, because they are small and because they don’t pose a much of a “risk” problem. (They still can, as we saw in the case of Yu‘ebao imposing deposit and withdrawal limits so as to maintain stability and manage liquidity, but that was not an indictment of the product logic itself, more of a testament to Alipay’s distribution power, and unlikely to be on the level of “taking the entire economy down with it.”)

The important thing is that the revenue split of the business went from primarily payments (55%) to more Credittech in the span of three years, while growing at a clip of 30% per year on the overall business, which is on track to be more than $20 billion this year. Just over half of that growth has been contributed by the now largest Credittech business, which more than tripled in the last three years.

The Credittech business consists of two main products: Huabei and Jiebei, which mean “just spend” and “just borrow”, respectively, are Ant Group’s versions of the credit card and the small loan. Huabei is already the largest consumer credit line product in China, and it offers an annualized interest rate of a bit over 15%, the max under new rules by the Chinese government to cut down “usurious loans.” Jiebei is the same.

Together, they served over 500 million users in the last twelve months. Let that sink in for a second. Since these products are only available to Alipay users, which has annual active users of a billion, this means that half of all Alipay users used some kind of Ant Group credit or debt product in just the last year, but it also means that half of all internet users in China, period, used Huabei or Jiebei in the last year.

The context

Now, of course Huabei is a short-term credit product with an average outstanding balance of $300, so even if we’re looking at all 500 million people using it, so what? you say. Well, it’s not a problem until you look at the real distribution of Chinese incomes. As all of you long-term Tech Buzz listeners know, there are (at least) two Chinas, and the urban globe-trotting, latte-sipping, luxury-goods-addicted population gets disproportionate air time in the West.

But most people (read: something like 1 billion people) have annual household incomes of less than $15,000. In fact, the average real disposable income is less than $300 per month for two-thirds of Chinese provinces as of 2015. Sure, the population is mostly concentrated among the ten or so coastal provinces and municipalities directly under central government control a la Shanghai and Beijing, but you see the problem here. Even a measly $300 of credit is a lot for many parts of China. There is real concern that Ant Group’s products are reaching beyond the “creditworthy” and going well into the “subprime.”

When I say concern, I’m not talking about the business-level impact—which let’s assume Ant Group’s excellent finance and legal teams can manage—but the social backlash against such products in general. There’s a reason why the Ant Group IPO halt was mostly applauded by netizens in China. Most people considered these digital credit products a form of “predatory lending.” They were increasingly uncomfortable with the way these products were being advertised and “force-fed” to everyone, especially the most vulnerable. Ant Group was not the only or worst offender. It was the entire industry.

There’s a few background points you should understand about the consumer finance space in China. Credit cards are very new (fewer than 500,000 existed in 2002) and grew quickly, but still only one-fifth of the population has one. In fact, as of 2015, 60% of Huabei’s customers have never used a credit card. And while there’s been a lot done to foster inclusion, there’s still the fact that credit can be difficult to come by for many, especially those just starting out.

Which is why Ant Group’s assertion in its prospectus that “a typical Huabei customer is young and Internet savvy but has unmet consumption demand due to the lack of a credit card or insufficient credit limits” is a double-edged sword. Of course more credit, especially when made available at the point-of-sale as Ant Group’s products often are, is both a great growth hack and welcomed by consumers for the convenience factor.

And let’s suppose for a moment we don’t believe that there is any problem with the way Ant Group assesses credit risk. There is still the problem that that’s not how the Chinese public sees it. Maybe it’s because they’re new to debt, but a great number of Chinese people see the issue to be more and more young people spending themselves into ever deeper debt and ruining their future. It’s a popular viewpoint that’s not just confined to millennials and older.

The precedents

This is because pretty consistently over the past few years, there’s been a whole spate of issues when it comes to unregulated (or not well-regulated) lending businesses in China. Two episodes have been especially traumatic. One is the P2P lending fiasco we talked about in Episode 76 where a lot of people lost a lot of money (estimate: $115 billion) to dishonest or inexperienced operators. The government finally shut the whole thing down late last year, after repeatedly trying to regulate the industry and failing.

Of course, it didn’t help that some contained state-backed funds, and were presumed to be “safe” by folks such as this lady, who killed herself out of despair after losing all her savings. The second are the university lending scandals which resulted in students committing suicide when they could not deal with the mounting levels of debt they had accumulated, often compounded by the inhumane way in which collectors were blackmailing them, i.e., threatening to make public nude photos that the female students sent in as collateral.

To many people, these crises, both of which took several years to resolve and are still fresh wounds, shattered their confidence in the ability of lenders or lending platforms to rein in their greed, even at the expense of real lives lost.

This was corroborated by the platforms’ own actions. As the P2P fiasco showed, wherever there is opportunity, thousands will swarm in. E-commerce players such as JD had long followed Ant Group’s lead (last month I wrote about how JD Digits filed for IPO soon after Ant Group), and of course Baidu and Tencent are among the leading players. But Meituan, Didi, and even Weibo have jumped in head first.

Sina Weibo even had a promotion where it was advertised that folks who borrowed money on the platform would get their likes counted multiple times. That wasn’t strictly true but it got people furious at the platform for targeting young fans who were often part of communities that already spent too much money and time trying to get their favorite celebrities trending (another extremely controversial activity I’ve written about on Extra Buzz). And now they were going to go into debt for it!

And that’s a huge difference between P2P and microlending. P2P, for the most part, was not taken on seriously by the internet giants in China. Their vast distribution networks were primarily being leveraged for advertising purposes, not actual lending. Not so for microlending. To the people, it was as if, instead of here in the US where Google has moved to ban payday loan ads, Google decided to sell payday loans themselves. The internet giants, each with a few hundred million DAU, were going after the lending business under the guise of being a big data provider, and doing so with very little oversight.

Meituan’s microlending function. For all your local service needs! (Image credit: Technode)

The backlash

If you were on the ground in China, this would’ve been obvious. Ads were plastered everywhere. “Even on bus station terminals,” was a common complaint I read online and heard firsthand, implying that they didn’t think bus-takers could afford to live with debt. There were lots of spam phone calls and texts. If you open up any short video platform this year, you’ll be bombarded with ads or sponsored content that basically tells you you’re an idiot if you don’t borrow as much as you can (in Chinese).

In early October, when one Huabei commercial implied that a working-class father should use his credit advance to give his daughter a “presentable birthday,” the internet erupted in fury. Three weeks ago, Li Xueqin, a female standup comedienne phenom, made a viral joke where she planned to buy the entirety of Alibaba for Singles Day by borrowing funds on Huabei. Obviously, this makes no actual sense, but its popularity is just one more indication that the public had thought debt-fueled consumerism was getting out of control to the point of utter absurdity.

Of course, this is not to say that there weren’t folks who were on Ant Group’s side. As we covered on Tech Buzz, there is indeed a dearth of financing opportunities available to some very deserving borrowers, especially small businesses, a problem that has been highlighted for years. Jack Ma was not wrong that many parts of the Chinese banking system, with their “pawnshop mentality,” were not equipped to deal with them. But the 20 million small businesses borrowers only make up a minority (20%) of Ant Group’s loans outstanding. And there was middle ground: You could criticize the banks and appreciate Ant Group’s existence but still believe it needed to be reined in … There is a balance. And I think this is exactly what happened.

The speech

Let’s go back to Ma’s ill-fated speech at the Bund Summit in Shanghai on October 24, the gist of which I translated here. Effectively, he crucified regulators for being too old-fashioned and adhering to rules that were made for the post-WWII industrialized West, and specifically blasted the Basel Accords, a set of rules setting out capital reserve requirements for financial institutions, as medicine that is not appropriate for today’s China. He described the banks as having a “pawnshop” mentality and the regulators as being too academic, too far away from the market.

I used the word “audacious” to describe his words, but I was being diplomatic, which he was most definitely not. The public’s reaction was more negative than positive, although it hadn’t quite reached fever pitch.

Ma is famously controversial and is no stranger to getting slammed by public opinion, especially when he espouses views that are clearly “pro capitalist,” such as when he came out in defense of 996 overwork culture, so no one really thought it was a harbinger of things to come. It was just your usual “Jack being Jack.” As more information came out and people realized how much Ant Group’s Credittech business relied on leverage, especially after watching hyperbolic videos such as this one, their views would sour further.

Jack Ma at Bund Summit 2020. (Image credit: Caixin)

The Bund Summit wasn’t any old conference. Ma was one of the least important people there on the day he spoke (the first full day). The opening remarks were given by Wang Qishan, China’s Vice President, so you can imagine the caliber of attendees. Every current and ex-central banker of note was there, and select top-level international guests joined virtually, including the noted China bull, Ray Dalio. Ma was not introduced in his businessman capacity as co-founder of Alibaba and Ant Group, but instead as co-chair of the UN High-Level Panel on Digital Cooperation and United Nations SDG (Sustainable Development Goals) Advocate. Ant Group’s chairman, Eric Jing, by the way, spoke on the second day, and his presentation was on Ant Group and its achievements, particularly its partnerships with traditional banks. No other fintech competitor was invited. So if you’re thinking Ant Group doesn’t have the sector’s best government relationships and recognition from regulators… think again.

So I’m inclined to believe that Ma et al. were very much in the know about the proposed regulations coming down the pipeline. I mean, it is well known that he was prepared to go to jail when he started Alipay, even telling his team that they need to have a list of who else would go after him, should his presence be insufficient, and so on and so on.

Even if somehow he began to feel that Ant Group was too big to touch (which it really wasn’t), the P2P and university loan scandals would’ve been seen as warning signs, as would have been the various antitrust investigations earlier this summer (Update: they were pushed out with greater force on Nov. 10).

Ant Group should be interfacing with the regulators constantly, since it is such an important stakeholder and because it has so many other issues under negotiation with the government: 1) the transaction data it collects, for one, which is still proprietary; and 2) credit data, which it seems still has not been completely incorporated into China’s personal credit system (We talk a little about how difficult it has been in this episode on Ant Group).

It would also explain how pointedly Jack’s speech seems to have been aimed towards cutting down those regulations that were announced on the same day he was called in “for tea” (the colloquial term for an official dressing down). In fact, we also know that just this August, Ant Group secured a “consumer finance” license for $600 million. Not the most flexible license and mostly held by a handful of banks and retailers, it was a curious piece of news that was mostly buried in the IPO hype.

The new rules

But what were the regulations that were announced? Well, they are draft rules, and they are here. For Ant Group, the proposals of concern are: 1) limiting loan amounts to $45,000 per individual, or the average of the borrower’s previous three years of income, and $150,000 per business; 2) the microlender must put up 30% of the capital.

The loan amount limits do not affect Ant Group much, as its business currently stays within these limits (Jiebei, the loan product, maxes out at $45,000), but could be construed to limit future growth. The capital requirement is the real killer: In the case of Ant Group, Huabei and Jiebei are each microlending companies registered in Chongqing, and neither has put up remotely close to 30% of the capital.

Chongqing, a city in Western China, directly reports to the central government (one of four cities that do so, alongside Beijing, Shanghai, and Tianjin). Ma couldn’t get a license from anyone else back in 2014. According to the former mayor of Chongqing, Huang Qifan (who spoke immediately after Eric Jing at the Bund Summit, and is a finance VIP in China), he approved it then because as long as Ma wasn’t doing P2P, which he hated, he didn’t see a problem.

Not only Ant Group, but all of Ant Group’s competitors quickly established microlending companies there. Right after Ma’s speech, folks quickly dug out Huang’s other speeches, including this one originally from June (and republished Oct. 28) where he explained in detail how Ant Group was able to get to such a high effective leverage using so little capital.

TL;DR: the three regulatory bodies were not equipped to deal with internet-based micro-lending and while their rules regarding capital requirements were indeed observed, because the rules were made under the assumption that it would take months to deploy any capital raised/borrowed, not mere days, it actually allowed for the 100x expansion that Ant Group was initially able to achieve.

By the time the regulatory agencies were in agreement about what to do, Ant Group had already lent out tens of billions of dollars in debt, and most of that—98% is the most current measure—were sold to banks and other financial institutions in the form of ABS (asset-backed securities). Obviously, this needed to be halted.

Huang’s account seems to indicate that Ant Group voluntarily took down its leverage to 3x (it was offered 4x), again providing evidence that it is very much working in tandem with regulators, and not against. In Ant Group’s prospectus, it is noted that this action took place sometime in 2018. This would match up with what has been reported in Chinese media this week, which is that Ant Group only had sought $12 billion worth of ABS this year, with $8 billion already approved. (Of course, the implication is that they may be pulled as well, given the new regulations.) So … remember that the outrageous “100x leverage” has not, in fact, been available since 2018. It would explain why it was not part of the new draft regulations. That part had already been resolved.

A colorful video from Huang explains it thusly:

Ant Group had about 400 million in capital, which it took to the bank, and borrowed $800-$900 million against it, which is allowed, since banks can lend at a ratio of 1:2+. And now it has about $1.2 billion, which it went to the market and sold as ABS. But because there was no limit on how many times you could go to the ABS market, you could do this as fast as you could get loan it out, which for Ant Group, was a matter of days. That $1.2 billion became an ABS 40 times, which is how Ant Group was able to get $50 billion+ of loans with just $400 million in starting capital.

However, this doesn’t mean that Ant Group had filled in the gaping capital hole that it had created. The accepted leverage by the People’s Bank of China (PBOC) is 10x, and this had clearly exceeded that. Depending on how the new rules are implemented, Ant Group is looking at a capital shortfall of at least $20 billion, as laid out per Chinese analysts. That’s substantial, even for what would have been the world’s biggest IPO at $35 billion. With these new rules, it also makes sense that the market would have to seriously reconsider valuing Ant Group as a financial services company instead of a tech one, a fact it was pushing hard against during the IPO roadshow, despite already having been designated by the government as a financial holding company in September.

The regulators

I know there were some investors who were paying close attention and were already doubting the viability of the IPO in mid-October, privately voicing their doubts. But the speech brought it to the forefront. It required a response. In the week following, a series of three extremely articulate and pro-regulation op-eds appeared in the state-owned media for the financial industry. They were signed with pseudonyms but believed to be the work of Zhou Xiaochuan (ex-PBOC, essay here), Zhang Tao (International Monetary Fund), and Chen Yulu (PBOC, essay here). (There’re more too: non-anonymous ones such as that from Guo Wuping of the China Banking and Insurance Regulatory Commission, that call out Huabei and Jiebei by name as infringing of consumer rights.)

READ MORE: CHINA VOICES | The unsigned op-eds that foreshadowed Ant Group IPO suspension

I do not follow the work of these gentlemen and do not have an opinion one way or the other, but the content of the essays make it clear: There are many deficiencies in the current Chinese financial system, but that does not mean “Big Tech” (the piece believed to be written by Zhang uses this English word extensively) gets to do what it wants, even if we can acknowledge their contributions to society.

TL;DR: We like innovation, but let’s not overhype the magic of “big data,” and anyway, you’re still operating in financial services, and so that’s how you’re going to be regulated, like it or not. That’s because if we the regulators don’t step in, and something goes wrong, who will pay the price? Society will, the citizens will. Don’t you guys remember the Great Financial Crisis of 2008? A few parties won, yes, but all the rest of us? We lost. We were all set back. That’s not happening again, not on our watch!

And that is the chord that struck with the citizens. China has “beat Covid-19,” yes, for the most part, but it’s not like there’s euphoria. Most people are thinking: “It could be much, much worse.” Things feel fragile and there is little willingness to tolerate any risk that would precipitate an economic crisis, especially one that could have been prevented by the regulators.

Whether or not this is the actual right step to take—do these rules really do anything other than rein in fintech, and do they possibly push the country towards more shadow banking? —is not top of mind for the average citizen. It must have been, however, for the regulators. Ultimately, however, it seems that they decided that more regulation was better than less.

But why now?

And now we come to the biggest riddle of this all. I hope I’ve given you enough context on why the regulators wanted to step in, and why the citizens were in support. But that still doesn’t explain why the IPO was halted literally two days before the listing. As Reuters reported, there are folks with knowledge of the deal who say that it was due to outrage at Jack Ma’s comments. The regulators were personally offended.

I can believe that. Ma wasn’t kind. More importantly, as I quoted in my article for Tortoise, Western experts thought this was an indication of the government’s capriciousness and unreliability. China doesn’t know what it’s doing, as one op-ed columnist wrote, in the provocatively titled “Ant’s Suspended IPO Turns Jack Ma Into Ray Dalio’s Worst Nightmare.” (Dalio, by the way, responded with … nope.)

But was that how it was actually perceived on the ground in China and by those seeking to do business in China? I turned to the many China-focused investors I’ve now come to know as part of doing Tech Buzz, as well as some old friends from venture, and asked them if they felt the same. Nope. Hmmm, interesting, I thought. How about Chinese entrepreneurs and engineers? Normal everyday folk? Nope. No matter who I asked, no one thought it was to upstage Ma specifically, and everyone thought this was a good move.

Many thought his speech was made out of desperation, a last-ditch attempt to sway public opinion which failed. No one gets to Ma’s level in China without having some major cunning, they explained. The regulators would be people he knew well, not ones he was still feeling out. The hotheadedness isn’t indiscriminate. It was strategic. If it put him in the line of fire, that was because he knew which buttons he was pressing. A few even believed this was a stunt, fully coordinated by Ma and the regulators in order to legitimize Ant Group while crushing the rest of industry. (That seems too 5D chess for me.)

Either way, it didn’t matter, because there was every reason the government should step in, to stop the greed. On the part of Ant Group, and on the part of everyone in that microlending business. “Thank goodness the government did so before the public bore the losses,” they said, pretty uniformly. Kind of true. Even if you weren’t planning to buy Ant Group shares, you could’ve been an indirect shareholder of sorts—as Chairman Eric Jing noted at the beginning of the Bund Summit speech, “Hello to our big shareholder, the Social Security Fund, sitting in the audience.”

Furthermore, every single Chinese person I consulted said, “Why would the government need to go to such lengths to punish Jack Ma? Couldn’t they just say he had an issue with his taxes or do whatever it is they do?” As for why the last-minute halt, that’s simple enough—there are so many competing and conflicting interests among these agencies—it’s embarrassing that it got down to the wire as it did, but better to have reversed course than to have the public holding the bag for the sake of saving face and trying to get the Biggest IPO in the bag. Isn’t that interesting? You could use the concept of “saving face” in these two directly opposing ways, and explain the situation to your satisfaction.

It wasn’t surprising to have the public support the eleventh-hour halt. But it was surprising to me how many investors and finance professionals whose livelihoods depend on a well-functioning capital market thought the same. But as someone pointed out on Twitter, this could be one of those reflexivity things, a self-fulfilling prophecy. If the people putting money into the market and actively participating in it believed the regulators to be acting for their good, for the good of the market, for the good of society—then does it really matter what anyone else thinks?

Last bits

Rather than trying to figure out what exactly happened at Ant Group, whose valuation will almost certainly be discounted, maybe even halved, most folks I know have already moved on. After all, the IPO, if it is revived, is not likely occur for another six months, at least. There are many more immediate problems at hand. What’s the impact to Alibaba and others in e-commerce, all of whom benefited from the spigot of easy consumer credit? Other retail players? What about all the advertising-based platforms who were raking in the dough from all the microlending marketing campaigns? And so on and so on.

And there are so many other risks coming too. The regulators are clearly just getting started getting down and dirty with BigTech, as evidenced by the antitrust draft laws unveiled on Nov. 10. They’re now explicitly forbidden from all sorts of anticompetitive behavior that all the platforms have been engaging in for years, such as exclusivity or outright banning, and of course all manner of crazy subsidies. It was something I didn’t think was ever going to change. But what do you know, they’re here, and if there’s anything I learned from this Ant Group IPO halt? It’s that I’m not going to assume that I know how all the stakeholders are going to feel about something, not just based on what makes sense to me.

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Big tech stingy with toilets: report

Fri, 13 Nov 2020 09:26:19 +0000

Going to the toilet can be very difficult for employees in China’s big tech firms, claims an article that went viral on Chinese social media yesterday. Big tech offices don’t provide enough toilets for their staff, writes magazine Renwu.

Why it matters: It’s not the first time that big tech firms in China have been under fire for workplace practices, but it is the first time that toilets have been the issue.

China takes toilets very seriously. In 2015, the Chinese government launched a “Toilet Revolution,” to build public toilets across the country, pursuant of higher sanitary goals.

In the eyes of managers, toilets are the enemy of efficiency. The toilet is the last part of the management system of a large factory. What this system has to do is to occupy the body of the employee as long as possible, so that the employee can create more productivity per unit of time.
Chinese magazine Renwu

Details: The viral article is based on reports from employees in China’s big tech firms who report long toilet queues due to insufficient facilities. It alleges that some companies limit toilet facilities in a deliberate attempt to control employees’ bodies.

The problem is worst at Pinduoduo and Kuaishou, the article said:
“I try to drink as little water as possible every day. If I urinate, I go to the mall while eating lunch downstairs,” Liu Xiaoran, a Pinduoduo employee, was quoted in the article (our translation). The e-commerce app has increased staff in a Shanghai office sixfold in the last year, but toilets have not been added to match the influx of workers.
Similarly, short video app Kuaishou has expanded its staff from 1,000 employees in 2017, to 8,000 in 2018. In 2020, it has opened more than 10,000 new positions, but it has not added enough new toilets to keep up.
Kuaishou has reportedly even installed timers on top of the toilets.
Alibaba’s Ali Park in Hangzhou is not lacking in sanitary facilities, but employees told Renwu that during China’s biggest shopping festival, so many Alibaba employees work overtime that the toilets fill up.
As of writing, the hashtag “big tech’s toilet problem” has reached almost 42 million views on Weibo.

The worst experience is when you wait for a long time to enter, and find that the last colleague who rushed back to work forgot to flush.
Chinese publication Renwu

Context: Big tech firms first faced criticism over working conditions in March 2019 after employees took to Github to protest its “996” working culture; working from 9 a.m. to 9 p.m., six days a week.

Renwu magazine last blasted tech for working conditions in September, when an article accusing delivery companies of forcing drivers to take risks to meet tight schedules provoked outrage.

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Drive I/O | Will China regain leadership in the world EV race?

Thu, 12 Nov 2020 04:38:15 +0000

China was once unrivaled in electric vehicle (EV) sales. Now, Europe threatens its dominance.

It has been five years since China surpassed the US to become the world’s biggest EV market. Growth in China’s EV market was swift thanks to heavy government support in the form of subsidies. But this year Europe is set to dethrone China as the global EV sales leader, picking up critical momentum despite widespread disruption from the global Covid-19 pandemic.

Industry leaders in China have voiced concern about their country losing its early lead in the global race for EV dominance. In the first half of 2020, new energy vehicle (NEV) sales, including all-electrics, plug-in hybrids, and hydrogen-powered cars, plunged almost by half compared to the same time period in 2019. Meanwhile, in Europe, deliveries grew by 57% year on year.

Drive I/O

Drive I/O is TechNode’s monthly newsletter on the cutting edge of mobility: EVs, AVs, and the companies trying to build them. Available to TechNode Squared members.

China, a global manufacturing hub for automobiles, has historically produced entry level, low-priced cars, lagging behind the West in cutting-edge vehicle technologies. Now, facing a battle on two fronts, Chinese EV makers are attempting to shake this image as they gear up to expand abroad. There’s a lot at stake. They’ve already been beaten by overseas auto giants in their home market—or joined forces with them, casting a shadow on Beijing’s ambitions to create homegrown EV leaders.

Analysts expect growth in China’s EV market to recover in the next few years, although only marginally—high price tags and a lack of charging facilities remain key roadblocks to EV adoption. Still, as Europe collectively accelerates its transition towards low-carbon transport, it raises a number of questions. What do China and Europe’s EV markets look like? Will China’s head start in EV technology give it an edge? Can China really fulfill its goal of developing its own EV leaders?

EV sales forecast

In a big hit to Beijing’s EV ambitions, Europe overtook China as the world’s largest EV market earlier this year. Bolstered by generous cash incentives, Europe reported a massive surge in EV sales in the first half of 2020. Meanwhile, China was trapped in a downward spiral thanks to Beijing’s EV subsidy cuts last year and the economic fallout from Covid-19.

The sudden increase in European EV sales has triggered general unease among some of the biggest companies in China’s EV industry. One of the most outspoken figures is Zeng Yuqun, chairman of battery giant CATL.

Zeng said recently that China could lose its leading position if Europe continues beating China in EV investments over the next several years. Beijing’s investment into its own EV industry was about 30% of that of the EU last year, Chinese media reported (in Chinese) citing Zeng.

The EU’s lead is likely only temporary, say veteran industry observers. “Whatever short term sales advantage might take place in Europe, I don’t see that persisting. I expect China to gain the lead in terms of EV sales over the long run,” Stephen Dyer, managing director of global consultancy AlixPartners said last month during TechNode’s Emerge 2020 conference.

Although EVs only made up 3% of total car sales last year, the continent has aimed high and is forecast to increase that number to 20% by 2030 by German automotive research center, the Chemnitz Automotive Institute (CATI).

Experts see tremendous growth potential in China not only because it remains the world’s biggest auto market, but also because EV adoption is still in the early stages. Last year, only 1.2 million EVs were sold in China compared with the 25.8 million total vehicles sold—still lower than the penetration rate of EVs in Europe. The country also has a far wider offering of EV models ranging from entry level to luxury.

While experts forecast China will regain its position as the world’s largest EV market, sales could be headed for a prolonged period of slow growth until battery technology matures. One of the most obvious signs of a slowdown is that Beijing recently lowered its NEV sales goal to 20% from 25% of total car sales by 2025, as Reuters reported.

Internal fight

After a prolonged market slump which lasted an entire year, China’s NEV sector has managed a U-shaped recovery, reporting double-digit growth since July. Now, the market is dominated by two US automakers: Tesla and General Motors (GM).

Tesla’s locally-built Model 3 and GM’s Wuling-branded mini-EV recently became China’s best-selling EVs, outperforming a slew of China’s biggest automakers. Each dominated one end of the market: the post-subsidy price of standard-range Model 3 starts at RMB 271,550 ($41,195), while a tiny Wuling EV costs only a tenth of a Tesla.

Meanwhile, young, China-founded EV makers such as Nio and Li Auto reported better-than-average deliveries, outperforming traditional auto companies, although their sales made up only a fraction of the total EVs sold.

That’s not what China wants. In an industry development plan released last week, Beijing promised to become a global auto powerhouse, with Chinese car brands becoming “a major competitive force worldwide” in the next 15 years (our translation).

“There’s no way that the Chinese government is going to let foreign automakers lead the EV sector for a long period of time,” said Tu Le, founder and managing director of business intelligence firm Sino Auto Insights in an interview with S&P Global.

Chinese EV makers

Despite Tesla’s lead, China’s young EV makers are becoming an important emerging power. Nio, a major challenger to Tesla in China, this month surpassed GM in market capitalization as the world’s 7th most valuable automaker. Chinese original equipment manufacturers (OEMs)—companies that make cars or car parts for other brands—are now preparing for a big electric push, while more international carmakers are jumping into the fray.

SAIC, China’s biggest automaker, is reportedly planning to launch a new brand to compete with Tesla. Codenamed “L,” the secretive project is poised to establish a benchmark for the next generation of smart cars. Sources boasted to Chinese media that the way SAIC will use artificial intelligence technologies in these vehicles will be far ahead of its rivals. Rumors claim the project is led by the company’s top brass and an independent subsidiary will be formed to drive innovation.
Meanwhile, Peugeot Société Anonyme’s (PSA) Chinese manufacturing partner Dongfeng, in July launched a new high-end brand called Voyah. The company said it will begin mass producing its first EV under the new brand next year. The Hong Kong-listed automaker is currently seeking to raise a RMB 21 billion ($3.2 billion) war chest in a secondary listing on the Shenzhen stock market to ramp up vehicle development and production, reported Chinese media.
GAC is reportedly following suit, with rumors spreading that Toyota’s Chinese partner intends to spin off its EV unit for an IPO on China’s Nasdaq-style STAR market later this month.

German auto giants

Chinese automakers excel at making entry level vehicles, but competition for the lower tier market is heating up as German car manufacturers—known for leading engineering and technical innovations—begin experimenting with small, affordable EVs. Local manufacturing partners are gearing them up for entry into China’s low-cost EV segment.

A joint facility run by BMW and Great Wall Motors broke ground in China’s eastern Jiangsu province in June. Work on the factory comes two years after the companies laid out plans to launch an EV brand called “Spotlight” in 2023. Analysts expect the sub-RMB 100,000 model to share its components and manufacturing platform with Great Wall’s Ora-branded mini-EVs.
Mercedes-Benz early this year forged an alliance with Chinese auto giant Geely, planning to produce tiny, two-person mini-EVs in China under the Smart brand. The China-made Smart EVs are scheduled to go on sale worldwide in 2022.
Volkswagen has promised to invest €15 billion ($17.8 billion) to fund its ambitious plan to produce 15 new EV models with Chinese partners in the next five years, as it seeks to dominate EV sales in China. The German automaker earlier this month launched its made-in-China ID.4 crossover. The vehicle is the company’s first China-made EV based on its mass-produced modular electric vehicle platform The ID.4 starts at around RMB 250,000 after subsidies, according to a Reuters report.

Despite an early lead by Tesla and its Chinese peers, experts caution that it is too early to predict whether a domestic or foreign automaker will take pole position next year, given the complexity of the landscape. Still, as the market splits between growth in the entry-level and premium EV markets, whoever wins the customer experience will have a leg up over all the other players, Dyer added.

Global dominance?

With only a few thousand vehicles sold each month, Chinese EV makers like Nio, Xpeng, and Li Auto have yet to carve out a solid position in their home markets, but they’re looking to drive sales by expanding around the world. Some companies are shifting their initial plans to launch in America, opting for Europe instead given the escalating tensions between China and the US.

A culturally and politically diverse environment also means their domestic business models might not work in the new markets, and entering too many markets could divert management’s attention and resources, experts said.
“Europe… is very diverse, and therefore a marketing strategy in Germany might not work in France and Italy,” said Sino Auto Insights’ Le.

Lagging in EV tech

Chinese EV makers’ recent push to extend their presence overseas echoes Beijing’s ambition to build a world-class auto industry. However, what matters even more than explosive growth is China’s tech development, and its ability to sustain quality growth. China still needs to do a lot of heavy lifting to become the undisputed leader in EVs.

Despite being home to some of the world’s biggest battery makers, China still lags far behind Western countries in manufacturing crucial EV components such as electric engines and motor controllers.

For example, more than 90% of China’s IGBT modules, a key component in the motor controller for EVs, are sourced from overseas suppliers, as few domestic parts makers have the capability to manufacture them, industry insiders recently told China Automotive News (in Chinese). IGBT devices make up 10% of the production cost of an EV, French market researcher Reportlinker said in a report.

Chinese authorities are aware of the urgency of self-reliance for core technologies from a long-term perspective, with an official at the Ministry of Finance late last year raising the alarm over its reliance on overseas EV technologies during an industry conference. So far, China’s imports of key EV components are mostly from Europe and the raw materials used in manufacturing EV batteries are sourced in Africa, and therefore industry insiders believe the risk of a cut-off is limited.

After 10 years and more than RMB 1 trillion in government incentives, China has finally become a forerunner in the global EV race, but as it grows bigger, the problems it faces in its quest to regain its position as a global leader are increasingly apparent. In its latest industry development plan, Beijing has set the goal to join the global top league in the advancement of core EV technologies by 2035. The question is: can China make another leap this time?

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China widens antitrust rules to rein in internet firms

Wed, 11 Nov 2020 06:59:55 +0000

China’s market regulator on Tuesday proposed new rules targeting anticompetitive behavior to include internet companies, which have largely fallen outside of the scope of existing antitrust laws.

What’s changed: The new rules widened the reach of certain antitrust terms that previously only applied to the physical economy. One example was the definition of “relative market,” in which players may pose a “dominant position” if they control more than 50% of the market and thus fell under the jurisdiction of China’s Anti-monopoly Law. The law came into effect in 2008.

Legal experts have long criticized (in Chinese) the law because it was designed to regulate companies in traditional industries and in most cases did not apply to companies operating on the internet, an increasingly important segment of the country’s economy.
The new rules expanded the parameters for determining market share to include factors such as transaction volume, user base, and page views.
The rules will subject some of China’s biggest internet companies, such as e-commerce behemoth Alibaba, social media giant Tencent, food delivery platform Meituan, and ride-hailing app Didi Chuxing, to tougher regulations. China earlier this month halted an initial public offering for fintech giant Ant Group over regulatory concerns.
The draft (in Chinese), which is under public review until the end of November, also requires the consideration of factors such as network effect as well as market players’ scale and ability to deal with data. A draft revision of the Anti-monopoly Law unveiled in January, announced by China’s State Administration for Market Regulation (SAMR), included similar provisions. The SAMR also drafted the rules announced on Tuesday.
The draft guidelines say that companies which force merchants to “choose one of two” online marketplaces on which to sell their products are engaging in anti-competitive behavior.
Platforms that price their products or services differently according to customer purchasing power, consumption history, or user preference is monopolistic behavior, according to the draft rules.

READ MORE: China’s antitrust law doesn’t seem to apply to internet giants

Tech shares tumble: Share prices for Chinese tech companies tumbled Tuesday and Wednesday on news of the guidelines. Companies including Alibaba, Tencent, and Meituan saw their share prices dive at least 8% over the two days. The Hang Seng Tech Index in Hong Kong, where many Chinese tech stocks list, fell by more than 5% on Tuesday.

Bloomberg estimated that the shares slump wiped out more than $200 billion of value from Chinese tech companies.

Context: Before China’s top antitrust regulator proposed revisions to the antitrust law in January and the draft rules on Tuesday, the SAMR was already working to curb potential antitrust violations from internet companies.

The agency launched in January 2019 what is known as China’s first “internet antitrust investigation” into Tencent Music Entertainment’s dealings with the world’s three largest record labels after rivals complained that Tencent paid excessive fees for the initial rights and then passed those costs along to competitors.
However, the SAMR decided to suspend the probe in January, according to Bloomberg. The regulator didn’t disclose how far the investigation went and why it was terminated, but it came after Tencent Music reached a music licensing deal with Bytedance, a Beijing-based startup that runs Tiktok, in late 2019.

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CHINA VOICES | The unsigned op-eds that foreshadowed Ant Group IPO suspension

Mon, 09 Nov 2020 03:18:43 +0000

As fintech titan Ant Group prepared for a long-anticipated IPO, a struggle over the reach of regulation between founder and controlling stakeholder Jack Ma and financial regulators spilled into public view.

In the days leading up to Nov. 5, when the fintech giant was set to go public and raise an estimated $34.5 billion, a series of pointed attacks on Ant Group were published in financial media including the central bank’s official newspaper.

These articles called Ant Group “too big to fail” and a “systemic risk,” likening Ant Group to the sprawling financial institutions that brought about the 2008 crisis. One accuses it of tricking its customers in taking on extra debt. All argue that Ant Group should be required to follow the Basel Accords, the bank rules created in the wake of the 2008 crisis.

Some were rumored to be written by China’s top echelon of financial regulators. The people rumored to be behind the articles include Zhou Xiaochuan, the longest-serving governor of the People’s Bank of China—a figure who presided over China’s rise to a financial powerhouse and led the development of its modern financial system.

These articles likely provide insight into regulators’ intentions for fintech. Ant Group’s lending practices have emerged as a key issue for regulators: On Nov. 2, the China Insurance and Banking Committee released a draft regulation that would limit the amount companies like Ant can lend out to micro-borrowers.

READ MORE: UPDATED: Ant Group IPO delay and Jack Ma’s ill-timed speech

Ant Group: no need to regulate

In the last year, authorities have been making moves to raise the regulatory bar for Ant Group, among other fintech giants, and bring it closer to what banks have to comply with.

In September, the State Council released new measures to introduce licensing requirements for non-financial holding companies that are involved in financial services, and could potentially raise capital requirements for companies like Ant Group.

“If you were previously unregulated, it feels like a clampdown,” Andrew Polk, co-founder of research firm Trivium, told TechNode.

The People’s Bank of China (PBOC), which is chiefly responsible for “macro-prudential” policy to manage overall risk in the financial system, appeared particularly worried about Ant Group. In July, the PBOC asked banks to report lending data for H2 2018, the whole of 2019, and H1 of 2020. The central bank asked for separate reports on loans going through Ant Group’s platforms.

As Ant prepared for a history-making IPO, regulators were asking the company to accept being regulated more like a bank. This posed a threat to the sky-high valuation that would justify raising more than any company had ever asked from the markets.

But Ma believed that regulators misunderstood his business. Ant is more than a bank—as one of China’s two major online payments providers, it knows nearly everything about its customers—from rent payments to 3 a.m. e-commerce impulse purchases. Armed with this information, Ma believed, the company could assess risks with an accuracy banks could only dream of—making it safe for the company to operate at high leverage.

Ma thought the regulators were living in the analog past—and with weeks to go before the IPO, he decided to tell them in a very public setting.

On Oct. 24, Ma spoke at the Bund Summit, a Shanghai conference where some of the world’s top financiers discuss the state and future of the world economy, and China’s role in it. Speakers at this year’s conference included: China’s vice president Wang Qishan; the current and former governors of the PBOC, Yi Gang and Zhou Xiaochuan; the vice chairman of the China Securities Regulatory Commission, Fang Xinghai; high-level executives of China’s big four banks; former governor of the European Central Bank Jean-Claude Trichet; former UK Prime Minister Tony Blair; former US Treasury Secretary Robert Rubin; founder of US hedge fund Bridgewater Associates Ray Dalio; and former governor of the Bank of Japan Masaaki Shirakawa.

In this setting, Ma said: “The Basel Accords are more like a club for the elderly”—irrelevant to the “young” field of online finance. The accords are a set of international standards created in the wake of the 2008 financial crisis to reign in the banks and improve the stability of the world’s financial sectors.

The Basel Accords are about treating the diseases of the elderly with antiquated and overly complex systems. What we have to think about is: “What we should learn from the elderly?” The elderly and young people are not the same. The elderly care about whether there is a hospital, and the young people care about whether there is a school district.

The Alibaba founder said that tech companies are not afraid of regulation, but regulation using antiquated thinking:

We are not afraid of supervision, we are afraid of monitoring using the way of yesterday. We cannot manage the airport the same way as the railway station, and we cannot manage the future with yesterday’s methods.

China’s financial sector suffers from a “pawnshop” mentality, Ma says, that must be replaced with big data.

The pawnshop idea of mortgage cannot support the financial needs of world development in the next 30 years. We must use today’s technological capabilities to replace pawnshop thinking with a credit system based on big data.

The day after Ma’s speech, at the same event, Shang Fulin, director of the Economic Committee at the Chinese People’s Political Consultative Conference and the former governor of the China Banking Regulatory Commission, said that regulation must catch up with financial technology in order to reign in its excesses, making special notes of risks to the economy and privacy that big tech brings to the finance sector.

As modern information technology is more deeply involved in financial transactions, risk decision-making, internal control compliance, intelligent analysis, and other activities, information technology risks are more likely to lead to chain reactions such as operational risk, credit risk, liquidity risk, and so on. It is necessary to guard against the risks that may be brought about by the digitization of traditional business, as well as the risk of using technology to innovate in finance.

The ‘old men’ reply

A week after Ma’s now-infamous speech, he got a response: three prominent articles in state media laying out a case for stricter financial regulation on Big Tech, widely taken to represent the views of regulators.

The first shot was a forum comment highlighted by the online edition of Guangming Daily, an influential state newspaper on Oct. 26. Ma was “arrogant,” and “the speech was not an idle talk over tea, but a targeted one in the context of Ant Group’s IPO.” “Without this kind of regulation [the Basel Accords], the size of the IPO will definitely be proportional to the sound of explosive thunder,” the commenter wrote, drawing on an image frequently used to describe industries as out of control.

A week after Ma’s speech, three strongly-worded editorials criticizing internet companies’ involvement in finance, all attributed to pseudonymous “senior scholars,” were widely reprinted on Chinese media. The latter two were printed in the official newspaper of the People’s Bank of China, Jinrong Shibao (literally, “the Financial Times”—no relation to the salmon-colored London paper).

On Oct. 31, a pseudonymous op-ed called for strict financial regulation on big tech. Market insiders believe that the author, credited as “senior scholar” Zhang Feiyu, was an insider from the regulatory authority, Reuters China reported. We are a little confused about the place of publication—we’ve found reprints citing both independent financial media Caixin and the PBOC-linked Jinrong Shibao as the original.

“There was no supervision of the development of fintech in its early stages,” Zhang wrote, reminding readers of the scams and losses associated with peer-to-peer lending platforms, which rose and fell 2007-2018.

Financial regulatory authorities must dare to say “no” when supervising big tech companies—otherwise they will be easily misled by their technology, held hostage by public opinion, and fail to conduct effective supervision, which will eventually distort the market and generate financial risks.

On Nov. 1, a second warning about unregulated fintech appeared in Jinrong Shibao under the name Zhou Jueshuo, emphasizing the systemic risks associated with fintech.

Rumours on social media identify the author as Zhou Xiaochuan, who served as the governor of the PBOC for 16 years. Using pseudonyms when writing publicly is common practice among government-affiliated public intellectuals, especially household names like Zhou Xiaochuan.

The article did not single out a target, but attacked internet companies that participate in the financial sector. In the first two paragraphs of the main body, the author makes note of the benefits of internet companies’ involvement in finance, mentioning “Alibaba, Baidu, Tencent, and JD.com.” It credits Ant with bringing hundreds of millions of people into the financial system.

Other than these name drops at the top, the text only brings up Ant Group as an example of a big tech company that has become too big.

The article argues that big tech firms in the finance sector must be reigned in, and outlines a strategy for regulators. The article blames big tech for:

Using data to gain unfair advantages, effectively creating monopolies that cannot be easily managed by traditional tools against unfair competition.
Evading financial regulation by obfuscating the true nature of businesses and products, and pushing the limits of business licenses to provide financial services.
- “If a large Internet company provides a large number of financial services but claims to be a technology company, it is evading regulatory oversight, will be more prone to disorderly expansion, which causes hidden risks, and is not conducive to fair competition or consumer protection.”
Complexity of technology makes it harder to identify risks and determine responsible parties if something goes wrong.
- “It is difficult for regulators to understand high-tech ‘black boxes’ and their hidden risks.”
Data collection practices that pose risks to consumers through data leaks and algorithmic discrimination.
Posing serious systemic risks to the financial system—with the possibility of a domino effect if they fail.

Large Internet companies are [said to be] “too big to fail.” Ant Group counts over 1 billion individual users, over 80 million institutional users, and 118 trillion digital payment transactions. Its listed market value may set a historical record. If it [Ant Group] faces financial difficulties, it will cause serious contagion risk.

The section concludes:

Due to the wide network coverage of large internet companies, the convergence of business models and algorithms, the contagion of financial risk will speed up and may evolve into systemic risk in a very short time.

To solve these problems, the author argues fintech giants must be regulated in the same class as banks, but grants that authorities must update their systems for a tech-driven era. He calls for rules to protect consumer rights and prevent systemic risk, requiring fintech companies to seek licenses and accept oversight like traditional financial firms.

Finally, on Nov. 2, a third essay appeared in the PBOC newspaper, this time credited to “senior scholar” Shi Yu. The Nov. 2 essay singles out Ant, accusing it of exploiting retail borrowers.

The author starts by saying that the “‘so-called’ innovative Ant Group” is “the institution with the highest degree of cross-industry sprawl in the world.” Rebutting Ma, it continues to argue that “‘Yesterday’s regulation’ is not useless, and the Basel Accords are not outdated.”

The essay attacks the lending models of Ant Groups’ virtual credit card Huabei and its money market fund Yu’ebao, saying that what it calls “inclusive finance” is actually very costly to consumers:

The annualized interest rate when borrowing from [Ant Group virtual credit card] Huabei was once close to 24%, and has dropped recently, but is now about 15%. At the same time, the Huabei borrowing mode on Alipay’s Yu’ebao feature… raises the interest that borrowers need to pay from the 5%-6% of a bank loan to 15%.

It also accuses Huabei of manipulating users’ consent and tricking them into taking on debt:

At present, Huabei’s lending interest rates are disclosed in the form of daily interest rates, and are not converted into annualized rates, as required by regulations. Borrowing is often set as the default choice during periods such as Singles Day, and customers are easily deprived of other payment options.

Finally, the article urged regulators to examine Ant Group’s structure to require it to place financial services like Yu’ebao and Huabei under properly licensed online banks.

The moral

Probably the strangest state media response to Ma’s speech was the victory lap from official news agency Xinhua.

On Nov. 2, Ma and two other top Ant Group executives were called in for a talk with regulators, while regulators issued new rules about microlending.

That evening, Xinhua rendered a verdict on the Ma affair via the medium of roundabout bedtime podcast. Xinhua’s “Evening read”—a podcast offering “beautiful writing, every evening around 10 p.m.”—selected an essay titled “You can’t just say anything, you can’t just do anything; people can’t just do as they please.”

Ma is not mentioned by name, but he appears by rebus in a painting accompanying the article, which shows a horse-shaped cloud floating over a leafless, dark forest. The billionaire’s name can be translated as “horse cloud.”

An essay on the importance of self-control, read aloud on a Xinhua bedtime story podcast the evening Jack Ma was called to speak to regulators, evoked the billionaire’s name through rebus with a painting by the Japanese artist Kaii Higashiyama. Ma’s name is composed of the Chinese characters for “horse” and “cloud.” (Image credit: Xinhua)

In a gentle voice accompanied by light piano and strumming guitar, host Wu Weiling tells listeners: “You can have different opinions, but you don’t have the right to throw stones.”

“Everything comes at a price,” Wu said in words highlighted in red in the accompanying transcript. “If you don’t have the capital, don’t do as you please.”

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Ant Group to refund $2.8 trillion in Shanghai IPO bids

Thu, 05 Nov 2020 18:06:02 +0000

Ant Group will begin this week refunding Shanghai investors who had placed orders for what was expected to be a record-breaking public listing on the city’s technology board, but instead became a record-breaking suspension.

Why it matters: The suspension on Tuesday of Ant Group’s widely anticipated public offering has brought uncertainty among markets and investors. Retail investors had bid a total of $2.8 trillion for shares of the company traded in Shanghai.

The Shanghai Stock Exchange said that the company may no longer meet disclosure requirements after changes in regulations. Ant Group then cancelled its listing in Hong Kong.

Details: The fintech giant will issue refunds to Shanghai investors beginning Friday until Monday, according (in Chinese) to a Shanghai Stock Exchange statement on Thursday, but didn’t specify the method.

Ant Group and the principal underwriters will refund the application monies and brokerage fees, as well as interest at the bank deposit rate for the time period that the funds were on hold.
The company began returning $167.7 billion to Hong Kong investors on Wednesday, and said it expected to complete all refunds by Friday.
Refunds to Hong Kong investors were set to take place in two batches, starting with those whose applications were unsuccessful before moving onto successful bids. No such details for the Shanghai refunds were released.
The Shanghai Stock Exchange’s refund announcement said that Ant Group and the lead underwriters had decided to suspend the Shanghai public offering, while the initial announcement said it had been the bourse’s decision.

Context: Ant Group had been facing increased regulatory scrutiny, particularly over its microlending platforms and position in the digital payments market, when the group’s controlling shareholder Jack Ma told a crowd of Chinese regulators and financiers that China suffers from overbearing regulation.

After the billionaire’s speech, authorities called him and two other top Ant Group executives for a “regulatory talk” on Monday.
New measures on microlending were announced on the same day, and Ant Group’s IPO was abruptly halted on Tuesday evening.
Chinese media reported that it will be at least six months before the company is able to relist.

READ MORE: UPDATED: Ant Group IPO delay and Jack Ma’s ill-timed speech

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UPDATED: Ant Group IPO delay and Jack Ma’s ill-timed speech

Tue, 03 Nov 2020 18:48:09 +0000

Ant Group’s suspended $34 billion dual listings in Shanghai and Hong Kong may have resulted from a combination of regulators’ increased intolerance for risk alongside recent bold statements from Jack Ma, the founder of parent company Alibaba Group.

Here’s what sources told TechNode.

The sequence of events

On Oct. 25, fewer than two weeks before Ant Group was set to go public in a blockbuster dual listing, Jack Ma told a crowd of China’s top financiers and regulators in Shanghai that the financial sector was overly regulated.
The country has “no systemic risk” because “there is no system,” China’s most recognizable tech billionaire told the crowd which included regulators who have have been working to minimize risk in the financial sector.
China has “inertia” in its thinking, “innovators must make mistakes,” and there are too many “documents” that regulate what people can and cannot do, Ma said.
With only three days to go for Ant Group’s Hong Kong debut, the company’s chairman and CEO, Eric Jing, was summoned on Monday to a meeting in Beijing with the People’s Bank of China, China Securities Regulatory Commission, and the foreign exchange regulator.
The company said the meeting was a “regulatory talk” but gave no further details. “Ant Group is committed to implementing the meeting opinions in depth,” it said.
On the same day, China’s insurance regulator issued new rules on microfinancing—a large swathe of Ant Group’s business—which tightened collateralization requirements. A Bloomberg report suggested that capital requirements for Ant’s lending business are the focus of the regulatory clampdown.
The new rules will require Ant to fund at least 30% of the loans it gives out from its own balance sheet. This would render many of its loans noncompliant as Ant currently funds only 2% of its loans.
Late Tuesday, just a day after the closed-doors meeting, the Shanghai Stock Exchange abruptly suspended Ant Group’s debut on the Shanghai bourse, saying there had been “significant changes” in the regulatory environment the company operates in.
The company issued a statement just hours after the Shanghai bourse’s announcement seeking to assuage regulators.
It will “overcome the challenges” and “live up to” principles of “stable innovation, embracing regulation,” it said, and is waiting on regulators to make further decisions on its listings.
Ant Group also clarified that the pausing of its Hong Kong listing was a direct result of its Shanghai suspension.

Ignoring the signs

Ma’s speech in Shanghai was just the tipping point in a long struggle between Ant Group and China’s top financial watchdogs, according to experts TechNode spoke with.
Chinese regulators have been working to de-risk the financial sector since 2017, and Ant Group has been a key target of this campaign. “It’s really the culmination of something that’s been brewing for a while,” said Andrew Polk, co-founder of research firm Trivium.
De-risking the financial system is one of Xi Jinping’s top policy priorities, along with poverty alleviation, and a reduction of pollution, Polk said.
In the past year, dozens of new regulations have been enacted aimed at increasing oversight of fintech companies, including lending, payments, and liquidity requirements.
The central bank is reportedly looking to launch an antitrust investigation into Alipay and Wechat Pay’s dominance over the digital payments sector.
The People’s Bank of China updated its mandate just days before Ma’s speech to make special reference to digital payment providers and “important financial companies”—language that was absent in its previous iteration.
“It’s straight out of a regulator’s playbook, but an industry that hasn’t been regulated in the past doesn’t like this,” Polk said.
Traditional banks have not been fans of the fact that Ant Group and Webank have been allowed to grow into de facto banks in a relatively relaxed regulatory environment. They have been pushing regulators to increase their oversight of fintech companies, a source told TechNode.
The China Banking and Insurance Commission is discouraging lenders from working with Ant Group to provide loans, which don’t fulfill capital requirements set out in the draft regulation announced on Monday.
Ant’s credittech business brings in almost 40% of its revenue, according to its IPO prospectus.
At the same time, China’s central bank has been working on the digital yuan, aiming to level the playing field for traditional banks in the digital payments sector, sources told TechNode.

The error of flamboyance

In this environment, Ma’s boldness in rejecting regulators’ efforts to tighten controls stepped on the wrong toes. The Alibaba chairman’s cult of personality doesn’t sit well with conventional Chinese leadership, which leans on Confucian values.
When pressured, Chinese tech entrepreneurs are expected to defer to leaders, who will usually let them off if they show respect, as indicated by past events.
In 2018, Bytedance CEO Zhang Yiming issued an apology for going against “core socialist values” after regulators clamped down on its popular news-gathering app Neihan Duanzi.
But the Monday meeting apparently did not appease regulators, who moved to shut down the Ant Group listing. “Ant came out with its tail behind its legs,” Polk said.
Experts said it is unlikely that the suspension will be permanent, but it is unclear how long it will take for the company to come to an agreement with Chinese authorities.
Ant Group’s valuation is also a key consideration for regulators. On Friday, Ant said that investors had placed orders worth $2.8 trillion in its Shanghai listing, a phenomenon likely to trouble authorities intent on reducing market speculation.
A concurrent clampdown on cryptocurrency executives has been evolving in the last few weeks, with reports of top brass for Chinese crypto exchanges being arrested. “It all fits together in the policy of de-risking,” Polk said.

Updated: added regulator’s capital requirements for Ant Group’s loans to the first section, and that regulators are discouraging lenders to work with the company in the second.

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Binance in trouble, blockchain security standard: Blockheads

Tue, 03 Nov 2020 08:30:27 +0000

A Forbes report accused Binance, the world’s largest cryptocurrency exchange, of attempting to deceive US regulators. China got its first blockchain security standard, and processed digital yuan transactions almost doubled in the last month. Bitmain closed another big sale of Antminers to the US, and a new cross-chain protocol was integrated to the BSN.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Oct. 27-Nov. 3.

The Binance papers

An allegedly internal Binance document obtained by Forbes said that the cryptocurrency exchange banned from China in 2018 was trying to set up a complicated corporate structure to deceive US regulators and aid customers in evading US laws, the site said.

Binance denied the accusation. The founder and CEO of the company took to Twitter to question the document’s authenticity.

FUD. The statements and accusations in the article are incorrect. The whole article hinges on a 3rd party document. The said document was not produced by a @Binance employee (current or ex). Anyone can produce a “strategy document”, but it does not mean Binance follows them. 1/7 https://t.co/AnIUJLXWTZ
— CZ Binance (@cz_binance) October 29, 2020

The document in question dates back to late 2018, when Binance was setting up a US subsidiary, according to Forbes. It speaks of a plan to set up a company, dubbed “Tai Chi Company” in the document, to distract US regulators while Binance was working on regulation workarounds.

Binance US, the exchange’s on-the-books subsidiary, would go along with US compliance requirements and would not allow highly leveraged derivatives trading, the document said. Trading crypto derivatives is highly regulated in the US.

Meanwhile, the “Tai Chi Company” would feign interest in compliance, while it was teaching investors on its platform how to evade geographical restrictions and trying to find technological workarounds. The company would return revenues to Binance as licensing fees.

Binance is the world’s largest cryptocurrency exchange, trading on average $10 billion per day. (Forbes)

Government blockchain moves

Chinese regulators released the first industry standard for security in blockchain technology. The standard was implemented on Oct. 1 and includes 62 provisions and has been approved by the Ministry of Information Technology. (National Internet Emergency Response Center, in Chinese)
The government of Chengdu in the southwestern province of Sichuan released a plan to integrate blockchain in government and become a blockchain development hub by 2022. The city plans to use blockchain for traffic control, hazardous waste management, supply chain traceability, cross-border trade, intelligent manufacturing, and agriculture, as well as develop a testing ground for the digital yuan. (Red Star News, in Chinese)
China should be proactively participating in the setting of global digital currency and digital tax standards, President Xi Jinping said in a statement on Saturday. (Coindesk)

The digital yuan

The governor of the People’s Bank of China, Yi Gang, said digital yuan pilots have processed RMB 2 billion ($299 million) in 4 million transactions so far. On Oct. 6, the central bank’s deputy governor said RMB 1.1 billion had been processed in 3 million transactions. (BNN Bloomberg)
Huawei’s newest smartphone, the Mate 40, will come with a built-in digital yuan wallet, the company said in a Weibo post. The wallet will feature “hardware-level security, controllable anonymity protection, dual offline transactions,” Huawei said. (Huawei’s official Weibo)

New blockchain partnerships

Bitmain closed a deal to sell 10,000 of its newest cryptocurrency mining rigs to Marathon Group, a US-based crypto investing company. Bitmain signed a contract for 10,500 Antminer S19s with Marathon Group in August, and another for 17,595 with Core Scientific in June. (Globe Newswire)
Poly Enterprise, a permissioned cross-chain protocol, became available to developers on the Blockchain Services Network today. (Poly Network official Twitter)

READ MORE: EXCLUSIVE: China’s BSN to test cross-chain interoperability in October

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Reports of Huobi COO arrest spurs whale transactions as token sinks

Tue, 03 Nov 2020 07:29:12 +0000

Hundreds of millions of dollars worth of cryptocurrencies were moved through Huobi in a few transactions and the exchange’s token plummeted Monday following reports that its COO had been arrested.

Why it matters: Huobi may the latest target for Chinese authorities cracking down on crypto exchanges, and it is feeling crypto investor jitters.

There has been no evidence proving that the COO had been arrested, and the company has denied the allegations. But markets reacted nonetheless.

Rumors: Huobi COO Zhu Jiawei was reportedly unreachable on Monday evening, and rumors of the his arrest began swirling around Chinese social media. Local media reported on the rumors a few hours later.

The exchange said that Zhu was on a flight returning from a conference in Guizhou and that he would be attending a meeting in Beijing on Tuesday morning.

Markets: At around midnight, Twitter accounts that monitor whale activity, or large cryptocurrency transactions, reported that about $400 million worth of the stablecoin Tether had moved to Huobi.

Whale transactions of Bitcoin meanwhile have moved the world’s most valuable cryptocurrency out of Huobi, some reports claimed.
The movement of large sums of money spurred speculation that insiders, privy to the exchange’s inner workings, are rearranging their funds.
Around the same time that the Tether whale transactions were reported, Huobi issued an official statement saying that it was operating normally.
Huobi’s token plummeted to $3.60 on Monday night, then regained about $0.20 during a short interval. It has been falling since. In the last 24 hours it had lost 13% of its value.
It is unclear whether the Huobi token’s activity is related to the rumors of the arrest or are a result of market volatility. Crypto markets have been falling in the last 24 hours; Bitcoin is down nearly 2% and Ethereum has fallen by 5.8%.

Context: On Oct. 16, Okex paused cryptocurrency withdrawals because one of its founders had been arrested.

READ MORE: Major disruption at Okex, Filecoin strike: Blockheads

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EMERGE 2020 | The future of healthtech in China is B2B

Tue, 03 Nov 2020 06:17:54 +0000

The Covid-19 pandemic has brought users and funding opportunities to healthtech startups, but the industry is shifting away from B2C models due to high user acquisition costs, according to an early-stage investor speaking at TechNode’s Emerge 2020 conference on Thursday.

Many B2C healthtech startups, like Ping An Good Doctor, have followed a model popularized by China’s e-commerce platforms: They don’t care how much capital they spend on user acquisition, thinking that eventually it will pay off, said Linda Li, managing director and co-founding partner of investment firm Vickers Venture Partners.

Some startups have chosen B2B models, which Li said will win out for three reasons: Firstly, “They are more capital efficient.” Secondly, once you convince doctors to use your platforms, patients will follow doctors’ orders, she said.

Li also thinks that the B2B model will help democratize healthcare. The success of B2B models will lead to the development of infrastructure, especially that which creates information transparency. This infrastructure will serve as the base for democratized, patient-centric healthcare.

Mark Zhang, partner at law firm King & Wood Mallesons, said during the discussion that a major inflection point for China’s healthtech boom came two years ago in the form of comprehensive regulation.

“Before 2018, there was no nationwide framework to regulate online healthcare,” even though the industry had been growing for 10 years, he said. Platforms couldn’t really go into healthcare so the industry was focused on tasks like making appointments with hospitals. “The law was against anyone providing healthcare solutions online,” even though “everybody knew that the major platforms were playing around in that area,” he said.

Starting in 2018, three pieces of regulation cleared the way for healthtech innovation, Zhang said. The first allowed hospitals to use online platforms to collaborate; one hospital can assist another hospital’s activities. This could “solve the imbalances of resources across regions,” he explained. A second regulation allowed offline hospitals to provide online solutions, using their own physicians and nurses.

The most exciting piece of regulation opened the door to companies to enter the healthtech space, Zhang said. Under this law, any company can set up an “internet hospital” so long as it works with an offline hospital. “This internet hospital can draw doctors and nurses from various hospitals to practice on this platform,” he said.

In 2020, Covid-19 drew a lot of patients to online consultation services. In February, many patients didn’t feel that hospitals were safe. Even in late March to early April, when the Covid-19 outbreak was under control in China, “it was still very troublesome to go to the hospitals as they had to face more complicated procedures” because of the pandemic, Li said.

Some hospitals saw their business drop by 70%, then losses were gradually reduced to 50%, she said. But some hospitals say their business is still down about 30%, Li said.

“If people are not going to hospitals, they must go somewhere. This somewhere is online,” she said. With the support of China’s advanced delivery and logistics infrastructure, online prescription services have boomed along with online consultations, she said.

“Entrepreneurs and startups have been having a very easy business development time.”
Linda Li, managing director of Vickers Venture Partners

Following this surge in user growth was a jump in revenue, and funding for startups is now triple the average size compared to three to four years ago, Li said.

Better funding has helped startups make their case to hospitals, she said. Credibility and trust are very important to Chinese hospitals, who “don’t want to talk to small startups. If capital is really pushing some companies to be leaders, that solves some of these problems,” Li said.

At the same time, regulators are cautious: They “want to make sure the door is opened slowly and gradually,” and different cities are experimenting with different regulations, according to Zhang. Regulators are trying to find the right balance between growing the sector and protecting consumers.

Cybersecurity and privacy have emerged as key areas of compliance risk for healthtech companies. Many companies in healthcare, especially pharmaceutical, are attracted to China because of its immense data resources, Zhang said.

But multiple layers of new laws regulate data security and privacy, from data collection to storage and handling. Patient records, population data, personal information, and genetic data come with different compliance requirements, making data processing a tricky business, Zhang said. These days, “Data as a resource is very attractive but you have to be careful.”

Li agreed:“The data actually belongs to the hospital,” so a startup that wants to provide services must set up a server in the hospital instead of using servers or external servers.

READ MORE: INSIGHTS | High tide for healthcare apps?

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EMERGE 2020 | China’s EV battery reliability a lingering question

Mon, 02 Nov 2020 08:02:16 +0000

China will maintain its leadership in the global clean energy vehicle industry powered by its mass production of cheaper electric vehicle (EV) batteries, according to an industry expert, though it will struggle to surpass technological advances from Asian peers.

“Technically, Chinese battery makers are catching up to the Korean and Japanese battery suppliers. The technology gap is getting smaller, though reliability is still sometimes a question compared with Korean and Japanese batteries,” Stephen Dyer, managing director of global consultancy AlixPartners, said Thursday on the sidelines of the TechNode Emerge 2020 event in Shanghai.

Large Chinese battery manufacturers are among the world’s top producers by volume. However, its low-cost providers still lag Asian peers in technology, resulting in issues such as combustion risk. Beijing has pledged to emphasize quality growth over speed—earlier this month the central government approved a new energy vehicle (NEV) action plan for the next 15 years featuring innovation in key technologies such as EV batteries.

EV battery fire issues linger

China’s battery improvements are a priority amid safety concerns about EVs catching fire. In the latest example, government-backed WM Motor on Wednesday announced a nationwide recall of 1,282 EX5 SUVs after four reports of battery fires in a month.

The company said that impurities in the battery cell production could cause short circuits and potentially, fires. ZTE Gaoneng Technology, a four-year-old battery supplier affiliated with Chinese telecommunications giant ZTE, later acknowledged it was involved in two of the incidents, while WM Motor has not revealed the suppliers for the other two incidents. The EV company works with multiple battery makers to keep prices low, including Chinese battery giant CATL.

WM Motor is the second Chinese EV maker that has issued a recall due to combustion risk. The move could be very costly and overshadow its plan for a listing on Shanghai’s STAR Market scheduled for early next year. Nio last summer recalled 4,803 crossovers due to a battery pack vulnerability which could result in a short circuit, costing the company RMB 340 million ($49.4 million). CATL is Nio’s only battery pack supplier.

Thanks to government support, China leapt into the EV battery big leagues. Four out of the the top 10 battery suppliers in the world are Chinese, according to figures from market research firm SNE Research.

Chinese firms are also catching up on battery performance, with CATL’s latest battery pack reaching parity with Panasonic’s 2170 batteries used in Tesla’s Model 3, which travels more than 500 kilometers (310 miles) on a single charge.

However, the CATL lithium ion batteries sparked a handful of EV fires this year, followed by reports that multiple automakers were abandoning the technology. Panasonic batteries, on the other hand, are known for reliability and performance, thanks to the company’s vast number of patents which prevent overheating.

Advanced EV battery capacity

Nickel, cobalt, and manganese (NCM) batteries, including CATL’s NCM 811 battery, are naturally more unstable. A growing number of automakers in China are thus turning to lithium-iron-phosphate (LFP) batteries from a safety and cost perspective, Daniel J. Kollar, head of Automotive & Mobility Practice at business development consultancy Intralink Group, told TechNode.

Some progress has been made in China. BYD’s newly designed LFP battery has enabled a driving range for its flagship sedan model, the Han, similar to Tesla’s Model 3. The company, however, does not manufacture the batteries for other automakers, signaling production capacity limitations. The average density of LFP battery cells meanwhile are less than half that of Panasonic’s NCA batteries, Reuters recently reported citing a Panasonic executive.

“Great things are happening with LFP for certain applications, but it just can’t compete with NCM with regards to long-range applications,” Kollar said.

Looking ahead, analysts expect NCM battery technology, which accounted for more than 60% of total EV battery demand last year, will remain the dominant battery type in China due to a higher energy density that offers a longer driving range. Chinese makers are looking to innovate the structural design of EV batteries to improve safety without undermining performance and increasing cost. “There is an argument in the industry now about whether this should be done at the cell level or the pack level,” Kollar added.

An evolving industry

A cheap battery producer in the past, Chinese battery makers are moving up the industry value chain by building more technologically advanced capacity to replace obsolete facilities. As the country moves toward its goal of becoming a clean energy vehicle powerhouse, a wave of consolidation is expected in the coming years.

With billions of RMB invested in the EV industry, China has dominated the world’s production of lithium-ion EV batteries, accounting for 77% of total capacity this year, according to figures from Bloomberg NEF. However, only 30% of capacity has been utilized, with lower-end battery makers seeing falling demand, Chinese media reported last week citing Zheng Mianping, a member of Chinese Academy of Engineering.

“We’ve seen a lot of companies came in and failed in the Chinese steel and solar industries, and the battery sector is going to follow that trajectory,” Tu T. Le, founder and managing director of business intelligence firm Sino Auto Insights, said during the panel discussion.

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China’s cyber watchdog targets mobile browsers

Tue, 27 Oct 2020 16:57:53 +0000

China’s Cyberspace Administration has cracked down on eight mobile browsers, ordering them to stamp out clickbait and misinformation.

Why it matters: By targeting the largest platforms, the authorities are sending out a signal to other smaller browsers that they may be next in line. Platforms that do not change their practices likely face suspensions or bans.

Details: The order affects Alibaba-backed UC, Tencent’s QQ, Huawei, Qihoo’s 360, Tencent-backed Sogou, Xiaomi, Vivo, and OPPO.

The announcement says (in Chinese) that browsers have spread “chaos” by amplifying unofficial media sources and disseminating news that violates regulations.
It criticizes browsers for editorializing articles to misrepresent policies that impact people’s livelihoods and spreading rumors.
It also singles out problems like creating clickbait through exaggeration, sadfishing, or smearing. On QQ’s homepage on Oct. 27, for instance, one top post was “No hope! Western media: No saving Huawei.”
Also under fire is information that is vulgar, graphic, or gossipy and against “socialist core values.”
Browsers must submit plans on how they will rectify their practices and conduct self-scrutiny by Oct. 28. They will also have to submit reports on the results of these assessments and their content operation system specifications by Nov. 9.
Huawei and QQ have already issued statements promising to clear up their browsers of questionable content.

Context: Unlike the US where services are protected from liability for content published on their platforms, China holds companies accountable for content that appears on their home pages. Mobile web browsers wield distinct power: 872 million people in China access the internet through their mobile phones, and browser home pages have become key to their news-reading habits.

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Digital yuan law, rig maker Ebang pushes abroad: Blockheads

Tue, 27 Oct 2020 05:41:17 +0000

The People’s Bank of China (PBOC) issued a draft regulation that updates its mandate for the age of fintech—and laid the foundations for the central bank’s digital currency. Cryptocurrency rig maker Ebang continues to expand abroad, looking to get into financial services. Authorities cracked down on a money-laundering scheme using Tether, while some government agencies showed, once again, that they are willing to use blockchain technology for governance.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Oct. 20-26.

Laying down the law

On Sunday, the PBOC released a draft regulatory framework that updates the central bank’s mandate for the digital age. The regulation (in Chinese) is open for public comment until Nov. 23.
The draft legalizes the digital yuan with a simple provision: China’s official currency, the renmimbi, comes in both physical and digital form, the law says.
According to an article released by state-owned newspaper Global Times commenting on the new regulation, the digital yuan will not be rolled out nationally for another two to three years.
The regulation states that the central bank’s jurisdiction include “important” financial “infrastructure” and “companies,” spelling out its authority over China’s sprawling digital sector. This language was absent in the previous iteration of the PBOC law, passed in 2003.
The law makes special reference to “non-bank” digital payment providers, which include Alipay and Wechat Pay.

READ MORE: INSIGHTS | China’s digital currency has a long way to go

Global ambitions for Ebang

Crypto mining rig manufacturer Ebang is looking to establish a digital asset management platform in Australia. The firm established a subsidiary in the country and has applied for licenses with the local regulator, according to a company statement.
Ebang has been spreading its wings around the world. It set up a subsidiary in Singapore in August, looking to set up a cryptocurrency exchange.
In pursuit of a global digital asset platform, it set up another subsidiary in Canada in September, and acquired a licensed New Zealand broker and wealth management firm in October.

Tether crackdown

Last week, the Chinese central bank announced it cracked down on illegal activity tied to the cryptocurrency Tether. According to a statement posted on the PBOC’s Wechat account, 77 people were arrested and three sites were shut down, with the help of local authorities.
The suspects laundered RMB 120 million ($17.95 million) of illicit gambling profits, using the stablecoin for some of the illegal activity. Tether is pegged to the US dollar at a one-to-one ratio.

Okex almost back to normal

Crypto exchange Okex resumed some of its operations following a shutdown on Oct. 16 when one of its founders became involved in a police investigation.
Fiat-to-cryptocurrency as well as peer-to-peer transactions were working again, the exchange said on Oct. 21. Withdrawals remain on pause.

READ MORE: Major disruptions at Okex, Filecoin strike: Blockheads

Government-backed blockchain

A spokesperson for the China Securities and Exchange Commission said that blockchain technology will be used in the future for debt and equity registration. (Sina Finance, in Chinese)
A blockchain-based health code registration system developed by FISCO BCOS allowed 17 million tourists to travel between Macau and Guangdong since May, it said on Oct. 21. (Cointelegraph)

Filecoin update

Digital file storage token Filecoin got off to a bumpy start after its Oct. 15 launch. Chinese miners found that the late reward system made mining too capital-intensive, and unplugged their mining machines. Filecoin decided to allow for mining rewards to be released faster than the original six-month payoff window.
The coin’s price started rising over the weekend and it hit a high of $40 on Monday. It is now trading at $35.

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Now on Beijing’s wishlist: quantum technology

Fri, 23 Oct 2020 10:18:19 +0000

Every one or two months, China’s Politburo, an elite group of China’s top 25 leaders, holds a “study session,” inviting external experts to lecture on topics ranging from archaeology to finance to legal systems. But on Oct. 16, they covered a somewhat novel topic: quantum technology.

The session followed a series of lectures on emerging technology over the past few years. In December 2019, the group studied blockchain technology. A year before that, artificial intelligence (AI).

The country’s most powerful leaders’ study of these technologies highlights their strategic importance on the national agenda. China has already ramped up efforts to support blockchain and AI development, and experts believe quantum technology will be next.

Chinese President Xi Jinping, who chaired the Oct. 16 session, said that “developing quantum science and technology is of great scientific and strategic significance,” state-run newspaper China Daily reported Monday.

Markets react

Quantum technology is an emerging field of information technology that relies on the principles of quantum mechanics. Its fields of application range from computing to cryptography and sensors.

Xi’s remarks created an uproar on China’s stock markets. Several companies on Shenzhen’s startup board that investors believe are utilizing quantum technology on Monday saw their shares jump by 20%, the board’s daily limit.

The stocks include component maker Hongfeng Group, which said it is developing quantum-based cybersecurity software; cloud service provider Guochuang Software, which has invested (in Chinese) in a company specializing in quantum measurement instruments; and cybersecurity firm Blueton, which said it had been working on a “quantum communication terminal,” but Chinese media reports the company is mired in debt.

During his speech, Xi also said the central government should “speed up efforts to create a favorable policy environment for the development of quantum science and technology” and “ensure the investment in the field” to drive local governments and enterprises to “increase input,” according to state news agency Xinhua.

What is quantum technology?

Quantum technology is a broad term for efforts to harness the principles of quantum mechanics, which describes minuscule objects that exist in a haze of possibility on a micro-scale instead of in a specific place at a specific time, to create more accurate navigation and timing systems, more secure communications, and more powerful computing.

One of the most promising applications of the technology is quantum computing, which experts say would provide an “explosive boost” to traditional computers. However, the quest for the commercial use of quantum computing is still at an early stage.

Quantum computers are made of quantum circuits that run quantum bits, or qubits, which are similar to the bits in traditional computers. Unlike bits, which represent a logical state with one of two possible values (often represented as either “1” or “0”), the qubits can be in a “1” or a “0,” or in what is known as a superposition of both “1” and “0,” potentially improve the computing power in a massive scale, according to a 2017 article by Mark Jackson, scientific lead of business development at Cambridge Quantum Computing.

However, qubits can only be made under extremely low temperatures and the circuits that house those qubits are hard to scale in a production environment.

Follow the leader

Political endorsements for emerging technology are a powerful force in China’s capital markets. In October 2019, when members of the Politburo were given a lesson in blockchain, Xi made calls to promote the “deep integration” of blockchain with China’s economy and to “to increase China’s influence and rule-making power in the global arena.”

More than 85 blockchain-related stocks rose by 10% the Monday after Xi’s speech. Ten percent is the daily limit on the main boards of the Shanghai and Shenzhen stock exchanges.

Central and local governments in the country moved quickly to put money in blockchain. In December, the southern Chinese island province of Hainan announced plans to set up a so-called blockchain pilot zone and a government-backed fund of RMB 1 billion (around $150 million) to underwrite local blockchain companies.

In February, Chinese media reported that 22 of mainland China’s 31 provincial-level administrative divisions had mentioned blockchain in their 2020 government work reports—official documents that lay out governments’ work plans of the year—vowing to harness the technology to promote digital transformation and industrial upgrades.

Then, in July, Beijing’s government released a blueprint of its plan to implement a blockchain-based programmable government. The plan aims to build a unified blockchain-based framework for digital governance, facilitate data-sharing between agencies and businesses, and enable cross-departmental and cross-regional collaboration.

Xi’s blockchain speech and his quantum speech on Friday both called for comprehensive “policy support” for the two technologies, Qi Aimin, a law professor at Chongqing University, told TechNode.

Qi said that favorable policies towards quantum technology could be similar to those seen for blockchain, and could include setting up tailored industrial zones to incubate quantum companies, similar to Hainan’s approach to blockchain.

Quantum technology today

“China’s quantum science and technology development still has many weak links and faces multiple challenges,” said Xi during his speech. Nevertheless, China has hit several milestones in developing quantum technology ahead of the rest of the world.

In 2017, the country launched the world’s first quantum satellite and built a 2,000-kilometer quantum fiber link, which facilitates the transmission of information in the form of qubits, connecting Beijing and Shanghai. The country is also building (in Chinese) what officials claim will be the world’s largest quantum laboratory in Hefei, capital of China’s eastern Anhui province, which is set to complete by the end of 2020.

In September, a Chinese physicist claimed to have built a quantum computer that is one million times faster than Google’s Sycamore, a model which completed in around 200 seconds a calculation that would take the world’s fastest computer 10,000 years. His claims were widely reported by local official media but were later retracted by him and his team.

Quantum leapfrog

Unlike AI and blockchain, quantum technology is far from commercialization—analysts predict (in Chinese) it will take ten to 15 years. But what it has in common is the potential for leapfrog growth.

In industries where Chinese industries lag international rivals, disruptive breakthroughs create opportunities to start a new race from scratch. China’s policymakers have already taken the approach in the automobile sector. The country, not a traditionally important car manufacturing hub, pursued an aggressive strategy to support electric vehicles (EV) starting from 2009. Now, China is the world’s largest EV market and home to some of the world’s biggest EV makers.

Semiconductors have been a pain point for China for years, more so as the US has moved to cut off equipment maker Huawei from many vital components. The world’s largest market for semiconductors, it has pledged to produce 70% of chips it uses by 2025. But industry groups have said the goal is “unrealistic.” Semiconductor market research firm IC Insights said in a May report that China will produce only 20.7% of chips it uses in 2024, up only 5% from 2019.

But if qubits replace bits, all bets are off. China is not currently a global leader in quantum technology, as Xi acknowledged. But when the new races start, China may have a head start.

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Sweden bans Huawei, ZTE from 5G networks

Wed, 21 Oct 2020 05:04:53 +0000

Sweden has banned Chinese telecommunications equipment makers Huawei and ZTE from participating in its 5G network rollout, the country’s top telecoms regulator said Tuesday.

Why it matters: The development shows European countries are tightening restrictions on Chinese suppliers for their 5G infrastructure, signaling the US government’s campaign to eliminate Huawei equipment from Western communications networks is gaining traction.

Swedish company Ericsson, a key rival to Huawei, has been selected to supply parts for 5G core networks belonging to China’s three state-owned telecom companies.
The decision may mean that Sweden could face retaliation from China. Ericsson relies on China to produce some equipment it designs and China’s Ministry of Commerce is mulling export controls that would prevent the company from sending products it makes there to other countries, the Wall Street Journal reported in July citing people familiar with the matter.

Details: Sweden’s top telecom regulator Post and Telecom Authority (PTS) is set to hold spectrum auctions on Nov. 10. The government body said in a statement Tuesday that potential license grantees must not use products from Huawei and ZTE in new central function installations.

Existing infrastructure for central functions containing products from Huawei and ZTE must be phased out before Jan. 1, 2025, the regulator said.
PTS said in the statement that the conditions were based on assessments made by the Swedish Armed Forces and the Swedish Security Service.
Klas Friberg, head of the Swedish Security Service, said Tuesday that “China is one of the biggest threats to Sweden” and that the country must consider when building the 5G network what he called the Chinese state’s cyber espionage conducts.
Huawei said in a statement to TechNode Wednesday that it is “surprised and disappointed” by the Swedish government’s decision and that “there is not any factual ground to support allegations of Huawei posing any security threat.”
“We find the exclusion of Huawei simply based on groundless presumption unfair and unacceptable,” the company said. It also called on Sweden to “reevaluate” the decision.
ZTE did not respond to a request for comment on Wednesday.

Huawei’s future in EU: The US government has been campaigning its allies to avoid Huawei equipment from their networks since last year.

So far, some US allies such as Australia and Japan have imposed de-facto bans on Huawei. Some European countries like the UK and France decided to phase out Huawei equipment over the next few years.
Many Western European countries, which are mostly member states of the European Union (EU), including Germany, Italy, and Spain, are on the fence.
The EU’s stance on Huawei is relatively clear—it has released a “toolbox” and guidelines on how member states should evaluate 5G gear provider risks and trustworthiness without mentioning any specific country or company. However, its member states are taking various approaches.
The toolbox and guidelines are not legally binding, so the results depend on how countries interpret and implement them. One example is Belgium, whose major telecom operators had chosen European vendors Ericsson and Nokia to build their 5G networks. This approach avoided enraging Beijing and largely followed Washington’s will. But the question is whether this will become the norm.
“Huawei’s expulsion from all of Europe’s core networks seems to be a question of when, not if,” Jan Stryjak, associate director at market research firm Counterpoint, wrote in an article published in September.
Stryjak told TechNode in a recent interview that he said as much because “more and more countries are opting to remove Huawei from their core networks in place of alternative vendors like Nokia or Ericsson.”
“Since no country would want to be alone in bucking the trend, solidarity seems to be the name of the game, which is bad news for Huawei,” he said.

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Major disruption at Okex, Filecoin strike: Blockheads

Tue, 20 Oct 2020 04:57:32 +0000

It was a dramatic week for China crypto. Okex, one of the largest crypto spot and derivatives exchanges, halted withdrawals with an ambiguous explanation of a police investigation involving their founder. The Filecoin mainnet launched on Thursday, then five of its largest miners went on strike two days later.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Oct. 13-20.

The Okex drama

Operations for Okex, one of the world’s largest cryptocurrency spot and derivatives exchanges, is facing major disruptions as Chinese authorities investigate its senior-level management.
On Friday, Okex said that the exchange’s private key holders were unreachable because they were cooperating with a police investigation. Unable to authorize transactions, the exchange paused cryptocurrency withdrawals, but assured users that their funds were “safe and not affected.” (Okex press release)
The exchange refused to give details on the investigation. Jay Hao, Okex CEO and co-founder, said on Weibo it was due to a “personal issue,” unrelated to the exchange.
Right before the announcement, accounts affiliated with Okex withdrew large amounts of Bitcoin, Ethereum, and Tron coins. (Coindesk)
Later on Friday, Caixin reported that founder Xu Mingxing, known as “Star,” had been arrested a week earlier and had not been seen in the company, citing two sources close to the exchange. (Caixin, in Chinese)
Another report from a Chinese media outlet claimed that the investigation has to do with Ok Group’s backdoor Hong Kong listing in 2019. The report also said that authorities had released on bail another two executives who were arrested along with Xu. (Mars Finance)
Xu was part of a fraud investigation by Shanghai authorities in 2018. (Sina Finance)

The Filecoin launch

The much-anticipated mainnet of decentralized data storage network Filecoin launched on Thursday. Within a day, the price of Filecoin soared past $110, making it the third-largest cryptocurrency in the world by market capitalization.
Chinese investors have been all-in on Filecoin since 2018. Chinese miners accounted for 80% of the mining power on the coin’s testnet.
But on Saturday, five of Filecoin’s largest miners went on strike to protest the network’s economic model. Mining company Zhihu Cloud was operating only 276 out of its 8,000 mining machines on Saturday. (8btc, in Chinese)
Under the Filecoin model, miners are required to stake coins as collateral before being allowed to mine. Rewards were released over a period of six months once a block is mined.
In response to the protest, Filecoin changed its model to release 25% of the reward once a block had been mined. (Coindesk)

READ MORE: Filecoin fork, US and UK outspend China: Blockheads

The collaborations

Ticket platform Demai, an Alibaba subsidiary, will issue and sell tickets for the 2022 Asia Games in Hangzhou through blockchain, Chinese media reported. The organizers struck an agreement with the platform in hopes that blockchain technology will help battle counterfeits. (China News)
One of China’s largest petroleum producers, Sinochem, unveiled a blockchain-based warehouse receipt system. (Ledger Insights)

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INSIGHTS | Data localization is going global

Mon, 19 Oct 2020 07:34:09 +0000

Back in the 1990s, people thought the internet would abolish borders. “Cyberspace does not lie within your [governments’] borders,” wrote author and internet activist John Perry Barlow in 1996.

The idea of a borderless network has held on. “One of the great things about the internet is that it does not have national borders. When a company in Tokyo sends a digital file to a company in New York, the data does not have to clear customs,” wrote the New York Times in a 2015 op-ed.

While that may hold for Japan and the US, files going from Beijing to Brussels now often do have to pass digital customs inspections.

China’s model of data localization, and the associated 2017 Cybersecurity Law, has been the subject of criticism and confusion. But now it seems that Beijing was on the cutting edge of a trend.

Bottom line: China is continuing to develop a system that limits where companies keep data, and what they can send abroad. Many multinational companies—and Washington—don’t like it, but they’d better get used to it: this idea is catching on around the world.

What is data localization? Data localization regulations require that data be stored and processed on computers in a particular place, usually within a country’s borders, as opposed to letting them flow freely through data centers around the world.

This might not mean all data and always. Laws often specify particular types or data that must be kept domestically, and leave room for regulators to grant exceptions.

Why localize?

Security: Data localization schemes often cite “security” or “privacy.” But experts say that localizing data alone doesn’t mean enhanced security or privacy. Whitehat hackers contacted by TechNode said that domestic adoption of security and privacy best practices is a bigger issue.
Jurisdiction: Data localization does help governments regulate data, and proponents often cite the risk that companies will move data to less-regulated environments.
Protectionism: Data is a valuable resource—so countries hope keeping it in country will give homegrown tech companies a competitive edge.

Regional styles: There are three main approaches to regulating cross-border data flows, said Nigel Cory, who studies cross-border data flows as Associate Director of Trade Policy at the Information Technology and Innovation Foundation, a think tank based in Washington DC.

The US has little to no regulation on data flows. It also advocates against data localization in other countries.
EU regulates cross-border flows based on privacy and security assessments.
Chinese law treats data both as a valuable resource and a national security priority. The Chinese model asks: “What does data localization give the government from an economic perspective, but also a social and political perspective?” Cory said.
Legal models vary widely around the world, from bans on cross-border flows of locally harvested data (Russia) to requiring domestic storage of backups (Indonesia).

China’s approach: The landmark 2017 cybersecurity law set the scene for data localization in China, but elements of data localization date back to 2006, Cory said.

Under the 2017 law, “critical information infrastructure” providers, such as telecoms, utilities, energy, e-government, finance, must get permission from public security officials before transferring data overseas.
Information on the military, finance, energy, transportation infrastructure, and medical services, are among the law deems “critical.”
Personal data related to over 500,000 people must also be stored within China.

Slow roll-out: Details on how the law will be implemented on different sectors are still being hammered out in accompanying laws and regulations.

The key term “critical information infrastructure” is not clearly defined in the law.
In the absence of clear guidance, many multinationals assume their data will be included.
Figuring out the details takes time:, in 2018, University of Hong Kong and McGill law researchers found that cross-border transfers of genomic data were subject to ten different regulations and guidelines, enacted from 1998 to 2017. Another one has been rolled out since.

READ MORE: Dust has yet to settle two years after China’s landmark cybersecurity law

Opening up: China is experimenting with relaxed localization rules in new free trade zones, said Xiaomeng Lu, an internet policy analyst at political risk consultancy Eurasia Group.

“There’s always internal debate about how to regulate new technology. When the internet first came about there was discussion about ‘how do we maintain party control of the country whilst also leveraging this for GDP growth?’,” Lu said. Now, the government is trying to strike a similar balance with data.

The plan (in Chinese) for an FTZ in Hainan, revealed in January, talks about making outbound flows of personal data “more convenient.”
A Shanghai FTZ plan released in April spoke of experimenting with cross-border data flows and governance—including a mention of providing access to the “international internet.”
One of the reasons why the central government is letting such experiments run is the digital yuan, Lu said.

Assessing the impact

Additional costs: Data localization costs international companies money. They have to build several local data centers to ensure data is backed up, Lu told TechNode. These costs are adding up as more countries adopt data localization schemes, meaning ever more local data centers.

AI headaches: Compliance becomes more complicated for global firms who use AI-empowered analytics in their products.

A financial firm, for example, that uses AI to detect and block suspicious transactions relies on the fact that data from different countries can be combined. A resident of Shanghai whose bank card is used in Nairobi, the system that looks over data globally will trigger some sort of alert.
There are ways to get around this problem, “firms may be able to find some imperfect work-arounds in terms of replicating the analytics services locally and indirectly feeding non-specific data through to their global analytics platform,” Cory said.
But these solutions are “hugely complicated and costly.” For some firms localization workarounds are the “biggest cost in terms of how they manage their architecture,” he said.

Competitive advantage: Chinese companies are more comfortable with data localization abroad, seeing their experience with it at home as an advantage.

“Chinese companies take the cost and complexity of setting up an ex-China infrastructure as the cost of doing business,” sometimes even viewing it as a competitive advantage in other countries that also enact data localization, given the reluctance of some foreign firms to do the same, Cory said.

Local champions: Data localization requirements have helped China’s domestic data center industry flourish, as large multinationals work with local firms in joint ventures to run data centers in China.

In the cloud space, AWS has partnered with two companies in Beijing and Ningxia. Chinese users of Apple Icloud servers will find their data stored on a Guizhou company’s servers. Microsoft Azure cloud services are hosted on Beijing-based 21Vianet’s data centers.

The opposition: In China, lobbying against data localization is a top priority for multinationals, Lu said.

“Security and privacy often are cited as justification for data localization but, as we’ve seen time and again, hackers and cyber criminals are not limited by lines on a map,” a spokesperson for IBM told TechNode, adding that “forced data localization does nothing to make data more secure.”
US big tech has lobbied hard against data localization. Google’s Sundar Pichai sent a letter to the Indian ministry of IT while India’s cybersecurity bill was undergoing public consultation. Facebook joined Google’s anti-data localization push in Vietnam. Mastercard and Visa convinced Indonesia to water down data localization requirements.
When China’s Cybersecurity Law was announced in 2016, the EU Chamber of Commerce in China cautioned that it could“hinder foreign investment and businesses operating in and with China.”

More than data: There is no evidence that big multinationals have pulled out of China due to increased cloud costs. But data localization has other consequences that could make doing business in China less appealing.

When Apple moved its Chinese user data to Guizhou, it was criticized for moving the encryption keys that crack them open.
“Storing data locally might also mean storing or using locally mandated encryption keys, which undermines their global cybersecurity architecture. This potentially exposes communication on their platform and undermines their global products,” Cory said.
This was not enough for the California giant to abandon one of its biggest markets, but other companies might be not be willing to expose their encryption keys and security architecture to Chinese authorities, one expert said.

Global trends

Loco for localization: China is not alone in pursuing data localization. Regulations started popping up around the world before China’s 2017 cybersecurity law, and the trend has accelerated since.

A 2018 study endorsed by the Center for Economic Policy Research, a European think tank, found that between 2006 and 2017, restrictions on cross-border data flows doubled around the globe.
India first implemented data localization requirements in 2014. Regulators proposed new data localization laws in a 2019 personal data protection bill, but revised it to only pertain to “critical” personal data. Financial, biometric, genetic, and religious data can be transferred overseas for processing under the revised law.
Indonesia and Rwanda enacted localization laws in 2012, Nigeria in 2013, and Russia in 2015.
The European Union’s General Data Protection Regulation, enacted in 2016, regulates cross-border data transfers on privacy and security grounds.
In June, the European Court of Justice ordered restrictions on data flows to the US, saying that US privacy protections are “inadequate.”

Washington: More than Silicon Valley’s tech giants, Washington has lobbied hard against data localization around the world, with some results.

The free trade agreement between the US, Mexico, and Canada prohibits parties from restricting cross-border data flows with each other.
Similar requirements are part of the US’s free trade deal with Japan.
The 2016 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free trade agreement between 11 Asia-Pacific nations, also known as TPP-11, also talks of maintaining free data flows. Donald Trump pulled the US out of the agreement as soon as he came into office.

READ MORE: INSIGHTS | China’s digital currency has a long way to go

But Tiktok! But when it comes to China, even the US is starting to talk about data localization. When Washington moved to ban two Chinese apps—Tiktok and Wechat—from US phones, it cited the risk of sensitive personal data being sent to China.American authorities appeared ready to accept a deal that would see Tiktok’s US user data kept on local servers run by Oracle.

A future of data corridors? The rest of the world doesn’t need signaling or support from the two superpowers to set its own course when it comes to data localization. While China, India, Russia, and others, are pursuing data localization within one country’s borders, new free trade agreements are creating free data flow bubbles between trading partners.

CPTPP signatories have moved to liberalize data flows among themselves. A January agreement between Singapore, New Zealand, and Chile enshrined free data flows between the three countries.

As data becomes a regular part of trade talks, bubbles like these, rather than a global network, could be the future.

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EV maker Byton CEO departs amid restructuring: report

Fri, 16 Oct 2020 07:52:57 +0000

Chinese electric vehicle startup Byton could be steering itself out of deep financial trouble with the departure of its founder as part of a broader restructuring plan to begin production of its first model next year.

Why it matters: The removal of a formative leader marks a turning point for the once-hyped EV startup that has suspended operations for months after the onset of a massive cash crunch beginning last year.

Details: Daniel Kirchert, co-founder and CEO of Byton, has left the business and the company’s board of directors have approved a restructuring plan, Chinese media reported Wednesday citing persons with the knowledge of the matter.

Byton’s chief of staff Ding Qingfen was appointed co-CEO in July, in charge of implementing the new restructuring plan. Part of the plan includes establishing a new firm to raise funds, multiple sources said.
A Byton spokeswoman confirmed to TechNode on Friday the plan to resume operations to ramp up the production of its first model “as soon as possible.” The company declined to comment further regarding Kirchert’s departure.
There were signs of a Byton revival early last month when its major shareholders, including Volkswagen’s manufacturing partner FAW Group and the city government of Nanjing in eastern China, formed a new company led by a Byton executive.
The new company, Nanjing Shengteng Automobile Technology Co., Ltd. has registered capital of RMB 1.5 billion (around $223 million). Duan Lianxiang, Byton’s vice president of research and development, is listed as a general manager, according to business research platform Tianyancha.com.
The newly formed company is working on a RMB 2 billion financing project mainly from existing shareholders to get Byton’s first model, M-Byte, on the road as early as late 2021. Both FAW and the Nanjing government indicated they would participate while other current backers declined to follow, according to a Caixin report (in Chinese).

Context: Byton is not the only cash-strapped EV maker returning from near-death in recent months. Boosted China’s new energy vehicle (NEV) sales figures and local governments scrambling to bail out homegrown young leaders, other Chinese EV firms could rejoin the race.

Another would-be EV maker, Enovate, has reportedly (in Chinese) closed a RMB 5 billion round of funding from a group of strategic investors including state-owned banks and capital firms, with plans to list on China’s Nasdaq-like STAR Market in 2021.
WM Motor has similar plans—the company recently secured a whopping RMB 10 billion round of funding from a group of capital funds owned by the Shanghai municipal government, among others.
NEV sales in China have resumed growth at double-digit rates since July, according to figures from the China Association of Automobile Manufacturers, with Nio and Xpeng more than doubling their sales in the third quarter from the same period a year ago.

READ MORE: Nio, Xpeng, Li Auto: your cheat sheet to China’s listed Tesla rivals

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Digital yuan rush and OTC crackdown: Blockheads

Tue, 13 Oct 2020 05:49:46 +0000

China’s blockchain industry doesn’t stop, even during China’s week-long National Day holiday. A public test for the digital yuan was announced in Shenzhen, over-the-counter (OTC) traders are facing increasing pressure, and two reports shed some light on the numbers behind China’s vast blockchain industry.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the weeks of Sept. 28 – Oct. 12.

The digital yuan

Shenzhen launched the first public test for the central bank digital currency, which will distribute RMB 100 million (about $1.48 million) through red envelopes. A lottery system will randomly select 50,000 individuals who will receive virtual red envelopes with RMB 200 worth of the digital yuan. Residents of the Luohu district can apply through China’s big four banks and those selected will be able to use the coupons at 3,389 retail outlets around the city. Applications were due by Monday, and the distribution will take place on Friday. (Reuters)
The People’s Bank of China has processed RMB 1.1 billion in upwards of 3 million individual transactions using the digital yuan, the bank’s deputy governor Fan Yifei said on Oct. 6. More than 120,000 digital wallets have been opened, 92% of which are personal wallets while the rest are corporate, he said. The bank has tested 6,700 use cases, according to Fan. (Fintech Futures)
On Monday, another central bank deputy governor called for further acceleration of the digital yuan’s rollout. (South China Morning Post)

READ MORE: INSIGHTS | China’s digital currency has a long way to go

The OTC crackdown

Chen Lei, the former CEO of Xunlei, China’s largest download software, has been accused of embezzling company funds to trade in crypto and is currently under investigation by authorities. (Sina Finance)
The State Council said on Sunday that it will crack down on phone and bank cards that are used for illegal activities, and China’s crypto traders fear that they could have their bank cards frozen. OTC traders have recently reported that their bank cards have been frozen for five years. (Wublockchain)

The numbers

A report by international consulting firm PWC said that China stands to gain the most from blockchain adoption. Blockchain technology could add $440 billion to its gross domestic product by 2030, compared with $407 billion net benefit in the US, the report said. (PWC report)
A recent report based on data collected in October said China’s blockchain industry is dominated by small- and medium-sized enterprises. Companies with registered capital under RMB 5,000 account for 46% of China’s blockchain companies, a report by blockchain data platform Longhash said. Only 9% of all companies have over RMB 50,000 in registered capital, according to the report. (Longhash)

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EXCLUSIVE: China’s BSN to test cross-chain interoperability in October

Tue, 29 Sep 2020 19:18:32 +0000

China’s Blockchain Services Network, known as the BSN, will launch cross-chain interoperability on its testnets by the end of October and will integrate a second cross-chain protocol called Poly Enterprise, according to the CEO of the BSN’s main architect company.

Why it matters: With the inclusion of Poly, the BSN is edging towards a free-market approach to interoperability, first revealed to TechNode in June. The BSN is giving several options to developers instead of limiting the platform to one cross-chain protocol.

Interoperability between multiple blockchains is the key to the BSN’s ambition to become a global “internet of blockchains.”

Looking for the right connection: “Today all interoperability technologies are at application-level or framework-level,” neither of which is system-level “true interoperability,” Yifan He, CEO of Red Date, the company which is building the BSN’s software, told TechNode on Tuesday.

The Red Date CEO said the BSN team wants to test and understand how different interoperability solutions work and test them, which is why they are working with all kinds of application-level and framework-level solutions.
They hope to eventually “find a system-level solution with all these wonderful partners.”
Because the BSN’s underlying software is uniformly built, it is easy to deploy and test interoperability solutions. “We can add a system-level solution easily onto all public city nodes of BSN. It will be much easier on BSN than on the open Internet,” He said.

“A true interoperability protocol will be here one day, we hope BSN would be the one to create it.”
—Yifan He, CEO of Red Date Technology

The candidates: Starting in late October, developers will be able to use Poly Enterprise and Irisnet’s Inter-Realm Industry Trust Alliance (IRITA) framework to build decentralized applications (dapps) that can work with other dapps, even those built using different blockchain frameworks.

For the first three to four months, they will be limited to the BSN’s testnets, before being moved to serve frameworks in production mode, He said.
The two protocols will form the inter-chain communication hub, an architectural element of the BSN platform. It is likely that other cross-chain protocols will be added.
Poly Enterprise is an adapted version of Poly Network, a cross-chain protocol launched in August.
Poly is backed by three blockchain foundations that run their own chains: Ontology, Neo, and Switcheo. The company building the Poly architecture is Onchain, a Chinese company that builds blockchain solutions for enterprises, and was founded by Neo’s co-founder Da Hongfei.
The goal of the team behind Poly Network is to eventually make it permissionless, Hongfei told TechNode.
Poly Enterprise had to be spun off from Poly Network to be integrated into the BSN to meet regulatory requirements in the future, Hongfei said.
“Ontology and Neo had already used Poly Network to transfer assets in and out from Ethereum. The total amounts to $600 million to $700 million,” he said.
Irisnet is a Shanghai-based company behind IRITA, a permissioned blockchain development framework for enterprises built in the Cosmos ecosystem.

READ MORE: EXCLUSIVE: China’s BSN and Irisnet are building an ‘internet of blockchains’

Context: In June, Red Date’s He revealed to TechNode that Shanghai-based Irisnet will be the first company to enable interoperability in the BSN.

He added, “By the end of next year we will have three or four ways to make the inter-chain communication very very easy,” hinting that more cross-chain protocols would be integrated with the platform.
Since its launch in April, the BSN has attracted the attention of blockchain and crypto communities around the world, but is still in development, with new features being rolled out almost every week.
Earlier in September, it launched its “open permissioned” project, which will adapt permissionless blockchains to a permissioned environment. Red Date has said that this step is necessary to ensure regulatory compliance in China.
The BSN split into two networks managed by two separate entities in July in pursuit of compliance, Red Date told TechNode.

READ MORE: BSN says decoupling is to meet compliance rules in China

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China’s crypto confusion, new privacy tools: Blockheads

Tue, 29 Sep 2020 07:31:31 +0000

Last week, various Chinese government-related entities gave mixed messages on cryptocurrencies, while Binance said it had been banned in Russia just days before Huobi launched a new crypto trading app in the same region. Finally, two interesting developments in privacy applications for blockchain came from China.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Sept. 22-29.

Mixed signals on crypto

More than RMB 1 trillion ($145.5 billion) flows out of China every year through illicit gambling operations, a senior official from the Ministry of Pubic Security said on Friday. Gambling and casinos are prohibited in mainland China.
Liao Jinrong, director general of the Ministry’s International Cooperation department, told Chinese media that law enforcement has a hard time tracking down the cryptocurrency flows. These outflows could undermine China’s economic security if the people running the illegal gambling operations collude with “foreign powers,” Jinrong said. (South China Morning Post)
On the same day, state-owned CCTV said cryptocurrencies are the year’s best performing asset. The report said the world’s biggest tokens have gained 70% in value so far in 2020, compared to 20% for gold (CCTV, in Chinese). Xinhua news agency published a similar report on Thursday (Xinhua, in Chinese).
The reporters cautioned investors that the market is volatile and attributed the price increase to the rise of decentralized finance and Covid-19.
China’s crypto community was perplexed as to whether this amounts to an endorsement of cryptocurrencies.
One thing the government certainly doesn’t like is over-the-counter trading in cryptocurrencies.
The People’s Bank of China is blacklisting over-the-counter cryptocurrency traders. Some OTC account holders on the list are forbidden from using their bank cards for five years, and not just bank accounts associated with crypto transactions. (Wu Blockchain)

Russia and crypto… it’s complicated

Chinese crypto exchange Binance has been blacklisted in Russia for disseminating information about trading in bitcoin, the company’s Russia director said on Friday. “Not sure if we should laugh or cry,” (translation via Facebook) Gleb Kostarev, director of Binance Russia said on the social media platform. The exchange was banned (in Russian) back in June but was just recently notified. (Kostarev Facebook account)
Just two days later, Huobi announced it is launching a crypto trading app in Russia that will enable users to trade in Bitcoin. (Huobi statement)

Blockchain boosts privacy

Ant Group, Tencent’s Webank, Tencent Cloud, Baidu, Intel, and Arpa co-authored a new set of standards aimed to help big data operators protect user privacy using a blockchain-based framework called privacy-preserving multi-party computation. The standards were unveiled at a conference organized by the China Academy of Information and Communications Technology and the China Communications Standards Association. (Arpa official Medium account)
Chinese encryption startup Maskbook launched the first crypto trading plugin that enables users to trade on decentralized exchange Uniswap without leaving Twitter, powered by crypto information platform Coin Market Cap. Maskbook’s best-known product is a plugin for social media networks that provides end-to-end encryption on social media posts with the aim to safeguard user privacy. (Maskbook official Twitter account)

The mining companies

Micro BT, a rising Chinese mining rig maker, is setting up its first offshore manufacturing center in Southeast Asia. The rig maker will use the new factory to fulfill orders from US clients, avoiding a 25% tariff on China-made goods. The first order the new facility will fulfill is for newly established Foundry, a mining financing company based in the US and backed by Digital Currency Group. (Coindesk)

READ MORE: Is crypto mining really moving to North America?

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Judge orders US to postpone Tiktok ban or defend it on Friday

Fri, 25 Sep 2020 05:08:29 +0000

A US federal judge ordered the Trump administration to postpone a ban on US downloads of Tiktok set for Sunday or file court papers to defend the move by Friday afternoon, according to court files released Thursday.

Tiktok’s Chinese parent Bytedance filed for a preliminary injunction to prevent the ban on Wednesday afternoon. The ban is set to take effect at midnight Sunday and will remove the popular video-sharing app from US app stores.

US District Judge Carl Nichols said in an order Thursday that the defendants, including US President Donald Trump, US Secretary of Commerce Wilbur Ross, and the US Department of Commerce, must respond to Tiktok’s motion for a preliminary injunction or file a notice describing the delay of the effective date of the ban.

A similar move: The Trump administration said last Friday that it would ban from US app stores Tiktok and Wechat, a Chinese instant messaging app, starting the evening of Sept. 20. The Commerce Department delayed the ban against Tiktok for one week because Bytedance is close to a deal with Oracle and Walmart to set up a new US company.

On Saturday, a US federal court halted the ban against Wechat. The court said in an order that the plaintiffs, a group of Wechat users, had shown there are “serious questions” related to their First Amendment claim.

The mysterious deal: Oracle and Walmart said Saturday that they will set up a new company called Tiktok Global with Bytedance as part of the deal that will meet the Trump administration’s demands to divest Tiktok from its Chinese owner.

The US software maker would hold 12.5% of the new company, and retail giant would own 7.5%. Bytedance will own the remaining 80%.
Trump said Saturday he had approved the deal “in concept.”
However, the deal still needs to gain approval from the Chinese government after it revised in late August a list of technologies that are restricted for export.

Analysis: At the moment, all signs are showing that Beijing will block the deal. Even though there is no direct objection from Chinese officials, state media has started delivering the message that the deal harms China’s interests and dignity.

The policy changes on technology export gave Bytedance more bargaining chips when negotiating with potential buyers and the results turned out to be better for the company than an outright sale of Tiktok.
But now the problem is that Beijing doesn’t seem to be satisfied. Chinese authorities said Thursday that it had received applications from Bytedance to export certain technology. If Chinese officials really see the deal as detrimental to China, they won’t approve Bytedance’s applications.
If Beijing finally decides to block the deal, Tiktok will be removed from US app stores as planned.
In this case, turning to the court is Bytedance’s last resort. The court order from Thursday is an initial win. But if the end result is that the ban is allowed, Tiktok will be cut off from new US users, which will cause “irreparable damage.”

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Bytedance applied for licenses to export tech: report

Thu, 24 Sep 2020 07:51:08 +0000

China’s Ministry of Commerce spokesman Gao Feng said that the Beijing Municipal Commerce Bureau has received an application from Tiktok parent company Bytedance to export certain technology, local newspaper National Business Daily reported (in Chinese).

The company is close to a deal with Oracle and Walmart to set up a new company to operate Tiktok in the US after US President Donald Trump ordered Bytedance divest the video-sharing app. It needs Beijing’s permission to confirm the deal.

In August, China’s Ministry of Commerce and Ministry of Technology added 23 items to a list of “prohibited or restricted export technologies.” They include two types of technology that are used in Tiktok.

Bytedance said Monday that neither the algorithm nor the company’s technology will be transferred in the deal but Oracle would have the permission to review its code.

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Luckin and affiliates fined $9 million, more penalties may come

Wed, 23 Sep 2020 05:48:55 +0000

Chinese authorities ordered troubled coffee chain Luckin Coffee and a group of affiliated companies to pay a fine of RMB 61 million ($9 million) for creating unfair competition by engaging in sales fraud.

Why it matters: Luckin Coffee is receiving its first fine six months after admitting to financial fraud in early April. Regulators and investors at home and abroad are still investigating the company, which may see more penalties as inquiries conclude.

Details: Issued Tuesday by China’s top commerce watchdog, the State Administration for Market Regulation, the fine was applied to 45 companies, including two Luckin entities and 43 other companies that helped the coffee chain inflate its sales.

The regulator is the executive authority of China’s Unfair Competition Law. It found that Luckin, assisted by multiple third-party partners, inflated its sales, costs, and profits from August 2019 to April 2020. The practices violated competition laws and misled the public, it said.
China’s Ministry of Finance, which overseas violations of China’s Accounting Law, is also investigating Luckin, as is the US Securities and Exchange Commission, stock investors, and owners of its convertible bonds. Moreover, management led by Charles Lu are said to be facing criminal charges over the scam.
Luckin said it has “carried out an overall rectification on the related issues” (our translation) in a statement on Chinese microblogging site Weibo on Tuesday. “We will further improve our operations according to related laws and regulations.”

Context: Two months after short seller Muddy Water tweeted a short report from an anonymous author, Luckin admitted on April 2 that it fabricated RMB 2.2 billion in sales in 2019, causing its shares to plunge more than 80% within a week.

Luckin management has been fighting for control over the company since April. In a September board meeting, founder Charles Lu lost when his opponent Sean Shao made a comeback after briefly being ousted from the board two months earlier.
The scandal from the once high-flying coffee chain put Chinese tech companies in the crosshairs of regulators and short sellers.

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Filecoin fork, US and UK outspend China: Blockheads

Tue, 22 Sep 2020 06:08:34 +0000

This week, Chinese Filecoin miners threatened to fork the massively popular network, the BSN will integrate two dozen public chains, and a new cryptocurrency mining rig may give Bitmain a run for its money. Two reports show how China stacks up globally in the blockchain world.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Sept. 15-22.

The Filecoin Fork

A group of Chinese investors threatened to fork Filecoin, a cryptocurrency network whose main offering is decentralized file storage. The completed mainnet is scheduled to be released in the coming weeks.

The coin, which has been massively popular among Chinese miners, issued a $250 million initial coin offering three years ago.

The head of MIX Group, a Filecoin mining company, unveiled the threat at a conference in Xiamen. He said users are not satisfied with the governance of the network, saying it is too centralized, and with the fact that the mainnet launch has been delayed from its initial release in March 2020.

The mainnet launch could wash out as many as 80% of miners through a staking mechanism, a recent report said. (Decrypt)

The government connection

The government of Beijing will pilot a blockchain-based system for monitoring and managing security risks associated with cross-border data flows. (TechNode)
Vechain joined the China Animal Health and Food Safety Alliance, a government-backed organization that aims to provide a food traceability platform. It is the only company in the alliance that is entirely focused on public blockchain. (PRNewswire, Vechain press release)
The Blockchain Services Network, a government-backed “internet of blockchains,” plans to integrate 24 public chains in the Chinese network by making them permissioned. (Coindesk)

The mining equipment makers

Micro BT’s new Whatsminer cryptocurrency mining rig, expected to be released later this year, could top Bitmain’s Antminer S19. The M50S will use Samsung 8 nanometer chips and will come with an energy efficiency ratio of 30 joules per terahash (J/T), compared with the S19’s 34.5 J/T. (WuBlockchain, in Chinese)
Bitmain will allow Core Scientific to build its first repair center in North America. Core Scientific is a US-based mining company that agreed to buy 17,595 of Bitmain’s Antminers back in June. The announcement came hours after recently ousted co-founder Wu Jihan had regained Bitmain’s reins. (PRNewswire, Bitmain press release)

READ MORE: Is crypto mining really moving to North America?

The numbers

China will trail behind the US and Europe in spending on blockchain solutions in 2020, according to market intelligence firm IDC. China will have spent $457 million, compared with $1.6 billion in the US and $1 billion in Europe. But, by the end of 2020, China will have seen the most growth in blockchain expenditure in the last five years at 51.7%. (IDC)
China ranks fourth globally in cryptocurrency adoption, surpassed only by Ukraine, Russia, and Venezuela, a report by Chainalysis said. The rankings are based on value received and sent through cryptocurrencies, deposits, and peer-to-peer trade volume. (Chainalysis)

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JD.com to work with PBOC on digital yuan: report

Tue, 22 Sep 2020 05:13:20 +0000

E-commerce giant JD.com is partnering with the People’s Bank of China Digital Currency Research Institute to build mobile apps that can support China’s digital yuan, local media reported.

Why it matters: JD is not the first company reported to be working with the central bank on the digital currency, but this deal has been described in more specific terms. The news also confirms that blockchain technology will be used in dissemination of the currency.

Direct support for the digital currency could offer JD an alternative to dominant payments apps Wechat and Alipay.

Details: JD.com has entered a “strategic partnership” to build what the announcement calls mobile and blockchain platforms for the central bank digital currency, local media reported, and to integrate those platforms with JD’s existing ecosystems.

The partnership is said to promote online and offline payments, and the development of a “digital wallet.”

READ MORE: INSIGHTS | China’s digital currency has a long way to go

Context: The digital yuan has been in development since 2014 and is currently piloted by select individuals in Shenzhen, Suzhou, Xiongan, and Chengdu. But these tests appear to be very limited, and few details have surfaced.

The People’s Bank of China has repeatedly said that the digital currency has no set launch timetable, but that hasn’t stopped speculation.
The pilots will be extended to Beijing-Tianjin-Hebei region, the Yangtze River Delta, and the Greater Bay Area region, the Ministry of Commerce said in August. The expansion is could take place by the end of the year.
Reports emerged in August that claimed that employees of China’s four biggest banks were also testing the digital yuan.
The central bank has said the currency will be tested at the 2022 Beijing Winter Olympics, but the roadmap to 2022 has not been revealed.
Earlier in September, China Construction Bank made public a digital yuan e-wallet. However, the bank quickly withdrew the app.

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Tiktok, Wechat bans: what has happened so far?

Mon, 21 Sep 2020 17:54:12 +0000

There was twist after twist in the Tiktok drama over the weekend. US President Donald Trump said Saturday he had approved a deal that involves software maker Oracle and retail giant Walmart, but it falls short of an outright Tiktok divestment. Chinese parent company Bytedance denied some of Trump’s claims that the new Tiktok company would have nothing to do with China. Meanwhile, Chinese officials criticized the US for lacking “internet freedom.”

The deal: Bytedance, Oracle, and Walmart will form a new company called Tiktok Global as part of the deal, CNBC reported Saturday.

Oracle was chosen as Tiktok’s secure cloud provider and will hold a 12.5% stake of Tiktok Global.
Walmart said it would purchase a 7.5% stake in the new company and its CEO Doug McMillon would serve as one of the directors of the five-member board.
Bytedance will own the remaining 80% of Tiktok Global.
Walmart and Oracle said in a joint statement that Tiktok Global will pay more than $5 billion in new taxes to the US Treasury Department.

Trump’s blessing: Trump said Saturday that he had approved the deal “in concept.” But the deal still needs formal approval from his administration. “I give the deal my blessing,” Trump told reporters.

Trump also said the deal would involve “about a $5 billion contribution toward education.”
“It will be a brand-new company,” said Trump, who also said that Tiktok Global would “have nothing to do with China.”
Trump’s remarks seem to contradict the facts, but as CNBC pointed out: “Because 40% of Bytedance is owned by US venture capital firms, the Trump administration can technically claim Tiktok Global is now majority owned by US money.”

What Bytedance says: In a slightly different narrative, Bytedance said in a statement (in Chinese) Monday on its Jinri Toutiao news aggregator that it currently owns 100% of Tiktok Global, and that the company plans to launch pre-IPO fundraising which will give investors—Oracle and Walmart—a combined 20% stake.

Neither the algorithm nor the company’s technology will be transferred in the deal, said Bytedance. Oracle would instead have the permission to review its code.
Bytedance also said the reported “$5 billion new taxes to the US Treasury Department” is an “estimate of taxes Tiktok will pay over the next few years” and that it has nothing to do with the deal.
Bytedance denied Trump’s statement that the deal involves a $5 billion contribution toward education. “We heard from the news as well that there would be a $5 billion education fund,” Bytedance said in the statement.
Zhang Yiming, the CEO and founder of Bytedance, will be one of the directors on Tiktok Global’s board, the company said.

Are apps still getting banned? On Friday, Reuters first reported that the Trump administration would ban Tiktok and Wechat from US app stores starting Sunday night. However, with Trump saying he approved the Tiktok deal, the Commerce Department said it would delay the plan of barring the video-sharing app from US app stores for one week.

A US federal court halted a ban against Chinese instant-messaging app Wechat late Saturday, the Washington Post reported.
The US District Court in San Francisco said in an order that the plaintiffs, a group of Wechat users, had shown there are “serious questions” related to their First Amendment claim.
In August, TechNode reported that the group, called the US Wechat Users Alliance, filed a lawsuit against Trump’s executive order to ban transactions between US citizens and Wechat.
“Where [Judge Laurel Beeler] came down was essentially on the side of the Chinese-speaking communities in the US, and said that the ban was too broad,” Greg Pilarowski, founder of tech advisory firm Pillar Legal, told TechNode on Tuesday.
“I think Wechat is safe, unless Trump wins” the US presidential election in November, Pilarowski added.

Chinese media takes: On Monday, most major Chinese media outlets reprinted an article titled “Does Tiktok really harm US national security? Why did Oracle fail in the Chinese market? Chinese enterprises storms overseas” (our translation), authored by the National Supervisory Commission of China and Central Commission for Discipline Inspection of the ruling Communist Party. It was first published on a website that the two government agencies share.

The article is a rare direct comment from Chinese government agencies on the recent Tiktok drama.
“As a matter of fact, the United States, which promotes ‘internet freedom,’ never neglects its regulation of the internet,” the article said. “We can say that the US has the world’s strictest regulation on the internet.”
Chinese newspaper Securities Times reported that a number of companies listed on China’s A-share markets which investors believe stand to benefit from Bytedance’s business activities, called “Bytedance concept stock,” had risen around 3.4% on Monday morning with one of the best performers jumping nearly 12%.
International Financial News, an arm of party mouthpiece People’s Daily, wrote Monday that the upshot of the Tiktok drama “has yet to come.”
The newspaper pointed out that while Trump had approved the deal, it still needs to gain approval from the Chinese government, because, it said, the algorithms Tiktok use are now subject to China’s new export restrictions.
Hu Xijin, editor-in-chief of state-run tabloid Global Times, wrote on Twitter Monday that he knows that the Chinese government won’t approve the deal. “…because the agreement would endanger China’s national security, interests, and dignity.”
Chinese financial magazine Caixin named the three other Tiktok Global board members. They are Arthur Dantchik, founder of Susquehanna Growth Equity (SIG); William Ford, CEO of General Atlantic; and “an executive from the American operations of Sequoia Capital.” SIG, General Atlantic, and Sequoia Capital are all Bytedance investors.

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Tiktok is still hiring in Europe amid US drama

Mon, 21 Sep 2020 09:49:15 +0000

I love lurking on Linkedin. A couple of weeks ago, something struck me. While Tiktok was facing the prospect of a US ban under an Aug. 7 executive order, many people in my European networks were delighted to announce that they were joining the short video company. Countless emojis were harmed in the making of these Linkedin posts.

As its future in the US is under threat, Tiktok appears to be trying to fortify its operations in Europe. On Tiktok’s careers site, 272 jobs are posted in Europe (excluding Russia) at the time of writing. Dublin takes the lead with 117 jobs, London comes second with 78, and Germany third with a total of 34. Germany is hiring for offices in Berlin, Munich, and Hamburg. Positions in Madrid, Paris, Stockholm, Warsaw, and Milan are also seeking candidates.

In Europe, Tiktok’s hiring patterns reflect its growing ambitions on the continent and a push to localize and clear the bloc’s data security hurdles.

A data sweep on Twitter conducted by TechNode indicates that Tiktok has ramped up its hiring in Europe. Bytedance employees and job advertising services including the UK’s Job Centre Plus, a state-run employment platform, have mentioned jobs at Tiktok more frequently in recent months.

(Image credit: TechNode/Eliza Gkritsi)

In August, 42 links to the Tiktok global careers website were posted on Twitter, compared to 12 in February.

“It’s quite incredible how many people they’re bringing on board. Every week there’s new people,” a new hire who joined Tiktok’s European operations in August told TechNode.

Open positions on the company’s website include a wide variety of roles, from advertising and brand strategists to privacy specialists. Tiktok appears intent on localization, seeking fluent speakers in most European languages, such as Swedish, Hungarian, and Greek.

“Of course everybody is looking at what’s happening in the US,” the recent hire said, “but there’s no anxiety. On the contrary, everyone is very optimistic.”

Despite the ongoing row with Washington, Tiktok hasn’t taken down its job listings in the US. Currently, 465 positions are listed as available in the US on the app’s website.

READ MORE: China tech faces double compliance challenge in Europe

Bet on Europe

Bytedance’s continued hiring for the popular video app shows it is optimistic about the European market, despite criticism over its privacy policy. Regulators have expressed concern over personal data flowing from the EU to China, the app’s handling of minors’ data and consent. But as long as Tiktok complies with local data regulations, the company should be safe in Europe, experts told TechNode.

Tiktok currently has over 1,600 employees based in Europe, roughly 1,300 of whom are based in the UK and Ireland, the company said in a statement Monday.

A Europe-wide ban is “unlikely,” said Jan Stryjak, Associate Research Director at Counterpoint Research. “Tiktok has not faced the same levels of scrutiny and political grandstanding in Europe as in the US,” he said, so it makes sense that it “looks to establish itself to build on its rapid growth in the region.”

In Europe, regulators have tried to appear neutral. “I am not in the business of banning any company, I am in the business of explaining very clearly what are our rules,” EU Commission Internal Market Commissioner Thierry Bretton told Politico earlier this month.

“In the short-term, I wouldn’t expect any comparable moves on Tiktok in Europe to match US actions,” Andrew Small, associate senior policy fellow at think tank European Council on Foreign Relations, told TechNode.

By contrast, the situation around Huawei includes “fundamental questions” about the company’s role in Europe’s digital infrastructure and “longstanding issues about Chinese subsidies undermining European telecoms firms,” he said.

Tiktok does not provoke the same sensitivities. “The issues at stake with Tiktok relate to censorship and data use, neither of which is likely to lead to an outright ban, and there will be no inherent objection to Tiktok hiring and investing in Europe either,” said Small.

Beefing up data security

New data privacy and security rules in the European bloc are compelling Tiktok to reconfigure its global operations.

Bretton stressed that the “key subject” when it comes to Tiktok operating within the bloc is data, highlighting the rigor of Europe’s data security and privacy rules in comparison to China.

“The EU has not had to deal with this issue on a really major scale given that Chinese apps have not made many inroads with European consumers,” Small said.

In August, the European Court of Justice ruled that personal data collected on EU citizens can only be transferred to third countries that have similar privacy regimes. The decision, known as Schrems II, could mean that personal data collected by Tiktok on European citizens can never be legally transferred to China.

A few weeks after the ruling, Tiktok said its Irish and UK entities will be taking over data management for European users from its US operations. Shortly after, the company announced plans for a new data center in Dublin. According to company statements, the data center will form part of a “Privacy and Safety Hub” for Europe, the Middle East, and Africa.

Bytedance said it plans to spend €420 million ($500 million) on the Dublin data center. The investment will “create hundreds of jobs” in the city, said Roland Cloutier, Tiktok’s Global Chief Information Security Officer in a blog post.

Cloutier previously worked at Automatic Data Processing, a Nasdaq-listed HR systems provider, as well as US computer manufacturer Dell.

The job listings on Tiktok’s website appear to line up with this announcement. Dublin is the city with the most job openings.

But the Dublin data center doesn’t mean that Tiktok can put the data security issue to bed.

The EU is known for having some of the world’s most stringent personal data protection rules, known as the General Data Protection Regulation (GDPR).

In June, the European Data Protection Board, an EU body in charge of the application of the GDPR, set up a task force to probe Tiktok’s data processing activities and privacy practices across the EU, China’s Caixin reported.

Privacy watchdogs in France and the Netherlands have also launched inquiries into Tiktok’s privacy policies, especially as they pertain to Tiktok’s underage users.

Tiktok has not replied to a Sept. 15 email seeking comment.

London calling, Berlin texting

Tiktok’s job listings show that politics have not dented its ambitions to be a true multinational. The company is charging ahead with establishing regional hubs and localization teams in key European cities, all answering to a CEO currently based in California.

London ranks second among European cities in active jobs listings on Tiktok’s careers website. The short video app operator is reportedly considering moving its headquarters from Beijing to London, British media reported in August.

“A new global headquarters in London could be a huge boon for the UK’s job market, which has suffered in recent months due to the Covid-19 pandemic,” Stryjak said.

UK Prime Minister Boris Johnson will welcome the Tiktok headquarters with open arms, risking the wrath of US President Donald Trump, UK media has reported.

The British government is reportedly split over the potential Tiktok move. Trade and tech officials and ministers are at odds over how to handle the Chinese tech company, the Telegraph reported citing UK government sources familiar with the matter.

Germany, which ranks third in the number of listed job openings, represents a big market with a big pool of tech talent, experts told TechNode.

It’s also a strategic location that Tiktok can use to “buy some goodwill, given its outsized influence over the European debate,” Small said.

Joining the whirlwind

Yet those who decide to join the company in these times are taking on a lot of uncertainty. The app’s US and EU operations were nearly sold to Microsoft after pressure from the US government. After weeks of speculation about a deal with Microsoft, the company has reportedly settled on a partnership with Oracle instead.

TechNode found two people who have been approached by recruiters. Both said they ignored the recruiters’ messages as they were not interested in working for the short video app. “Tiktok is stupid,” one of them said.

But Linkedin job updates indicate that Tiktok’s attempts to poach top tech talent have been successful at times.

Many of the new hires came from some of the West’s biggest companies, including big tech. The person who onboarded recently said the salary offer was “very competitive” but didn’t give any further details. But “it wasn’t like I couldn’t trust my eyes,” they said.

Another new hire said that they were under a non-disclosure agreement that is valid for 100 days after onboarding.

In a Linkedin search, TechNode identified one person who worked at Amazon for seven years in Germany and recently said they joined the Bytedance app in September. A UK-based professional with four years of experience at Google and three years of experience at Netflix said they took a position at Tiktok in July. Another person who was at Google for two years also said they joined the app in September.

The European who is considering a position said that working for the Chinese company in the midst of an international storm seemed “insane” at first, but that they have come to appreciate the challenge.

The recent hire said that Tiktok is “an exciting place to work in at the moment, regardless of how safe this job is in the long term.

“We all know that this industry is moving very fast. But it’s really interesting to be part of this and get this experience at this time,” they said.

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Beijing ramps up scrutiny of cross-border data flows

Mon, 21 Sep 2020 06:56:19 +0000

Beijing will pilot an intelligent system to assess and manage cross-border data flows as part of the city’s new free trade zone, the State Council said on Monday.

Why it matters: China’s data localization laws has been in place since 2017, but enforcement has been lagging. The law requires that overseas transfers of “important data” are cleared by public security authorities.

The local government of Beijing has been pushing policy to boost technology adoption in the city.

READ MORE: Dust has yet to settle two years after China’s landmark cybersecurity law

Details: The cross-border data flow management pilot is part of a wider system aimed at monitoring and controlling risks related to the free trade zone. It will make use of big data, AI, blockchain, and 5G to assess the security of potential cross-border data flows, in line with China’s data localization laws.

The pilot aims to explore whether the automated management system can correctly assess the risks related with transferring important data overseas, including the firms’ data security credentials and data backups.
The “comprehensive platform” will also be used to warn exporting firms of potential trade risks stemming from their exposure to overseas markets and regulations.
The FTZ plan also reiterates Beijing’s commitment to blockchain and fintech.
The city will create a designated “testing pilot zone” for China’s central bank digital currency. It will also use the central bank’s blockchain platform to build a standards system for trade-related financial transactions.

READ MORE: Beijing unveils plan for blockchain-based government

Context: Chinese law requires that important data, distinguished either by the size of the dataset or the nature of the data, are stored within Chinese borders.

Beijing unveiled its ambitious plan to integrate blockchain in several key aspects of the city’s governance in July, including customs clearance, real estate, finance, and more. The city wants to be a global hub for blockchain technology by 2022.

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Blockchain in government and Defi antics: Blockheads

Tue, 15 Sep 2020 08:12:51 +0000

This week, various governmental bodies in China were busy announcing blockchain integration in their operations. Supporters in China of decentralized finance, or “Defi,” staged a protest against centralized exchanges, while police raided cryptocurrency exchange Gate.io over the listing of the Kimchi token.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Sept. 7-14.

Governments love blockchain

Huawei signed an agreement with China’s Copyright Protection Center to build a blockchain-based copyright management system dubbed “Digital Copyright Identifier.” (Tom.com, in Chinese)
App platform Vechain is partnering with the government of Hainan, China’s southernmost province, to build a blockchain-based governance system for Wenchang, the “first aerospace cultural and tourism city.” The municipality aims to raise the profile of China’s space exploration industry. Vechain, along with Kingsoft Cloud, will build a “smart city brain” using blockchain, artificial intelligence, and big data. (Vechain official medium post)
The central government launched its first “city blockchain innovation rankings” at a conference in Beijing. The program tallied up “objective data” on cities’ innovation and adoption of the technology. The capital topped the list with 99.82 points, and Shenzhen came second with 91.2 points, just above Shanghai. (Sina Finance, in Chinese)
The eastern province of Fujian launched 20 blockchain projects aiming to spur innovation and revamp some local government functions. The projects include government services, public welfare, food safety, and industrial and agricultural production. Along the “Digital Fujian” project, the Blockchain Services Network (BSN) started construction of a node in the province. (Xinhua News Agency, in Chinese)
The BSN said on Monday the platform will be compatible with smart contract-oriented blockchain-agnostic programming language Digital Asset Management Language. The language will be the “exclusive standard” for application of decentralized applications, BSN architects said. (TechNode)
Meanwhile, a bill aimed to boost US competitiveness in the blockchain field passed through the US House Energy and Commerce Committee to the US House of Representatives. (Official Twitter of Cathy McMorris Rodgers, primary bill sponsor)

READ MORE: BSN taps DAML as ‘exclusive standard’ for dapp development

All aboard the Defi train

The week in China’s decentralized finance world started with an online movement among investors to take down centralized exchanges by withdrawing their cryptocurrency deposits. The impact on reserves was small. Some exchanges blocked withdrawals citing unexpected maintenance. The movement came right after Sushiswap, a Defi token that had reached unprecedented popularity, crashed. (TechNode)
A few days later, the anonymous co-founder of Sushiswap, 0xmaki, said in an interview that the project plans to launch a Chinese-language interface. (Coindesk)
Cryptocurrency exchange Binance launched a $100 million investment fund focused on early-stage projects in decentralized finance. The exchange released its own Ethereum-compatible blockchain on Sept. 1, saying a number of projects were already working on the chain. (Cointelegraph)
Police in China raided cryptocurrency exchange Gate.io over the listing of Defi token Kimchi. (Coingeek)

The mining equipment makers

Crypto currency rig maker Canaan Creative announced a $10 million share buyback, following better-than-expected Q2 earnings results. The buyback has been approved by the board of directors and will take place over 12 months starting Sept. 22. (Canaan)

READ MORE: Blockheads: China sets global blockchain standards and Canaan is alive

The Battle of Bitmain drags on. Wu Jihan took back control of the world’s biggest cryprocurrency mining equipment maker’s Beijing arm. Wu was ousted by his rival Zhan Ketuan in May, whom he had ousted in October. (TechNode)

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Battle of Bitmain: recently ousted co-founder Wu Jihan is back

Tue, 15 Sep 2020 08:04:53 +0000

The leadership at cryptocurrency mining rig maker Bitmain has switched again with the re-ousting of co-founder Zhan Ketuan from the helm of the company’s Beijing operations, rival co-founder Wu Jihan said on Monday.

Why it matters: The leadership drama at the world’s leading mining equipment maker is almost a year running. It has caused disruptions in the company’s supply chain, just as product orders from the US accumulate and China’s cryptocurrency regulation is heating up.

It is uncertain whether Wu’s reinstatement will be the end of the saga as Zhan has shown an unwillingness to step down time and again.

READ MORE: Is crypto mining really moving to North America?

Details: The registration information for Bitmain’s Beijing entity changed to indicate that Wu was its legal representative, Chinese media reported on Monday evening. Bitmain employees in Zhan’s faction were seen packing up their office belongings, according to reports.

Wu confirmed the reports in a statement (in Chinese) on Monday, conceding that the “management conflicts” have damaged the company’s brand image, customer relations, employee sentiment, and even “blocked” Bitmain’s plans to go public.
The reinstated co-founder said he hopes that “meaningless and endless fighting” between the fighting factions will stop and extended his respect to Zhan.
In August, Bitmain signed two agreements to sell $40.7 million worth of its newest mining rig, the Antminer S19, to North American bitcoin miners, the company said in two press releases.

“The options promised to employees have almost become waste paper.”
—Wu Jihan, recently re-instated Bitmain co-founder, in his Monday statement

Context: The drama started in October when Wu ousted Zhan in a boardroom coup. Wu claimed that Zhan had wasted company resources on an artificial intelligence chip push, far from the company’s main business model.

But Zhan was not willing to go down without a fight. He sued Bitmain’s parent company in the Cayman Islands and filed complaints with Beijing authorities claiming that the paperwork that unseated him was not filed correctly.
In May, Beijing officials granted his claim and handed him the company reigns. A physical brawl broke out between the rival camps at the government office.
After Zhan gained control of the Beijing branch, which manages production across China, the Bitmain saga got even more complicated. Wu was still at the helm of the Hong Kong company that handles international payments.
Over the next few months, the two had trouble coordinating production and Zhan even ordered deliveries to stop in June.
Competing company seals and Wechat accounts gave conflicting information, furthering confusion amid staff, customers, and industry observers.

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Bytedance picks Oracle for Tiktok ‘partnership’ in US: report

Mon, 14 Sep 2020 04:48:29 +0000

Chinese company Bytedance has chosen Oracle over Microsoft for a deal involving Tiktok, Bloomberg reported Monday, which will resemble a partnership involving Oracle purchasing a stake in the company rather than an outright sale of the app’s US operations.

Why it matters: Bytedance had no intension of selling Tiktok’s key asset—the algorithm behind the popular video-sharing app. A deal with Oracle, whose executives have a close relationship with the US President Donald Trump, was viewed as a way to increase the company’s odds of winning approval from the White House.

Details: While the talks are ongoing, a deal with Oracle could, for example, take the form of a corporate restructuring rather than an outright sale. In this case, the American software company would take a stake of a newly formed US business while housing Tiktok’s data on its cloud servers, according to Bloomberg.

The two parties valued Tiktok’s US business at around $25 billion before Beijing announced new rules on limiting technology exports, said sources cited in the report.
Bytedance reportedly decided not to sell or transfer the algorithm powering Tiktok’s content recommendation function in any sale or divestment deal, the South China Morning Post reported Sunday.
Microsoft, the other suitor along with Walmart, confirmed in a statement Sunday that Bytedance had turned its offer down. “Bytedance let us know today they would not be selling Tiktok’s US operations to Microsoft… We are confident our proposal would have been good for Tiktok’s users, while protecting national security interests,” the company said.

Context: In late August, officials in Beijing updated a Chinese technology export regulation to ban the export of limited technologies, potentially including those used by Tiktok. Bytedance soon pledged to comply.

Companies must seek approval from the two ministries before exporting limited technologies, and the decision-making process can take up to 30 days, according to a set of technology export regulations the State Council issued (in Chinese) in 2001.
Trump ordered a ban barring US companies from doing business with Bytedance after Sept. 15, and is requiring that Bytedance sell or spin off Tiktok’s US operations by Nov. 12.

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BSN taps DAML as ‘exclusive standard’ for dapp development

Mon, 14 Sep 2020 04:07:56 +0000

China’s Blockchain Services Network (BSN) has named programming language Digital Asset Management Language (DAML) the “exclusive standard” for developing smart contract applications on the platform, its architects said on Monday.

Why it matters: The BSN’s developers hope DAML will bring the platform closer to its most ambitious goal: seamless interoperability between all the major blockchain protocols.

The platform aims to power the development of a blockchain-powered internet. Interoperability between different protocols and applications is the key and most difficult goal.

READ MORE: China’s BSN and Irisnet are building an ‘internet of blockchains’

Details: DAML is an open-source blockchain-agnostic language, meaning it can work with different ledger protocols like Hyperledger Fabric and Ethereum.

DAML’s integration in the BSN will push its capabilities of interoperability. The language is mainly used to build different decentralized applications, but not to make them interoperable.
BSN architect Red Date Technology and New York-based Digital Asset Holdings, the company that developed DAML, said they plan to complete a pilot in November and make the language available to developers in 2021.
The pilot will test DAML’s interoperability across two ledgers, Hyperledger Fabric and Webank’s FISCO BCOS, as well as its integration with the fundamental architecture of the platform.

“By selecting DAML as the exclusive smart contract language of the BSN itself, our developers will gain the choice of using one unifying smart contract language seamlessly and interoperably across every blockchain.”
—Yifan He, Red Date CEO in a statement on Monday

Context: The BSN operates 130 nodes across China, according to Red Date.

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Lagging Europe, China to regain EV leadership in 2021: expert

Fri, 11 Sep 2020 09:15:22 +0000

As it evolves into a demand-driven model, China’s electric vehicle market could regain its ranking as the world’s largest in 2021 after likely losing the crown to Europe this year, an auto association executive said on Tuesday.

The slowdown in EV sales this year will be temporary, a result of reduced purchase subsidies as well as extended production quota mandates, Cui Dongshu, secretary general of China Passenger Car Association (CPCA) said at a briefing.

CPCA said that sales for China’s new energy vehicle (NEV) industry—including all electrics and plug-in hybrids—will fall 17% annually to 1 million units this year. NEV sales in Europe for 2020 through July modestly exceeded those of China, the world’s top market since 2015, Bloomberg reported.

EV stimulus moving from China to EU

Experts say strong growth in the European market is largely driven by generous government rebates, thus the market bears little comparison to China’s, which is shifting from a state-controlled to demand-driven market with the phasing out of subsidies.

The pandemic has also dealt a significant blow to China’s market. Automakers have been hit hard, and as a result have slowed the expansion of their EV portfolios. The central government in June updated mandated production quotas to give automakers one more year to meet their NEV production targets for the three years until 2021.

Global automakers partnered with Chinese companies are “not fully prepared” to release new EV models to the country’s market, but the pace will accelerate next year, Cai said (our translation). NEV sales only account for about 2% of total car sales for overseas automakers partnered locally, which does not meet requirements set by the Chinese government, according to Cui.

Meanwhile, European countries are playing catch-up with generous subsidies to fulfill their goals to sell only zero-emission cars by the next decade. Germany in June announced a sweeping €130 billion incentive package, including doubling its subsidy of €6,000 ($6,700) for EVs costing up to €40,000. Subsidies for EVs below €45,000 in France were also increased slightly to €7,000.

“To drive an early market, the importance of incentives to overcome the affordability barrier is key,” David Wong, senior manager at the Society of Motor Manufacturers & Traders (SMMT), a UK’s automotive industry body, said on Thursday at London Tech Week.

Push for more chargers

Meanwhile, the UK is ramping up legislation supportive of recharging infrastructure, which Wong believes will “give a shot in the arm” to the country’s EV uptake.

Following an £1.5 million ($1.9 million) reward to two charging point projects, Wong said that the UK is planning to launch regulations to facilitate the “smart” charging market, including technical requirements for chargers. The government is also seeking to pass laws that require all new homes in England to be fitted with charging points.

Wong expects these moves to help convince people to switch to EVs and drive the market uptake. So far each rapid charger in the UK is shared by as many as 56 EV owners, whereas that number in China is 16, according to Wong.

China’s passenger EV sales rebounded 43% year on year to more than 100,000 units in August, representing the second consecutive monthly increase after a prolonged market slump which lasted an entire year. CPCA said Chinese EV makers have been increasingly recognized by customers especially in the premium segment, and that Beijing’s recent push to build battery swap infrastructure in major cities would be a big boost to EV uptake.

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HSMC promised China’s first 7 nm chips. It didn’t go well.

Wed, 09 Sep 2020 08:14:27 +0000

A government-backed semiconductor manufacturing project based in the central Chinese city of Wuhan has gone belly-up, with key operator HSMC mired in debt. The local government said the project amounts to nearly RMB 128 billion (around $18.7 billion) in investment.

Chinese media recently reported that the construction of the Wuhan Hongxin Semiconductor Project, which was planned to house China’s first 7-nanometer (nm) chip fabrication plant in a 650,000 square meter (around 160 acre) structure, had been at a standstill since December.

Local newspaper National Business Daily said in a report (in Chinese) on Monday that work had stopped on the project’s headquarters in Wuhan as of Thursday, with no buildings completed. The newspaper cited a contractor of the project as saying that construction had been halted because workers had not been paid.

On Aug. 28, the Commerce Bureau of Wuhan’s Dongxihu District, where the project is located, said in response (in Chinese) to a local resident’s inquiry that the project had been suspended because of “financial difficulties.”

On July 30, the Dongxihu District government said in a semi-annual report about the local economy that “there is a huge funding gap in the Hongxin Semiconductor Project” and that it faces “risks of stagnation at any time.” The report cited the “challenge in the capital market” because of the “global outbreak of Covid-19.”

The district government deleted the report (in Chinese) from its website after wide coverage from local media.

The project’s operator is a company founded in 2017 called Wuhan Hongxin Semiconductor Manufacturing Co. (HSMC). The company said on its website (in Chinese) that it expects to be able to build a 14-nm chip production line that can produce 30,000 wafers per month and a 7-nm chip production line with the same capacity. It did not give a timetable for those goals.

The decline of the ambitious chip manufacturing project highlights risks as local governments in China rush to achieve dreams of semiconductor self-reliance. According to Made in China 2025, a government initiative announced in 2015 aimed at boosting the high-tech sector, China wants to produce 70% of chips it uses by 2025. But making cutting-edge chips is hard, and attempts to charge into the industry haven’t gone well.

Vast investment and big hires

The Hongxin Semiconductor Project had received RMB 15.3 billion in funding as of the end of 2019, according to the Wuhan Municipal Development and Reform Commission, a government body that oversees local macroeconomic planning. The project is expected to receive an additional cash infusion of around RMB 8.7 billion in 2020, it said.

It is a truth universally acknowledged—as Jane Austen would have put it, during a second career as a semiconductor market analyst—that a new chipmaker in possession of a good fortune must be in want of talent. HSMC has been courting engineers at Taiwan Semiconductor Manufacturing Co. (TSMC), the largest contract chipmaker in the world. The company, together with another local government-backed chipmaker, had hired more than 100 engineers and managers from TSMC since last year, according to a Nikkei Asian Review report in August.

In Taiwan, HSMC is known as a generous suitor. One anonymous source told Nikkei that the HSMC offers packages “as high as 2 to 2.5 times TSMC’s total annual salary and bonuses” for engineers and managers from the Taiwanese company, which supplies high-end chips to big tech firms such as Apple, Google, and Huawei.

In July 2019, HSMC hired as its chief executive Jiang Shangyi, formerly a research and development vice president at TSMC. The 75-year-old chip veteran also served as an independent director at Semiconductor Manufacturing International Corp (SMIC), a Shanghai-based state-backed chipmaker, from 2016 to 2019.

Where was the money from?

While the Wuhan municipal government said the project had received billions of RMB in funding, HSMC’s shareholding structure doesn’t reflect that. The company is 10% owned by a government-owned firm and 90% by a Beijing-based private firm, according to Chinese corporate information platform Tianyancha. The Beijing-based firm is majority-owned by company Chairwoman Li Xueyan, who holds a 54% stake. Mo Sen, one of the company directors, holds the balance.

On Monday, Chinese media The Cover reported that the Beijing-based company never put real money in the project.

Public information shows Li has no experience in semiconductors and data from Tianyancha shows she also has stakes in a baijiu retailer, a few catering companies, and several medical firms.

Li cannot be reached for comment. HSMC didn’t respond to an emailed request for comment.

“The strange thing about HSMC is that it’s unclear where its money is from… It seems that the company didn’t actually receive as much money as it claimed to have,” Gu Wenjun, chief analyst at Shanghai-based semiconductor research company ICwise, told TechNode (our translation).

Chen Rang, a semiconductor investor cited by the National Business Daily, hinted that the Wuhan municipal government may have leveraged land resources to attract private capital to back the project. “But the semiconductor industry has a high standard on investment and it is far from enough to just utilize land resources [to raise money],” Chen said.

Phantom mask aligner

HSMC’s goal was to make China’s first 7-nanometer chips. All it has to show for it is a few uncompleted buildings. It did buy a high-end machine needed for bleeding-edge semiconductor production, but it was put up as collateral for a loan.

The semi-annual report by the Dongxihu District government also said that HSMC had bought “China’s only mask aligner that can produce 7-nm chips” from Dutch company ASML, referring to an instrument that enables photolithography in the fabrication process.

If true, it would be quite a coup—the US government has been campaigning since 2018 to prevent ASML from selling the most advanced machine required to make high-end chips to Chinese companies, according to Reuters.

Chinese media Caixin tried to find the unique 7-nm machine, and it does seem to exist. But they found that it was under mortgage; is good only for 14-nm chips, not 7-nm; and, citing an anonymous semiconductor industry insider, that SMIC has around 10 units of the same model.

Court files show that the machine had never been used when it was held as security for the RMB 582 million loan in January.

“You will need at least two mask aligners and nearly 100 pieces of other machinery to make chips,” said Gu of ICwise. He added that no Chinese chipmaker has realized the mass production of 7 nm chips.

READ MORE: SILICON | Can China make chips?

Fool me once

The Hongxin project was widely questioned in the semiconductor industry, said Gu. “No one believed that it would be a success,” he said.

There are similar stories from other parts of China. In July, Dekema, a Nanjing-based chipmaker backed by the local government, announced it was bankrupt because of “financial difficulties” in raising additional funds from investors.

The Nanjing company previously received $3 billion from investors including the Nanjing municipal government. Founded in 2016, the company said it would “fill the blank in China’s contact image sensor (CIS) chip production.” CIS chips are a key component widely used in portable scanners and bar code readers. After the bankruptcy announcement, local media found that the company’s headquarters consisted of two unfinished buildings and that it had not produced a single wafer.

“Building [semiconductor] production lines needs long-term and consistent investment and it usually takes three to five years to see the initial results,” Gu said. “Production lines backed by local governments face the risk that the support is not consistent because of rotations in officials.”

“We appeal to local governments to make decisions on semiconductors after necessary analyses,” he said. “Whether a semiconductor industry can be built doesn’t depend on how much subsidy the government gives, but on how capable the participants are.”

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China sets global blockchain standards, Canaan is alive: Blockheads

Tue, 08 Sep 2020 05:16:10 +0000

Last week, the usual flurry of blockchain news slowed, but the news that broke was big. The first China-made global blockchain standards were approved and bitcoin rig maker Canaan may be back from near-death.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world from the week of Aug. 21-Sept. 6.

The new standards

The International Telecommunications Union, the body that regulates related systems and telecommunications globally, approved new basic standards on financial applications for blockchain, developed by the People’s Bank of China, the China Academy of Information and Communications Technology, and Huawei. This is the first Chinese-developed international standard on blockchain for finance approved globally. It will serve as the basis for further specific standards that can grow China’s role in the world stage of blockchain, according to Chinese media reports. (Sina Finance, in Chinese)
Alibaba launched at an event in Beijing a new standard for blockchain used for online charities. The e-commerce giant set forth standards in 10 specific areas, including deposit protection and privacy. (CNR, in Chinese)

Canaan is alive!

Cryptocurrency rig maker Canaan Creative has endured two short reports, several investor lawsuits, and an 85% decrease in share price since its listing on the Nasdaq in November. Its unaudited financial results for the second quarter indicate that the company is getting back on its feet and cleaning up its act.

Canaan cut its net losses by more than half in Q2 to RMB 16.8 million from RMB 39.9 million ($5.84 million) in the three months ended March. Its gross profit rocketed 1,711% in the same time period, and 302% year on year.

However, Canaan is not out of the woods quite yet. Concerns set out in two short reports over the company’s business model have not yet seen improvement: cash burning and research and development (R & D) investment.

Canaan’s cash and cash equivalents have decreased by 69% compared with Q4 2019, which the company attributed to a splurge on short-term investments. In the same time period, the rig maker’s short-term investments increased by a factor of 30.

Authors of the short reports accused the company of underspending on R & D, resulting in machines inferior to those of its competitors. The company has decreased its R & D spending by 38% sequentially and 28% year on year. (Canaan Creative)

Throwback to Canaan’s troubles: a story of fraud accusations, disappearing distributors, and bitcoin volatility. (Financial Times)

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VIDEO | TechNode visits a Nio battery swap station

Thu, 03 Sep 2020 10:05:39 +0000

This week, I looked at battery swap technology for TechNode’s Drive I/O newsletter. Two Chinese electric vehicle (EV) companies, Nio and BAIC, are betting big on cars with batteries you can change instead of charging. It’s an ambitious idea—it could solve some of the EV industry’s biggest problems, but there’s no guarantee it’ll work in the market.

READ MORE: Drive I/O | Big bets on battery swap

I wanted to know what drivers think of battery swap, so I visited a Nio swap station in the west Shanghai. As you can see in our video below, the swap process is pretty fast—a little more involved than refuelling a gas car, but faster than changing a tire at the mechanic.

The Chinese Tesla challenger has seen some initial success, completing over 800,000 battery swaps with a nationwide chain of 143 service stations for car owners. The company recently doubled down, establishing a RMB 800 million ($117 million) battery asset management joint venture with several partners, reported SCMP, and plans to build 50 more swap stations next year.

Located in an understated residential area in west Shanghai, the swap station is far less flashy than you would expect.

The facility doesn’t look new and shiny, unlike some of Tesla’s spacious supercharging stations in China’s first-tier cities, but it seems to get the job done. We saw five Nio vehicles pull into the station during our 40-minute stay. Here’s what we found out while we were there.

(Video: TechNode)

We spoke to three Nio owners, and all said they own more than one car. All three said they usually drive their ES6 crossovers for daily use.

Frequency: Mr. Bai, who has been a Nio owner for under a month, has exchanged batteries five times.
Mr. Xie, an ES6 owner since January, uses the vehicle for his daily commute. He typically swaps batteries six to seven times each month.
Mr. Ji, an ES6 driver since 2019 and a businessman with frequent road trips to nearby cities, comes to battery swap stations about ten times each month.

Why swap? Both Xie and Ji said their residential parking spaces have home chargers, but Nio’s battery swap stations are easily accessible to them for daily commutes. Money is another major reason: Xie told TechNode that Nio’s free swap service saves him more than RMB 10,000 in electricity fees each year.
Bai, however, is among thousands of EV owners in China who don’t have a fixed parking space or fixed charging pile in their residential car parks. He said he chose Nio over other EV brands largely due to its recharging services. The Nio battery swap station is only around 2 kilometers (1.24 miles) from his home.

How about experience? All the three customers spoke highly of the availability and efficiency of Nio’s free-of-charge battery swap services, saying that the facilities meet their daily needs.
Still, two customers mentioned that they sometimes have to wait in lines for up to 20 minutes during evening peak hours, as more Nio EVs are on the roads. Nevertheless, they think the delay is acceptable, since the driver remains in their vehicle before getting out to have the battery swapped.

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India bans 118 Chinese apps including PUBG, Alipay as tensions rise

Thu, 03 Sep 2020 05:15:21 +0000

India on Wednesday banned another 118 Chinese-made apps, including Tencent’s popular video game PlayerUnknown’s Battlegrounds, as border tensions between the two nations continue to escalate.

Details: The Indian Ministry of Electronics and Information Technology announced it had decided to block 118 apps that it said were prejudicial to India’s sovereignty, integrity, and national security, the ministry said Wednesday in a statement.

The newly banned apps include Chinese search engine giant Baidu’s two mobile search apps, smartphone maker Xiaomi’s Sharesave, Ant Group’s mobile payment apps Alipay and Alipay HK, as well as Tencent’s cloud-storage app Weiyuan and Wechat Work. Tencent’s Wechat was banned in a similar crackdown on Chinese apps in June.
Tencent’s PlayerUnknown’s Battlegrounds had more than 50 million players in India as of April 2019, local media reported.
The ministry said it had received many complaints about these apps for “stealing and surreptitiously transmitting users’ data in an unauthorized manner to servers which have locations outside India.”
“This move will safeguard the interests of [tens of millions] of Indian mobile and internet users. This decision is a targeted move to ensure safety, security and sovereignty of Indian cyberspace,” the ministry said in the statement.

Context: The ban follows a standoff between Indian and Chinese troops earlier this week and media reports that a Chinese land mine killed an Indian soldier during the confrontation.

In June, India banned 59 Chinese apps on national security concerns following a deadly border clash with China.

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Bytedance to obey China tech export rule as Tiktok sale nears

Mon, 31 Aug 2020 07:13:09 +0000

Tiktok owner Bytedance said Sunday it will “strictly comply with” a Chinese technology export regulation, which was updated last week to ban the export of limited technologies, potentially including those used by the popular video-sharing app.

Why it matters: The development adds a new twist to Bytedance’s negotiations with the American companies that want to buy Tiktok’s US operations, including Microsoft, Oracle, and Walmart.

The deal will have to be reviewed by China’s commerce and technology ministries if any technology used by Tiktok is deemed to be limited.

Details: Bytedance said Sunday on its social media account that it will strictly adhere to (in Chinese) the revised Catalog of Prohibited or Restricted Export Technologies when handling technology export-related businesses.

On Friday, China’s Ministry of Commerce and Ministry of Technology added (in Chinese) 23 items to the Catalog of Prohibited or Restricted Export Technologies.
Two significant additions include items which directly translate into “personalized information push service based on data analysis” and “artificial intelligence interactive user interface,” both of which bear resemblance to proprietary technologies used on the Tiktok platform.
Tiktok, which was ordered by the US President Donald Trump to sell its US operations by mid-September, is known for its artificial intelligence and deep-learning algorithms (in Chinese) that deliver personalized content to its users.

Between the lines: At present, it is unclear if the Tiktok sale in the US is subject to review by the two ministries. However, the catalog has not been revised for 12 years, signaling that the Chinese government could be looking to interfere with Tiktok’s forced sale.

Companies must seek approval from the two ministries before exporting limited technologies and the decision-making process can take up to 30 days, according to a set of technology export regulations the State Council issued (in Chinese) in 2001.
Cui Fan, a professor specializing in international trade compliance at the University of International Business and Economics in Beijing, told state-owned news agency Xinhua on Saturday that the changes could apply to Tiktok.
“Bytedance should apply for licenses if it wants to export related technologies,” Cui said, adding that whomever the new owner of Tiktok will be, it will have to import the technologies used in Tiktok.
“We are studying the new regulations that were released Friday. As with any cross-border transaction, we will follow the applicable laws, which in this case include those of the US and China,” Erich Andersen, Bytedance’s general counsel, said in a statement sent to TechNode on Monday.

READ MORE: 8 things to know about the Chinese tech giant behind Tiktok

Context: Trump signed an executive order on Aug. 6 banning “any transaction” between any person or company under US jurisdiction and Bytedance starting Sept. 15. On Aug. 14, he updated the order to require Bytedance to either sell or spin off Tiktok’s US operations within 90 days.

Current suitors of Tiktok’s US operations include Microsoft, which teamed up with retail giant Walmart, as well as software maker Oracle. CNBC reported that the deal could range from $20 billion to $30 billion.
The Wall Street Journal reported Sunday that talks between Bytedance and suitors for Tiktok’s US operations slowed over the weekend because of the new changes in Chinese regulation.

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Tiktok CEO Kevin Mayer quits as US pressure mounts

Thu, 27 Aug 2020 06:37:22 +0000

Chief executive officer of Bytedance’s video-sharing app Tiktok, Kevin Mayer, said Wednesday that he was resigning, following an executive order from US President Donald Trump requiring the company to sell its US operations.

Details: Mayer said in a note to employees that he had decided to leave the company and that Vanessa Pappas, the general manager of Tikok US, will take over as interim global head of the company, The New York Times reported Thursday.

“In recent weeks, as the political environment has sharply changed, I have done significant reflection on what the corporate structural changes will require, and what it means for the global role I signed up for,” Mayer wrote in the note.
“Against this backdrop, and as we expect to reach a resolution very soon, it is with a heavy heart that I wanted to let you all know that I have decided to leave the company,” he said.
Tiktok said in a statement sent to TechNode that “the political dynamics of the last few months have significantly changed what the scope of Kevin’s role would be going forward” and that the company fully respects Mayer’s decision.

READ MORE: Kevin Mayer might be exactly what Bytedance needs right now

Context: In May, Bytedance appointed Mayer, formerly the top executive for The Walt Disney Company’s streaming business, as its chief operating officer and Tiktok’s chief executive officer.

Mayer was assigned to lead Bytedance’s global expansion as well as corporate development, sales, marketing, public affairs, security, and content moderation.
“As one of the world’s most accomplished entertainment executives, Kevin is incredibly well placed to take Bytedance’s portfolio of products to the next level,” Zhang Yiming, Bytedance founder and CEO said at the time.
Trump signed an executive order on Aug. 6 banning “any transaction” between any person or company under US jurisdiction and Bytedance starting Sept. 15.
On Aug. 14, he issued another executive order requiring Bytedance to either sell or spin off Tiktok’s US operations within 90 days.
On Monday, Bytedance filed a lawsuit challenging the Aug. 6 executive order, arguing that it was issued without evidence or due process, and that the company’s previously provided documentation was “sufficient to address any conceivable US government privacy or national security concerns.”

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Shenzhen looks to draw tech firms with new dual-class share rule

Thu, 27 Aug 2020 05:11:32 +0000

Lawmakers in Shenzhen, a high-tech manufacturing hub in southeast China, passed a rule Wednesday allowing companies to incorporate with a dual-class share structure as the city seeks to attract more tech companies to its economy and stock exchange.

Why it matters: The move followed just days after the Chinext startup board on the Shenzhen Stock Exchange welcomed its first batch of companies subject to a new, Nasdaq-style initial public offering process—part of China’s efforts to lure tech companies to list at home.

Details: The Shenzhen Municipal People’s Congress passed Wednesday a rule aimed at promoting technology innovation, according to its website (in Chinese). The new rule allows companies to set up weighted voting rights (WVR) share structures when registering a new company in the city. It also allows companies with WVR to go public on the Shenzhen Stock Exchange.

Shareholders with extra voting rights must be company founders or those who have made significant contributions to the company’s technology and business development, according to the new rule.
China’s current corporate law requires companies to give shareholders voting rights based on their holdings. Companies usually have to bypass the requirement by setting up variable interest entity (VIE) structures overseas or by drawing up extra agreements between shareholders.

Context: Technology companies tend to list with a two-pronged share structure, with founders and management granted WVR in order to maintain control over the company after it goes public. Tech companies including Facebook, Google parent Alphabet, and China’s JD.com, and Xiaomi have all adopted dual-class share structures for their listings in the US and Hong Kong.

In January, Chinese cloud service provider Ucloud was the first company to list onshore in China with WVR, raising RMB 1.9 billion (around $276 million) on the Nasdaq-style STAR Market tech board in Shanghai.
The Hong Kong stock exchange changed its rules in April 2018 permitting companies to list with shares carrying WVR held by individuals. Chinese smartphone maker Xiaomi was the first company to list under this provision.
China’s efforts to broaden IPO reforms seem to be paying off as the country’s tech unicorns—tech startups with a market value exceeding $1 billion—such as fintech giant Ant Group are in the pipeline to list on mainland stock exchanges. It also comes at a time when Chinese tech firms face increasing scrutiny in the US and risk of delisting from US markets.

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Ant Group IPO filings: five key takeaways

Wed, 26 Aug 2020 09:22:13 +0000

Alibaba’s fintech affiliate Ant Group filed draft IPO prospectuses for a dual listing on the Shanghai and Hong Kong stock exchanges on Tuesday, the first simultaneous listing for a Chinese tech company.

Ant Group is reportedly eyeing a $200 billion valuation, which would make it the world’s most valuable fintech company. Such a valuation would top those of some of the world’s biggest banks, including China’s big four. It could be one of the biggest IPOs in recent years, potentially topping Saudi Arabian state-owned oil producer Aramco’s $29 billion listing.

READ MORE: Ant Group’s dual listing will be one of the biggest IPOs of 2020

Ant Group’s 674-page Hong Kong prospectus reveals the extent of its empire, risk factors related to geopolitical tensions, and financial regulations. Here are five key takeaways.

1. Impressive profits and growth potential

In the first half of 2020, the company earned RMB 72.5 billion in revenue, a year-on-year increase of 38%. Digital finance services drove growth, growing 56% year on year to RMB 46 billion in the period.

The company booked a net profit of RMB 21.9 billion in the first half, outstripping its RMB 18.1 net profit for all of 2019, according to the prospectus.

Monthly active users of mobile payment app Alipay, Ant Group’s key asset, reached 711 million as of end-June, while transaction volume for the app reached RMB 118 trillion during the 12 months ended June 30.

The bulk of Ant Group’s revenue comes from its “Credittech” business, which operates a range of loan services targeting individuals and merchants. Credittech revenue grew 59.5% year on year in the first six months of the year to RMB 28.6 billion, accounting for 39.4% of its total revenue in the period.

Credittech’s key products include Huabei, a virtual credit card service; Jiebei, a micro-lending service targeting individuals; and Mybank Loan, which lends money to small and medium-sized businesses (SMB). The company said in the prospectus that the consumer credit balance of its loan businesses was RMB 1.7 trillion and the SMB credit balance was RMB 400 billion as of the end of June.

2. Looming #techwar

Ant Group warned investors that rising geopolitical tensions could seriously impede its business. It emphasized rising risks of sanctions and trade restrictions on Chinese tech firms from the US government.

READ MORE: Techwar: Trump to end transactions with Tencent and Bytedance in 45 days

Such restrictions have the potential not only to banish Ant Group from US markets, but also disrupt its ability to participate in the US dollar-led global financial system, the company said.

The company singled out its cross-border payments business as exposed to such actions, adding that cross-border payments will be a key area of investment for Ant Group in the future.

Some analysts have said that new listing restrictions in the US are the very reason that Ant Group didn’t list in the US, as Alibaba did with massive success in 2014.

In June and July, four Chinese companies, including China’s US IPO pioneer Sina and online travel agency Ctrip, announced plans to delist from the US stock market. Big Chinese tech companies listed in the US have also started dual listing their shares in Hong Kong, signaling a retreat from US financial markets.

3. Jack Ma remains at the helm

The fintech company has tried to distance itself from Alibaba founder Jack Ma and Alibaba in the past, insisting that it is an independent company. Yet Alibaba shares in New York jumped 3.6% Tuesday on the back of Ant Group’s IPO news.

The prospectus said the billionaire entrepreneur is Ant Group’s “ultimate controller,” holding a 50.52% stake in the company. Information about Ma’s stake after the IPO is redacted in the draft prospectus.

The Alibaba and Ant Group founder helms a limited liability partnership, which controls two other partnerships that are Ant Group’s biggest shareholders.

According to the prospectus, Ma transferred 66% of the controlling entity’s equity shares to Ant Group’s leadership on Aug. 18. He divided it equally between Eric Jing, the company’s executive chairman, Simon Hu, the CEO, and Fang Jiang, a non-executive director.

Ant Group also recognized that its success is closely linked to Alibaba. The prospectus says Alibaba, mentioned 650 times in the document, is a “major shareholder,” and the prospectus reports that the two have a data sharing agreement. It lists conflicts of interest between the two giant companies as a risk factor, highlighting the fact they have “overlapping” user bases.

There are “no assurances,” the prospectus says, that Alibaba won’t try to compete with its fintech twin.

4. Mounting regulations

The prospectus warns of tightening regulations in key business segments for Ant Group, both globally and in China: payments, investment, insurance, and credit, among others.

It makes special reference to China’s tightening anti-monopoly laws: Authorities have in recent years “strengthened enforcement,” it said.

China’s central bank is reportedly not happy about Ant Group and Tencent’s hold over the domestic digital payments market through Alipay and Wechat. In late July, Reuters reported that Chinese regulators are preparing for an antitrust investigation in the two apps.

READ MORE: INSIGHTS | China’s digital currency has a long way to go

The digital yuan’s e-wallet is expected to compete with the effective duopoly, possibly breaking Ant Group and Tencent’s chokehold on the market.

“If we fail to adapt to these new initiatives in a timely manner, our business, financial condition, and results of operations may be materially and adversely affected,” the company said in reference to the digital yuan.

5. [REDACTED]

Ant Group’s IPO filings are not final, and many pieces of crucial information were redacted, including the number and price of shares, and the company’s total valuation.

“The A Share [REDACTED] comprises an [REDACTED] of initially [REDACTED] A Shares for subscription, representing approximately [REDACTED]% of our total outstanding Shares following the completion of the H Share [REDACTED] and the A Share [REDACTED], assuming that the [REDACTED] are not exercised.”
Ant Group in its draft IPO prospectus filed at the Hong Kong Stock Exchange

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Q&A with Vitalik Buterin on the BSN and China’s blockchain world

Tue, 25 Aug 2020 09:11:04 +0000

Much has changed in the blockchain universe since Vitalik Buterin released one of the most influential white papers in the history of the distributed ledger technology. His 2013 Ethereum white paper was the first step in developing the world’s second-largest cryptocurrency by market capitalization. Unlike Bitcoin, the Ethereum protocol was created to support the development of blockchain applications (known as decentralized applications, or Dapps), which has rendered it into the go-to platform for blockchain developers.

One change that Buterin doesn’t often talk about is China’s rise as a global blockchain powerhouse.

On the heels of the annual Ethereum Developers Conference, TechNode interviewed Ethereum co-founder Buterin via e-mail. Supported by the Ethereum Foundation, EDCON is a community-supported event organized by LinkTime, Unitimes, ETHPlanet, and other Ethereum communities.

Buterin spoke about blockchain adoption in China, China’s Blockchain Services Network (BSN), and the early days of Ethereum.

The Ethereum co-founder welcomes Chinese developers, government, and large enterprises to the field, but warns that a preference for consortium blockchains may get in the way of their international ambitions. This type of blockchain centralizes control of the network.

In an international context you cannot assume that there is even a single government that everyone trusts, whereas public blockchains are more easily perceived as being neutral.
VItalik Buterin

Buterin also sees potential in the Chinese government-led “internet of blockchains” BSN, but cautions that it’s far from a done deal. He compared the hype to Facebook’s Libra digital currency, which also made headlines when announced. Only five months later, major partners pulled out from the project, and it has yet to pick up steam.

TechNode: Where are you seeing the most blockchain talent, geographically speaking?

Vitalik Buterin: I think it’s widely distributed! At the beginning it was more highly concentrated in Silicon Valley, Berlin, and a few other places, but now there are hubs of blockchain talent all around the world. I see many successful teams in the US, Europe, Australia, and recently more in China as well.

TN: Governments are increasingly involved in blockchain, either through regulation or their own initiatives. Consortium chains are garnering increasing attention and popularity. Do you think that either or both of these moves diminish the potential for decentralization?

VB: My impression is actually that public chains are gaining more support recently, including from large enterprises and even government applications in a few cases. Consortium chains are of course the more safe and conservative option, and much more powerful than public chains in the short term because public chains have scalability issues, but I think public chains will prove themselves to be more safe and scalable with time.

TN: How do you think China’s increased activity in the blockchain world, both by the private and public sectors, will affect the development of the technology in the next decade? What are some pros and cons?

VB: I am definitely happy that so many in China are interested in building blockchain applications. We are in a time when there is great concern about what technologies can be trusted; blockchains cannot solve all problems but there are definitely some things that blockchains can make better by making it easier to build platforms where users control their own data, improving auditability and transparency of algorithms, etc.

One main challenge I see is that so far Chinese large enterprises and government tend to focus mostly on consortium chains, and while I think this will work within China, I also think that many of the most valuable blockchain applications are international ones, and in an international context you cannot assume that there is even a single government that everyone trusts, whereas public blockchains are more easily perceived as being neutral. So I do think that more adoption of public chains is going to be necessary. BSN integrating with public chains is definitely a positive step in this regard.

TN: Ethereum is one of the chains available on China’s BSN, according to Red Date. How was the decision to participate taken, can you describe the reasoning? How do you think you can manage the collaboration/competition relationship given that both projects pertain to smart contracts and Dapps?

VB: That decision was taken by the BSN group, it would be better to ask them for their reasoning! I think they simply want to give developers options and the ability to use high-quality public networks that are widely used, and Ethereum is absolutely at the forefront of that. I don’t see BSN as being a competitor to Ethereum; I see it as being a different layer.

TN: What is your take on the BSN more broadly? What will its impact be?

VB: I think it’s still too early to tell; it remains to be seen exactly what kinds of projects will be built on BSN and how it will evolve. It’s important to not try to guess too much from early initial information about a project when it’s being released; e.g. I think this is one of the mistakes that people made with Libra.

TN: It is said that back in 2013 you proposed creating a scripting language on top of Bitcoin, but that this didn’t go down well. If this is true, what do you think looking back on that interaction now? Is there anything you would have done differently? Do you think that, ultimately, the creation of Ethereum was for the best?

VB: This is a misconception; I did not actually propose to build on bitcoin first. I proposed to build on Primecoin instead of Bitcoin, because at the time the Bitcoin community was already having debates with many people pushing to change the protocol to make it impossible to build second-layer protocols of the type that I wanted to build on top. A big part of the reason why I wanted to build on Primecoin instead of building an independent blockchain was because at the time I expected I would have to write the code myself and I did not see myself capable of writing an independent blockchain from scratch. However, when I published the idea, far more people quickly offered to help, and so I did feel like I had the ability to create Ethereum as a separate blockchain.

TN: You began your career as a journalist at Bitcoin Magazine. Have skills from media helped you in your later career? What is the most common mistake journalists and public speakers make when communicating blockchain with the general public?

VB: Probably the two most important skills that I learned were (i) an understanding of the tech and economics and other properties of bitcoin and cryptocurrency, and (ii) writing skills. I think the biggest mistake made by a lot of educational writing is that there are usually two types of educational writing. First, there is writing that tries to fully explain the idea technically, with the goal of helping people fully understand it and be able to implement it; however, this writing tends to be very academic, very difficult to read, and often written to be read by people who studied the same things in university as the author etc etc. Second, there is writing that targets the general public, but is completely technically inaccurate. I feel like there is a large missing space in between these two extremes, and it’s what I try to target with a lot of my writing.

TN: What was it like to be paid in Bitcoin (BTC) in the early 2010s? What did your family and friends tell you? What were the most important reasons why you got involved with cryptos?

VB: Being paid with BTC for the first time definitely felt like becoming part of a new world. My family and friends were not too interested at first, though I became interested very quickly; I found the combination of math and technology and ideas around open source software, digital communities and freedom very attractive. It took time for other people to find cryptocurrencies interesting as well.

TN: What is the most important roadblock in a blockchain-powered internet, back in the early 2010s and today? How was your thinking about the technology changed? Have you discovered new potential/limits that you didn’t see before?

VB: There are definitely many things that I understand now that I did not understand well back then. One example of this is around decentralized governance. In the early 2010s, I was very interested in DAOs (fully decentralized companies running on the blockchain) and similar ideas, but I understood little about the challenges of actually building them and the economics of governance mechanisms.

Since then I’ve come to understand much more, and I know what the limits are; for example, I have written many articles about how coin-based voting systems are vulnerable to bribing voters, control by very few wealthy actors, and similar problems. Understanding the economics and the limits of oracles has also been another significant advancement since then. [Oracles connect Dapps with the real world, facilitating the execution of smart contracts.] Though at the same time, we have come much further in actually having these systems running on a live network, so I think there has been progress.

TN: Ethereum 2.0 (Eth2.0) is adopting a proof of stake consensus algorithm to improve the network’s scalability and efficiency. But it’s likely that staking pools, much like mining pools, will emerge to dominate the network, increasing centralization. Will Eth2.0 sacrifice some decentralization for scalability? How do you plan to deal with centralization stemming from staking pools?

VB: The Eth2.0 research team takes decentralization very seriously. We have made many protocol changes to try to make the protocol more friendly to individual and small-scale stakers. Staking pools are definitely going to happen, through it is definitely our hope, and our expectation, that there is less centralization in staking than there was in mining.

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UPDATED: Bytedance challenges Trump’s Tiktok ban in court

Tue, 25 Aug 2020 03:20:00 +0000

UPDATE (Aug. 25): Bytedance filed a lawsuit early Monday challenging an Aug. 6 executive order forbidden transactions with popular social media app Tiktok. We’re updating the story with new details of the legal argument from the complaint. Bytedance argues that the executive order was issued without evidence or due process, and that the company’s previously provided documentation was “sufficient to address any conceivable US government privacy or national security concerns.”

Tiktok maintains that they have taken extraordinary measures to protect US user data and have fully complied with a 2019 investigation by the Committee on Foreign Investment in the United States.
The complaint further argues the executive order violates the fifth amendment, misuses the International Emergency Economic Powers Act, and jeopardizes up to 10,000 planned US jobs.
“We do not take suing the government lightly, however we feel we have no choice but to take action to protect our rights, and the rights of our community and employees,” Tiktok said in their Monday press release.

Chinese Foreign Ministry spokesperson Zhao Lijian criticized the Wechat and Tiktok restrictions at a Monday press conference (Chinese), saying China supports companies “taking up legal weapons to safeguard their legitimate rights and interests” and that the American politicians pursuing the bans were “full of lies and slander.”

Tiktok parent Bytedance said Sunday said it would file a lawsuit as early as Monday against the US government over an executive order banning transactions with the popular Chinese-owned video-sharing app.

Why it matters: The lawsuit does not address forcing the sale of Tiktok to an American buyer because it doesn’t target the executive order signed by the US President Donald Trump on Aug. 14 ordering the divestiture. However, it may become a bargaining chip for the company in talks with potential buyers such as Microsoft and Oracle.

The executive order gives Bytedance 90 days to either sell or spin off its US operation of Tiktok. The order is not subject to legal judicial review, according to Reuters.

Details: Bytedance said in a statement (in Chinese) issued on Sunday that it would sue the US government on Monday to “make sure the company and its users are fairly treated.”

The company said in the statement that the Trump administration had “dismissed reality” (our translation) and failed to adhere to the due process of law, but it didn’t elaborate.
“Even though we strongly disagree with the administration’s concerns, for nearly a year we have sought to engage in good faith to provide a constructive solution,” the company said.
Reuters first reported on Bytedance’s plan to file the lawsuit on Saturday, citing anonymous sources as saying that the legal challenge pertains to an executive order which Trump issued on Aug. 6.

Context: Trump signed two executive orders on Aug. 6 banning “any transaction” between any person or company under US jurisdiction and Bytedance as well as Chinese instant messaging app Wechat starting Sept. 15.

The orders faced its first legal challenge when a group of Chinese American lawyers announced on Aug. 8 that it would file lawsuits against Trump’s executive order involving Wechat. Some of the lawyers formed a non-profit organization, US Wechat Users Alliance, to assist fundraising efforts to file suits in multiple locations.
The group said Friday it will file a federal action against Trump and Wilbur Ross, the US Secretary of Commerce, in the US District Court for the Northern District of California, seeking to prevent the Aug. 6 executive order from banning the use of Wechat in the country by individual users and businesses.

This piece was updated Aug. 25 with details of Bytedance’s complaint.

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Public blockchain Conflux lands second government deal

Fri, 21 Aug 2020 04:45:23 +0000

Public blockchain startup Conflux will set up a new data management system for the provincial government of Hunan and set up an innovation and training lab at the province.

Why it matters: This is the second official endorsement that Conflux has received from a government entity—an extremely rare feat for a public blockchain startup—after it struck a deal with the local Shanghai government in December.

Public blockchain applications are usually frowned upon in China. Their decentralized nature does not allow for information to be controlled.
Conflux has avoided the ire of regulators, and even invited their support, by steering clear of taboo activities like initial coin offerings (ICOs).

“It is a great opportunity to demonstrate to the wider society that blockchain is actually useful and not just speculation.”
—Conflux founder Fan Long to TechNode

Details: Conflux will “revamp” the provincial government’s information architecture using its blockchain solutions and create a blockchain research and training facility at Hunan University, the startup’s founder Fan Long told TechNode.

The Beijing-based company has set up an entity in Hunan, which it co-owns with local partners, that will create a new blockchain-based low-level architecture for storing government data.
The system will digitize government data and integrate it with the Conflux architecture, which will enable easier and secure data sharing between administrative agencies, according to Long.
The project is worth around $10 million, he added.
Conflux has set up a government-funded lab at the province’s top university and hired team of 15 “key people,” Long said.
“If the Covid-19 situation is getting better, it will be fully operational by the end of the year,” he said.

We are happy to announce that we have received endorsement from the Hunan Government. 🤝@Conflux_Network is honored to be endorsed by the Hunan Government and we are proud to be on the forefront of Hunan’s rapidly-growing hub of science and technology. #blockchain #China pic.twitter.com/knrd1XPloZ
— Conflux Network Official (@Conflux_Network) August 19, 2020

Context: After Xi Jinping encouraged the adoption of blockchain last autumn, local governments have jumped on the bandwagon.

The Beijing municipal government announced in July an ambitious plan to integrate the technology in its governance, with applications in customs, cargo, finance, real estate, and more.
Conflux’s December deal with the Shanghai government was for a 10,000 square meter research lab in the city.
The startup reportedly received $35 million in funding in a private token sale in 2018, from investors including Sequoia China and Huobi Capital.
It has not and will not try to raise money through an ICO, the company has said. ICOs are a popular way of fundraising in the blockchain world, but were banned in China in 2017.
“If you want to go beyond speculation, you have to be compliant,” Long said.

READ MORE: Beijing unveils plan for blockchain-based government

Correction: An earlier version of this article incorrectly stated that Fan Long was the CEO of Conflux.

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US expands Huawei ban to third-country chip vendors

Tue, 18 Aug 2020 05:20:29 +0000

The US Commerce Department issued Monday new rules expanding restrictions on Huawei, in a move that will further narrow the Chinese telecommunications equipment maker’s access to crucial chips.

Why it matters: The move could further close what some US officials call “loopholes” in Huawei’s chip supply chain, forcing non-US companies to apply for a license to sell chips made using American technology to Huawei.

The Trump administration has already banned US companies from shipping components and technology to Huawei, and cut it off from overseas semiconductor manufacturers that use American software and technology.
Monday’s new rules mean Huawei can’t circumvent the ban by purchasing commercially available chips it needs from third-party vendors.

Details: The US Commerce Department added another 38 Huawei subsidiaries into the so-called “Entity List” and imposed license requirements on any transactions involving items subject to US export controls, it said in a statement on Monday.

This means vendors of chips made with US technology will have to apply for a license in transactions where Huawei or other companies on the Entity List act as a “purchaser, intermediate, or end user,” according to the statement.
“These actions, effective immediately, prevent Huawei’s attempts to circumvent US export controls to obtain electronic components developed or produced using US technology,” the Commerce Department said in the statement.
The US President Donald Trump reinforced his concern that Huawei equipment could be used to spy on Americans. During an interview on Monday on “Fox & Friends,” Trump called the Chinese company “Spy-Wei.”
A representative of Huawei declined to comment to a request from TechNode on Tuesday.

Context: A series of US restrictions on critical chips has taken a toll on Huawei’s business, especially in the smartphone segment.

Chinese media Caixin reported earlier this month that Huawei will stop making its flagship Kirin chipsets after Sept. 15 due to US pressure on suppliers.
Huawei’s high-end Mate 40 handsets, which will debut this fall, will be the last smartphones featuring the Kirin 9000 processor, company’s most advanced processor, said Yu Chengdong, head of Huawei’s consumer business, who called it a “huge loss” to the company, according to Caixin.
Huawei’s in-house chip designer Hisilicon relies on software from US companies such as Cadence Design Systems and Synopsys to design its chips. It outsources the production of its chip designs to Taiwan Semiconductor Manufacturing Company, but the collaboration is under pressure because of new US export regulations announced in May.
Mediatek, a Taiwanese chip designer, is widely seen as a possible alternative to Huawei’s Hisilicon. The company told Chinese business media Yicai Tuesday that it is evaluating the US export rule changes to make sure it complies with relative regulations.

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INSIGHTS | Trump’s app bans and what they mean for China tech

Mon, 17 Aug 2020 03:48:26 +0000

Last week, US President Donald Trump took aim at two of the most internationally successful apps ever made by Chinese companies. After preaching about the national security risks posed by Chinese-made apps for months, he signed two executive orders on Aug. 7 that ban transactions with the owner of Tiktok and Wechat starting from Sept. 20. It looks like the US is now in the app bans game.

We’ve spent a lot of the last week trying to figure out what it all means. Here’s what we’ve learned.

Bottom line: The two apps will be banned in the US unless there is a change in their ownership, meaning at least that they will be dropped from app stores. While Bytedance is reportedly in talks with potential buyers like Microsoft and Twitter, it is virtually inconceivable for Tencent to sell Wechat, one of the Chinese internet titan’s most valuable products.

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No one knows how the ban will be interpreted. It’s not clear if users who have already downloaded the apps would be prevented from using them, or if the bans will have effects beyond the borders of the US. But as the US continues to pursue its “clean network” policy, more bans may be coming soon.

The executive orders: The orders ban “any transaction”with Bytedance by a person or company under US jurisdiction, and any transactions with Tencent that relate to Wechat. The Secretary of Commerce will be tasked with identifying these transactions when the bans come into effect on Sept. 20.

What’s banned? Critics say the orders are “incredibly broad and vague” with little clarity on the “transactions” that are banned until Sept. 20. But lawyers told TechNode that it’s possible to guess based on the law behind the order.

The key policy precedents are the 1977 International Emergency Economic Powers Act (IEEPA) and a May 15, 2019 executive order declaring a “national emergency” (the precondition for trading bans under IEEPA).
Clay Zhu, an attorney at Deheng Law Offices in California, told TechNode in an interview that the May 15 order, viewed broadly as targeting Chinese telecommunications equipment maker Huawei, defined transactions as “acquisition, importation, transfer, installation, dealing in, or use of any information and communications technology or service.” If this definition is applied to Wechat, Zhu said, it would effectively be a total ban of the app.
A White House document, reported by Reuters, lists as banned “transactions” actions that include putting Tiktok on an app store, buying an ad on Tiktok, or accepting the app’s terms of service as a user.
“We should assume companies have 45 days, and any further dealing with Wechat or Tiktok will require a license, which presumably will be denied,” Alex Capri, visiting senior fellow at the National University of Singapore Business School, told TechNode.

Best case: Greg Pilarowski, founder of tech-focused boutique law firm Pillar Legal, told TechNode that IEEPA may limit the president to blocking financial transactions—so it could be that Wechat Pay and perhaps Tiktok ads are blocked, while the apps survive.

More likely: The White House is aiming for a total ban on the apps in the US, Pilarowski said. Even if the law is disputable, the Commerce Department will likely order the apps removed from app stores, which would put pressure on Apple and Google to comply.

Jump the wall? In the event that apps stores are forced to de-list the apps, would users be blocked from using them? The US probably can’t block the apps the way China blocks many foreign apps—but the apps could block themselves.

Tiktok already blocks users in Hong Kong, China, and India based on SIM card nationality as well as IP address, meaning a VPN alone doesn’t allow users to access the app.
Wechat has also begun blocking users in India in response to that country’s app ban.

Worst case: The US tries to enforce these app bans beyond its borders, as it is doing with the ban on exports to Huawei. In such a scenario, the ban could prevent Starbucks from accepting Wechat Pay in China—or force the Apple App Store and Google Play to de-list globally.

Experts think these scenarios are unlikely, as they would hurt US businesses more than they hurt China.
Pilarowski wrote in an Aug. 12 paper that a ban on US retailers accepting Wechat is very unlikely. The Wall Street Journal reports that major US retailers are lobbying the president against such a ban.
If forced to de-list the apps globally, Apple would have no future in the Chinese market. Apple is a beloved brand in China—but Wechat is as essential as oxygen for digital life. Analysts argue this makes de-listing in China very unlikely.
Since Google Play is already blocked in the country in favor of domestic app stores, this scenario would have much less effect on Google phones.

What options do Tiktok and Tencent have?

Sell: Bytedance is in talks with American companies to sell Tiktok. This would save the company from more losses, though it might not be a good deal for the company. There is no sign that Tencent is going to sell any part of Wechat. The company may just give up the US market, where it has roughly 19 million daily active users.

Bytedance has until Sep. 15 to make a deal with an American company. Microsoft already confirmed that it had held talks with Bytedance to buy the American, Canadian, Australian and New Zealand operations of Tiktok. CNBC reported that the deal could costspend Microsoft between $10 billion and $30 billion.
Sue: Bytedance is also seeking to challenge the executive order in court. The company said it would argue that the executive order is unconstitutional because it did not give the company a chance to respond. Tencent hasn’t yet taken legal action, but a group of American Chinese Wechat users said they would file lawsuits against Trump’s executive order involving Wechat, arguing that the executive order goes against provisions of the US Constitution and the Administrative Procedure Act.

But the courts move slowly, and the chance of rulings before the Nov. 3 election are close to nil. Even if the companies eventually win, Pilarowski said, the bans will accomplish their political goals for the president. “It doesn’t matter if he has the authority to do this, or he doesn’t have the authority to do it, he’s got what he wanted. It’s one more data point in this administration being tougher on China than any previous administration in the United States.”

For Bytedance, the executive order means more than just losing Tiktok.

Hiving off part of Tiktok’s regional operations means there will be two independent versions of the same social media app. In that case, if Microsoft wants American teenagers to be able to view videos uploaded by Japanese or British ones, it would have to seek approval from Bytedance, which may run into conflict with Trump’s executive order, as The Economist noted.
For Bytedance, if it has to sell the Anglo-Saxon part of Tiktok, it still owns the European, Japanese, and Southeast Asian markets. India just banned Tiktok, and Bytedance is in talks with Indian conglomerate Reliance for a potential investment to save the app’s operation in the country, TechCrunch reported Wednesday.
Bytedance also operates Douyin, which is often seen as the domestic version of Tiktok, in China. The app has more than 400 million daily active users.
Tiktok’s break-up will also put a dent in Bytedance’s valuation, which reached $140 billion earlier this year. Several investors said the company’s price tag is under “tremendous pressure” as it set to lose part of Tiktok.

Tencent, however, seems sanguine. The company publicly downplayed the importance of the US market to its global businesses in an earnings call Wednesday, as it reported robust second-quarter results.

“The US represents less than 2% of our global revenue. Within that, advertising in the US should be less than 1% of our total advertising revenue,” James Mitchell, Tencent’s Chief Strategy Officer, said during the earnings call.
The executive order only covers US jurisdiction, meaning US companies selling to Chinese markets will still be able to advertise on Tencent’s platforms in China, making it even less likely that the ban will weigh on ad revenue, according to Mitchell.
The company said its operating profit in the second quarter increased 38% year on year to RMB 37.63 billion ($5.32 billion).
Industrial observers seem to agree with Tencent’s argument. Shenzhen-based broker Guosen Securities on Monday maintained a buy rating on the Tencent stock. A full exit of Wechat from the US market will have little impact on the company’s revenue and social media ecosystem, said Wang Xueheng, analyst at Guosen Securities.
But nevertheless, shares of the company have dropped by 8.2% since the announcement of the order last Thursday.

A silicon curtain? The executive orders came a day after the US Secretary of State Mike Pompeo escalated the tech war with a new initiative. He promised to purge US networks from Chinese technology under the “Clean Network” program.

The US will work to stop Chinese cloud providers like China Mobile, China Telecom, Alibaba, Tencent, and Baidu from storing and processing vast amounts of data from US citizens and companies, according to Pompeo. The State Department aims to keep sensitive personal information and key intellectual property, such as Covid-19 vaccine research, away from Chinese companies, he said.
Capri also warned that the administration’s “Clean Network” program could target cloud computing next. “The big question is, how far is the administration going to go, and is Alibaba next?” he said.

The setbacks faced by Bytedance and Tencent also came as Chinese President Xi Jinping is promoting a new strategy to speed up China’s shift toward more reliance on its domestic economy. The initiative, translated as “domestic circulation,” encourages companies to prioritize domestic consumption and markets. Chinese officials said the strategy is gaining urgency as Chinese companies such as Huawei and Bytedance face increasing resistance in overseas markets, according to the Wall Street Journal.

TechNode reporter Chris Udemans wrote that Chinese corporate investors including Alibaba, Baidu, and Tencent already started to retreat from the US even before the August orders.

But experts say this will not be the end of Chinese tech companies’ global expansion, nor does it mean Chinese companies will have to focus only on the domestic market.

“The recent developments are forcing Chinese tech companies to change directions when expanding into overseas markets. They may go to Southeast Asia, Africa, and Europe,” said TechNode founder and CEO Lu Gang.
Lu suggests that companies with apps that can influence users’ thinking, or collect personal or business data, may face more difficulties in the overseas markets. He says that’s why the US targeted companies like social media app Tiktok and telecoms company Huawei and artificial intelligence firm Iflytek. He added that people in overseas markets may have more concern for Chinese AI firms because of non-technical factors.

The hostility Chinese tech companies are facing in the US may also have an immediate impact on how startups and venture capital firms raise money, said some VC investors.

“In the short term, Chinese VC might be more skeptical about startups that tend to expand to US or European markets because of tense international situations,” Xu Miaocheng, investment vice president at Beijing-based VC firm Unity Venture, told TechNode.
US dollar funds have more pressure, and it’s a difficult time for them to raise money from their backers at the moment, said Xu.

A future of ‘splinternets’? The executive orders against Tiktok and Wechat don’t mean the end of Chinese tech companies’ global expansion, but further restrictions are expected to come. With China’s long-standing Great Firewall, and the addition of the US’ new “Clean Network” program, we are now closer than ever to a world with two different internets.

Understand the law: “POTUS bans Wechat” (Pillar Legal)
The view from the boardroom: “Corporate America worries Wechat ban could be bad for business” (Wall Street Journal)
Where is this ‘Clean Networks’ stuff going? “The strategic vision behind the Tiktok, Wechat bans” (Lawfare)

Additional contributions by David Cohen

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China to expand digital currency pilot to 3 regions

Mon, 17 Aug 2020 02:20:14 +0000

China’s digital currency will soon be rolled out in three new regions in the country: the Beijing-Tianjin-Hebei region, Yangtze River Delta, and the Greater Bay Area, according to a Ministry of Commerce document.

Why it matters: The Digital Currency/Electronic Payment (DCEP), China’s digital yuan, will be the world’s first sovereign digital currency, and its rollout is gathering momentum. The new pilot regions include some of the country’s most developed financial hubs like Hong Kong and Shanghai.

READ MORE: China’s digital currency has a long way to go

Details: DCEP has already been trialed in Shenzhen, Chengdu, Suzhou, and the Xiongan economic zone near Beijing. China’s central bank will expand trials of the digital currency in Beijing-Tianjin-Hebei region, the Yangtze River Delta, and the Greater Bay Area region, according to a Ministry of Commerce document, likely before the end of the year. Further expansion into “central and western areas” are contingent upon meeting certain conditions, which is not identified in the document.

The Ministry of Commerce document stated (in Chinese) in the overview document that the new measures should be completed by the end of 2020. Many cities in the three new pilot regions are likely to test DCEP before the new year.
The three new pilot regions incorporate economic heavyweight cities: The Greater Bay Area (GBA) has a $1.5 trillion dollar economy and includes Hong Kong, Shenzhen, and Macau; the Yangtze River Delta region includes Shanghai’s $248 billion GDP as well as Nanjing, Hangzhou, and Suzhou.
The DCEP will have the same value as the yuan, and will work with existing mobile payment providers like Alipay and Wechat Pay. Unlike other anonymous cryptocurrencies, it will be regulated by the central bank.

Context: The DCEP has been a work in progress for at least five years as China aims to create its own national digital currency.

Earlier this month, several Chinese banks including the Agricultural Bank of China, Industrial and Commercial Bank of China, China Construction Bank, and Bank of China began using the digital yuan.
In July, Beijing released a detailed plan on how to integrate blockchain technology into sectors like logistics, cross-border trade, and e-governance.

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Bytedance applies for financial licenses in Hong Kong

Tue, 11 Aug 2020 05:39:57 +0000

Amid escalations in the tech war, Bytedance has applied for five financial licenses in Hong Kong through its local subsidiary.

Why it matters: If approved, the licenses would allow Bytedance to sell securities and futures, trade foreign currency, as well as offer advisory and asset management services in Hong Kong.

Bytedance will be competing with Alibaba and Tencent, which have already established a presence in Hong Kong’s online brokerage and financial advisory markets through local subsidiaries.
However, US President Donald Trump’s executive order banning “transactions” between US firms and the company may hinder Bytedance’s ambitions to enter the financial services market.

READ MORE: Techwar: Trump to end transactions with Tencent and Bytedance in 45 days

Details: The Tiktok owner registered its subsidiary, Squirrel Securities, with Hong Kong authorities in December 2019, looking to move into the city’s lucrative financial services market.

Squirrel has applied for type 1, 4, 5, 6, and 9 licenses, according to Chinese media.
The company has applied for trademark registration and has obtained a license for stock brokerage, Reuters reported on Monday.
Squirrel currently has just one full-time employee at the moment, according to the Reuters report citing a person familiar with the situation.

Context: After the resounding success of Tiktok and its domestic version known as Douyin, Bytedance has pursued growth by entering different verticals of the tech industry including edtech, gaming, and workplace collaboration.

The company has also applied for a virtual banking license in Singapore. The city-state has said it will issue five digital bank licenses by the end of the year, and Alibaba’s Ant Group is one of the other contenders.
Tiktok left Hong Kong in July after the sweeping National Security Law was implemented.
After the US government threatened to ban Tiktok in the US, Bytedance is in talks to sell its US business to Microsoft.
Trump signed an executive order on Friday that bans all transactions between persons and companies under US jurisdiction and the Tiktok owner on Friday. US Secretary of Commerce Wilbur Ross will announce the specifics of the ban on September 15, when the order goes into effect.

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Techwar: Trump’s Wechat, Tiktok ban to face lawsuits

Tue, 11 Aug 2020 04:52:51 +0000

US President Donald Trump’s executive orders banning transactions between US citizens and Chinese entities Wechat and Bytedance are about to be challenged in court, with short video platform Tiktok planning to file a federal lawsuit as early as Tuesday while a group of Chinese American lawyers announced it would file multiple lawsuits to challenge the Wechat ban.

Why it matters: Trump’s executive orders, announced late Thursday, aren’t just pitting the White House against Chinese companies: it puts the administration on a collision course with US consumers. It may also be illegal, according to the US Wechat Users Alliance.

Read more: US Wechat ban will mean more than lost connections

Details: Tiktok will argue that the executive order is unconstitutional because it did not give the company a chance to respond, and that concerns about Tiktok as a national security risk are “baseless,” according to an NPR report.

In a statement released August 7, Tiktok said it was “shocked” by Trump’s order. “This Executive Order risks undermining global businesses’ trust in the United States’ commitment to the rule of law,” the company said.
A group of Chinese American lawyers announced (in Chinese) on August 8 that it would file lawsuits after “multiple rounds of discussions” in the close-knit community about the Trump’s executive order involving Wechat. Some of the lawyers formed a non-profit organization, US Wechat Users Alliance, to assist fundraising efforts to file suits in multiple locations.
They will argue that the executive order goes against provisions of the US Constitution and the Administrative Procedure Act, according to the announcement.
Clay Zhu, an attorney at Deheng Law Offices in California who is involved with the litigation efforts, told TechNode that the term “transaction” used in the Wechat order refers to a previous executive order from May 15, 2019. That order, focused on securing the US technology supply chain, defined transaction as “acquisition, importation, transfer, installation, dealing in, or use of any information and communications technology or service.”
If the May 2019 definition of “transaction” is applied to Wechat, Zhu added, it would effectively be a total ban of the app.
The group hasn’t yet filed any suits, but California or Washington state are top choices due to their more liberal courts and judges favorable to the issues they will raise, Zhu said.
“We understand that Wechat is a flawed app. We can choose not to use it, but Mr. President has no right to make this choice on our behalf,” the announcement said.

“Trump’s reasons for doing this are not well articulated and there’s been no testing of his reasons. He says Wechat violates our national security—how? Where’s the evidence? This needs to be investigated by the courts.”
—Angus Ni, attorney at AFN Law involved in the litigation against Trump’s executive order, to TechNode on Monday

Context: Anti-China rhetoric from the US government is solidifying into plans to keep Chinese tech out of the US.

Wechat has 19 million daily active users in the US, and Tiktok has over 100 million monthly users in the country.
A US State Department-initiated program announced on August 5 dubbed the Clean Network would purge made-in-China tech from US networks.
Huawei, a long-time target of the Trump administration, was placed in May 2019 on a list of foreign firms deemed a risk to national security.

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Trump’s Wechat ban to have little effect on Tencent’s revenue: analysts

Mon, 10 Aug 2020 06:45:42 +0000

Analysts are optimistic about Chinese tech and gaming giant Tencent despite a Huawei-like sanction from the US government imposed last week, with one saying that it may instead end up hurting Apple’s Iphone sales in China.

Why it matters: The lack of detail in the Trump administration’s sudden ban on Thursday of transactions involving Tencent’s mega messaging app Wechat has sowed widespread confusion. But analysts are optimistic about the company’s future performance even considering a worst-case scenario.

Tencent said it was still “reviewing the potential consequences” of the executive order on Friday. A company representative declined to provide further comment on Monday.

Details: Shenzhen-based broker Guosen Securities on Monday maintained a buy rating on the Tencent stock because it said that the Trump administration’s ban on Wechat will have little impact on revenues from Tencent’s social media business.

Tencent’s non-gaming revenue in the US only accounted for 0.4% of the company’s total revenue in 2019 and Wechat’s full exit from the US market will have little impact on the company’s revenue and social media ecosystem, said Wang Xueheng, analyst at Guosen Securities.
The executive order means American companies will be banned from advertising on Wechat and individuals in the country will not be allowed to make payments via Wechat, the analyst wrote in a note (in Chinese) on Monday.
There is little possibility that Apple will be ordered to remove Wechat from the China App Store, he added.
Iphone analyst Ming-Chi Kuo of Hong Kong-based TFI Securities said Sunday that the popular Apple Iphone will be hit the hardest as a result of the US ban on Wechat.
Wechat’s popularity in China is so established that Kuo expects that Apple will see its Iphone shipments decline by 25% to 30% year on year if it is required to remove Wechat from the global App Store. The decline, he added, will primarily be driven by a potential dropoff Iphone sales in China.

Context: The Trump administration said Thursday it would bar individuals and companies within US jurisdictions from making transactions with Tencent and Bytedance, the owner of Tiktok, in 45 days.

The executive orders come a day after the US Secretary of State Mike Pompeo escalated the tech war with a new initiative. He promised to purge US networks from Chinese technology under the “Clean Network” program.

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INSIGHTS | China’s digital currency has a long way to go

Mon, 10 Aug 2020 04:07:32 +0000

China has promised the world an all-digital currency. The digital yuan will replace physical cash with a digital twin: A monetary means of exchange guaranteed by the central bank and issued to consumers made up of code.

Announced in 2014, China’s central bank digital currency, dubbed Digital Cash/Electronic Payments (DCEP), was slow to take off. Officials quickly accelerated their efforts in the summer of 2019 when Facebook announced it was working on its own digital currency, Libra.

Media and fintech enthusiasts have been speculating about its grandiose effects: It will topple the dollar and upend the international order, the story goes. The US must catch up or say goodbye to its reign as a financial leader.

Bottom line: We don’t know much about the DCEP, and we probably won’t until it’s ready for prime time. What we do know indicates that, despite the hype, national implementation is a long way off. Current pilots are limited to very few select individuals. The PBOC has said it will still be testing the DCEP in 2022. But rising political tensions with the US are likely to further accelerate the PBOC’s schedule. We could see a wide rollout of the DCEP within the next year.

The problems

What’s wrong with cash? The People’s Bank of China (PBOC), hopes to solve many of the government’s biggest currency headaches:

Physical cash is an expensive business. It needs to be printed, maintained, and circulated. Digital currency would reduce these costs.
Cash is also very hard to track and trace, which makes it an attractive means of exchange to whoever is involved in criminal activity.
Enhanced supervision of transactions could help authorities fight money laundering and illegal financing in the country.
The digital yuan will work with “controllable anonymity.” Transactions will be private to the transacting parties unless the PBOC has reason to investigate them. Large transactions will be subject to enhanced scrutiny, and big data models will alert financial authorities of suspicious activity.

What’s wrong with e-payments? China is often called a cashless society, but this is not true for everyone.

In 2017, the World Bank estimated that 225 million Chinese adults do not have access to traditional banking services. Without a bank account, it is almost impossible to use Alipay and Wechat Pay.
Based on demographic data and latest Alipay and Wechat Pay user figures, TechNode estimates that about 272 million people over the age of 15 do not use either one of the dominant digital payments services.
The DCEP will work without a bank account, which will likely boost financial inclusion. Anyone with a smartphone will be able to use the digital wallet for transactions or storing money.
This will challenge Ant Group and Tencent’s dominance in the payments market, but that is partly the point.
The PBOC is reportedly not happy about the tech giants control over the country’s finances and is looking to launch an antitrust investigation into their activities.
The advent of the DCEP will help banks and fintech companies build new digital payments platforms, increasing competition whilst enhancing the PBOC’s oversight.

The solution

The engineering: A high-level understanding of how the system will work has been made public through press releases and interviews.

The DCEP will substitute cash, known as the M0 money supply. This includes all notes and coins in circulation among consumers, but not bank deposits and checks.
Much like physical cash, it will be issued by the central bank and distributed through commercial banks.
The digital money itself will not be blockchain-based. Rather, the systems commercial banks use to distribute and manage it may feature the decentralized technology.
Three agencies under the PBOC will be tasked with overseeing the digital M0. The Identification Center will onboard users and give them unique security credentials. The Record Center will keep track of transactions. Finally, the Big Data Analytics Center will provide protection from cybersecurity threats.

The security hurdle: The International Monetary Fund, the Bank of International Settlements, a global consortium of central banks, and numerous consultancies, banks, and observers have stressed the importance of ensuring tight security before issuing any CBDC.

Between Alipay and DCEP lies a huge cybersecurity chasm. The money in an Alipay wallet are merely numbers on a screen, collateralized by cash reserves.
In contrast, in a DCEP wallet, the numbers on the screen are the cash, the digital and the physical are one and the same. Hacking Alipay is like breaking into a bank’s IT system. Hacking DCEP is like breaking into the bank’s vault.
The PBOC has to come up with airtight security before a nationwide launch, and that takes time.

The progress

Extending pilots: In April, the PBOC announced it had begun trialing the DCEP. The news brought about a media frenzy, but they are very limited, indicating that the digital yuan is far from national deployment.

The DCEP system is available for select, whitelisted individuals in four cities; Shenzhen, Suzhou, Xiongan, and Chengdu.
In a press release announcing the pilots in April, the PBOC stressed that they were currently “just a test.”
Selected civil servants taking part in the pilot areas receive their existing transport subsidies through the digital yuan app, and can use the app to pay for public transportation.
In early July, Didi and Meituan announced they are partnering with the PBOC to explore commercial applications of the digital currency.
While including the tech giants in the pilot is undoubtedly a milestone, what will come of this “strategic cooperation” is yet undetermined.
This week, Chinese media reported that pilots have been extended to include bank employees in the selected areas.
In line with this week’s news, we expect to see pilots gradually and quietly expanding over more people and locations over the next year and until 2022.

Behind closed doors: Search Chinese social media long enough, and you will find rumors covering pretty much anything—except the DCEP. Chinese netizens are either censored or clueless about DCEP developments, other than those reported by the media.

A photo showing the DCEP digital wallet emerged on social media in April soon after the trials were announced. The wallet appears to be simplistic compared to WeChat Pay or Alipay, with a digital rendition of a one yuan bill.
Two other photos have appeared since, showing the DCEP on commercial bank apps.
PBOC officials haven’t confirmed the authenticity of these photos.
The individuals chosen to test DCEP are unknown, as is what they are using DCEP for, such as commercial payments, bank transactions, or mahjong betting.
Banks in Suzhou contacted by TechNode did not disclose any information about DCEP.

The 2022 promise: Despite the void of information about the DCEP trials underway, the PBOC has made a single specific promise: The DCEP will be tested during the 2022 Winter Olympics. This is a stark contrast to the fact that there is no official timeline that describes how and when the digital yuan will be rolled out.

A spectacular event when the whole world is watching China would be an excellent opportunity for the country to show off its latest technological achievement.
The PBOC hasn’t said whether the Winter Olympics will be a hard launch for the DCEP. It is also unclear whether the event will be the last digital yuan pilot.

The revolution

The dollar’s demise: If you follow this story on the news or Twitter, you might be concerned that the US dollar is on its deathbed. Given that a full rollout of the digital yuan is a long way to go, China hawks can take a breather.

Even when the DCEP is fully implemented in China, it will take concerted, strenuous efforts in trade and monetary policy to release the global financial system from the US’ chokehold.
This will eventually happen, but not in the short to medium term.

Programmable money: What is more likely in the medium term are vast improvements in China’s monetary and financial systems. Beijing hopes the ability to program digital money will help it fight crime, money laundering, and upgrade the implementation of monetary policy on an unprecedented level.

Central banks use mostly blunt-force instruments, such as interest rates, to stabilize the economy in times of crisis. They also face considerable time lags when it comes to collecting information.
Several of the patents filed by the PBOC lay out a vision for algorithmic management of monetary policy.
Some of the patents seek to algorithmically adjust the money supply based on certain triggers, like interest rates, the Financial Times reported.
But it doesn’t stop there. One of the reasons why the Chinese leadership was hesitant to issue cash relief directly to households after the Covid-19 lockdowns was that they were unlikely to spend it.
Using the DCEP, authorities could add an expiration date to direct cash payments to households. This would encourage people to spend it, pumping the money into the economy instead of savings accounts.
China has one of the highest saving rates in the world. Since 2003, people in China have been saving more than 35% of their income, according to OECD data. In the same period, US residents saved around 7%.

Crisis breeds urgency: Programmable money will greatly enhance the government’s speed and efficiency in times of economic crisis. The quicker the DCEP is implemented, the better prepared China is to deal with any sort of crisis.

The PBOC reportedly ramped up the pilots after Covid-19 hit China, wreaking havoc in the country’s economy.
The trials started in April, just a month after lockdowns were largely lifted in China.

In the last few weeks, we have seen significant escalations in the China-US techwar. As the likelihood of a decoupling between the two economies increases, so does the PBOC’s sense of urgency to release the digital currency widely.

Pilots are likely to be accelerated further, and the DCEP could be fully released within the next year.

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US Wechat ban will mean more than lost connections

Fri, 07 Aug 2020 07:42:41 +0000

On July 15th, just two days after White House trade adviser Peter Navarro spoke of possible actions to be taken against Tiktok and Wechat, my mother forwarded me a long, extremely detailed step-by-step guide for downloading and backing up my Wechat data and contacts. The guide has been viewed over 100,000 times since it was first posted.

Opinion

Frankie Huang was born in Beijing and raised in New Jersey. She is a freelance writer, illustrator, and strategist based in Boston. Her work explores feminism, diaspora identity, and social issues.

“I never believed or worried about a Wechat ban,” my mother remarked after sending it to me.

“So why did you send me that guide?” I asked.

“Just in case,” she replied. “I mean, Trump would do anything to better his chances for a reelection.”

Beneath her feigned nonchalance I noted a familiar anxiety we share.

Yesterday’s executive order from US President Donald Trump, banning “transactions” with Tencent that relate to Wechat, will certainly change her tone. It’s no longer possible to dismiss these fears and paranoia.

Is a Wechat ban likely?

Over the years, Wechat has grown from a simple mobile messaging app to a sprawling super app on which people conduct business, consume content, make monetary transactions, and live their lives. But at its core, it’s about connections between people.

The first blow to Wechat’s global network came from India. On June 29, the Modi government banned Wechat, along with 58 other Chinese apps, in response to tensions in the China-India border.

After weeks of deliberation, the US launched its own assault with Secretary of State Mike Pompeo’s newly unveiled “Clean Network” initiative, and a freshly released Executive Order that takes direct aim at Wechat. A potential US-based Wechat ban looms darkly as US-China relations traverse increasingly choppy waters.

READ MORE: Techwar: Trump to end transactions with Tencent and Bytedance in 45 days

While discussions of scrubbing China’s digital presence from American networks are still in the conceptual stages, the legality of implementing a sweeping ban remains dubious. Kevin Xu, a seasoned political organizer and a tech startup advisor based in California, offered a measured perspective on what may come to pass, prior to yesterday’s executive order.

“Chances of some sort of ban on Wechat before the election is higher than 50%, but it will likely be partial, for example, banning all Federal employees and/or contractors who do business with the Federal government. It’s hard to know the legality of such a ban, but it’ll likely be made on national security grounds, which has a wide legal leeway.”

In India, Tencent cooperated with the ban, without arguing about its legality. On July 27, the company stopped providing services to India-based users. Will it behave the same way with the US, or mount retaliatory actions? Right now it is impossible to say.

In whatever form it will take, the Wechat ban stands to make a quick splash in the media cycle, allowing President Trump to claim a hollow victory against China while fanning the flames of nationalism in his desperate bid for reelection.

The Chinese government would of course be no worse for wear, it’s the Chinese diaspora in the US who would stand to suffer most under this senseless punishment, depending on how the situation plays out.

Wave of anxiety

Even after reading the new Executive Order from the White House, I don’t really believe a comprehensive Wechat ban will come to pass in 45 days.The dangerous precedent such a move would set will certainly not go unchallenged by lawmakers and business leaders.

But then again, a few months ago I didn’t think a US consulate in China and a Chinese consulate in the US would be shut down within a week, yet here we are. Perhaps I’m still in denial about the new state of affairs.

A ban on Wechat is increasingly likely, but still a ways off. This hasn’t stopped a wave of anxiety from spreading, not only among members of the Chinese community in the US but the Chinese diaspora elsewhere as well.

On the same day I received my mother’s Wechat backup guide, a family friend who lives in Paris phoned me, frantic that she would lose contact with her family in the US. My aunt in Shanghai, whose only daughter lives in San Francisco, asked me for recommendations on alternative messaging platforms.

As we wait for the boot to drop, we don’t know whether families will lose contact, if precious conversation logs will be lost, or if communities will unravel—all for the sake of a political stunt.

Rising political volatility will bring further infringements upon personal liberties.

At a time when international travel is nigh impossible, our digital bonds become all the more precious and vulnerable. For many Wechat users in the US, it is the only thing that links them with loved ones they may not have seen for months, and may not know when they can finally reunite with. It is an extraordinary cruelty to sever these links at a time when we must lean on these technologies that span the distance we physically cannot travel.

A Chinese American researcher who asked not to be named uses Wechat to connect with her large extended family in Beijing, and to update them on her pregnancy. “A Wechat ban would devastate my grandma,” she told me. “She’s already so worried that I will give birth here while the pandemic is not under control.”

In the event of an all-out Wechat ban, users may still find a way around it. Chinese internet users are famously resourceful, owing in no small part to having to navigate the heavily censored digital landscape of China. Using a VPN, or switching to alternative platforms such as Line and Whatsapp are viable contingency options.

READ MORE: Techwar: US wants to rid its internet of Chinese technology

One may even see a silver lining in all of this. Since Wechat content is regularly monitored and censored by the Chinese government even when users are abroad, switching to a new platform would afford them more privacy and freedom to discuss sensitive topics.

But there’s little point in recognizing the inadvertent upsides for anyone who must involuntarily stop using Wechat, especially given the implications—rising political volatility will bring further infringements upon personal liberties.

Straddling nationalities

As the Chinese diaspora’s ability to connect is jeopardized, their relationship with the US grows more fraught.

For many, there is no end in sight. “What happened to this ‘lighthouse nation’ (referring to the US’ status as a beacon of liberty)? Ban Chinese apps today, ban Chinese people tomorrow?” asked one commenter on CReader.net, a popular overseas Chinese news aggregate and forum.

“Normally I would believe that the government has some kind of bottom line, but Trump doesn’t even care if he is making America a laughing stock to the entire world,” Zhou, a scientist at Columbia University who only gave her surname, told me over Wechat.

The tension between the US and Chinese governments will almost certainly lead to harsh demands for the Chinese diaspora in the US to demonstrate loyalty, something former Democratic presidential candidate Andrew Yang advocated for in the face of growing anti-Asian sentiments.

But this is an impossible and humiliating choice for those whose lives and identities straddle nationalities, and it would accomplish nothing. If President Trump believes continually demonstrating open hostility to all entities of Chinese origin will win him votes, he will not stop at a WeChat ban.

For now, there’s little to be done except dutifully go through the 17 steps it takes to download Wechat data, and anxiously await what comes next.

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Techwar: Trump to end transactions with Tencent and Bytedance in 45 days

Fri, 07 Aug 2020 03:31:15 +0000

US President Donald Trump signed two executive orders late on Thursday vaguely banning transactions with the owners of Wechat and Tiktok starting in 45 days.

Why it matters: It is unclear whether the orders will effectively ban the Wechat and Tiktok apps themselves in the US.

On the face of it, the order on Bytedance seems to complicate Tiktok’s sale to Microsoft. But US outlets report the White House is in favor of this particular transaction and is in fact trying to speed it up by setting a tight deadline.
It also threatens to disrupt Tencent’s gaming operations in the US. Tencent owns significant stakes in some of the US’s biggest gaming studios, such as Epic Games, developer of Fortnite; and Riot Games, the studio behind League of Legends.
The executive orders come a day after the US Secretary of State Mike Pompeo escalated the tech war with a new initiative. He promised to purge US networks from Chinese technology under the “Clean Network” program.

READ MORE: The sun never sets on Tencent’s gaming empire

Details: The orders ban “any transaction” by any person or company under US jurisdiction with Bytedance, and any transactions with Tencent that relate to Wechat. The Secretary of Commerce is tasked with identifying these transactions until September 15.

The ban could mean that the apps are banned from the app stores of US companies like Apple and Google, or that Wechat Pay will not work with US credit cards.
The executive order on Wechat claimed the app “automatically captures vast swaths of information from its users,” which “threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information.”
Tiktok, on the other hand, could be used by the Communist Party for disinformation campaigns, Trump said in the other order.

EO on Wechat pic.twitter.com/V6brHDbDZ0
— Olivia Qi Zhang (@zhang_qiii) August 7, 2020

Context: The techwar between the US and China has seen major escalations in the last week, with Tencent and Bytedance the latest of China’s tech champions joining Huawei on the White House’s bad side.

Yesterday, Pompeo said the US would take action to dispel Chinese telecoms carriers, cloud providers, and apps from American networks, as well as investigate undersea cables for Chinese espionage.

READ MORE: Techwar: US wants to rid its internet of Chinese technology

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Techwar: US wants to rid its internet of Chinese technology

Thu, 06 Aug 2020 08:18:31 +0000

The US State Department is ramping up efforts to rid American digital networks of made-in-China technology, including apps, cloud services, and telecoms operators, the US State Department said late on Wednesday.

Why it’s important: The program, outlined by the US State Department, signifies a monumental shift in US internet policy, moving away from a free web towards a China-like walled garden.

It is unclear when and how the plan will be implemented, and whether the State Department has the authority to pressure private companies to enforce the measures.

Escalating techwar: US Secretary of State Mike Pompeo said in a statement that the program, dubbed Clean Network, is the Trump Administration’s “comprehensive approach” to protecting US citizens’ privacy and American companies’ data from “aggressive intrusions by malign actors, such as the Chinese Communist Party.”

Apps like Tiktok and Wechat are “significant threats” to US interests, Pompeo said during a press conference announcing the initiative on Wednesday.

The U.S. expands the Clean Network by launching 5 new Clean initiatives–Clean Carrier, Clean Store, Clean Apps, Clean Cloud & Clean Cable–to secure Americans’ most sensitive information from the CCP’s surveillance state. We call on freedom-loving nations and companies to join us. pic.twitter.com/BQSk6YFt1M
— Secretary Pompeo (@SecPompeo) August 5, 2020

In response, China’s Foreign Minister Wang Yin said the US is trying to draw an “iron curtain,” between the two countries and accused the US of “bullying.”

The five fronts: “Untrusted” Chinese technology will be removed from five key areas, Pompeo said.

The US wants to make sure that Chinese telecom carriers are not connected to US telecommunications networks, or providing services between the US and other countries.
Pompeo urged US regulator the Federal Communications Commission to “revoke the authorization of China Telecom and three other companies” to provide telecom services to and from the US.
The plan also seeks to remove untrusted Chinese apps from US app stores. The move is aimed at keeping US data out of the hands of Chinese companies, as well as preventing Chinese censors from influencing content available to US users, according to the statement.
The State Department said it will prevent Huawei and other Chinese smartphone manufacturers from pre-installing “popular” US apps on their devices. It will also prevent Huawei, “an arm of the PRC surveillance state,” from making such apps available in its app store.
The US will work to stop Chinese cloud providers like China Mobile, China Telecom, Alibaba, Tencent, and Baidu from storing and processing vast amounts of data from US citizens and companies. The State Department aims to keep sensitive personal information and key intellectual property, such as Covid-19 vaccine research, away from Chinese companies, Pompeo said.
Undersea cables, the infrastructure that transfers data to and from the US and other countries, will be scrutinized to ensure it is free of Chinese espionage. The US will work with other nations to “secure” underwater cables around the world, according to Pompeo.

Context: Over the past few months, the Trump administration has signaled increasing protectionism against China.

Following the US’ moves against telecommunications giant Huawei, Tiktok owner Bytedance is now bearing the brunt of the US offensive against Chinese tech companies.
Amid growing threats of a potential US ban on Tiktok, Bytedance is reportedly attempting to sell the US operations of its short video app to Microsoft. US President Donald Trump said the government is entitled to a “cut” from the deal.
Meanwhile, risks for Huawei in US-allied countries is growing. The UK announced in early July it would ban the Chinese telecom giant from its 5G networks. France is reportedly making similar moves.
The Clean Network is an expansion of the Clean Path initiative launched in April, an effort to keep Huawei out of US and allied countries’ 5G networks.

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China’s biggest banks are testing the digital yuan ‘on a large scale’: report

Thu, 06 Aug 2020 06:34:12 +0000

Selected employees at China’s largest banks are trialing the country’s much-anticipated digital currency “on a large scale” (our translation), Caijing reported on Wednesday.

Why it matters: The trials extend pilot programs announced by China’s central bank in April but are limited to whitelisted bank employees in four major cities around China.

Nevertheless, the news indicates that digital yuan’s testing is progressing.
The Digital Currency/Electronic Payments (DCEP) project, China’s digital currency, is one of the country’s most anticipated financial innovations and is expected to revolutionize the central bank’s control over the yuan.

Details: Whitelisted employees from the Agricultural Bank of China, Industrial and Commercial Bank of China, China Construction Bank, and Bank of China have started using the digital yuan to transfer money and pay for services, anonymous sources from the banks told Caijing.

These users are required to open digital wallets with at least one of the banks, which are then connected to their bank accounts.
They then download the digital yuan app, which uses their ID number to check if they are whitelisted to use the digital currency. The app connects to their digital wallets, which in turn connect to their bank accounts.
The tests are being conducted in Shenzhen, Suzhou, Chengdu, and Xiong’an, a new satellite city near Beijing—all cities in which the currency has previously been trialed.

Context: The digital yuan has been in the works since 2014. In April, limited pilots were announced in the four cities.

The government plans to test the digital currency during the 2022 Beijing Winter Olympics, but details on implementation are currently limited.
Despite widespread speculation, there is no official timetable for the national rollout out of the DCEP, which will function as a digital alternative to cash.
The DCEP is expected to help authorities fight crime and assist the central bank in controlling the circulation of money. The digital yuan will be compatible with existing digital payment technologies from Ant Group and Wechat, but will also compete with them.
China is one of five countries that is testing a central bank-sanctioned digital currency—it’s also the biggest economy to do so. Other countries also exploring implementation include Ukraine, Norway, Uruguay, the Bahamas, and the Marshall Islands.

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India widens China app ban to Baidu and Weibo

Wed, 05 Aug 2020 04:04:42 +0000

Chinese search engine Baidu Search and social media platform Weibo were blocked by internet service providers and removed from Google and Apple app stores in India on Tuesday, the latest of the total 106 total Chinese apps shut down in the country in recent weeks.

Why it matters: High-profile tech bans are escalating political tensions between India and China. Though Baidu Search and Weibo aren’t very popular in India, they are a symbol of the country’s rejection of Chinese tech. The US and Japan are also considering bans against various Chinese apps, most prominently Bytedance-owned Tiktok.

Read more: Does India need China tech?

Details: The latest app bans followed a similar playbook to an earlier round: With little warning, Indian users are cut off from the platforms.

The Indian government publicly released a list of 59 banned Chinese apps on June 29, and announced a second list of 47 Chinese apps on July 27. Wechat and Weibo were on the first list, along with Baidu Map and Baidu Translate.
Though the July list has not been made public, the Times of India reported that it contains “clones and different versions of some of the original apps,” including Baidu Search.
The ban has yet to be evenly applied. TechNode contributor Hamsini Hariharan was still able to see the Baidu app in the Indian Android app store and use the search engine, but the Weibo app was no longer listed.
Baidu once had high hopes for its Indian market. CEO Robin Li visited the Indian Institute of Technology in January 2020 to discuss his desire to “partner with local institutions for innovation.”
Launched in 2009 by Sina Corporation, Weibo has 500 million global registered users. Indian Prime Minister Narenda Modi joined the social media site in 2015. His account, with over 244,000 followers, was deleted on July 1.
Baidu, founded in Beijing in 2000, launched its India office in New Delhi in 2015. Baidu said it had 45 million monthly active users in India across all its products in September that year.
Baidu Search hasn’t made the same headway in India as in China where it claimed 68.7% share of the Chinese search engine market as of February 2020. In India, Google is dominant with nearly 100% of the search engine market.

Context: India’s nearly 700 million internet users were once seen as the next frontier for Chinese tech but sentiment from the government towards China’s biggest tech companies has cooled as political tensions heat up.

Tencent’s Wechat was blocked in India on July 27, stranding both Chinese expat and Indian users. TechNode previously reported that even virtual private networks (VPNs) could not guarantee access to the app.
Tiktok was removed from Android and Apple app stores in India, its second-largest market, on June 30. Despite Tiktok’s popularity in India, the ban of Chinese apps followed rising nationalist sentiment in India.

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China sets the rules for its new data economy

Tue, 04 Aug 2020 08:43:59 +0000

The Chinese government has long pursued a security-centered approach to data. Key regulations such as the Cybersecurity and Encryption Laws place national security at the core of its data legislation objectives. The main goals so far have been to prevent cyber attacks and data leaks by upholding strict technical requirements, and exert control over Internet content and cyber infrastructure.

Now, Chinese lawmakers are pivoting towards a new goal. They want to reap the economic benefits of China’s immense data resources through a regulated data economy.

Opinion

Camille Boullenois is a consultant at Sinolytics, a research-based consultancy focused on China.

China’s draft Data Security Law, issued by the National People’s Congress of China on July 3, marks a shift in China’s data strategy, away from a narrow focus on security and towards a multi-pronged approach balancing security concerns and economic benefits.

Domestically, it starts an effort to create a regulated market for data as a new commodity. Internationally, it brings data into a coordinated trade strategy, characterized by selective reciprocity and protectionism.

The draft law means more rules for players in the data space, and will kill off some unregulated trade. But for bigger players, the clarity could make it easier to participate in the market.

A vast, often grey, market

Tech companies thrive on the collection of data, both in China and abroad. Big data sets can be used to create better drugs, improve manufacturing processes, train face recognition algorithms, and offer targeted content and advertisements, to name a few examples. There’s an enormous market for this kind of data.

China is a particularly big market for data. Tech giants operate thriving data businesses. Small players are experimenting with novel ideas like using data as collateral for bank loan applications.

According to International Data Corporation estimates, by 2025, the amount of data created, collected, or copied in China will increase from 7.5 zettabytes in 2018 (a zettabyte is equivalent to about 200 billion DVDs) to 48.6 zettabytes, accounting for 27.8% of the world’s data. By comparison, the US will only account for 17.5% of the total data generated globally in the same time period.

The only problem is that much of this market is at best poorly regulated, and at worst illegal. For employees at large tech companies, hacking servers to acquire datasets is a lucrative side business. This data is then sold in Chinese and international markets.

Until 2019, data regulation focused on shutting down this illegal trade and regulating what data can be sent out of the country.

While thriving data businesses emerged, regulators has struggled to govern them. Privacy legislation has evolved significantly since 2017, but they are only aimed at protecting individuals’ personal information. The big, anonymized datasets that are traded to fuel algorithms remain ill-defined and poorly managed.

A new ‘factor of production’

It was only last fall that Chinese economic planners began to publicly recognize the potential of data trading as a legitimate business—and make concrete moves to regulate and develop this industry.

In November 2019 the Fourth Plenary Session of the Nineteenth Central Committee of the Communist Party characterized data as a “factor of production.” Four months later, experts at the National Information Center compared data to oil:

“If oil is the core resource in the era of industrial economy, then data is the most important strategic resource in the era of digital economy.”
—National Information Center

The Draft Security Law is the first step in an effort to make China the Saudi Arabia of data.

According to the National Information Center, China will pursue “asymmetric advantages in this new round of global technological competition.”

Planners aim to take advantage of China’s unique population size to enable its companies to gather, use, and sell unprecedented amounts of data, both domestically and internationally.

Definitions for the new data economy

The draft Data Security Law lays out a vision for a system that replaces a wildcat market with a legitimate and consolidated industry. It promises that data will be traded “orderly and freely” as a commodity in the new digital economy.

It also provides a legal basis for “Internet+” digital government initiatives, calling for the “construction of e-government” and enhanced “capabilities to use data to serve economic and social development.”

The draft law takes the first step toward this new data economy: It defines what “data” is. It distinguishes between “information” (xinxi) and “data” (shuju), defining data as “any record of information in electronic or non-electronic form.”

“Information” belongs to the user and is the focus of privacy protections. By contrast, the legal framework governing “data” is multifaceted. It aims not only at protecting individuals’ privacy, but promoting cybersecurity practices and economic development.

This definition opens the door to legal ownership of big data products, and brings the exchange of such products under a legal framework distinct from that of privacy. But it leaves many technical details about data ownership, pricing of data, and evaluation of data assets to be resolved later.

Most important among these unresolved questions for ushering the new data economy is standardization.

Since 2014, big data trading platforms in China have experimented with hosting data transactions. Each uses a different technical framework, which makes data exchange between the platforms difficult.

Similarly, data generated by government agencies across China exists in silos. Recent difficulties in uniting local health code databases during the Covid-19 outbreak illustrated the challenges of centralized data management.

Exactly how this standardization will take place and what aspects of data collection and management it will make homogeneous is left ambiguous.

Balancing opening up with protectionism

The draft law notes that international data trade is encouraged, but does not offer provisions to make it easier. Rather, it opens the door to restrictions based on economic protectionism.

There is a lot of money to be made by selling data abroad—but China also wants to keep the most valuable data assets in the country. In March, the National Information Center article mentioned above complained: “a lot of high-value scientific data has not been fully shared and used at home but has flowed abroad.”

The 2017 Cybersecurity Law already restricts outbound cross-border flow of “critical data,” defined relative to national security considerations.

READ MORE: Dust has yet to settle two years after China’s landmark cybersecurity law

With the draft security law, China adds an economic dimension to data protectionism. The new law defines a new category, “important data,” which is assessed not only in relation to national security, but also economic and social development.

Under this law, data that is deemed valuable for China’s economic and social development would go through cumbersome export controls. A pharma company doing clinical trials in China, for example, will likely have to store all patient data in China and request approval from local authorities before transferring this data to headquarters.

We don’t know how this would be implemented, but a draft regulation (in Chinese) that has been under review since 2017 is a likely model. It would require companies planning to transfer “important data” overseas to seek approval from local Public Security authorities.

Bargaining chip

The draft also contemplates using data access as a point of leverage in trade disputes. It warns that China will adopt “corresponding measures” (author’s translation) in its trade of data assets.

Any country that adopts prohibitions or restrictions on Chinese investment or trade on the basis of China’s data practices could be subject to this tit-for-tat data diplomacy.

If you don’t want to give your data to China, China won’t give its data to you. If you don’t invest in China’s tech industry because you don’t like how China uses your data, maybe you won’t get its data either.

In practice, China might restrict data export to many Western countries under this clause. The EU, for example, has agreements with “like-minded” countries such as Japan, Canada, and Israel, which stipulate free data flows.

No such deal has been signed between the EU and China. China is not considered “like-minded” and so the flow of European data into its borders is restricted. Under the new law, the flow of China-made data into Europe would be reciprocally limited.

The law would also empower the Chinese government to use data flows to retaliate against the United States if, say, it decides to ban TikTok over fears that the app appropriates and misuses consumer data.

Data will increasingly be used as a bargaining chip in trade negotiations.

Decentralized decision-making

On the flipside, the law opens room for flexibility by putting regional and departmental governments in charge of deciding what constitutes “important data.”

While data export restrictions on national security grounds will likely be controlled at the central government level, other kinds of data will be subject to provincial and industry-specific decisions.

We will likely see provinces compete to attract companies by lowering restrictions on digital trade—just as some free trade zones currently experiment with tax incentives. The southern province of Hainan has already announced such a program (in Chinese).

Ultimately, whether the draft law will result in a more or less restrictive environment for digital trade in China remains to be seen. Much depends on implementation by central and local governments, which we will see in the coming months and years.

Currently, the country is at the bottom of the OECD’s Digital Trade Restrictiveness Index, which measures policy restrictions to digital trade in 64 countries in the world. The new draft law is unlikely to change this overall ranking.

But foreign companies and governments need to be aware that China is setting the rules for its data economy, looking to data as a bargaining chip, and leaving room for relaxed local restrictions. The legal landscape for data transactions is rapidly and drastically changing.

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Zoom will be local version-only for Chinese users

Mon, 03 Aug 2020 07:02:05 +0000

Video-chat service Zoom will stop offering direct services to users based in China, although it will still be accessible through the company’s local partners.

Why it matters: Zoom, the US-based company founded by Chinese-born Eric Yuan, has been caught in the crosshairs of the trade war and rising political tensions between the two countries. Removing direct service support in China highlights yet another retreat for the company in the Chinese market.

Zoom users surged as a popular choice for business professionals during the global lockdown resulting from the Covid-19 pandemic.
Zoom’s move may hand domestic apps with video conferencing and productivity features, like Alibaba’s DingTalk and Tencent’s WeChat Work, the opportunity to attract more users.

Details: Zoom will suspend services, sales, and updates for users with a billing address in mainland China beginning August 23, Chinese media (in Chinese) reported Monday, citing an announcement from the company.

Read more: Is Zoom crazy to count on Chinese R&D?

Zoom, which previously operated its China business through direct sales, online subscription, and partner sales, is now shifting to a partner-only model with its technology embedded in partner offerings, the company said in a statement to TechNode on Monday.
The firm suspended the online subscription model for its China-based services two months ago.
“Users in Mainland China may continue to join Zoom meetings as participants,” Zoom added.
The company has recommended several authorized partners, including local video conferencing service provider Bizconf, Zhumu.com and Umeet, as shown in the official website of Donghan Telecom, one of Zoom’s Chinese partners which runs the website Zoom.com.cn.
The company said in the statement that its local partners, all of whom feature embedded Zoom technology, will provide better-localized services to users.

Context: After the company was temporarily blocked in China last fall, Chinese Zoom users began switching to localized versions of the app, including those provided by Shanghai Donghan and Shanghai Huawan.

Zoom suspended individual users in China from hosting meetings on the platform in May.
The company admitted in April that some user calls had been “mistakenly” routed through data centers in China, resulting in a backlash by foreign government agencies and companies over fears of Chinese surveillance and censorship.

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Are China and India getting a tech divorce? With Dev Lewis

Mon, 03 Aug 2020 01:12:40 +0000

Make sure you don’t miss anything. Check out our lineup of China tech podcasts

Elliott and James welcome Digital Asia Hub fellow Dev Lewis back to the podcast to discuss what a worsening diplomatic relationship between China and India means for Chinese tech companies in India, and what the future of India’s tech landscape will look like. James and Ell also chat about the prospects of IPOs from Ant Financial and Didi Chuxing.

Please note, the hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Get the PDF of the China Consumer Index.

Watchlist:

Tencent
Alibaba
Baidu
iQiyi
Xiaomi
JD
Pinduoduo
Meituan-Dianping
Luckin Coffee

Hosts:

Elliott Zaagman– @elliottzaagman
James Hull– @jameshullx

Guest:

Dev Lewis – @devlewis18

Editor

Peter Isachenko

Podcast information:

iTunes
Spotify
RSS Feed
Music: “Hey Ho” by Steve Jackson, Royalty Free Music

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Tiktok, Microsoft resume talks amid renewed threat of US ban

Mon, 03 Aug 2020 00:10:10 +0000

Chinese company Bytedance and Microsoft have resumed negotiations of a buyout deal for all TikTok US operations after US President Donald Trump said on Friday he would ban the popular video-sharing app and opposed the potential deal.

Why it matters: Trump’s statement follows weeks of high-profile pressure on Tiktok and parent company Bytedance after India banned the app a month ago and Japanese lawmakers spoke on Tuesday of impending restrictions.

Under current US law, it’s unclear how a ban of the free app would work on a legal and technical level.
Bytedance’s offer to sell is an attempt at a deal so Tiktok can stay online in the US.

Details: Microsoft said on Sunday that it would resume negotiations with Bytedance that were first reported on Friday then suspended following Trump’s statement, adding that it would complete discussions by September 15.

Trump hinted at deploying an executive order to ban the app. Some speculated that he could punish Apple and Google for carrying Tiktok in their app stores, or add Tiktok to a list of foreign entities that present a risk to US national security, like Huawei.
Microsoft said that it would resume discussions with Bytedance about the acquisition following CEO Satya Nadella’s conversations with Trump.
Valued at upwards of $100 billion, Bytedance was considering a New York listing, among others, but walked back plans to list in the US on Friday, according to a Reuters report. They are likely to list closer to home in Hong Kong or Shanghai, it said.
Loyal Tiktok users rushed online to criticize Trump’s decision. The American Civil Liberties Union called the potential ban “a danger to free expression and technologically impractical” in a viral tweet.
Tiktok’s US operation has repeated sought to assure users and the government that their operations fall well within US laws, including announcing the launch of a Transparency and Accountability Center on July 29, 2020, where experts can examine Tiktok’s moderation policies and algorithm in real time.

Context: Tiktok is incredibly popular in the US: the app has an estimated 70 million monthly active users in the US and could earn nearly $500 million in the US market alone in 2020.

US authorities are concerned about Chinese government access to US user data. The Committee on Foreign Investment in the United States launched an investigation into Bytedance’s 2017 acquisition of Musical.ly, Reuters reported in November.
Trouble for Tiktok in the US has been brewing for months: In June, the app was accused of censoring the Black Lives Matter hashtag; in July, US federal agencies began investigating Tiktok’s compliance with an agreement it struck with regulators in February 2019 involving data collection from users under the age 13.
Bytedance’s global standing is growing precarious. India’s Tiktok ban is expected to cost the company $6 billion.
The Trump administration began voicing the possibility of banning Tiktok earlier this summer over concerns that the Chinese Communist Party could access US user data.
Tiktok denied Trump’s claims in a 2019 statement, saying that “none of our data is subject to Chinese law” and “We have never been asked by the Chinese government to remove any content and we would not do so if asked. Period.”

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BSN says decoupling is to meet compliance rules in China

Fri, 31 Jul 2020 08:30:53 +0000

State-backed blockchain development platform Blockchain Services Network (BSN) has said that the reason it is adopting a twin governance model for its international and domestic versions is to ensure compliance, “notably in China,” and particularly for the public blockchains on the network.

Why it matters: In a rare move for a state-backed project, the BSN is aiming for full transparency in the international version, and has removed Chinese state actors.

The twin governance model will appease Chinese regulators while leaving the door to public chains open on international nodes, as TechNode previously reported. The BSN’s interoperability features will ensure that the network will remain unified.

“The main motivation is to allow the overall BSN Network to interoperate more freely with public/permissionless blockchain frameworks while being in better compliance with the relevant blockchain regulations and laws around the world, notably in China.”
—Red Date in a statement posted on Medium

Details: The international network will be managed by Red Date Technology, a Beijing-based company that has served as the project’s main architect in conjunction with an independent council formed with global blockchain companies and actors.

The BSN will also open-source the international version with the aim to attract more participants and become the de facto “trusted standard for blockchain interoperability.”
BSN China will be managed by the four founding members, with the China State Information Center supervising compliance.
While the governance is “decoupled,” the two networks remain interoperable. The two versions of the BSN will communicate through five city nodes.
Developers will be able to launch a public blockchain application in the international network and a permissioned application in China, making the two interoperable through the BSN’s inter-chain communication protocols.
Red Date will be involved in governance of both versions of the network.

“The decoupling ensures the BSN’s core value is available to global developers for both public and private chains, namely easy and cheap access to blockchain development.”
—Yifan He, CEO of Red Date Technology

Context: Public chains are not explicitly banned in China but are subject to heavy regulatory scrutiny. Insiders say this is because they do not impose any limitations on who takes part in managing the blockchain, which contains vast amounts of data.

At least six public chains have already announced they are working with the BSN, and Red Date said it is expecting 40 to be integrated in the next year.
Nervos, which TechNode previously reported would be integrated on the China BSN, will be only on the international version, Red Date said.
The BSN’s interoperability protocol is based on IRITA, a permissioned inter-chain framework developed by Shanghai-based Bianjie AI.
The BSN has deployed 130 nodes globally, and plans to have 200 nodes in China by the end of the year, Red Date said.

READ MORE: EXCLUSIVE: China’s BSN and Irisnet are building an ‘internet of blockchains’

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Tencent makes a bid to buy out Sogou search engine

Mon, 27 Jul 2020 20:06:23 +0000

Chinese tech giant Tencent proposed buying out Chinese search engine Sogou, said its parent company Sohu on Monday, a move that would mean the subsidiary would delist in New York.

Why it matters: In considering the proposal, Sogou joins Chinese media firm Sina in mulling over delisting from US stock exchanges amid new investor-protection legislation and US-China trade uncertainties.

Details: Long-time investor Tencent proposed acquiring all of the outstanding ordinary shares of Sogou at $9 a share, according to the Sohu statement. Tencent’s initial proposal is not binding and has not yet been reviewed by the Sohu board.

Neither Sohu nor Sogou have made any decisions with respect to Tencent’s offer, the companies have said. But if the tentative transaction is finalized, Sogou will delist from the New York Stock Exchange (NYSE) to become a privately held subsidiary of Tencent, Sohu said.
Tencent and Sogou have a long relationship. When Sogou listed on the NYSE in 2017, Tencent was its largest shareholder and promoted Sogou’s search engine in its own products.
Sogou is the second-largest search engine in China behind Baidu and its Sogou Pinyin Method, a popular Chinese language input software, had 503 million monthly active users (in Chinese) as of December 2019.
Tencent currently owns approximately 39.2% of the total issued and outstanding shares and holds 52.3% of Sogou’s total voting power.
Sogou’s share prices on the NYSE surged more than 47% on Monday.
A Tencent representative declined to comment late Monday, and Sohu did not respond to an emailed request from TechNode.

Context: Growing distrust between US and Chinese lawmakers is spreading throughout financial markets. On May 20, CNBC reported that the US Senate unanimously passed legislation prohibiting foreign companies from listing on US exchanges or raising money from American investors unless they can prove “they are not owned or controlled by a foreign government.”

Alibaba’s shares dropped 2% in response to the news and several high-profile Chinese tech firms are reconsidering their place in US markets, according to the report.
The Chinese online marketplace 58.com delisted in June, and Sina is also considering delisting following an acquisition proposal in July from New Wave, a company owned by Sina chairman and CEO Charles Chao.
China’s largest chipmaker Semiconductor Manufacturing International Corporation (SMIC) ended a 15-year listing on the NYSE in June 2019, citing low trading volumes and the high cost of listing in New York and complying with local laws.
58.com has not revealed where they planned to relist, but it could follow SMIC’s footsteps by listing on the Shanghai Stock Exchange, continuing the trend of Chinese companies turning away from the US to Shanghai or Hong Kong markets.
US regulators are unable to access Chinese companies’ audit records, a legal requirement for listing on US exchanges.
Though the legislation doesn’t specifically call out Chinese companies, US-China trade tensions pushed issues of investor safety and financial accountability to the fore. The law’s authors have also called out China for not “playing by the rules.”

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Indian court summons Jack Ma, Alibaba in worker lawsuit

Mon, 27 Jul 2020 06:49:13 +0000

An Indian district court has summoned Chinese e-commerce giant Alibaba and its founder Jack Ma in a lawsuit from a former employee of web browser firm UC Web complaining that he was wrongfully fired for objecting to the company’s practices of censoring content and publishing false news.

Why it matters: The employee said that he was fired over his objections to media manipulation practices at Alibaba’s UC Web, another high-profile dispute at a time of tense diplomatic ties between China and India following a deadly clash along a shared border.

UC Web’s UC Browser was ranked second in the Indian mobile browser market with a 23% share, according to TechCrunch citing data from third-party analytics firm StatCounter. It trailed Google Chrome which holds a massive 63% share.
UC Browser was among the 59 apps banned by the Indian government in late June over national security concerns. Other blacklisted apps include short video platform Tiktok, messaging app Wechat, Baidu Maps, and microblogging platform Weibo.

Read more: Life in India after Tiktok

Details: A court in Gurgaon, a satellite city of New Delhi and location of UC Web’s main Indian office, summoned Ma and around a dozen Alibaba representatives and business units for a wrongful termination lawsuit, Reuters reported on Sunday, citing court documents. A former UC Web employee said he was wrongfully fired after objecting to what he saw as censorship and fake news distributed on company apps, according to the report.

Pushpandra Singh Parmar, who said he worked as an associate director at the UC Web office in Gurugram until October 2017, alleged the company censored content seen as unfavorable to China and promoted false news through its apps UC Browser and UC News, according to documents obtained by Reuters.
“UC has been unwavering in its commitment to the India market and the welfare of its local employees, and its policies are in compliance with local laws. We are unable to comment on ongoing litigation,” a UC India representative said in a written statement to TechNode on Monday.
Wang Shuai, Alibaba partner and chairman of Alibaba’s marketing and public relations committee, confirmed that UC India received the court notice in a comment on Wechat Moments, local media (in Chinese) reported.
Wang said that the Indian unit is working on the issue according to relevant procedures, adding jokingly that it has been hard to find Ma after his retirement. He claimed to have failed to reach Ma after trying to reach out to him for a whole day and jokingly suggested the team try its luck in the HBB Music Bar nightclub, which Ma founded.

Context: Alibaba in 2014 acquired UCWeb, best known for its popular mobile browser UC Browser. It is now part of the e-commerce giant’s digital media and entertainment group.

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INSIGHTS | Does India need China tech?

Mon, 27 Jul 2020 04:25:49 +0000

On June 29 the Indian government announced it would ban and block 59 Chinese apps from operating in India, including Tiktok and Wechat, having found them to “violate Indian sovereignty and security” as well as harm Indian citizen’s privacy.

Dev Lewis is a Fellow and Program Lead at Digital Asia Hub, as well as a Yenching Scholar at Peking University.

All eyes in the tech world are focused on the two neighbors and what this means for the future of global tech. After years of deep engagement, where does it go from here?

Bottom line: This is not the first time a Chinese app has been banned in India, but this time is different. The app ban ushers a new phase in China-India relations. Geopolitics will drive tech engagement between the two countries going forward. This will entail some economic pain for both countries, as India tries to reduce its reliance on China’s tech stack. Unless the two sides find a way to get past the border, this is the end of China and India’s tech romance.

Three motives: New Delhi has cited data sovereignty and security as legal justifications, but the true driving motives are more likely:

Retaliation: Since 1988, the bilateral relationship has revolved around a consensus: manage the border peacefully and the rest of the relationship can grow and develop. Until now.

This was gradually solidified in the form of multiple border agreements from 1993 to 2014. Over the years “‘incursions” took place but they were ultimately resolved peacefully.

New Delhi reads Beijing’s behavior on the border as a sign of intent to unilaterally change the status quo—and it feels it must re-consider the thirty-year consensus. Although whether economic retribution will create the desired military deterrence or change in behavior is far from clear.
Union Minister Ravi Shankar Prasad himself called the ban a “digital strike.”
Influential Indian military experts have argued that military options would be more effective.

Economic “self-reliance”: In a May speech made as tensions were rising on the border, Prime Minister Modi called for a movement for a “Self-Reliant India” that extends beyond China.

But India’s acute economic reliance on China (17% of Indian imports come from China), coupled with border-related security concerns, means China is seen as a key part of the problem.
The border clash and the resultant public opinion swing against China creates an opportunity to make big moves: An “end to business as usual” with China.

Fighting fire with fire: Blocking access to apps and claiming “data sovereignty” is a page out of Beijing’s own internet sovereignty playbook.

India may not yet have a technical infrastructure for internet blocking like the Great Firewall but it is asserting its national boundaries on the internet in a similarly blunt fashion.
After years of a more laissez-faire attitude towards internet governance, India is now more proactively thinking about Indian citizens’ data and consumer data trails.
Much like Beijing, it doesn’t just want to protect economic and national security interests, but also the cultural values that underpin technology platforms in India.
India is where China was a decade ago. Sweeping regulations around the internet are forthcoming in the coming years that may borrow more from Beijing.
Chinese tech companies are the center of attention—for now. In the future, US firms may also face pushback as the Indian government exerts control over how platforms are governed and how data is processed.

The US & Jio factor: Silicon Valley companies are poised to benefit as a China-shaped vacuum appears. The unprecedented pouring of investment into one Indian company in particular firmly connects the valley to India.

Earlier in the year, Facebook invested $5.7 billion in Reliance Jio Platforms, a telecoms giant with ambitions to become a tech conglomerate.
Amid the China app ban furore, Google followed suit with a $4.5 billion investment as part of its $10 billion “Digital India” fund.
Following the two investments, Jio is effectively a US-backed Indian national champion, free of Chinese tech.
Google and Jio plan to jointly build affordable smartphones, directly challenging a market dominated by Chinese smartphone players.
Jio is ambitiously aiming for all layers of the tech stack; telecoms (currently occupies), devices, OS, and apps.
With the right moves, Jio could not only fill China-shaped holes in India, but become a global tech giant.

More pain for India? Apps are only a small part of why India relies on China. If Delhi is really going to pursue “self-reliance,” it will mean a lot more pain.

Dozens of major Indian tech startups received investments from Chinese technology companies and VCs over the past five years.
Chinese smartphone manufacturers Xiaomi, Oppo, Vivo, Realme, and OnePlus hold 80% of the Indian market.
India’s digitization growth means it is also reliant on hardware imports from China of key components such as value parts such as sensors and transponders, among others.

Pain for Chinese tech firms: Tiktok is the biggest hit among the 59 banned apps. Although India represents a relatively small percentage of Tiktok’s revenue today, it is the cornerstone of Tiktok’s growth projections, with potential losses touted as being up to $6 billion.

Chinese companies built apps for India and invested in local startups because India was the only other market that could be as big as China.
Now they may lose access to the Indian market just as domestic demand is projected to take off. This is a major blow to the global aspirations of Chinese tech giants.

Looking forward: A ban alone does not put an end to Chinese tech in India. It’s even possible, if perhaps unlikely, that Tiktok may make a comeback. But this episode marks an end to the first phase of China-India tech romance.

It is unlikely the two countries will find a workable reset along the border anytime soon. Tensions are unlikely to lead to military escalation, which would be catastrophic for their tech engagement.
The most likely scenario is a turbulent and frosty relationship: no more big tech investments from China, very low-key engagement between large Chinese tech companies already invested, and some exits by smaller players.
Indian consumers and businesses will continue to buy Chinese smartphones and hardware imports due to the lack of immediate alternatives, but Jio’s shadow looms large.
Don’t expect barriers to Chinese tech and public opinion to blow over.

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Hangzhou puts company seals on Ant Group blockchain

Tue, 21 Jul 2020 06:58:47 +0000

China’s first blockchain application platform for electronic company seals went live in Hangzhou on Friday, built using Ant Group’s Blockchain as a Service, the Alibaba-affiliated fintech giant said in a press release.

Why it matters: Official company seals are the cornerstone of China’s corporate bureaucracy, required to validate corporate documents such as contracts. A forged, or stolen, seal can allow someone to take actions on the company’s behalf in a form of corporate identity theft.

Electronic seals have carried the legal validity of physical seals since 2015, but they are issued by different government agencies with little standardization. This makes management and traceability of the e-seals difficult and risks forgery, Ant Group said.
On top of that, companies are required to perform cumbersome bureaucratic tasks, such as keeping records of when a seal is used.
The platform is likely to make corporate management a lot easier, ensuring the authenticity of electronic seals on a tamper-proof chain.
The move comes at a time when three high-profile Chinese tech companies are fighting over official seals.

READ MORE: INSIGHTS | Corporate intrigue triple header

Details: Hangzhou-based companies can obtain a blockchain seal by applying on a platform, available through both government portals and Alipay.

The chain will offer tamper-proof, reliable electronic seals.
The blockchain platform will be linked to Zhejiang province’s existing e-seal system, as well as Hangzhou’s City Brain, Alibaba’s smart city project in its hometown.
At first, the platform will be available only to companies registered in Hangzhou, the capital of Zhejiang province.

Context: Since Chinese President Xi Jinping praised blockchain in October 2019, China’s local governments have been pushing blockchain technology in governance.

Just last week, the city of Beijing unveiled an ambitious plan to use blockchain in government services, including cross-border trade, real estate, and banking.
In the last couple of months, physical seals have been at the center of corporate power struggles, since control of a seal allows someone to issue official-seeming documents. At Bitmain, the world’s largest bitcoin rig makers, two co-founders fighting for control produce documents stamped by different seals. Each claims his seal is the one that represents the company.
Hangzhou is often somewhat ahead of other cities in integrating technology in city governance, often in partnership with locally headquartered tech giant Alibaba.
The company launched the Hangzhou City Brain in 2016, which big data it law enforcement, traffic management, and health services, among other areas.
Ant Group, formerly known as Ant Financial, is Alibaba’s fintech affiliate. It operates China’s most popular mobile payments app, Alipay, and has invested in blockchain technology since 2015.

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Tom Orlik on why the China bubble never seems to pop

Tue, 21 Jul 2020 03:32:56 +0000

Make sure you don’t miss anything. Check out our lineup of China tech podcasts

After taking some time to welcome his newborn son, James returns to his co-hosting duties, as he and Elliott welcome Bloomberg Chief Economist Tom Orlik to the pod to discuss Tom’s new book China: The Bubble that Never Pops. Ell, James, and Tom discuss reasons to be optimistic about the future of the Chinese economy, and why it has avoided a major crisis in the decades following Reform and Opening Up.

James and Elliott also cover a few other hot topics in the news recently, such as the prospect of a Tiktok ban in the US.

Please note, the hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Get the PDF of the China Consumer Index.

Watchlist:

Tencent
Alibaba
Baidu
iQiyi
Xiaomi
JD
Pinduoduo
Meituan-Dianping
Luckin Coffee

Hosts:

Elliott Zaagman– @elliottzaagman
James Hull– @jameshullx

Guest:

Tom Orlik – @TomOrlik

Editor

Peter Isachenko

Podcast information:

iTunes
Spotify
RSS Feed
Music: “Hey Ho” by Steve Jackson, Royalty Free Music

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Life in India after Tiktok

Fri, 17 Jul 2020 09:01:29 +0000

Earlier this week, Deepak Ghubade, a 33-year-old sugarcane farmer and Tiktok performer from western India, set up a Whatsapp group comprising 15 “star Tiktokers.”

Two weeks had passed since the Indian government banned 59 Chinese-made apps, and Ghubade’s group made up of “some singers, some dancers” got together to brainstorm over how to proceed.

“The chatter is about which app to join,” he said over the phone from Maharashtra’s Beed district. “We have decided to wait another 15 days while each of us check out homegrown Indian apps that have come up. We decided that if we join another app, we should do so together” out of solidarity.

When a government ban froze Tiktok on his phone, he had 75,000 followers. For Ghubade, Tiktok had simply been an avenue to show off his love for acting and dance, which he performed in his videos set to Indian film songs. The fame he acquired was a welcome consequence.

In June 2019, Ghubade began posting videos of himself dancing and very quickly garnered 20,000 followers. But he was mocked by friends for his videos and deleted the app. “I really enjoyed it so I downloaded the app once more in September,” he said.

In early 2020, with 45,000 followers, he made a viral video on Tiktok which said: “I am dg_rocks and I invite you all to my field.” It became a mega Tiktok live event where thousands of Tiktokers from across his state of Maharashtra and elsewhere flocked to his farm. They showed up at 9 a.m., stayed till 5 p.m., and spent the day mingling, shooting videos, and posing for photographs. He had even organized food and refreshments.

https://technode.com/wp-content/uploads/2020/07/03.mp4

“In that video, I said: ‘There are no stars or fans, everyone please show up’ and people came from everywhere. Even housewives who never leave their homes showed up,” he said. “Tiktok offered a lot to people—some became famous, some found work through it, but after the ban all this has disappeared.” Ghubade said he even had an offer to act in a short film and documentaries but those plans are now on the back burner.

Since the ban, Ghubade has downloaded seven or eight apps on his phone which offer a similar short video app experience. But even as a full-time farmer, Ghubade said, “Nowadays, I am very bored and spend hours on conference calls asking if there is any new app which we can try out. Even if a new ad pops up on Facebook, we are ready to try it out.” In an interview soon after the ban, Ghubade was confident there will be a homegrown Indian app that will give him the same experience as Tiktok. “So far, I haven’t found it!”

Tiktok has upwards of 200 million users in the country, and it had steadily become a part of daily Indian life. It provided its users a source of instant gratification, allowing viewers or performers a different virtual life. This isn’t to say that Tiktok India has been free of controversy. However, for influencers, making a video for Tiktok had become second nature, a void that multiple homegrown Indian apps are attempting to fill since the ban.

Soon after news of the ban broke, content creators began sharing their Youtube and Instagram handles to divert followers’ attention to other platforms. But for many content creators, life without the app they used every single day is described as simply “empty” and “lonely.”

In the weeks since the June 29 ban, homegrown Indian alternatives have seen a surge in their numbers. Roposo, a video-sharing social media platform which had 55 million users before the ban said that it raked in 75 million downloads in a week. With 500,000 new users an hour, the app expects to hit 100 million by the end of July. On July 4, it shot to the top spot on the Google Play Store across all categories, up from its ranking of 330 around two weeks earlier, according to Naveen Tewari, chief executive of InMobi which owns Roposo. He tweeted, “It’s been an amazing ride. Thank you India for all the love! We are working really hard to repay your trust in us.”

Servers hosting several other Indian apps were pushed to the brink as new sign-ups surged immediately after the ban. Another short-video platform, Chingari, has reaped more than 80 million downloads in the past few weeks and said it recorded 148 million video views on its platform in a single day. Box Engage, another short video app that markets itself as “discovering engaging videos Tiktok style” saw a surge in active users within a day of the ban. Instagram rolled out its short video platform Reels for Indian users on July 11, while several other players announced plans to launch their own equivalents.

Content creators continue to experiment across platforms as they figure out which platforms work best for their content and which mimic existing apps. A report in India-focused news platform Bloomberg Quint pointed out that Chingari’s interface is similar to social and content app Helo owned by Tiktok owner Bytedance in terms of icon arrangements and features. “When a Tiktoker comes to Chingari, we don’t want to make him learn a new user experience, learn the product again, we just want to give him the same experience he is used to,” Sumit Ghosh, co-founder of Chingari told Bloomberg Quint. “So user experience-wise, user onboarding-wise, creation-wise, they are going to do exactly what they are used to so it becomes very simple for them to migrate to our platform.”

Yet, it isn’t just users actively seeking out new apps. Platforms are also actively campaigning to woo users, said Gaurav Jain, a digital marketing executive in North India. His digital property “Indian Men’s Guide” hit 1 million followers on the day Tiktok was banned.

“Immediately after the ban, several platforms and some through middlemen, started getting in touch with creators asking ‘Do you want to get onboard since you were popular on Tiktok?’” he said. “I got a formal email asking if I wanted to get on board one of these platforms. In fact the sudden influx on these apps meant servers crashed and you couldn’t access features, connect, or even sign up.”

Jain said his life “felt empty” after the ban on Tiktok but he has been closely studying which way the crowd has moved since. “After Tiktok, people got really confused and some went to Chingari, others to Roposo. My own followers possibly split up between these apps so I won’t be able to get the kind of traction on any one platform,” he said. “This will happen for every creator, the kind of popularity and the kind of engagement they used to get on Tiktok is now split up across seven to eight apps.”

This market fragmentation may affect yet another dimension aside from the app-to-user relationship—the consideration of how to make platforms a space that brands will collaborate on.

“End of last year, someone from Tiktok India came down to our office and spoke to us about how brands can collaborate with Tiktok,” an advertising executive in Mumbai told TechNode. “The platform was recently reaching out to agencies and brands to look at ways to collaborate to make money on that front. This is definitely something that will be affected.”

Jain too spoke of a “creator marketplace” that was slowly taking shape on Tiktok. “Before the lockdown, I was in negotiation with a startup in the hospitality sector. They wanted me to make relatable content to use it for advertising material on Tiktok,” he said. “This was a great way to put creators in touch with brands in a transparent way.”

Sandeep Mertia, a doctoral candidate at NYU’s Media, Culture and Communication told TechNode that in his opinion there has not been a comparable precedent for this kind of app ban and large-scale user migration. “Apparently Roposo seems to be doing well for now, but it’s too early to say who will be the “winner.” If tomorrow [Indian telecommunications company] Jio launches a Tiktok-like app, nobody will be able to compete with their monopolistic power. The market is being actively re-made here instead of getting plugged into another app or platform,” he said.

While Ghubade seemed very taken by Tiktok’s “superior” filters, several content creators also spoke of how Indian apps lacked user-friendly interfaces, something they said they loved about Tiktok.

Scholars who study social media trends in India have been fascinated with the rise of Tiktok, a seemingly straightforward app that has appealed to millions of people without the need for text or prior experience to navigate the interface.

“In hindsight what we have learnt from Tiktok is that language has been one of the key barriers in terms of expansion of the internet, for the longest time. Tiktok is one of the few apps able to break away from that,” Mertia said. “In India, language is a core concern. Just as much as simplicity of use. On Tiktok it comes down to clicking one button, shooting from your phone, and circulating it. Unlike Twitter, here there are waves that are more expansive than celebrity or influencer-centered circulation.”

Mertia believes that if the ban on Tiktok was to be reversed, users would return. “There is something to be said about habitual use of social media and how digital habits are formed especially in nascent communities of usage where you cannot think of switching off allegiance and loyalty on how something looks and feels,” he said. Yet, in the absence of such a platform, homegrown apps will do well in the short-term, he said.

“There is… a highly publicized vacuum that is driven by national security under a ethno-nationalist regime which has specific stakes in how this should play out. Certain apps are positioning themselves as nationalist solutions,” he said. There is an organized campaign, he added, across social media platforms to garner support for these new apps. “Beyond the rip-offs to capture the 200 million Tiktok users, it would be interesting to see how others can envision something different or original for the ‘next billion users.’”

Correction: story was updated to reflect that it was Gaurav Jain’s digital marketing property “Indian Men’s Guide” which attracted 1 million users the day Tiktok was banned. An earlier version of the story incorrectly stated that it was a digital marketing agency.

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Beijing unveils plan for blockchain-based government

Thu, 16 Jul 2020 07:28:42 +0000

The local government of Beijing released on Thursday a blueprint of its plan to implement a blockchain-based programmable government.

Why it matters: This is the first time China’s capital city has laid out details of how it will implement blockchain in its operations.

Details: The government’s main goals in the plan are to build a blockchain-based unified framework for digital governance, facilitate data-sharing between agencies and businesses, and enable cross-departmental and cross-regional collaboration.

The 145-page blueprint lays out only the first steps in achieving the most ambitious blockchain project in a mega city like Beijing.
The city wants to reap the efficiency and trust benefits of blockchain-based governance, but also become a global hub for the development and application of distributed ledger technology.
Deliberation to select the 12 application cases to spearhead the project began in November, just weeks after Xi Jinping’s speech.

Beijing’s 12 blockchain application cases

Project Name	Function	Goals
Municipal Commercial Bureau Airport International Logistics Blockchain Platform	Logistics, cross-border trade	Data sharing between merchants, logistics operators, customs authorities, regulators, airport authorities to facilitate customs in cross-border air cargo trade.
Beijing-Tianjin-Hebei Port Customs Clearance	Logistics, cross-border trade	Data sharing between port authorities, tax agencies, and customs authorities to coordinate between port terminals.
City Financial Electronic Identity Authentication System	Enterprise banking	Reduce time and application materials, while ensuring identity authentication in enterprise banking.
City Electronics Bills System	Billing	Improve the ability of businesses to issue bills and track reimbursement.
Haidian District Finance Platform for SMEs	Finance for SMEs	Improve access to capital for SMEs and risk management for their lenders.
Municipal Real Estate Registration System	Property management	Revamp the management of real estate, including mortgages, deposits, utility bills, tax audits, and more.
Multi-terminal Business Licensing System	Enterprise Regulation	Improve authentication processes for businesses, as well as collaboration between firms through electronic certificates.
Internet+Government Haidian District Pilot	E-governance	Create a “national benchmark” for comprehensive blockchain-powered government. More than 100 government agencies will implement blockchain for managing anything from high-tech enterprises to unemployment benefits.
Xicheng District Government Services Pilot	E-governance	Improve bureaucratic efficiency for various government services through data sharing and electronic certificates.
Chaoyang District Government Services Pilot	E-governance	Improve bureaucratic efficiency for various government services through data sharing and electronic certificates.
Shunyi District Government Services Pilot	E-governance	Improve bureaucratic efficiency for various government services through data sharing, smart contracts and electronic certificates.
Beijing Economic and Technological Development Zone Government Services	Enterprise governance	Create a “one-stop” service platform in the special economic zone that manages government services. This will help make the area “a world-class business environment,” according to Beijing.

The plan does not include details about the blockchain-based, city-wide identity and social credit platform promised in previous statements from the Beijing government.
The blockchain work committee is led by the Beijing Municipal Government Service Bureau, the Municipal Science and Technology Commission, and the Municipal Economic Information Bureau.
Already, 140 government services use blockchain, the government said in a statement. The applications include data sharing, linking businesses to save time, and epidemic control. These have helped resume production after the Covid-19 lockdown, and led to a 40% reduction in paperwork, according to the statement.

Context: Just two weeks ago, Beijing announced its plan to become a global hub for blockchain technology by 2022. It is one of 11 cities across China to release official strategies based on the technology.

Other than government applications, the city wants to support private sector innovation. It will also create a fund dedicated to supporting blockchain startups, a “talent training system,” and set up dedicated blockchain development parks.
Beijing’s plan is only one of major government-backed blockchain projects. Southern Hainan province’s special economic zone set up policies that have attracted major companies, and state-owned enterprises are working to build a globally-oriented “internet of blockchains.”
Since Xi Jinping’s speech in October praising blockchain, Chinese authorities have reversed its treatment of the technology.
Blockchain, and especially cryptocurrencies, were viewed with suspicion and faced heavy regulatory headwinds in the past.
Even bitcoin mining is coming into the mainstream, with Sichuan authorities setting up favorable policies.

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China’s Data Security Law aims high, but lacks details: experts

Tue, 14 Jul 2020 06:03:29 +0000

As China’s legislature contemplates a sweeping legal framework to overhaul the patchwork governance of China’s data sector, Chinese data security experts criticized a draft as lacking in specific details. The draft Data Security Law was opened for review by the National People’s Congress Standing Committee on July 3.

Why it matters: The draft data security law, which will be finalized by the NPC this year, is an attempt to correct years of weak regulation from a patchwork of previous laws. It tightens regulations for accessing and sharing data, creates new management responsibilities for data entities on the mainland, and promotes the use of government data—issues that earlier legislation failed to address.

Entities which require access to Chinese user data will need to comply with strict new data security requirements, such as establishing managing bodies and completing regular risk assessments, or risk hefty fines up to RMB 1 million.

The data security law is a foundational law that will have a major impact on China’s data security, especially in the areas of data security management, cross-border data transfer, and retaliation against discriminatory measures towards China.
— Ma Jun, Ningren Law

Details: The new draft law signals that protecting the troves of information collected from the country’s bet on big data is a central priority for the government.

The draft law reaches further in scope, allowing China to take legal action against those seeking to harm the country’s national security and interests.
It also promises “corresponding measures” against countries that limit data flows and technology investment into China.
Individual regions and departments are required to classify what counts as “important data” based on economic development, national security, and public interests.
Backed by big data, provincial-level or higher level government agencies will need to create “digital economy development plans.”
Military data, state secrets, and personal information will be governed by separate regulations.

Data is the basic resource for building a digital economy. The value of data lies in its free flow, development, and utilization, and the premise of all this is the guarantee of data security.
— Qi Aimin, Chongqing University School of Law

Needs work: At a July 5 online conference (in Chinese) hosted by the China Institution of Communications, experts pointed out gaps in the law. “At present, the specific provisions of the consultation draft do not well reflect the diversified legislative objectives,” Vice Chancellor Shi Jianzhong from the China University of Political Science and Law said during the webinar.

“The data security law covers all aspects of data protection, but there are still deficiencies,” Li Guangqian, a researcher for the Development Research Center of the State Council, said during the conference. “In terms of protecting industry data, each kind of industry data has its special characteristics, so their security requirements are also very different.”

Li also brought up concerns about the terminology differences between “data” and “information”: Article 3 of the draft law defines data as “any record of information in electronic or non-electronic form,” conflating the two terms and potentially causing difficulties for lawyers trying to interpret this article in the future.

Overall, the data security law is simply not specific enough to put lawyers’ minds at ease. “The provisions of the security system, clauses about obligation, and responsibility commitments need to be further refined to improve practicality,” Ma told TechNode.

Closing the loopholes: Over the past few years, China’s data industry was managed by multiple regulations instead of a single, comprehensive law to guide the sector. These laws only regulated small portions of the industry, leaving questions unanswered and loopholes wide open.

READ MORE: Dust has yet to settle two years after China’s landmark cybersecurity law

The 2017 cybersecurity law mandated that users provide real-name information and required networks to store Chinese data on mainland servers.
The Personal Information Security Specification took effect in May 2018 and was revised in January 2019. It specifically targets management of personal data such as real names and addresses, identification numbers, communication records, among others.
China’s civil code, which will come into force in 2021, guarantees individuals the right to privacy of personal information, but avoided clarifying how that was to be protected or regulated.
The data security law is built upon these three regulations, and experts are concerned how lawyers will handle this overlap.
The Personal Information Protection Law (in Chinese) is currently still in deliberation by the NPC. It will establish regulation and legal mechanisms for protecting individuals’ personal information. The text of the draft has not yet been released.

Qi told TechNode that portions of the data security law dealing with personal information should instead be solely under the purview of the Personal Information Protection Law. “Otherwise, after the launch of the Personal Information Protection Law, it will cause confusion in the legislative system and the application of relevant laws relating to judicial practice,” he said.

The civil code highlights the importance of Chinese data privacy, but Ma was pleased that the new legislation will go further in regulating the data industry itself. “The Data Security Law more clearly stipulates the principle of equal emphasis on the development of the data industry and the maintenance of data security,” he told TechNode.

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SMIC listing seeks billions to fund chip autonomy push

Mon, 13 Jul 2020 05:57:59 +0000

China is set for its biggest stock sale in a decade when homegrown chipmaker Semiconductor Manufacturing International (SMIC) debuts on Shanghai’s Nasdaq-style STAR Market at the end of this month.

Backed by heavy subscriptions by mainland investors, the Hong Kong-listed company could raise as much as RMB 53.2 billion (around $7.6 billion) in a secondary listing on the Shanghai bourse, potentially the biggest in mainland stock markets since Agricultural Bank of China’s RMB 68.5 billion initial public offering in 2010.

SMIC is just the latest example of China’s chip funding fever. A report by Nikkei Asian Review says Chinese chipmakers have raised around RMB 144 billion this year from equity markets, already twice the amount of money they raised in the whole of 2019.

Shanghai-based SMIC is China’s largest contract chipmaker. It’s a solid division II team, manufacturing reliable midrange chips mostly for domestic customers. It lags a few years behind the cutting edge: SMIC is still inching towards 7-nanometer chip production while Taiwan Semiconductor Manufacturing Co. (TSMC) has been producing them since 2018. But the company’s 14-nanometer chips are not good enough to supply many domestic needs, such as Huawei’s most advanced Kirin chips.

(Image credit: TechNode/Wei Sheng)

The on-going race between China and the United States for technology supremacy has given SMIC its chance at the major league: US sanctions on Huawei could force the world’s largest telecommunications gear maker and second-largest smartphone maker to move all its chip production from TSMC to SMIC. The state is ready to pour billions into the company’s effort to master cutting-edge production. Shares in SMIC have gone up 215% from the beginning of this year, driven by increasing domestic demand, favorable policies, and the dual listing plan itself. It’s a huge opportunity—but a daunting challenge.

The company said it plans to spend 40% of the proceeds of the Shanghai stock offering to help produce 14-nanometer or higher-end chips, and 20% will be put into research and development.

But to become a global leader, experts suggest, SMIC will need more than money.

Money from the state—and more from the market

Since it was founded in 2010, SMIC has enjoyed generous support from the state. In the same month it announced the secondary listing plan on the Shanghai bourse, a state-backed industry fund injected more than $2 billion into a SMIC chip fabrication plant.

Years of state support have put China in the fourth spot on global wafer capacity ranking in 2019, according to semiconductor market research firm IC Insights.

China is known for its lavish investments to boost industries deemed strategically important. In the semiconductor sector, the well-known National Integrated Circuit Industry Investment Fund, or the “Big Fund,” underwrites chipmakers. The fund has gathered a total of RMB 342.7 billion from the finance ministry, state-owned enterprises, and local governments.

In addition to its official goal (in Chinese) of “investing in chip manufacturing, designing, and promoting mergers and acquisitions,” the fund is also expected to provide “guidance” to get private capital into key sectors.

To raise really big money, SMIC and the Big Fund count on the markets. In 2019, investable assets held by Chinese residents that can be put into the equity market were RMB 29 trillion, according to the China Chief Economist Forum (in Chinese), a Shanghai-based think tank, while the entire national budget (in Chinese) for guidance funds was RMB 2 trillion in 2019.

The STAR Market on the Shanghai Stock Exchange also shows a strong preference for semiconductor firms. Of the 122 stocks listed on the board, around 20 are from the semiconductor sector. The board, known for a meticulous pre-listing review process that can take up to six months, took only 29 days to go through SMIC’s application.

“The Big Fund has definitely achieved its goal to guide private capital into the semiconductor sector, and I think the effect is significant,” Fang Jing, chief analyst at Cinda Securities, told TechNode.

“Thanks to the push of the Big Fund, the proportion of total capitalization of semiconductor firms in the A-share market’s electronics sector grew to approximately 30% from just more than 10% a few years ago,” he added. “It is no exaggeration to say that the past two years have been a feast for semiconductor investments.”

Money may not be enough

Beijing’s expectations are very high for SMIC. According to the Made in China 2025 plan, a government initiative announced in 2015 aiming to boost the high-tech sector, China wants to produce 70% of chips it uses by 2025. With 18% of the domestic market (in Chinese), SMIC is the only company that’s even on the road to this target.

The target seems more urgent now in the context of escalating US-China economic conflicts. The Trump administration has already blocked Huawei’s access to its technology and machinery and would potentially cut the company off from the global semiconductor supply chain.

But despite heavy investments from the government and private investors, experts predict China will fall far short of the goal of semiconductor self-sufficiency by 2025.

A May report by IC Insights predicts that China will produce only 20.7% of chips it uses in 2024, growing only 5% from 2019.

(Image credit: TechNode/Wei Sheng)

China not only needs more chips—it needs better ones. SMIC is “generations behind” TSMC, Alex Capri, visiting senior fellow at the National University of Singapore Business School, told TechNode in an interview in May. SMIC, one of the country’s most sophisticated chipmakers, mainly produces 14-nanometer wafers, while the most edge-cutting chip fabrication technology is now 5-nanometer. For Huawei, this means there is nowhere to buy cutting-edge chips in the domestic market.

In addition to closing a capital gap, China also needs to narrow the talent gap in the semiconductor industry to catch up with the bleeding edge of chip designs, said Fang of Cinda Securities.

China faces a talent shortfall of around 300,000 people in the semiconductor industry, Yu Xiekang, vice president of the China Semiconductor Industry Association, told local media in 2019.

“It should start with education because you can’t always poach talents from overseas. We need not only technology self-sufficiency, but also education self-sufficiency,” Fang said.

Clarification: This post has been updated to clarify the attribution of a quote in the last paragraph.

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INSIGHTS | Markets, not floods, will drown bitcoin miners

Mon, 13 Jul 2020 02:44:41 +0000

Picture a remote village tucked at the end of a winding road. Towering overhead are the peaks of the world’s tallest and largest mountain range. It’s the perfect place for bitcoin miners to set up shop.

Mountains invite rain, and, in modern China, rain is just begging to be channeled through gargantuan dams into electricity generators. The Himalayas have made the southwestern province of Sichuan home to abundant dams and, during the rainy season, incredibly cheap electricity.

Normie tech entrepreneurs haven’t flocked to these inaccessible secluded villages to take advantage of it. But bitcoin miners have swarmed the area, consuming as much as 10% of Sichuan’s total electricity, by some accounts (in Chinese).

But this year could turn out to be just too wet. On June 17, Chinese media reported that a hydroelectric power station had been swept away by debris and that many local mines were destroyed in Ganzi prefecture in western Sichuan. Across China, this year’s floods have already killed more than 121 people and caused $3.6 billion in damages.

But these epic floods are the least of the miners’ worries.

Bottom line: Crypto mining is traditionally a wildcat industry, inhabiting a legal grey area and the remotest regions of China. As the industry professionalizes, local authorities are embracing it. The private sector is stepping up to offer financial products to bitcoin miners.

Three forces shape bitcoin mining in Sichuan: hydro power, regulations, and the markets. Both regulators and market favor big mines. As the industry consolidates, small mines face going out of business or selling out to mining tycoons.

The law of water

Bitcoin mining requires a lot of electricity, and keeping this cost low is essential for a sustainable mining business. During the rainy season, Sichuan’s massive hydroelectric power stations produce a lot of power, with local prices as low as $0.01 per kilowatt hour.

READ MORE: China accounts for 66% of the world’s bitcoin processing power: research

Heads above water: But miners reached by TechNode were not worried about the floods and said they had not been affected. It’s business as usual, they said. Every year the floods destroy some mines, but provide cheap power for the rest.

The global hash rate, a measure of mining activity, has been rising over the last month.

This year could still see disaster. Flooding is shaping up to be more severe than usual, local media report that dams are near breaking point.

Floods can also cause lesser disruptions. In 2019, landslides interrupted operations at hydroelectricity stations, disrupting the miners’ power supply.

The law of the land

Crypto is legal—unless you want to spend it: China has a love/hate relationship with crypto currencies. In late 2017, major homegrown crypto exchanges were kicked out of the country after a blanket ban on crypto trading and initial coin offerings were banned.

Mining itself is not illegal and never has been. But trading crypto currency for money can get you in trouble.
Even though their occupation itself might be done legally, things get a little tricky when miners want to spend their earnings.

READ MORE: Chinese court recognizes Bitcoin as virtual property, a first

Black market power trading is not: What is definitely illegal and has got many miners in trouble, is mines getting electricity without going through the grid.

This off-grid consumption happens a lot in Sichuan, where many mines are surreptitiously built right next to hydroelectric power plants.
The only legal way to access Sichuan’s cheap hydro-power is to go through the national electricity grid.
This is, of course, more expensive than plugging in directly to the hydroelectric plants, but still cheaper than electricity available in the rest of the country.

Moves to legalize (hesitantly): Local authorities in Sichuan have recognized the economic value of bitcoin mining, and are slowly bringing it into the mainstream, in return for tax and power grid compliance. But without clear permission from central authorities, the province has run hot and cold on mining.

In April, several prefectures in Sichuan announced plans for hydropower parks. These new areas will pick tech companies to settle them close to the hydropower stations and give them preferential electricity prices.
While mining was not mentioned directly in the relevant documents, they name blockchain as a key technology.
In May, Sichuan’s Finance Authority issued a statement to prefectures asking them to withdraw from mining.
But when winning enterprises for the hydro parks were announced the next month, they included multiple bitcoin mines, marking a breakthrough in state support for the industry.
In June, Sichuan’s grid operator said it expects the mining industry’s electricity consumption to double over the next year, as compliant bitcoin farms are brought under the wing of the hydroparks.

The law of the market

Big is beautiful: Sanctions on crypto mining look a lot like other newly-legal industries: while a few big players go corporate at hydroparks, others are left out in the Himalayan cold.

Scale plays a big part in the industry these days, and small players have a hard time competing with bigger, professionalized players.
Mining bitcoin is like playing the lottery to earn a living. If you are an individual with a single mining rig, you might make it big once in a while and make enough money to keep your business going. The more equipment you have, the higher your chances of hitting the jackpot.
Taking advantage of these economies of crypto-scale, big miners use their gains to buy more equipment, further increasing their edge.

Let go of the weak: While new regulations have yet to be fully formed and implemented, they will almost certainly favor a small group of big miners.

Access to legal, cheap hydroelectricity through the hydroparks will further lower costs for the professionalized mines.
Going mainstream has also meant paying more taxes—hard to bear on the razor-thin margins of small mines.
With off-grid electricity facing stiffer enforcement, the industry is only likely to consolidate further.

Sharks in the mountains: The last year has seen many small miners lose their equipment over debt.

In late 2019, many third-party loan brokers for miners popped up in China, fronting loans for miners who wanted to buy more equipment.
In March, in anticipation of a bull run on the heels of the bitcoin halving, many miners pawned their tokens for traditional currency to get new mining rigs.
Instead, the price of bitcoin dropped, forcing many to sell their collateral and pawn their rigs to second-hand markets to pay back their brokers.

The pitfalls of capital markets: Increasingly sophisticated players are making a host of new bitcoin-related financial products available to miners. They might use them to hedge—or to place even bigger bets.

Since late 2019, mining pools, cryptocurrency exchanges and even rig manufacturers have expanded offerings of financial products, traded in crypto markets.
These include loans, but also derivatives on various aspects of the bitcoin market; from coin prices to the network’s hash rate.
In theory, these could help small miners get the cash they need to make their operations viable, or de-risk their investments through derivatives.
Derivatives trading is a pretty sophisticated industry. And wildcat miners in Sichuan are not, on the whole, financially sophisticated people.
These contracts can be used carefully to limit risks—but it’s safe to expect that many traders will lose their shirts on ill-advised futures bets.

The price of bitcoin has surged since the March price drop off, and electricity prices in Sichuan remain low due to the overabundance of rain. Some small miners are still powering through. But as electricity prices rise in autumn—and whenever further regulation is rolled out—legal and financial pressures will mount on small miners.

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Pony.ai to test self-driving cars in Shanghai

Sat, 11 Jul 2020 09:00:00 +0000

Chinese self-driving startup Pony.ai will begin testing self-driving cars in Shanghai as part of a government push for global leadership in the development of autonomous vehicle technology.

Pony.ai will work with city regulators to deploy a self-driving fleet for test drives on public roads in northwestern Jiading district, the company announced Saturday along with the Shanghai municipal government during the annual World Artificial Intelligence Conference (WAIC).

The company did not disclose the number of cars in the fleet or project timeline.

The AV upstart, with headquarters in Silicon Valley and the southern Chinese city of Guangzhou, was valued upwards of $3 billion after securing earlier this year $462 million in a Series B led by Japanese auto giant Toyota. The Pony.ai fleet of more than 100 vehicles has traveled a total of more than 2.5 million kilometers (around 1.6 million miles) in China and the US combined, around a tenth of what Google’s self-driving unit Waymo has logged.

The move will thrust the AV unicorn squarely in the Chinese self-driving race. Mobility giant Didi as well as AutoX, a rival company backed by Alibaba, are piloting autonomous ride-hailing services in Shanghai. The three companies are currently the rising stars in China’s AV competition, and are ranked within the top 10 for self-driven miles in California’s annual self-driving report.

Pony.ai’s Shanghai debut will come just two weeks after Didi began offering rides to members of its early rider program within a geo-fenced area of around 100 square kilometers (39 square miles) in Jiading district.

Still, Chinese AV startups may be a long ways from mass-producing fully automated cars because of costs and technical and regulatory hurdles. Each of Didi’s custom-built Volvos are equipped with nearly 20 sensors including three Lidars, seven cameras, and a bunch of radars, and cost more than RMB 1 million ($143,000) per unit. Didi expects to operate more than 1 million self-driving cars on its platform by 2030, Meng Xing, COO of Didi’s self-driving subsidiary said last month in a webcast.

Weride, an AV startup backed by the Renault-Nissan-Mitsubishi Alliance, kicked off its robotaxi program with a fleet of 20 Nissan vehicles in its home city of Guangzhou late last year. Guangzhou in southern China on Friday gave the green light to Weride to test 10 self-driving cars without safety drivers on public roads. A Weride spokeswoman confirmed to TechNode on Friday that it was the second company worldwide to test fully driverless vehicles on open roads, after Waymo.

Chinese AV startups have accelerated moves to transport passengers via self-driving cars as the government is eager to make inroads in the technology’s development. The Beijing municipal government released China’s first rules for AV road testing in December 2017, while Shanghai issued in September the country’s first permits for AV passenger service pilot programs to SAIC, Didi, and BMW.

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Chinese police bust $14 million smart contracts scam

Fri, 10 Jul 2020 06:17:20 +0000

Authorities in the eastern Chinese province of Fujian raided the headquarters of a smart contracts scam that are accused of stealing RMB 100 million ($14 million) since 2019, according to Chinese media reports.

Why it matters: China has been promoting blockchain development since President Xi Jinping’s speech on the significance of the technology in October, but cryptocurrencies are still on uncertain legal ground. Concerns about fraud could discourage moves toward legalization.

Incidents like this recall a wave of cryptocurrency scams and scandals, leading regulators to ban cryptocurrency trading.

Details: Chinese media reported that the perpetrators claimed to run a smart contracts business on Telegram which exchanged cryptocurrencies Ethereum, Bitcoin, and Tether for Huobi Tokens (HT). But the HT they returned to their customers were worthless counterfeits.

Police were first notified after a customer sent the group RMB 12,000 worth of Ethereum. He realized the exchange was bogus when he tried to use his HT in a different market.
The victim reported the Telegram group to local authorities. After a month of investigation, the police tracked down the fraudsters.
The authorities discovered that the criminal ring managed several Telegram groups. A total of 13,000 users were in the groups, 10,000 of whom were fake. The scammers had programmed bots to praise the smart contracts service in order to lure victims.
Ten people were arrested. The three people police identified as masterminds were recently graduated university classmates.
Police seized luxury cars and real estate worth RMB 13 million, including a MacLaren and a Ferrari.
Police estimated that the fraudsters scammed 1,300 people.

Context: Scams and Ponzi schemes have plagued the Chinese cryptocurrency sector, and authorities have been tough on the technology as a whole.

In 2017, the government banned cryptocurrency exchanges, chasing out homegrown giants Huobi, Binance, and Tron, which set up shop in Hong Kong and Singapore.
But thanks to private over-the-counter exchanges, cryptocurrency trading did not die.
A July 2019 decision by a Hangzhou Court affirmed the right to own cryptocurrencies.
With state-backed ventures like the Blockchain Services Network and the Shenzhen Blockchain Index as well as clearer regulations in blockchain implementation and encryption standards, the industry in China is booming. There are 45,000 blockchain-related companies in China, according to a recent report.

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We read the technical standards for China’s ‘health code.’ Here’s what we learned.

Fri, 10 Jul 2020 03:22:21 +0000

Since late February, China has relied on “health code” apps to control re-opening. A green code in your city mini-app gets you into markets, office buildings, and public transport. Yellow or red? You could be barred from your train, or even sent into self-isolation.

These apps follow the ebb and flow of the virus. Though both may occasionally disappear, whenever China sees a new local outbreak, health code checkpoints are never far behind.

Like most Chinese initiatives, it’s a diverse patchwork of local solutions, improvised to manage a crisis. Cities and districts have their own health codes, sometimes creating contradictions: one Financial Times reporter was told on returning to Beijing to ditch the municipal-level app and use their district’s own.

So what are all these codes based on? What data are they collecting? How long will they be around?

The system’s extremely opaque—and it keeps changing—so answering these questions is hard; there isn’t exactly a CEO of Health Code to help out. But just for you, TechNode dug into the most detailed technical information available—standards issued on April 29 for the national health code system.

They include information that helps us understand what information the system collects—and links it to a national system that could stick around long after the pandemic is done. We’ve put together a FAQ to walk you through how we’ve gotten here, and what comes next.

Keeping score

First things first: for this article, we’ll use “health code” to refer to individual city-level apps and frameworks, and “health code system” to refer to their collective China-wide use (which, remember, is decentralized).

What data’s in the health code?

The standards outline a surprisingly modest list:

Travel history (up to the district/county, or qu/xian, level)
Directly related health information (e.g., temperature, symptoms)
Overall medical test results
Overall risk assessment

Personally identifiable information like residence community (shequ) is also required. Beijing’s most recent outbreak used shequ-level risk assessment, as TechNode editor David Cohen experienced, with some shequs deemed medium- and high-risk while others remained low.

Huh, seems reasonable. But wait—where’s this data come from, then?

According to the standards? Just about anywhere. Potential sources include:

Diagnosed cases
Close contact history
Nucleic acid tests
Antibody tests
Self-reported data
Temperature data at checkpoints
Data from phones remaining in at-risk areas for too long

…and, you know, a couple of others.

This isn’t new. The health code system already cross-checks government data on train and plane tickets, according to a GovInsider interview with Yong Lu, vice president at the Shanghai Data Exchange Corporation. He also says it uses location-based data from telcos.

That seems like an awful lot of data. Is it actually all being used?

Great question. The standards don’t advise on that, and given how complex and varied these data sources are, that decision will probably be handled locally.

Data from private companies is especially touchy, as these companies are reluctant to hand over customers’ personal data. During the recent Beijing outbreak, Alibaba and Tencent jointly denied a rumor that they were doing so.

It’s also not clear how detailed the location-based data is, and TechNode contributor Dev Lewis notes an absence of high-precision location-based data such as mobile payments (supplemental reading: Lewis has also gone deep on the standards docs). That doesn’t guarantee individual apps aren’t using such data, but Beijing’s recent struggle to trace contacts from the Xinfadi market outbreak suggests that at least some apps aren’t capturing that.

So are health codes permanent?

The standards aren’t definitive, but their foreword references taking a “long-term” perspective, so it sure sounds like they’re thinking about it. As we’ll discuss in a second, China’s trying to centralize government services and medical information, so the system’s likely to stick around.

Post-pandemic, the standards say health codes could even turn into a general-purpose “medical history code,” used in medical treatment, elderly care, and so on. When Hangzhou tried expanding health code use recently, it got quite a bit of flak.

Going national

So then this “national health code system”… if so much is kept local, what’s left to do?

According to the standards, the “national platform” sitting above local apps would be more like a directory or catalog emphasizing interoperability, rather than a national-level database.

According to the standards, the health code system should be organized to achieve mutual recognition between different local apps. (Image credit: Standardization Administration of China; translated by Shaun Ee)

Seemingly, individual regions would operate their own databases, but the national platform would provide a “table of contents” where, for example, one province could look up another province’s information.

Think about a library system. If you were searching for a book, it’d be really neat to know its location and some basic details. Right now, every “shelf” in China is using a different organization system, so book hunting takes forever. And China’s “library” has grown pretty fast: by March, over 200 cities were using health codes, with limited discussion of compatibility.

But…?

But to our knowledge, that “library catalog” doesn’t fully exist yet. According to Wang Zhong, associate professor at the Beijing Academy of Social Sciences (BASS), China’s current healthcare information sharing platforms are at the prefectural or provincial level and not nationally managed.

By themselves, the standards can’t create that sort of catalog. What they can do is make sure provinces are collecting the same data, so making that catalog is easier. But we’ll talk more about that later.

So, just to be clear, this national platform isn’t going to be, like, a single mega-database of all the health information on every Chinese citizen ever?

All of it? Ever? Uh, probably not. It would be hard to unite diverse health information data types, like images and scans, plus there’d be significant privacy and cybersecurity concerns.

That said, increased national-level data sharing still carries some risks. For example, earlier in May, someone leaked a 640,000-row dataset documenting case updates in over 230 cities to Foreign Policy.

Plus, in the longer run, the standards talk about connecting all local health code systems to an integrated (Yitihua) platform for government services, as Dev Lewis has noted about Yitihua’s health-related dimension. Yitihua isn’t the same as our “national platform” for health data—it’s much bigger.

No, really going national

In full, Yitihua (in Chinese) is the “nationally integrated online government affairs service platform” (quanguo yitihua zaixian zhengwu fuwu pingtai). It’s been around since well before the pandemic. The State Council (in Chinese) has been pushing its development since 2018 (in Chinese), and it actually went up in November 2019, but with relatively little fanfare—it’s still in beta mode.

In other words, it’s not just for healthcare: the aim is to have a one-stop shop for all government business. That’s not an ambition unique to China—other (smaller) countries like Estonia and Singapore have done it.

The health code system could be a jumping-off point for Yitihua in the health department because standardizing it is easy. Wang from BASS told Technode the limited range of medical data required for the health code system is easier to collect, and that provinces are already collecting this information in relatively standardized formats.

So how do Yitihua and the health code system fit together?

There actually aren’t many specifics. As early as February, news articles (in Chinese) talked up the importance of Yitihua in epidemic control, but other than the creation of a national health code app (in Chinese), details are scarce about how it might integrate information. That app is far from universally used, and even the standards say it does not replace (in Chinese) existing regional apps.

This diagram from the standards shows how health information in Yitihua relates to the health code system, for example, but the floating boxes don’t much clarify how data sources are plugged in.

An illustration of the framework for the anti-epidemic and health information service system integrated platform, according to the standards. (Image credit: Standardization Administration of China; translated by Shaun Ee)

Still, Yitihua matters because it’s a long-term commitment to national-level data integration, particularly across government departments. In that light, it’s worth seeing the standards not as definitive, but as one step in a long (but determined) journey toward greater integration.

One standard to rule them all

So looks like we’re back to the standards. What’s their role?

To have Yitihua and the health code system, you need uniform data types and interoperable databases: hence, the standards.

Just to be clear, interoperability doesn’t mean identical implementation. Per the standards, implementation is still very much decentralized: regions get to decide risk levels and how to use them. Conveniently, they’re also in charge of dealing with any complaints.

Where did the standards come from?

China’s main standards body, the Standardization Administration of China, released them on April 29. They’re technical papers intended to allow different actors to create compatible systems.

They consist of three documents: a description of how different databases should interact, the basic requirements for an application interface, and data formats to ensure compatibility.

Who put them together?

A mix of private companies and government agencies. Companies involved included Baidu, Alibaba, Tencent, and China Electronics Technology Group, while government agencies included central agencies like the General Office of the State Council, as well as provincial ones from Zhejiang, Guangdong, Shanghai, Hebei, Guizhou, and others.

It took them fourteen days from press release to create, which is unusually fast. An engineer familiar with national standards (guobiao) told TechNode it normally takes about two years of negotiation to create a draft standard.

So what now from here?

We wait and see. The standards might be out, but that’s no guarantee of how they’ll be applied.

But more than that, the standards can’t instruct provincial or central organizations to actually build data-sharing frameworks. After all, according to a 2019 paper by Wang, China has talked about central platforms for medical records since 2016, but has been stalled by the diversity of local medical systems.

If there ever were a reason to get a move on with that project though, what better one than a pandemic? One day, we may well look back at that January in Wuhan and see it as the moment that injected new urgency into the national platform’s veins.

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