Last week’s global launch of Papergames’ Love and Deepspace, a title touted as the first otome game to feature 3D modeling, has sparked a battle over the female-focused romance games market, with China’s major gaming companies weighing in with a raft of special offers and promotional events.

Otome games are typically targeted towards female players, with the Japanese term translating to maiden or young lady. The games often involve a female protagonist who interacts with male characters, and the gameplay focuses on developing romantic relationships with one or more of these characters.

Why it matters: Having previously found success with otome game Mr. Love: Queen’s Choice, Papergames’s new title aims to provide players with a more realistic interactive experience through its iterative improvements in 3D character modeling. The release has sparked intense competition in the sector.

Details: On January 18, the day Love and Deepspace launched, China’s major domestic gaming companies all unveiled new promotional activities within their respective otome games. Light and Night from Tencent Games, HoYoverse’s Tears of Themis, and For All Time by NetEase Games are among the genre’s most popular titles, alongside Papergames’ Mr. Love: Queen’s Choice.

• On the day of the Love and Deepspace’s release, a trending hashtag #0118决战国乙之巅# (Battle for the Peak of Chinese Otome Games on January 18) appeared on China’s Twitter-like platform Weibo. Posts under the hashtag listed the various promotional activities and benefits of domestic otome games, as Chinese players expressed their excitement over the developments.
• In order to compete for potential new players, NetEase’s new otome game Beyond the World, originally scheduled for a public beta release on January 26, announced on January 16 that it would bring its open testing period forward to January 18. NetEase also offered various in-game promotional events and benefits that were similar to those available in Love and Deepspace.
• Also coinciding with the Love and Deepspace’s launch, Tencent Games held its largest celebration event for the Light and Night since its launch in 2022, showering players with free benefits. Players can even receive animated video calls from game characters as part of the new offerings. Furthermore, Light and Night announced an ancient-style gacha event, a gameplay mechanic where players spend in-game currency to obtain random rare virtual characters. 
• Love and Deepspace had already received over 14 million pre-registrations before its official release, according to Papergames. At time of writing, the game is in the top ten iOS free-download games in the Chinese region. The game’s estimated revenue from iOS on the first day reached RMB 5.27 million ($740,000), while iOS downloads amounted to 890,000 during the same period, according to market intelligence firm DataEye.

Context: Otome games are popular in Asia due to culturally resonant narratives, attractive character designs, and targeted marketing towards female players. They align with animated gaming trends in the region, providing escapism through romantic fantasy scenarios.

• According to Qimai Data, Mr. Love: Queen’s Choice, generated a revenue of RMB 760 million ($108 million) in 2023.
• In September 2023, SensorTower released its State of Mobile Games Preferred by Women insights report (in Chinese), stating that the annual revenue for 2023 from female players was expected to exceed $16 billion.

The US game developer Activision Blizzard, which has recently been in discussions with several domestic game companies regarding the revival of its Chinese service after a one-year absence, has decided to re-establish collaboration with Chinese game publisher NetEase, as reported exclusively by local media outlet 36Kr.

Why it matters: The split between NetEase and Blizzard was a major event in the gaming industry this year. On Jan. 24, 2023, the Chinese servers of Blizzard’s gaming platform were shut down, ending the World of Warcraft publisher’s 15-year partnership with NetEase in China. On Monday, most domestic gamers were shocked to hear about the potential revival of cooperation between the two gaming giants, especially after their previous relationship ultimately ended in acrimony.

Details: The relaunch of Blizzard’s games in China may have to wait for at least six months, as NetEase and Blizzard need to rebuild their domestic operations team and test the new servers after once any new deal is confirmed, according to 36Kr. 

• The return of Blizzard suggests a full restoration of gaming titles under its brand in mainland China, including World of Warcraft, Hearthstone, Warcraft III: Reforged, Overwatch, the StarCraft series, Diablo III, and Heroes of the Storm.
• News of Blizzard’s return instantly topped the trending topics chart on Twitter-like platform Weibo on Monday, with Chinese players expressing their shock at the quick reunion. NetEase declined to comment on the story, while Blizzard China stated that the company currently does not have any information or updates to share, according to Sina Tech.
• NetEase Dashen, a gaming community app, has begun to gradually update with new content on World of Warcraft since Dec. 20, as reported by Southern Metropolis Daily. Additionally, the app no longer displays previous news items regarding NetEase’s discontinuing of the operation of World of Warcraft.
• Blizzard has also been in contact with several other major Chinese gaming companies this year, including Tencent, ByteDance, and Bilibili, regarding the takeover of its domestic service, according to Cailianpress. Tencent denied the possibility of a deal, while ByteDance is currently preparing to sell its entire gaming sector, making a move highly unlikely. As for Bilibili, the performance of its games business is not very satisfactory at present, the report claimed.

Context: Blizzard announced in November 2022 that it would suspend its game services in China due to the expiration of its licensing agreements with NetEase. However, Microsoft’s acquisition of Blizzard this year and the upcoming resignation of Blizzard’s CEO have brought about a turning point in the relationship between Blizzard and NetEase.

• Bobby Kotick, the CEO of Blizzard, will resign from his position as the leader of the video game company On Dec. 29, as communicated in an internal memo from Phil Spencer, the CEO of Microsoft Gaming. The leadership transition was expected after Microsoft’s completion of the $69 billion acquisition of Blizzard in October, as reported by CNBC.

On Thursday, NetEase announced in its unaudited financial results for the second quarter that it had generated RMB 24 billion ($3.3 billion) in revenue, a 3.7% increase on the same period in 2022. Net revenue from games and related value-added services amounted to RMB 18.8 billion ($2.6 billion), representing a 3.6% year-on-year increase.  Games accounted for 78.3% of the company’s total revenue.

Why it matters: In the second quarter, NetEase’s games, including flagship titles Fantasy Westward Journey series and Eggy Party, performed steadily. NetEase’s two new hits Justice and Racing Master were only launched in late June so their contributions to the company’s gaming revenue will show in the next quarter. With the revenue from the new titles, NetEase Games’ third quarter performance is expected to accelerate. 

Details: According to the financial reports, NetEase’s net revenue from mobile games accounted for approximately 73.6% of its online games income in the second quarter. 

• Eggy Party continues to explore the combination of UGC (User Generated Content) ecology and AI technology. Game makers recently updated the UGC map editing function using AI, drawing in 26 million players to participate in creating new gaming maps, according to NetEase’s WeChat account. Declaring that Eggy Party was China’s most downloaded mobile game in Q2, as reported by local media outlet GameLook, NetEase now hopes to  promote it in the European, North American, and Japanese markets this year.
• Released on June 30, open-world martial arts game Justice gained around 40 million domestic players in July. The game employs AI generated avatars and dialogues. Young players have flocked to the game, generating huge amounts of UGC content on social media. On micro-blogging platform Weibo’s discussion forum, Justice ranked fourth in terms of popularity for mobile games at time of writing, with 544,000 posts from players.
• Racing Master topped the iOS download list in China for 10 days following its domestic debut on June 20. According to the game’s Weibo account, its pre-registered players exceeded 30 million on June 17. The company is expected to start overseas testing soon.
• NetEase took the opportunity of unveiling its latest results to announce a brand new free-to-play open-world RPG title Project Mugen, for which pre-registration opened for players globally on Thursday.
• A trailer for the action-adventure game highlighted its anime stylings and a high-quality open cityscape supported by Nvidia DLSS 3 technology, according to GameLook. Project Mugen reportedly marks the first domestic GTA (Grand Theft Auto) game using AI technology that combines racing, parkour, role-playing, and combat in the open-world of an urban city. The industry is viewing it as an upcoming competitor to HoYoverse’s Genshin Impact in revenue terms.

Context: In July, NetEase’s Justice secured third place in the global mobile game market by revenue with a figure of $113 million, according to analytics firm SensorTower. 

• As for July’s iOS mobile game revenue charts in China, NetEase’s Justice, Racing Master, and Eggy Party ranked second, ninth, and eleventh respectively.

NetEase’s new mobile martial arts game Justice has rapidly gained popularity after launching in China on June 30. The role-playing game has consistently ranked in the top three of the App Store’s free download game list and best-selling game list since its release.

Why it matters: Justice is being tipped as NetEase’s answer to Tencent’s Honor of Kings and HoYoverse’s Genshin Impact. The Chinese gaming giant also used AI to generate in-game dialogue and interactions with non-player characters (NPCs). 

• NetEase’s flagship game in 2023, Justice achieved 40 million pre-registrations before its launch, according to its official account on social media platform Weibo. A flood of about one million online players crashed the game’s servers temporarily on the first day of its launch. On July 7, it topped the best-selling iOS game charts. 

Details: Set in China’s Song dynasty, Justice’s mobile version integrates diversified elements of imperial Song culture, including martial arts, mythical creatures, and traditional architecture. NetEase has said it will update the game regularly for at least the next ten years in a bid to build an adventurous martial arts fantasy world and serve millions of mobile players.

• Players can customize their characters’ avatar through AI-powered settings, choosing various facial features, graphics, and literal descriptions. For instance, when players upload a portrait of themselves or input the requirements of ideal facial features, the system will generate a unique character in seconds.
• Set in an expansive open world, players can choose from a range of game modes, such as instance dungeon, battles, puzzles, relationships, card collection, architecture building, farming, and map exploration.
• Currently only available in China, Justice’s other significant feature is the use of AI to generate in-game dialogue and enable unique reactions from NPCs. Every action taken by players may have an impact on the game plot, the open world’s order, and NPCs’ behavior, NetEase has said.
• Justice’s advertising budget amounted to RMB 46.2 million solely on June 20, a source from the game project has revealed. The general advertising fee of RMB 170 million ($23.49 million) on all platforms includes RMB 23 million ($3.17 million) on Douyin (the Chinese version of TikTok) and RMB 20 million ($2.76 million) on Weibo.
• According to market analysis platform DataEye, the iOS version of Justice reached an estimated RMB 25.85 million ($3.57 million) in revenue on the first day of its launch.

Context: NetEase’s net revenues from games and related value-added services were RMB 74.56 billion ($10.8 billion) for the fiscal year 2022, with mobile games accounting for approximately 67% of net revenues from the operation of online games.

• On May 20, NetEase unveiled 11 new games and updated 35 existing titles at its annual product launch event. In addition to Justice, the company also plans to launch another wuxia (martial arts fantasy) game called She Diao in the second half of this year.

NetEase Games unveiled 11 new games and updated 35 existing titles at its annual product launch event, held online on May 20. Particularly notable among them were two new wuxia (martial arts adventure) games — Justice and She Diao — based on classic novels by renowned authors Woon Swee Oan and Jin Yong.

Why it matters: In recent years, wuxia games have become a hugely popular genre in China. NetEase is also looking to bring some of its most successful games to international markets and to emulate the recent success of Eggy Party, which saw the highest number of daily active users in NetEase history in February. To increase its global appeal, the event was also streamed in English and Japanese via YouTube and Twitter.

Justice and She Diao: NetEase has invested RMB 800 million ($114 million) over the last four years into the development of Justice, an MMORPG (massively multiplayer online role-playing game) wuxia title. 

• Set in a world of martial arts, magic, and ancient Chinese mythology, Justice sends players on a journey to uncover the truth behind a great conspiracy and fight their way through hordes of enemies. The game is based on the famous wuxia literature works of writer Woon Swee Oan (also known as Wen Rui’an). 
• Justice is being billed as having the first intelligent NPC (non-player character) system in China’s gaming industry. Players can interact with AI-controlled NPCs as they explore the game’s world.
• The game will be launched on June 30, with the number of pre-registration players already exceeding 30 million.
• Another anticipated open-world wuxia game is She Diao, which is based on the famous martial arts novel The Legend of The Condor Heroes, written by Jin Yong. According to NetEase, the game uses classic characters and novel plots, and allows players to explore the landscape of the Song Dynasty with a suite of exclusive martial arts moves. A release date for She Diao has not yet been announced.
• Other new game titles released in the event are real-time simulation racing game Racing Master, role-playing game Raid: Shadow Legends, open-world fantasy game Qi Feng Travelers, competitive survival shooter game Badlanders, basketball game Dunk City Dynasty, 2v4 competitive stealth game Mission Zero, multiplayer online role-playing game Lord of Dragon, geo-strategic simulation game Infinite Borders, and post-apocalyptic shooter game Ashfall.

Context: NetEase’s net revenues from games and related value-added services were RMB 74.6 billion ($10.8 billion) in 2022, compared with RMB 67.8 billion ($9.64 billion) the year before, representing a 10% yearly increase, according to its fourth-quarter financial report.

• In March 2023, Eggy Party demonstrated huge potential by becoming the 18th highest-revenue mobile game globally despite still only being available in the China market.
• Eggy Party is a casual game for mobile devices that involves competing against other players to reach the end of each stage while avoiding various obstacles. The game earned nearly $30 million in March, which helped NetEase become the second biggest Chinese mobile game publisher by revenue, according to Sensor Tower. 
• Recently, NetEase announced the overseas launch of Eggy Party on April 21, starting in the Philippines, with more regions and platforms to follow this year.

On Feb. 10, China’s National Press and Publication Administration (NPPA) released its approval list of domestic online games for February 2023 on its official website, with titles by Tencent, ByteDance, and NetEase among those given the green light.

Why it matters: The new list is the ninth batch of games approved in China since the NPPA resumed its issuing of licenses in April 2022 following an eight month pause. As with January, the number of new licenses this month exceeded 80, higher than any month in 2022 and a sign that China’s gaming regulators may be returning to a more consistent approach to approvals after months of uncertainty. 

Details: Some 87 new domestic games have been granted licenses by the NPPA, including 79 mobile games, seven PC titles, and one game for Nintendo Switch. 

• Tencent’s high-profile new game King Chess, a strategy battle mobile game that is part of the company’s attempts to build an Honor of Kings “universe,” was among those gaining approval. The official WeChat account for the game claimed on Feb. 10 that it is still in development and will undergo beta testing in the near future. 
• NetEase, another Chinese gaming giant that has struggled for new title approvals in the past 18 months, saw the mobile version of its massively multiplayer online role-playing game Fantasy Westward Journey make the list of February approvals.
• ByteDance has three new titles on the list: The Leader of the Battle from its publisher Ohayoo; Matrix: Out of Control by wholly-owned subsidiary Nuverse; and Hyper Instant Connection by its newly acquired company C4Games (all titles our translations). 

Context: China’s gaming industry has been sluggish over the past year due to tightening regulations on the industry and strict limits on young gamers.

• The total revenue of the video games market in China slumped 10.33% to RMB 265.9 billion in 2022, while game users declined slightly, down 0.33% year-on-year to 664 million, according to a report by the country’s semi-official games industry association.
• In August 2021, Chinese authorities restricted the weekly gaming hours for minors under the age of 18 to one hour a day on Fridays, weekends, and public holidays.
• China’s eight-month gaming license freeze was lifted in April 2022, but new approvals remained limited throughout the year. Just 513 game licenses, including 468 domestic games and 45 imported games, were issued over the course of 2022, 38% fewer than in 2021 and only a third of those approved in 2020, according to Caixin’s calculations. Tencent, one of the biggest gaming companies in the world, didn’t receive its first major approval of the year until November.

China’s media regulator released its December game licensing list for domestic and imported games on Wednesday. The National Press and Publication Administration approved 84 China-made games and 44 imported overseas games. Among those winning approval, Tencent got a green light for Pokémon Unite, part of the famous franchise co-developed with Nintendo. NetEase also scored several approvals. 

Why it matters: Despite the resumption of gaming licenses in April after an eight-month freeze, China again skipped approvals this year in May and October, and overall approved far fewer games than in previous years. The country approved 468 domestic games this year, 38% less than in 2021 and only a third of those approved in 2020, according to Caixin’s calculations. 

Details: Tencent received approval for one domestic game and five imported games. NetEase got one domestic game and two imported games approved. Alibaba’s Lingxi Game and ByteDance’s Nuverse won approval for one imported game each. 

• Tencent’s NExT studio got its third-person shooting game Synced: Off-Planet approved. The world-leading game developer also won approvals for five imported games: Pokémon Unite, Valorant, Don’t Starve Newhome, The Age of Navigation: Sea Overlord, and Crossfire developer Smile Gate’s Lost Ark.
• NetEase’s Racing Masters, a racing game co-developed with British car game developer Codemasters, also won approval. NetEase also gained licenses for Raid: Shadow Legends and Fantasy Life, two imported role-playing games. 
• Chinese gaming firm Perfect World also won approval for two imports: Two Point Hospital and Dorfromantik.

Context: Although the Chinese regulator has shown signs of loosening the crackdown on the gaming industry that began in August 2021, it is still handing licenses to fewer games and doing so with less frequency than before. 

• This round of approvals was the first time in 17 months that the Chinese regulator gave nods to imported games developed overseas. Last year, the regulator handed out imported game licenses in June, approving 76 games, 42% more titles than on this year’s approved list.

Editor’s note: A version of this article was first published on RADII.

As the world’s largest video game market, China used to have a reputation for producing mediocre mobile games emphasizing microtransactions and profit over exciting and engaging gameplay. But in recent years, Chinese game developers have stepped up their games, producing numerous excellent titles, with many more in development. 

Here are 10 games developed by Chinese companies that every video game aficionado should check out. They are lesser-known compared to other Chinese video game phenomena such as Genshin Impact and Honor of Kings.

1. Naraka: Bladepoint

Platform: PC, with Xbox and PlayStation 5 versions coming this year

If you’re into the wildly popular battle royale genre (think titles like Fortnite, Call of Duty, and PlayerUnknown’s Battlegrounds), this might be the game for you. 

Developed by Hangzhou-based 24 Entertainment and first published by NetEase Games Montreal on August 11, 2021, Naraka: Bladepoint is your classic battle royale in many ways. Expect a host of weapons, superhuman characters, and an encroaching arena that shrinks until a single player remains.

In other ways, however, this Chinese video game is wholly its own. For starters, whereas in the aforementioned titles you can kill a competitor from a distance, Bladepoint emphasizes close-contact combat. You can still attack from afar, but a winning strategy will require some up-close-and-personal virtual violence. We’re talking swords, daggers, nunchucks, and something called a ‘bloodripper,’ which looks a bit like a demonic chainsaw fitted with a buzz saw on the end. Not particularly practical in real-life, but certainly ready to get the job done in the fantasy realm. 

The intimate combat style reminds us of arcade fighting games like Tekken and Mortal Combat, with movements and an aesthetic that bring the films Crouching Tiger Hidden Dragon and House of Flying Daggers to mind. The characters, or ‘heroes,’ as they’re called, are all refreshingly unique in their fighting style and weaponry. You can also customize fighters, leading to some mildly uncomfortable renderings of Squidward, Yoda, and more. 

Prepare to be hacked to bits repeatedly in the beginning, as there is a bit of a learning curve to the gameplay. 

2. Lost Soul Aside

Platform: PC, PlayStation 4 and 5

Remember when Lost Soul Aside was first announced in 2016? By now, you’ve probably completely forgotten about it or been driven crazy by the wait. Half a decade ago, the game had only one developer, Yang Bing, and audiences were flabbergasted about how a solitary endeavor could look so damn cool. 

Although the development team has grown considerably since the game’s announcement, it is still being helmed by Shanghai-based UltiZero Games. Based on the gameplay trailer released in April 2021, audiences have likened it to Final Fantasy XV and Devil May Cry for its fast-paced play and epic visuals.

The main character has a seemingly endless suite of superhuman abilities, and he’s accompanied by a floating robo-dragon (of sorts). The game will have open-world capabilities, and the combat is said to be rather challenging. While there’s no release date yet, we’re anticipating a 2022 arrival.

3. Bright Memory: Infinite

Platform: PC, Xbox

No list of games would be complete without including a good ol’ first-person shooter (FPS). Enter Bright Memory: Infinite, an FPS that also includes combat with a variety of swords. Players start with a single blade and machine gun and are armed with a few cool battle moves — a metaphysical pull feature, block, and dodge. As the game progresses, you can collect several additional weapons with their own feel and function. 

The game is a remade and expanded version of the original Bright Memory, which came out in early 2019. Both were developed by FYQD, originally a one-person studio run by Zeng Xian Cheng. It’s still quite a small operation, making the noticeable improvements to the second game all the more impressive. 

Bright Memory: Infinite was released on November 11, 2021, and so far, the response has been great. The title follows the story of Shelia Tan, a Science Research Organization agent tasked with investigating a mysterious force in the sky that is sucking in its surroundings. You probably won’t get too caught up in the narrative, though, as it’s almost nothing but action after the intro, which we’re okay with. 

4. Black Myth: Wukong

Platform: PC, Mainstream consoles

One of China’s most well-known folkloric characters is the Monkey King, Sun Wukong. Sun appears in countless ancient and contemporary texts but is most associated with the 16th-century novel Journey to the West, in which he is a traveling companion of Tang Sanzang, a character based on the real-life Buddhist monk Xuanzang.

The Monkey King has also appeared in numerous theatrical productions, films, TV shows, and more than a dozen video games (even the anime television series Dragon Ball contains elements from the story). But that’s not to say that Black Myth: Wukong isn’t something special.

Developed by Shenzhen-based indie studio Game Science, Black Myth: Wukong is a third-person action-adventure game where players step into the shoes of the protagonist Monkey King. It is easily the most hyped Chinese game that has yet to be released, and for good reason: The diverse landscapes and characters are laden with nods to Chinese history and cultural esthetic, with stunning visuals and combat scenes that are nothing short of badass. 

Small details in the game hold true to the original Monkey King mythology. Take, for instance, the scene in a gameplay teaser where Sun extends his staff and balances on end to defeat a massive white dragon. He can extend the magical golden staff to any length in the original mythology.

Daniel Ahmad, a senior analyst with Niko Partners, says Sun will have 72 abilities in total. So expect to see more mystical moves reflective of the original folklore — things like shapeshifting and splitting into infinite versions of himself.

No specific release date has been set yet, but gamers are anticipating its release in 2023. 

5. F.I.S.T.: Forged in Shadow Torch

Platform: PC, PlayStation 4 and 5

Welcome to Shadow Torch, a colonized city of anthropomorphic animals known as ‘furtizens.’ This is a Metroidvania, which, for the uninitiated, is a subgenre of action-adventure games where players navigate an open world, unlocking skills and new areas of the map as the game progresses. 

Rayton, a juiced-up rabbit and a former soldier in the war against the occupying Machine Legion, plays the main character. He carries a massive, multipurpose ‘fist,’ a gadget recycled from an old war machine that Rayton once piloted, containing his primary weapons. The city is distinctly steampunk-inspired, and different districts have their own appearance and atmosphere.

The game is two-dimensional and utilizes left-right scrolling to navigate the map. It has a fantastic storyline — albeit with some sub-par English-language voice acting — and features cameos from a host of fascinating humanoid animals, from cats to rats and bears to red pandas, but not forgetting robotic canines. 

F.I.S.T was developed by Shanghai-based TiGames and came out in October 2021 via Antiidelay. With relatively easy and user-friendly gameplay, it serves as a great introduction to the oversaturated Metroidvania market. 

6. Conqueror’s Blade: Paragons

Platform: PC

If you’ve ever wanted to control the whims of a maniacal warlord conquering foreign lands, you may want to do some soul searching. Alternatively, lean right in and give Conqueror’s Blade a try.

Like many popular games produced in China, this Massively Multiplayer Online Game (MMO) is free to play. While there are some pay-to-play elements, most of these are cosmetic, fortunately, and not necessary to succeed in the game.

Developed by Hangzhou-based Booming Games, Conqueror’s Blade is a turn-based game that incorporates action and tactical gameplay elements. What’s incredibly cool is the fact it includes both Eastern- and Western-style medieval warfare. Released on March 17, 2022, the latest update — Conqueror’s Blade: Paragons, as seen in the video above, was inspired by medieval France.

It is classified as a ‘sandbox game,’ meaning players have a high degree of control and creativity where gameplay is concerned and don’t necessarily have to follow predetermined objectives or goals (think Minecraft and Grand Theft Auto).

7. Wuchang: Fallen Feathers

Platform: PC, unspecified next-gen consoles

Set in imperial China during the collapse of the Ming Dynasty, Wuchang: Fallen Feathers combines history, folklore, and otherworldly dystopian elements that make for a surprisingly fresh take on the ancient era. 

Inspired by the turbulent period, players are dropped into a land plagued by unrest. Warlords, banditry, and violence abound. Adding to the mayhem is a mysterious condition causing people to grow feathers and lose touch with their humanity. The protagonist is tasked with unraveling the cause of the strange illness. 

This is the first title created by Chengdu-based LenZee Games, formerly Recano Chengdu Hurricane Zone. An action RPG, Fallen Feathers draws influence from games like Bloodborne, Dark Souls, and Sekiro. Don’t hold your breath for a quick drop, though: The game is scheduled for release in 2024.

8. Let’s Hunt Monsters

Platform: Mobile

We were hesitant to include this on the list, given its striking resemblance to Pokemon Go (and we don’t want to be responsible for any avoidable deaths). Still, the animated creatures are too cute to overlook!

To be fair to developers TiMi Studio Group (owned by Tencent Games), Pokemon Go was never available in China, which explains their urge to fill a much-needed gap in the niche market. After all, how many mobile games require the player to literally be mobile. 

Like Pokemon Go, Let’s Hunt Monsters is an augmented reality (AR) game where players catch digital creatures using their real-life geolocations. Instead of Pokemon, however, the hunt is on for creatures inspired by Chinese mythology. To catch all 302 monsters, players use ‘spirit orbs’ (basically yin-yang pokeballs) sourced from ‘Prayer Drums.’ 

You can also build structures within the game, mirroring gameplay in MMOs. Using the Tencent-developed blockchain, players can even trade digital ‘kittens’ in a feature not dissimilar to the Ethereum blockchain game CryptoKitties.

Let’s Hunt Monsters was first announced by Tencent in April 2018 and has been available on Chinese app stores since April 11, 2019. While there have been numerous attempts to recreate the success of Pokemon Go, none quite measure up, although Let’s Hunt Monsters has come closer than the rest. Five months after its release, the game generated more than $50 million in revenue just on iOS.

9. Tower of Fantasy

Platform: Mobile, PC

Tower of Fantasy is an action RPG infused with narrative elements and open-world gameplay. If you think that sounds a little too Genshin Impact-y, well, you’re not the only one; the game’s developers have even dubbed their creation a ‘Genshin Impact killer.’ 

Smack talk isn’t the only scandal they’ve been caught up in, though: They were previously busted using plagiarized content in a promotional video, and later, clearly not learning from their own mistakes, allegedly used reviews for Genshin Impact to boost their own game’s ratings.

Nonetheless, Tower of Fantasy has been in China for a year and is set for worldwide release in 2022, much to global gamers’ excitement. In March of this year, it was reported that the title is undergoing closed beta testing in the United States, Canada, the United Kingdom, and Germany. 

While Tower of Fantasy is in many ways similar to Genshin Impact, the former takes place in the future and combines elements of science fiction with anime-inspired characters. It also allows character customization and the use of various weapon types irrespective of which character you choose, further setting it apart from its rival. 

Released by Hotta Studios and published internationally by Perfect World, the game is set on the post-apocalyptic planet Aida. Once flourishing and technologically advanced, the planet’s energy source, Omnium, has become its undoing, as the radioactive material has caused some of the planet’s remaining inhabitants to mutate.

10. Icey

Platform: iOS, MacOS, PC, Android, Nintendo Switch

Initially developed by Shanghai FantaBlade Network in 2017, Icey is a two-dimensional side-scrolling action game — with a few twists. Led by an omnipotent narrator called the ‘Developer’ who guides your every move (should you choose to obey), the goal is to control the eponymous humanoid robot Icey.

In this hack ‘n’ slash melee-style adventure, Icey is armed with a sword and tasked with defeating a powerful enemy called Judas, all while unraveling the meaning of her existence. From start to finish, the Developer aggressively urges you to follow his every direction, but much of the fun lies in defying his overbearing, sometimes passive-aggressive commands.

The game is cheap to purchase, and the story takes no more than a couple of days to complete, though you can start again and unravel the story differently in subsequent sittings. As such, it’s the perfect game for the casual gamer or anyone who wants a few pleasant hours of digital distraction.

Honorable Mention: Stray (Formerly HK_Project)

Platform: PC, PlayStation 4 and 5

Carving out a new niche, Stray is not technically a Chinese video game but takes place in a dystopian future in Hong Kong. It was developed by BlueTwelve Studios and will be published by Annapurna Interactive, respectively based in southern France and California. The game is set for release in July 2022.

Players assume the role of a stray cat tasked with navigating the chaotic streets and buildings of a once-flourishing megacity now inhabited solely by robots. Its ultimate goal is to reunite with its family. 

The game aesthetic is heavily influenced by the Kowloon Walled City, which was destroyed in the ’90s at the behest of Hong Kong authorities. Once upon a time, it was the most densely packed place on Earth and operated independently from the British colonial government and law enforcement.

Needless to say, it was a fascinating place and one that we regret not having visited before it came crumbling down. But thanks to Stray, a Kowloonesque adventure is still possible. Navigating the city as a furry feline offers players a unique perspective on the digital world and allows for mobility and challenges that a clunky bipedal human simply can’t pull off. 

Major Chinese gaming companies Tencent and NetEase partnered with Microsoft’s gaming department to bring some of their games to Microsoft’s gaming subscription service Xbox Game Pass, which Microsoft announced at a Monday showcase event.

Why it matters: Chinese developers like Tencent and NetEase are facing an economic slowdown and a tightened regulatory environment in their home market. The partnerships with Microsoft, home to dominant global gaming platforms and a vast userbase, can broaden the appeals of Chinese-developed games and Xbox’s service.

• The partnership is a good opportunity for NetEase to launch its PUBG-like title Naraka: Bladepoint on a console platform, a format that is vital in the overseas markets.
• Microsoft will be able to give players access to popular titles from Tencent and NetEase, making Microsoft’s Xbox Game Pass a more attractive investment for gamers.

Details: The partnerships will bring titles from Tencent’s US-based developer Riot Games and NetEase’s trending PUBG-like title Naraka: Bladepoint to Microsoft’s gaming subscription service, Xbox Game Pass.

• Each of Riot Games’ five titles, League of Legends, Wild Rift, Legends of Runeterra, Valorant, and TeamFight Tactics, will be available through the subscription service. For instance, subscribers can now unlock all characters in League of Legends and Wild Rift for free. Some other bonus paid content will be free for subscribers later this year. 
• NetEase’s Naraka: Bladepoint, which has already sold 10 million copies (in Chinese) globally on desktop platforms, will be free to Xbox Game Pass subscribers. The title will premiere on Xbox on June 23 before any other console platform. NetEase plans to launch the game on Xbox rival PlayStation at a later date.

Context: Microsoft is making a push to promote its game pass subscription service, in a similar way to the likes of Spotify and Netflix, with users paying a flat monthly fee for access to a gaming library.

• Launched in 2017, Xbox Game Pass had over 25 million subscribers this year, as Microsoft revealed in a January 18 press release.
• Most AAA-level game titles cost around$39 to $49. Xbox Game Pass offers a variety of games for a monthly subscription fee of $9.99, which is significantly different from the traditional games’ buy-to-play business model.
• Apple and Sony have also launched their subscription services, Apple Arcade in 2019 and PlayStation Plus this year.

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. 

Amid slowing growth and regulatory uncertainty at home, China’s gaming companies are increasingly eyeing overseas markets. Many of them have had impressive growth figures in international markets for some time, but the situation at home is driving them to view foreign gamers in a new light. Established players such as Tencent and NetEase – both of which are in the top five gaming firms in the world – are giving international growth new emphasis, while rising upstarts such as HoYoverse (formerly known as miHoYo), FunPlus, and 37 Interactive Entertainment are seeing surging interest in their titles outside of China.

The diversity in terms of the size of Chinese gaming firms finding success abroad shows that there’s something of a relatively level playing field outside of a domestic market that is dominated by a handful of majors – even small indie game makers are able to strike it big when they look beyond their own backyard. Yet there’s no cheat code for doing well internationally and Chinese game firms face new modes of competition and significant cultural challenges when they venture outside of China. 

READ MORE: The Chinese gaming startup outperforming Tencent overseas

Powering up internationally 

To reflect the increasing scale of its global gaming growth, Tencent started to disclose revenues from domestic games and overseas games as new sub-segments in the third quarter of 2021. 

In a challenging 2021, Tencent’s overseas games saw an impressive 31% yearly growth, while the domestic gaming sector grew by only 6%. Tencent made RMB 25 to 30 billion ($3.79 to $4.55 billion) in overseas games in the first three quarters of 2021, accounting for about 20% of its gaming revenue. Overall, the company saw its slowest revenue and profit growth in five years, 16.2% and 11%, respectively, underlining the international gaming division’s eye-catching performance. 

NetEase first revealed its overseas gaming performance in the third quarter of 2018, saying incomes from overseas markets accounted for 10% of the total net profit in its gaming business that year. The latest figures show that overseas gaming revenue accounted for 11% to 15% of NetEase’s gaming revenues in the first three quarters of 2021. However, the company didn’t reveal a detailed breakdown of overseas gaming revenue in its 2021 annual report.

Although the growth in NetEase’s overseas gaming revenue has been steady rather than spectacular in the last three years, the company has set a goal of expanding earnings outside of China to 50% of its gaming income, with a focus on markets in Japan and North America, according to Chinese media outlet Jiemian. NetEase also dramatically increased its research and development expense ratio in the past two years, hoping to win with better gaming developing skills. The report added that the ratio doubled from 8% in 2017 to 16% in the first three quarters of 2021. 

Chinese gaming companies taking it to the next level overseas 

In March of this year, of the top 10 highest-grossing mobile games globally, four came from Chinese gaming companies, according to Sensor Tower: Tencent’s Honor of Kings and PUBG Mobile, HoYoverse’s Genshin Impact, and Alibaba’s Three Kingdom TacTics. Lilith’s Rise of Kingdoms also made it into the top-grossing list on the App Store. Among the Chinese titles, HoYoverse’s Genshin Impact was the most profitable. Tencent’s PUBG Mobile was second, with Lilith’s Rise of Kingdoms ranked third.

Genshin Impact is a sprawling multiplayer online role-playing game (MMORPG). Launched in 2020, it hit 115 million downloads in its first 18 months, according to Data.ai, a US insight firm focusing on app stores. According to Data.ai, Genshin Impact’s success was so big it helped  put a positive spin on figures for the whole category, pushing MMORPG revenue to grow 17% year-on-year in 2021, despite other titles in the same category showing a slow and even negative increase in revenue.

Tencent’s PUBG Mobile, in many ways, has followed the success of its PC version. The title has found popularity with a new game mode called battle royale, whereby players fight to be the last one standing amid a mass competition with hundreds of other players. Its primary competitor is Call of Duty Mobile, also developed by Tencent and published by Activision, which ranks seventh on Sensor Tower’s list.

Challenging times at home 

Chinese gaming companies are having a tough time getting new games approved and making money in the domestic market due to tightening regulations around young players’ gaming habits and strict limits on new game licenses. 

Late last August, Chinese regulators asked all companies to limit minors’ access to games (in Chinese), with the aim of protecting them from gaming addiction. As a result, those under the age of 18 can only play games one hour a day on Fridays, weekends, and holidays, according to the rules, with no gaming time allowed on weekdays.

Tencent said in its 2021 annual financial report that the new regulations hit the company’s domestic games revenue due to “less spending by minors” and the company allocating developer resources “to implement new measures.”

Around the same time, China also stopped issuing licenses to new games. The regulator only resumed issuing licenses in April, eight months later. This wasn’t the first time the regulator withheld its licensing power. In 2018, the issuing of licenses was halted from March to December. Game publishers in China need a license from the National Radio and Television Administration (NRTA), the state’s regulator for news, print, and publications, to be listed in app stores or to be downloadable on their websites within the country. 

The extended freeze has forced many Chinese gaming companies to downsize. Since last year, major Chinese gaming companies such as NetEase, Lilith, IGG, and Perfect World have had to cut off projects and lay off staff.

READ MORE: China’s gaming industry is downsizing as regulators halt new game licenses: report

What’s next for Chinese gaming companies going overseas?

Amid such problems, many are forecasting another grim year at home for Chinese gaming companies in 2022. DataEye, a Shenzhen-based industry insights firm, wrote in their 2021 annual report that they foresee another slow year ahead. “The domestic market won’t see major growth. 5% growth is optimistic; no growth is also likely,” said the report. Instead, they noted, “The main growth in the industry will most likely come from the overseas market.”

It’s easy to see the allure of international sales given the picture back home. Yet, despite some major success stories so far, achieving sustained growth internationally comes with its own set of difficulties for Chinese game developers. There have been some surprise hits, such as indie outfit Coconut Island’s crossover success Chinese Parents, but for large-scale, longer-term growth, a sophisticated understanding of international markets is required.

“Localization in overseas markets goes way beyond just translating the content in local languages. The key is in cultural localization,” Wang Yangbin, CEO of DataEye, wrote in the firm’s report. “These are problems all top Chinese firms — Tencent, NetEase, and Alibaba — and second-tier companies have to solve quickly.”

How quickly they do so may well determine how soon and to what extent international markets can provide the kind of salvation that many Chinese gaming companies appear to be looking for by heading overseas.   

Chinese tech giant Tencent announced on Wednesday that it will close a gamer-focused accelerator service that allows Chinese gamers access to overseas games. Due to “an adjustment in business operation strategy,” Tencent’s accelerator service will only support domestic games from June onwards.

Why it matters: This move by Tencent has caused players to worry that accelerator services for overseas games may soon become inaccessible in mainland China.

• It is difficult for Chinese players to play overseas Player-versus-Player (PVP) titles like the popular Apex Legends and PUBG: Battlegrounds without accelerator services. These games are popular among Chinese players. For example, more than 1.4 million comments on PUBG: Battlegrounds are in Chinese-language, a sign of wide popularity. Thus, major gaming companies Tencent and NetEase have traditionally offered accelerator services to users. 
• Many popular overseas games are unable to operate in China without a gaming license and a local operation company, making it difficult for Chinese players to enjoy these games due to network issues. 

Details: Tencent announced that its accelerator service called Tencent Jiasuqi will undergo a major update and be renamed Tencent Gaming Assistant. The service will no longer offer users access to overseas gaming networks. Instead, Tencent will offer refunds to users who have already paid for Tencent Jiasuqi. 

• Due to network blocks and the physical distance between Chinese players’ devices and overseas host servers, it is difficult for Chinese players to play video games with foreign players. Tencent Jiasuqi has allowed players to bypass these blocks and build a steady virtual private network.
• One Chinese Apex Legends player told TechNode that the suspension of Tencent’s accelerator service for overseas gaming will greatly limit their gameplay experience. While PVP games with servers in Hong Kong and Taiwan will still be available for users, titles in other regions outside of China will be completely unavailable. 
• The player also noted that NetEase’s UU Jiasuqi is one prominent alternative that is still in operation.

Context: There are over 100 gaming network accelerators in China for players, but many have less tech stability than Tencent’s and NetEase’s services.

• To enter the Chinese market, foreign gaming firms are required to cooperate with local Chinese operators, and each game must have a gaming license from China’s National Press and Publication Administration (NPPA). However, the NPPA has not issued any licenses for overseas games in more than nine months.
• Playing games directly from overseas platforms is still a gray area for Chinese players. Overseas gaming platforms like Steam are less accessible to Chinese gamers, with network “accelerating” services the only way to bypass these measures.

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.

NetEase plans to seek further partnerships with Microsoft and Activision Blizzard as it eyes overseas expansion, the company’s CEO Ding Lei said on a Thursday earnings call. 

Why it matters: NetEase is looking to expand its gaming business overseas as its domestic business faces regulatory uncertainty. As China’s second-largest gaming company, NetEase’s move is indicative of an industry trend.  

• NetEase develops and operates many popular games in China, such as Minecraft, Onmyoji, and the phenomenally popular game Harry Potter: Magic Awakened. The company has a 17.5% share of the Chinese gaming market, while market leader Tencent has 51.5%, according to a 2019 Q1 dataset from iResearch, a Chinese consultancy firm.

Details: NetEase said it plans to expand its games outside of China. The company is also seeking to diversify its gaming offering, promising to build new games in the metaverse and for established consoles.

• NetEase, a long-time partner of Microsoft and Activision Blizzard, said it hopes to further build on these relationships this year. NetEase has operated Minecraft, a sandbox game owned by Microsoft, in China since 2017. The company also plans to release Diablo Immortal, the world-famous game developed by Blizzard, in China this year. 
• The company has focused more attention on foreign markets in recent months, cooperating with foreign game studios and hiring international talent. It also plans to release an international version of Harry Potter: Magic Awakened targeting foreign players this year. 
• The company has also spoken of plans to develop games for consoles, a format less popular in China where most users play on mobile devices and PCs.
• NetEase also plant to build metaverse features, hoping to harness its experience in building multiplayer online role-playing games to create immersive, 3D games for the much-buzzed online ecosystem.

Context: NetEase’s online game services reported RMB 17.4 billion in net revenue for 2021, a 29.8% yearly increase, making it the company’s fastest-growing unit, according to its Q4 earnings released on Thursday. The Q4 growth rate is almost double the gaming unit’s annual growth rate of 15%. 

• Online game business accounts for 86.7% of NetEase’s profits, while Youdao, a translation service, accounted for 6%. 
• China’s gaming industry is downsizing as regulators have frozen new game licenses. NetEase cut projects and laid off staff last year.
• Microsoft announced mid-January that it will acquire Activision Blizzard in a $68.7 billion deal, the biggest merger in gaming history.

China’s gaming companies are cutting off projects and staff as the industry still lacks permission to release new games, Chinese media outlet Hongxing News reported on Tuesday. 

Why it matters: China’s gaming industry has achieved steady growth despite increased regulation, with the actual sale revenue of self-developed games in the domestic market reaching RMB 255.8 billion ($40.4 billion) last year. However, the growth rate dropped sharply from 26.7% to 6.5% since 2020, according to a China Audio-video and Digital Publishing Association report.

• China’s National Press and Publication Administration (NPPA), the state’s regulator for news, prints and publications, stopped issuing new game licenses since July last year, without which new games cannot be released legally.
• Gaming companies have been forced to cut projects and lay off staff. About 14,000 small studios and gaming-related firms went out of business in 2021, South China Morning Post reported late last year. 

Details: News about Shanghai gaming industry leaders laying off workers and cutting projects began to circulate on the Chinese internet in the past few days. Companies like Netease, Baidu, Lilith, IGG, and Perfect World have made cuts, Hongxing reported. 

• Insiders from Lilith, one of China’s largest gaming companies by revenue, said that it has canceled the game Apocalypse Eden due to licensing problems. Members of the project team had been transferred internally.
• Another insider from Netease told Hongxing that the company had begun pausing developing projects as early as August last year and reassigned employees internally. Some staff have chosen to leave.
• An unnamed internal employee at IGG, a Chinese gaming company focused more on the foreign market, confirmed that it has cut staff in its Shanghai and Fuzhou offices, while continue to keep the lights on international gaming projects.
• Perfect World, the official operator of Dota 2 in mainland China, had already streamlined hundreds of employees in the fourth quarter of 2021.

Context: The last batch of games approved by the NPPA were granted licenses last July, seven months ago. The Chinese gaming industry was hit with a similar freeze in 2018, when new game approvals were stopped for nine months.

• Companies like Tencent and Netease were summoned to talk with regulators last year about “profit-making practices” as new regulations restricting playtime for minors were implemented. 
• Last September, new rules restrict minors playing video games to just one hour on Fridays, Saturdays, and Sundays, as well as on holidays.

Cloud Village Inc., the music streaming unit of NetEase, was approved by the Hong Kong Stock Exchange to go public, according to a NetEase filing on Sunday. 

Why it matters: Cloud Village’s IPO could be the latest sizable deal in Hong Kong. The company is expected to raise about $1 billion, according to various media reports. 

• The company’s IPO comes three weeks after its main competitor Tencent Music was asked by regulators to give up exclusive music deals. The antitrust regulation created opportunities for NetEase to obtain more music licenses from major labels. 

Ongoing losses: Cloud Village has been operating on losses, losing RMB 1.8 billion ($278.6 million), RMB 1.6 billion, RMB 1.6 billion in 2018, 2019, and 2020, respectively, but the company has managed to narrow its negative profit margin, according to its latest prospectus updated on Sunday. 

• The company’s negative gross margin narrowed from 115% of its revenue to 12% from 2018 to 2020.
• The company said in its prospectus that it expects further losses in the next three years, mainly owing to costs from content, marketing, and research and development units. 

Revenue streams:  Cloud Village’s revenue comes from two services: online music service accounted for 58.4% of its annual revenue in 2020, and social entertainment service, including online karaoke, audio livestreaming, dating, and other services, accounted for the rest. The music service is growing big without making money, while the entertainment service is getting more money out of fewer users. 

• The company managed to grow its active users in online music services, but users have grown less inclined to pay. In the first quarter of 2021, the company’s monthly active users (MAUs) grew 8% to 183.1 million from last year, while the average revenue per paying user (monthly ARPPU), an indicator of a user’s paying ability, declined 22% to RMB 7.1.
• In social entertainment services, however, the trend is reversed. Users have decreased 10% in the first quarter from last year to 18.9 million, but more users were willing to pay. Monthly ARPPU grew 22% to RMB 553.3, doubling the department’s sales figures. 

Context: NetEase first announced plans to spin off its music streaming unit for a separate listing in Hong Kong in late May. 

• Founded in 2013, Cloud Village is primarily a music streaming site. It also offers social networking opportunities for young music enthusiasts in China.
• Cloud Village is the second-largest music streamer in China, following Tencent. In 2020, Tencent Music accounted for 72.8% of the market share, while Cloud Village accounted for 20.5%, said the prospectus.

Is a company worth $65-billion the big brother China’s melancholic youngsters need? Netease thinks so. 

Netease Cloud music is a freemium music streaming service geared towards the younger end that allows users to leave comments under every song. 

The platform, which boasts over 800 million registered users as of April 2020, believes the comments section is one of its strongest features. In 2017, the company covered the walls and floors of Hangzhou’s metro line 1 with 85 million of comments from the platform as part of an ad campaign. 

But the company is not happy with the mood of its comments section. Young people increasingly use the comments section to pour out personal pain, anonymously expressing grief, sadness, and day-to-day struggles. Comments have turned so bleak that Netease now wants to moderate its platform’s emotional content, but some users think this could destroy the therapeutic value of the comment section. 

‘Net Depression Cloud’

Netease Cloud’s association with gloom and misery is so well known that it’s been dubbed “Net Depression Cloud.” 

The nickname is a pun in Mandarin where the character for depression has the same pronunciation (yi) as the character for “ease” used in the company’s name. 

In the comment sections under songs, users share stories of breakups, personal tragedies, anxiety, and loneliness. Some reference specific songs lyrics, or link their own story to a song’s meaning. 

If it wasn’t for my family, I would have wandered away a long time ago.

Netease cloud user comment on Bob Dylan’s ‘On the Road’

Users express support with each other through “likes” and encouraging comments, and music listeners find comfort in discovering others who have been through similar experiences. Such interactions are the foundation of a mutually supportive community of teenagers and young people that is unique to Netease.

Downers and haters

An increasing number of users, however, complain the amount of negativity in the comment sections is stopping them from listening and enjoying music.

Music should just be about music.

Netease cloud user comment

Some also complain that too much attention is given to users they accuse of fabricating trauma to gain likes and promote their own personalised playlists. 

The forlorn comment section has even become a joke on other Chinese social networks. Memes and stickers that make fun of Netease Cloud’s melancholic users have gone viral on platforms like Bilibili and Weibo. “Some people die at age eight even though they will only be buried at age 80” is a common comment criticizing music listeners who share sad stories. 

Not all users accept this view of the platform. “Let’s reject the name Net Depression Cloud; it’s a warm and bright community!” commented another user on Netease. 

Adult supervision 

With the launch of the Cloud Healing Center in early August, Netease will employ mental health experts to provide around the clock counseling and a “cloud police” to moderate comments that attack those who express sorrow, as well as reviewing potentially fabricated stories.

In a statement on Weibo (in Chinese), Netease announced, “Although we are sometimes troubled by sorrows, there is always a space that can accommodate our true emotions. A group of healing magicians in the cloud will comfort every stranded heart in the comment area… We will also resist malicious intentions; the new cloud and cloud police will work together to do so.”  

“Cloud police” are not the platform’s only response to what is perceived by Netease as a growing need. Users that search words related to an unhappy mood are directed to songs that can help relieve stress. Zhang Jingnian, a cultural analyst observing the phenomenon, told TechNode that users now receive supportive and motivational messages in the form of push notifications from Netease. The initiative has been applauded by many who believe providing free professional help is a good move. 

In the announcement, Netease said that it aims to “to create a more positive and friendly atmosphere” and to bring its comments section back to what it was originally intended for: music discussion. 

At least some users are eager to see posers shut down.

I hope we can now help those who are really in need and call out the attention seekers.

Weibo comment on the ‘Cloud Healing Center’ launch

But the idea of “cloud police” checking the sincerity of comments raises some difficult questions: How will they check if stories are true? How does one draw the line between a malicious comment, and the simple need to share emotions? 

Content moderation is a headache for every social media platform where verifying the truthfulness of posts requires a rigorous fact checking process, but emotional content moderation is a whole new level of challenge. 

‘Message in a bottle’

Some users don’t like the idea of therapists intervening. For many users, the comments section is a space to share deep emotions and commiserate with others. They may not welcome supervision.  

In the Chinese context, verbal expressions of intimate emotions and unhappy feelings are rare even amongst family and friends. There is little space for anger, frustration and sorrow in day-to-day conversations as negative perspectives are seen as unhealthy. Netease Cloud Music is a tool for expression that fills this gap. 

Netease Cloud is a small treehole for me. When I am emotionally down, I read the comments and listen to the songs. I really feel better, it’s a way to relieve stress. Don’t laugh.

Netease cloud user comment

The comments feature under every song offers a space and shared meaning that music listeners can build on to talk about their emotions. Simply said, the songs are doing part of the job that therapists do in traditional group therapy settings: they get anyone that joins to share their story.

“It’s not like sharing on any other social media platform. People are using songs like ‘treeholes.’ Some of them are going through seriously tough times and sharing it with complete strangers helps them feel better,” says Zhang. 

“Treehole” (xiao shudong) is a term that refers to the act of writing secret anonymous posts online, the equivalent of sending a digital “message in a bottle” in English.

READ MORE: Netease Cloud Music joins Alibaba customer loyalty program

‘I’m not depressed’ 

Netease is my eternal secret space where I can share all my nonsense. It’s not because I’m depressed, but people gather here to share emotions.

Netease cloud user comment on Cloud Healing Center launch

The Cloud Healing Center initiative begs a question: is there really an unmet need for counseling, or has Netease perhaps got its users wrong? What if the desire is simply to share feelings without judgement, where the therapeutic process lies in the song’s community itself? If this is the case, then by inserting its technology and moderators in such an explicit counselor role, Netease risks losing what differentiated it from other social media platforms and perhaps what made it so popular in the first place: its mutually supportive users.

Shares of Chinese internet and gaming company Netease jumped 8.1% as they began trading in Hong Kong on Thursday. The company is one of a number of US-listed Chinese tech firms to pursue a second listing in Hong Kong.

Why it matters: The strong debut for Netease, China’s second-largest online gaming company after Tencent, is a good sign for companies that are looking at a dual listing.

• The Hangzhou-based company is the second Chinese tech company to complete a US-Hong Kong dual listing. It has been listed on the Nasdaq since 2000.
• E-commerce giant Alibaba began dual listing with a November 2019 Hong Kong IPO.

Details: Shares of Netease traded at HK$133 (around $17.2) shortly after the Hong Kong market opened at 9:30 am. 

• The company previously priced its shares at HK$123 each, seeking to raise around $2.6 billion.
• In a ceremony held in Hangzhou, Netease founder and CEO Ding Lei said the secondary listing in Hong Kong is a “fresh start” for the company, according to local media. The Hong Kong market has “a better understanding of Netease,“ Ding said.

Context: The Hong Kong dual-listing trend came as the Trump administration threatened to order US markets to delist Chinese firms. Nasdaq-listed JD.com, a Chinese e-commerce firm, is also seeking to trade its shares in Hong Kong starting on June 18.

• The US and China have a long-running dispute about oversight of US-listed Chinese firms. China’s government does not allow the US Public Company Accounting Oversight Board (PCAOB) to view audit records of Chinese companies.
• The US Senate in May overwhelmingly passed a bill that could ban securities of foreign companies from the US financial markets if the audit watchdog is unable to access their audit records for three consecutive years.
• In a filing to the Hong Kong bourse on Monday, JD.com said the US government’s efforts to increase regulatory access to audit information could cause the company to face uncertainties, including a delisting from the US markets.
• “We could be delisted if we are unable to cure the situation to meet the PCAOB inspection requirement in time,” the company said.

Chinese tech giant Netease announced its long-anticipated Hong Kong listing on Tuesday, offering a detailed plan for its debut on June 11.

Why it matters: Netease will be the second US-listed Chinese tech giant to launch a secondary listing on the Hong Kong stock exchange, following Alibaba’s blockbuster Hong Kong listing in November.

• Netease’s deal, hailed as a homecoming, will be Hong Kong’s largest listing so far in 2020, according to Refinitiv data cited by Reuters.
• JD.com is reportedly also planning a dual listing in Hong Kong as early as June.
• Tech majors like Baidu and Ctrip are reportedly planning similar moves, according to news reports.

Details: The company will make its debut on the Hong Kong stock exchange on June 11 with the ticker “9999,” according to the company filing on Tuesday.

• Netease plans to offer a total of 171,480,000 shares in the global offering. Of the total, 5.15 million shares will be offered locally in Hong Kong and 166.33 million shares will be offered internationally.
• The public offer price will not exceed HK$126 ($16.26) per share. Reuters reported that the company is aiming to raise around $2.6 billion through the secondary listing.
• CICC, Credit Suisse, and J.P. Morgan will serve as the joint sponsors and joint global coordinators for the deal.
• The proceeds will be used for “globalization strategies and opportunities.”

Context: Netease, traded publicly on Nasdaq since June 2000, earns nearly 80% of its revenue from gaming. The Tencent rival has more than 140 mobile and PC games across various genres.

• Netease’s e-learning unit Youdao went public on the New York Stock Exchange in 2019.
• Netease Cloud Music is second to leader Tencent Music in terms of user base, according to data analytics service Jiguang. Netease is planning a separate listing of its music business, which the company said had more than 800 million registered users in 2019.
• The company has a number of other businesses including private label brand e-commerce platform Netease Yanxuan, cross-border e-commerce marketplace Kaola, which it sold to Alibaba for $2 billion in September, as well as an online media outlet, an e-mail service, and others.

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.

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Chinese internet and gaming giant Netease said Thursday its revenue for the fourth quarter increased 9.2% year on year to $2.26 billion, beating analyst estimates.

Why it matters: Netease’s strategy of focusing on its gaming business by spinning off its other units has started to pay off.

• The Hangzhou-based company’s robust performance in recent months has sent its market cap to a $44.7 billion high, outpacing search engine Baidu in August and e-commerce platform Pinduoduo, and making it the fifth-largest publicly traded Chinese technology firm.
• CEO William Ding expressed optimism about the company’s gaming and online education businesses in the first quarter during the call with analysts. Ding said that the self-quarantine across much of China due to Covid-19 meant that more people were playing games, a addition boon during a normally favorable season due to the Spring Festival holiday.

Details: Net revenues for the fourth quarter increased 9.2% year on year to $2.26 billion, the company said in a statement on Thursday, beating analysts’ average estimate of $2.18 billion.

• Revenue growth, however, was significantly lower than the 36% annual growth seen in the same quarter a year earlier. 
• Gross profit in the quarter grew 9% year on year to $1.2 billion. The company said the increase is primarily driven by increased net revenues from its music-streaming service Netease Cloud Music.
• Net revenues from online gaming services, its largest source of revenue, were $1.7 billion, an increase of 5.3% year on year. The growth was primarily driven by increased revenue contribution from mobile games including “Life-After,” “Invincible,” and “Identity V,” the company said.
•  Mobile games accounted for 70.4% of net revenues from online games during the quarter, the company said.
• The company recorded $8.5 billion in revenue in the fiscal year 2019, 15.6% more than that of 2018.

“Our online game services net revenues continued to grow, propelled by the sustained and growing popularity of our existing titles, again demonstrating the longevity of our game franchises… We will continue to bring more masterpieces to both domestic and global players in 2020.”

— Willian Ding, founder and CEO of Netease, in the statement

Context: Netease narrowed its focus on its gaming and entertainment businesses last year by spinning off its e-commerce and online education units.

• Youdao, Netease’s online education unit, went public on the New York Stock Exchange in October, raising more than $100 million.
• The company sold cross-border e-commerce unit Kaola to Chinese e-commerce behemoth Alibaba in September for approximately $2 billion.

IPO fever has gripped China’s tech space in recent times as rumors swirl that some of the biggest names are eying listings on the Hong Kong bourse. This week, it was the turn of Alibaba’s fintech affiliate Ant Financial.

Ant Financial was quick to distance itself from concrete plans for a dual-listing plan, while previous subjects have done similar.

Local media reported on Saturday that Ant Financial harbored ambitions of floating shares in Hong Kong, beating a slew of US-listed Chinese tech firms to the punch. On Tuesday, further reports surfaced that the $150 billion Alipay operator was not only looking at a listing but also a mulling a dual-listing of both A and H-shares. A-shares refer to those listed on China mainland bourses in Shanghai and Shenzhen, while H-shares are those listed in the southern special administrative region.

Investment banks China International Capital Corp. and Credit Suisse had been working with Ant Financial on IPO preparation for some time, according to the reports. The Hangzhou-based fintech firm took to Weibo to promptly reiterate that the firm doesn’t a plan nor timetable for an IPO, with market watchers left speculating.

“They are being equivocal with their words,” Esme Pau, an analyst at China Tonghai Securities, told TechNode. “The company said there would not be a dual-listing of A and H-shares at the same time, but did not say outright that they will not list in A- OR H-shares,” he said.

Despite the denial, some see an Ant Financial IPO as an inevitability. “Ant Financial has been entertaining the label of ‘world’s most valuable unicorn’ for quite some time now,“ said Alex Sirakov, senior associate at fintech research firm Kapronasia. “Although there is no confirmation for an IPO, in my opinion, it is natural to expect one soon,” he added.

A long time coming

Talk of an Ant Financial IPO is nothing new. The buzz around a possible listing dates back to  2016 when the company hit a valuation of $60 billion. Political uncertainties reportedly led to a rethink. Reports of a Hong Kong dual-listing in April 2018 again ramped up the speculation. 

Ant Financial raised around $14 billion in a Series C round in June that year, said to be the biggest-ever single fundraising deal completed by a private company at that time.

Internal changes at Ant Financial may have fueled the most recent rumor. Alibaba gained approval last September to retake one-third equity of Ant Financial via newly issued shares, thereby concluding five years of corporate restructuring.

At the time, international media stated that the move “paves the way” for Ant Financial to go public. The move coincided with an executive reshuffle, further fueling the speculation.

“Recent changes in the capital structure and the management echelon of the firm may hint about that, along with the overall trend of various political and economic incentives in China to incite the growth and maturity of China capital markets,” Sirakov said. “This, paired with the organic need that Ant Financial needs to further validate positions beyond its home turf, may justify a decision to go public sooner and move to the next level of corporate development,” he added.

Ant Financial has been aggressively expanding into Southeast Asia and Europe. Listing in Hong Kong, rather than China’s mainland, could help with the expansions.

“Mainland markets entertain liquidity, but predominantly in RMB, which can be an issue when a company intends to use the IPO proceeds for international expansion,” said Sirakov. China’s exchanges are also more susceptible to volatility. By contrast, Hong Kong is a sophisticated and mature market and, therefore, a natural choice for Asian blue chips. 

Other factors include the US-China trade war. However, Beijing has looked to boost the quality of capital markets within its domain, Sirakov added.

Tech firms look south

Recent demonstrations have hit Hong Kong’s capital market hard, but the tide seems to be turning.

US-listed Chinese firms like Trip.com Group and NetEase reportedly held initial talks at the start of the month with the Hong Kong bourse over secondary listings. Additionally, Baidu has allegedly completed an internal assessment for a secondary floatation in the special administrative region, according to another report posted days later. 

The push for blue-chip dual-listings comes as Washington is heightening scrutiny of Chinese companies. Alibaba’s $13 billion secondary listing in Hong Kong in November also boosted confidence.

“There are a lot of tech companies hoping to list in Hong Kong,” Tonghai Securities’ Pau added. “For one, the market sentiment is more upbeat than before. Second, the level of uncertainty caused by the trade war will increase with time.”

The trade war has extended to capital markets. President Trump was reportedly considering delisting Chinese companies from US markets in September.

“My view on a second listing is it’s a smart move given the talk last year about banning Chinese companies from US capital markets, regardless of the practicality of a ban like that,” James Hull, an analyst and portfolio manager at Hullx Capital, told TechNode.

While Chinese tech firms are keeping a tight lid on any listing plans, market watchers believe going public is the logical step considering the current climate. For Ant Financial, the upside of a Hong Kong IPO is the comparatively mature market state, while listings also face less scrutiny compared with those stateside. For US-listed tech companies seeking a secondary listing, Hong Kong could help them hedge risks amid the ongoing trade tensions.

Editor’s note: This article has been updated to reflect that Ant Financial has never confirmed or denied dual listing but stated that the firm doesn’t have a plan or timetable for an IPO at present.

Netease has recently launched the official Chinese version of Marvel’s comic app, Marvel Unlimited, furthering the company’s existing partnership with the Disney subsidiary, media outlet 36Kr reported.

Why it matters: The highly limited selection of hard copy comic books widely available in China means that comic fans have grown accustomed to reading comics online, prompting domestic comic artists to flock to online comic platforms and tech companies such as Tencent and Bilibili to vie for a share of the market.

• In August, Tencent invested $125 million in comic platform Kuaikan Manhua, one of the largest comic platforms in China with more than 40 million monthly active users.
• Video sharing site Bilibili, which became known for its anime, comic, and games (ACG) content, has also been licensing comics aggressively in an effort to seize the market.
• Bilibili acquired Netease Comics, along with some of its licensed comics, in December 2018, which it folded into its operations.

Details: The Netease version of Marvel Unlimited currently provides free access to a small library of Marvel comics that have been translated into simplified Chinese.

• The free access is a short-term offering and will be replaced by an RMB 18 (around $2.60) monthly membership, though Netease did not specify a timeline. The international version of Marvel Unlimited charges a monthly fee of $9.99 for access to all Marvel comics.
• Netease promises to update the app’s comic library daily following the rollout of the membership program.
• The app was exclusively licensed to Netease by Marvel Entertainment.
• Netease’s Marvel Unlimited features a “zoom in” mode that automatically pivots to a section of the comic in reading order as users swipe.
• A number of users have complained about the absence of comics for certain Marvel characters and missing issues in a series.
• Netease could not be immediately reached for comment.

Context: Netease announced its partnership with Marvel in May 2019.

• The partnership includes distributing mobile game “Marvel: Contest of Champions” in China, as well as co-developing a mobile multiplayer online battle arena title “Marvel Super War.”
• Marvel Super War was launched in overseas markets in December 2019.

Netease on Tuesday launched its online digital game store, Fever Games, escalating its rivalry with Tencent in the game distribution business, game media GamingGrape reported.

Why it matters: Despite tightening game approval regulations, major Chinese game publishers such as Tencent and Netease are working to bring popular titles in overseas markets to China in an effort to bolster their revenue.

Details: Currently, there are two titles available for purchase on the Fever Games website: co-op first-person shooter game “Deep Rock Galactic” and open-world sandbox title “TerraTech.”

• The two titles are priced significantly lower on Fever Games than digital game platform Steam, where the games originally launched in 2018. Deep Rock Galactic is offered for RMB 58 and TerraTech is RMB 48 on Fever Games compared with RMB 90 and RMB 80, respectively, on Steam.
• Users can purchase the two titles using a WeChat mini program.
• Netease acquired monetization approvals for the two games in September.
• In a post on its official Weibo account, Fever Games said it will focus on offering Chinese players high quality, imported single-player and multiplayer PC titles at “more competitive prices” and “with better services.”

Game approvals failed to return to pre-freeze levels last year

Context: Netease has established the groundwork for bringing popular overseas titles by investing in a number of gaming companies, such as “Destiny” and “Halo” maker Bungie, as well as Quantic Dream, the developer of “Detroit: Become Human.”

• In August 2019 Netease signed a deal with SEGA subsidiary Creative Assembly to bring the “Total War” series to China.
• Netease’s efforts, however, lag Tencent’s game platform WeGame, which came online in 2017 and has 70 million monthly active users as of May 2019.
• Tencent also launched the global version of WeGame in April 2019 in an attempt to bring more Chinese titles to overseas markets.

Chinese gaming giant NetEase recently began testing its cloud gaming service, allowing users to play an array of popular mobile titles on iOS, Android, and PC without having to download any game content, game media GameLook reported.

Why it matters: Cloud gaming has been on the horizon in China, and is widely expected along with 5G network rollout to significantly change the country’s gaming market dynamics.

• Top Chinese internet companies such as gaming giant Tencent as well as hardware behemoth Huawei have announced their own cloud gaming solutions and platforms.
• Tencent showcased a cloud gaming platform named “Tencent Instant Play” in February and announced plans to start beta testing another one named “Start” in March.

Details: NetEase’s cloud gaming service went live in November, and currently offers only mobile games though it will soon support PC games as well, according to the company’s website. The platform uses 4G networks.

• The platform supports 38 mobile titles, including 20 NetEase titles and heavyweight games from other publishers, such as Tencent’s “Honour of Kings” and Bilibili’s “Fate/Grand Order.”
• Users can access the titles by visiting the website and every title can be played in a mobile browser. Android phone users are given the additional option of downloading a cloud gaming app.
• Upon logging into the titles, users can choose the quality of graphics based on the speed of their internet connection.
• There are long lines for a number of popular titles on the platform. Honour of Kings and Fate/Grand Order, for instance, both had more than 170 people waiting to play as of Monday morning.
• In addition to saving storage, NetEase Cloud Games also reduces battery usage and prevents overheating, the platform’s website said.
• NetEase was not immediately available for comment.

Context: NetEase’s Thunder Fire Studio partnered with Huawei in June to establish a cloud gaming innovation lab using 5G networks.

• One of the primary goals of the lab was to help existing titles become 5G compatible.

Executives from several Chinese internet companies are jumping onto a public bandwagon to convey support for a former NetEase employee who publicized his termination from the company over the weekend in an effort to share the spotlight on a top trending topic on Chinese social media.

Why it matters: Following a heated round of protest early in the year against “996,” shorthand for a demanding work schedule from 9 a.m. to 9 p.m. six days a week, the Chinese public has become more sensitive to harsh employee treatment, particularly within technology industries.

Details: The show of support ranged from publicizing beefed up corporate policies to pledges of outright financial support from Chinese tech executives.

• At the request of CEO Richard Liu, e-commerce giant JD.com on Monday updated its employee benefits to cover education and living expenses for dependent children in the event of an employee death. The support will last until the children reach age 22 regardless of the cause of death, according to a WeChat Moments post from company Vice President Song Yang.
• Song also reiterated in the post an existing company policy that covers all expenses for treatment of serious illnesses, applicable to employees who have worked at JD.com for five years or more.
• Chinese crypto entrepreneur Justin Sun, who was in the media spotlight after he won a charity auction with a record $4.57 million bid for lunch with famed investor Warren Buffett, said in a Weibo post that he would cover all medical expenses for the former NetEase employee.
• Xu Bo, the CEO and founder of Guangzhou-based gaming company Duoyi Network, also offered a donation of up to RMB 1 million for the former NetEase employee. However, Xu said in a Weibo post that the employee has to receive treatment at a specified hospital in Guangzhou to be eligible for the donation.
• Xu also echoed JD in offering a new death benefit for employees’ dependent children, but included restrictions such as providing for “normal living and domestic education expenses.”

Context: NetEase came under fire on Chinese social media over the past few days for laying off an employee with a serious heart condition who claimed that he was fired without cause.

• In a WeChat article, the former employee detailed how he had the second-highest output on his team but still didn’t pass his employee evaluation, as well as how the company tried to deny him adequate compensation.
• NetEase apologized for its “insensitive” and “crude” practices but stated that the former employee did not meet quality standards in his work despite his high output.
• According to the newest statement from NetEase, the employee has received a compensation of RMB 240,000 ($34,000) following labor arbitration and has filed a new claim for an additional RMB 616,929.

NetEase under fire on Chinese social media for treatment of ill employee

Gaming giant NetEase is under fire on Chinese social media for its layoff practices following a series of WeChat articles from a former employee who alleges that he was fired without cause while contending with a serious illness.

Why it matters: NetEase has reportedly been laying off large numbers of employees from its gaming, e-commerce, and education businesses since February, though the company has said on a number of occasions that the numbers mentioned in the reports are inaccurate.

• According to a report from Caijing Magazine, NetEase fired 30-40% of its staff in February from its e-commerce platform Yanxuan, 100 employees for its education unit, and 40% of its public relations staff.
• Many former NetEase employees have said on professional networking platform Maimai that the layoff numbers are real.

Details: The former NetEase employee said in a WeChat article which has been viewed more than 100,000 times that he was fired in March despite being one of the top-performing employees on his team.

• The employee joined NetEase in 2014 and worked as a game designer for five years.
• According to the article, the employee was diagnosed in January with dilated cardiomyopathy, a potentially serious heart condition.
• He was told by his manager to leave the company in March after receiving a “D” rating in his employee evaluation. However, the employee said he had the second-highest output in his team during the period, showing several screenshots as proof in articles published to his WeChat public account.
• The former employee also said that NetEase human resource personnel threatened retribution when he asked for a standard six-month salary compensation for his five years at the company, signaling that he would be given a bad reference if he pushed for the severance.
• The employee did not immediately respond to TechNode’s inquiries on Monday.
• NetEase issued a statement on Monday, apologizing for the company’s “insensitive” and “harsh” practices but stating that the former employee did not meet quality standards in his work despite his high output.
• The company said that it gave the employee a six-month salary compensation and promised to offer more help as needed. The former employee confirmed that the company paid the severance following a labor law arbitration in a post on his public WeChat account.
• Chinese netizens blasted NetEase on Chinese social media, and the story ranked second on microblogging platform Weibo’s trending topics as of Monday afternoon. Many Weibo users criticized NetEase’s apology as “insincere” and “a mere cover-up.”
• “You gave the most work to the lowest-performing people on the team because he produces the most bugs? Am I stupid, or are you?” asked Weibo user suing the handle “Shuiyin Qianchang” in a comment on a post about NetEase’s apology.
• WeChat users also slammed NetEase for the statement. “NetEase did not apologize for what it did. It apologized for the public getting to know what it did,” a user said in a comment about a news story on the incident from Tencent News. The comment received more than 1,100 upvotes.

Context: NetEase has been trying to reposition itself in China’s internet landscape, selling its cross-border e-commerce platform Kaola to Alibaba in September.

• The company secured $700 million from Alibaba and Yunfeng Capital for its NetEase Cloud Music in September.
• The company’s education unit Youdao listed on the New York Stock Exchange on Oct. 25, offering 5.6 million American depositary shares (ADS) for a net raise of $213 million.

Chinese internet and online games giant NetEase reported distinctly slower revenue growth in the third quarter, though the company’s online games revenue continued to increase at a steady rate.

Why it matters: NetEase has been trying to reposition itself in China’s internet landscape in recent months, selling its cross-border e-commerce platform Kaola to Alibaba and stepping up its push for a larger share of China’s online music market with NetEase Cloud Music.

• NetEase sold Kaola to Alibaba for approximately $2 billion in September.
• NetEase Cloud Music secured a $700 million investment from Alibaba and Yunfeng Capital at around the same time.

Details: Net revenues for the third quarter increased 11.2% year on year to $2.05 billion, significantly slower than the 35.1% annual growth seen in the same quarter last year.

• Gross profit for the third quarter rose 8.9% to $1.10 billion, a distinct deceleration from the 26.9% year on year growth seen the same quarter in 2018 as revenue from advertising services fell as a result of the challenging macro environment, according to the company.
• Gross profit margin dropped to 63.8% compared with 65.1% in the same period last year, mainly due to higher contribution from mobile games with lower margins.
• NetEase’s net revenue from online games rose 11.5% year on year to $1.61 billion, driven primarily by increases in revenue from established mobile titles such as “Life-After,” “Invincible,” and “Identity V.”
• The bulk of online games revenue continued to come from mobile games, which accounted for 71.0% of the total in the third quarter.
• Overseas gaming revenue accounted for around 10% of the company’s total gaming revenue, CFO Yang Zhaoxuan said during the earnings call.
• Net revenues from innovative businesses and others, which now includes NetEase’s domestic e-commerce platform Yanxuan, stayed flat at $385 million.
• Net revenue from NetEase’s education unit Youdao nearly doubled year on year to $48 million.

Context: Youdao listed on the New York Stock Exchange on Oct. 25, offering 5.6 million American depositary shares (ADS) priced at $17 each for a total net raise of $213 million, according to the company’s third quarter results.

• Founded in 2006, Youdao’s products are categorized into online education platforms such as a massive open online course (MOOC) app for university students, as well as learning tools, which include Youdao Dictionary and Youdao Translation.

NetEase education unit Youdao looks to raise $116 million in US IPO

Correction: This article has been corrected to remove a comparison of Netease’s revenue to analyst estimates, which did not take into account Kaola’s sale to Alibaba.  An earlier version of this story incorrectly stated that the company missed revenue expectations by a significant margin.

Gaming giant NetEase’s learning services and products unit Youdao on Tuesday updated its filing to the US Securities and Exchange Commission for its listing on the New York Stock Exchange, specifying a fundraise amount of up to $115.9 million, TechWeb reported.

Why it matters: NetEase is pushing for a larger share of the booming online education market amid competition from other major players such as Tencent-backed VIPKid and several platforms from Bytedance.

• Online English teaching platform VIPKid just closed a Series E led by Tencent on Oct. 8. Neither company confirmed the amount, though Chinese media reported Tencent invested $150 million.

Details: Youdao will offer 5.6 million American depositary shares (ADS) with an expected IPO price range of $15 to $18. Including the greenshoe option of an additional 840,000 ADS, the company could raise up to $115.9 million, according to the filing.

• Each ADS upon IPO is equal to one of Youdao’s Class A ordinary shares.
• NetEase’s largest shareholder Orbis Investment Management has agreed to purchase $125 million worth Class A ordinary shares from Youdao in a concurrent private placement.
• NetEase’s CEO Ding Lei said he is interested in purchasing up to $20 million worth of ADS at Youdao’s IPO.
• Credit Suisse, Citigroup, Morgan Stanley, China International Capital Corp, and HSBC are the underwriters for the offering.

Context: Founded in 2006, Youdao has main two categories of products: online education platforms and learning tools.

• The company’s education platforms include math skills app Youdao Math for high school students, a massive open online course (MOOC) app for university students, and adult education platform NetEase Cloud Classroom.
• Youdao’s learning products include Youdao Dictionary and Youdao Translation, as well as hardware such as a translation pen and pocket translators.
• The company’s net revenues for the first half of 2019 was $79.9 million, growing 67.7% year on year. Net losses for the period also expanded 102.9% year on year to $24.5 million.

NetEase recorded steady growth in the second quarter of 2019 with gains of more than 10% in net revenue and gross profit, driven primarily by the company’s online gaming and e-commerce businesses.

Why it matters: Since China has eased up on restricting new game approvals, NetEase has pushed to diversify its portfolio of titles.

• It has launched several mobile games and expedited the development of upcoming titles, including the country’s first official Pokémon mobile game.

Details: NetEase’s net revenue rose 15.3% year on year to $2.7 billion, of which more than 60% came from online game services, which itself grew 13.6%.

• Income from mobile games accounted for nearly three-quarters of the company’s total gaming turnover for the period.
• Net revenue from e-commerce grew by one-fifth to reach $764.3 million. The company attributed the growth to increased sales on e-commerce platforms Kaola and Yanxuan.
• Net profit from innovative businesses expanded 23.2% in the second quarter, propelled mainly by the growth of products such as NetEaseCloud Music, NetEase CC, and Youdao Online Education.
• The total number of NetEase Cloud Music users reached 800 million, the company said during the earnings call
• The company posted a slight drop in advertising income of 8.3%, mainly due to a more competitive macro-environment and increased expenses.
• Gross profit for the quarter rose 12.2% annually to $1.18 billion.

Context: NetEase has been expanding into overseas markets as gaming growth cools domestically, with a particular emphasis on Japan, where its mobile titles Knives Out and Identity V are among the top-grossing games.

• The company has also been actively constructing an e-sports ecosystem named NeXT, which revolves around NetEase’s self-developed games and global titles that it runs in China.
• NetEase announced on Saturday plans to invest more than RMB 5 billion in building an e-sports park in Shanghai, which it said will be “China’s first large professional e-sports stadium.”

NetEase plans to invest over RMB 5 billion (around $ 725 million) in building an e-sports park in Shanghai, according to an announcement at the 2019 China Digital Entertainment Congress (CDEC) on Saturday.

Why it matters: NetEase is doubling down on efforts to develop a complete e-sports ecosystem to rival Tencent, which has the upper hand in the sector thanks to its two professional leagues for the PC game “League of Legends” and the mobile title “Honour of Kings.”

“Shanghai has world-class location advantages in terms of incentive policies, upstream and downstream industries, infrastructure, and purchasing power and habits of local residents.”

—Ding Yingfeng, president of NetEase’s game business, at CEDC on Saturday

Details: The park will be located in Shanghai’s western Qingpu District and include what NetEase calls “China’s first large professional e-sports stadium.” The park will also host facilities for game development, team building, and talent training.

• NetEase has officially started the planning and construction of the first stage of the facility.

Context: The Shanghai government revealed plans in June to boost support for the competitive gaming sector to make Shanghai an “e-sports capital” within three to five years.

• The city government’s guidelines will encourage companies to invest in three to four e-sports stadiums capable of hosting top-tier tournaments.
• In January, Tencent inked a deal with Shanghai’s Oriental Sports Center to make it the primary host stadium for its e-sport tournaments.
• NetEase-owned e-sports team Shanghai Dragons recently made a splash in the scene by winning the championship for the Overwatch League, a pro-league for the popular first-person shooter. NetEase said that the team would return to Shanghai for local tournaments next year.

「网易有道」启动赴美IPO，“网易教育”的上市故事会怎么讲？ – 36KR

What happened: Chinese tech giant NetEase is seeking to spin off its education unit for an independent initial public offering (IPO) in the US, Chinese media reported citing people familiar with the matter. The company is in discussions with two well-known underwriters for the listing. NetEase declined to comment on the matter when contacted by TechNode.

Why it’s important: NetEase, more widely known as a game developer, was one of the first Chinese tech giants to enter the online education market. NetEase Youdao, launched in 2007, started as a dictionary and translation app and branched out to different services that include search, language learning, and cloud. The company gained unicorn status after gaining a $1.1 billion valuation in April last year after receiving an undisclosed investment led by MOOC-CN Investment with participation from Legend Capital. The Nasdaq-listed parent company upgraded the edtech unit earlier this year by merging all of its education-related portfolios including the company’s massive open online course (MOOC) platforms to the current NetEase Youdao. Ding Lei, the president of NetEase, included education as a strategic focus for the first time at the beginning of this year, along with gaming, e-commerce, and music. If the listing succeeds, the education sector will be the first separate listing in the company’s portfolio.

网易发布中国首款正版《精灵宝可梦》手游 – TechWeb

What happened: NetEase on Monday said it would partner with The Pokémon Company and Gamefreak to release “Pokémon Quest” in China, marking the first official release of a Pokémon game in the country. Released in June 2018, “Pokémon Quest” features cube-shaped Pokémon similar to that in the game “Minecraft.” NetEase started testing the game in March 2019, and still only allows users to sign up for what appears to be another beta during summer vacation. The release date of the game is still unknown.

Why it’s important: Pokémon is a highly popular series in China, and NetEase’s release of “Pokémon Quest” could help the company boost its gaming revenue, which saw strong growth in the first quarter of 2019. Tencent’s “Pokémon Go” clone, “Let’s Hunt Monsters,” for instance, has been among the top 10 games in the free game chart of Apple’s Chinese App Store for a month since its launch. The recent box office hit “Detective Pikachu,” which features the most widely known Pokémon, also amassed $70.3 million in China region ticket sales in fewer than 10 days.

NetEase recorded strong first quarter results with substantial year-on-year increases in net revenues and gross profit, tempering lower gaming growth at home with overseas market earnings, particularly Japan.

Driven by strong performance in online game services and e-commerce, gross profit also jumped by nearly 36% year on year to RMB 8 billion, continuing growth from the previous quarter.

Net revenues grew close to 30% year-on-year to RMB 18.36 billion ($2.74 billion), driven by increased online game service and e-commerce revenues and beating analyst estimates by a notable margin.

Online game revenue increased by more than 35% year-on-year to RMB 11.85 billion, thanks to the steady performance of legacy flagship titles such as “Fantasy Westward Journey” as well as popular overseas mobile titles such as “Knives Out” and “Night Falls: Survival.” Mobile games accounted for 72% of net revenues from online game services.

While Tencent’s game revenues took a heavy hit in the first quarter due to more stringent licensing rules, NetEase hedged regulatory risks by emphasizing overseas markets, specifically Japan and South Korea. NetEase’s “Knives Out,” for instance, was a top earner on iOS in Japan in March. The company also plans to release another mobile title in the two markets later this year.

E-commerce revenues increased 28% year-on-year to RMB 4.79 billion, primarily due to the increased sales volume on NetEase’s two platforms, Kaola and Yanxuan, as well as improved procurement and operation processes.

NetEase’s advertising revenues declined 5% year-on-year, while gross profit for the segment also decreased due to the competitive macro environment and increased expenses, the company said.

Decreased marketing expenditures in online games and e-commerce helped the company lower its operating expenses, which decreased by 1.4%. “Q1 is generally a… low season for our e-commerce business, so we have been very cautious and prudent in spending on e-commerce. Secondly, because of the overall regulatory control on the new registration license, there’s no game that’s being launched [domestically] in the first quarter,” CFO Yang Zhaoxuan explained in the earnings call.

According to CEO Ding Lei, moving forward, NetEase will be more disciplined about it spending and investments. “We are more focused on businesses that we are good at, including games and music,” he said. “We are also removing businesses that we don’t have specialties in, such as comics.”

NetEase has on Monday updated its existing anti-addiction game system, adding a new feature that allows parents to monitor and control the time and money their children can spend on NetEase’s 15 major titles.

The feature, named “child guardian,” follows by more than two years Tencent’s “super parent,” which is most famous for giving parents the ability to kick their kids out of a game with the click of a button.

While NetEase’s version doesn’t give parents that kind of power, it does enable monitoring the duration of time children spend in games and the time of login, both down to the second. Parents can also set in advance times when access will be blocked.

A NetEase spokesman told TechNode that the absence of “one button ban” is to help parents manage the playtime of underage users in a “more targeted and flexible way.”

“Child guardian” also let users limit their kids’ in-game spending. Users can set an upper limit for in-app purchases for a certain period of time.

Both parents and children need to go through NetEase’s real-name verification to activate the new feature. Unlike Tencent’s version, however, NetEase’s verification system has not yet been connected to China’s public security database.

Since 2019, the company has been speeding up the construction of its anti-addiction system, limiting the playtime of underage players and enforcing a “curfew” that bars users under 18 from accessing NetEase titles from 9:30 p.m. to 8:30 a.m. the next day. A NetEase spokesman told TechNode that the company could further extend the right to monitor underage users’ game activities to teachers like Tencent did.

In recent years, companies like Tencent and NetEase have been under mounting pressure from regulators to prevent damage to children’s eyesight—video games are considered detrimental—and video game addiction.

As the two largest game developers and publishers in China, Tencent and NetEase have been taking a number of measures comply with regulators, with Tencent taking the lead. Tencent’s most recent update to its anti-addiction system, for instance, only allows players above 16 to play “PUBG Mobile” replacement “Game for Peace.”

E-commerce platform NetEase Kaola on Friday announced that it will open its first factory-to-consumer (F2C) store in Hangzhou over the weekend, underscoring the online retailer’s push into offline.

Kaola had initially launched the F2C initiative in September 2017 on its cross-border e-commerce platform under the same name, offering goods direct from factories to consumers. The factory store will sell more than 20,000 lifestyle products from 400 global manufacturers.

It plans to open 12 brick-and-mortar factory stores in major Chinese cities including Shenzhen and Wuhan within the year, said the company. In January, it announced that it would open 15 flagship stores featuring imported cosmetics at competitive prices by end-year.

“A physical shop is a showcase for manufacturers to enhance the image of their brands with a live experience for the consumer,” (our translation) Hu Ran, head of Kaola’s F2C business said in an announcement sent to TechNode. So far it has formed partnerships with more than 400 factories from China and around the world, selling products from Australian cooking oil to shampoo from Israel, said the company.

NetEase’s cross-border e-commerce platform is betting on the offline retail market with its dual-store strategy. Flagship stores will sell higher-end imported goods at lower prices including children’s products and cosmetics from notable brands such as Estee Lauder and Lancome. The new factory stores, however, are more comparable to the lifestyle retailer Miniso, targeting consumers with lower price-point goods.

Kaola is not the only online retailer that is betting on the price-competitive direct sales model by allying with less-recognized brands. Tmall aims to incubate 100 new brands with the goal of RMB 1 billion ($149 million) sales revenue each over the next three years, said Jiang Fan, the new president of the Alibaba’s Tmall business-to-consumer (B2C) marketplace on Thursday.

Pinduoduo said in December it plans to support 1,000 small- and medium-sized local manufacturers to market their products, reported Tencent Tech. Xinbao, a Guangdong-based original equipment manufacturer (OEM) sold 11,000 units of its new electric meat grinder in the first 24 hours, and 110,000 users watched the manufacturing process using a live-streaming function on Pinduoduo, according to the company.

NetEase and Estee Lauder have decided to put an end to their legal disputes, a move that signals both sides are burying the hatchet with China’s flourishing cross-border e-commerce as a backdrop.

Kaola, NetEase’s cross-border e-commerce platform, has dropped a lawsuit it filed in June 2018 against China Consumer Association (CCA) and Estee Lauder for damaging its reputation. In an announcement released Friday via Weibo, Kaola pledged humility to regulatory oversight, as well as suggestions from stakeholders, from consumers to media.

The firm also announced that a lawsuit Estee Lauder filed for trademark infringement earlier this month against the Hangzhou-based e-commerce company had been dropped. The US cosmetics company in July 2017 sued Kaola for selling its MAC brand cosmetics without a license, and was asking RMB 1 million (around $150,000) in compensation for losses.

NetEase did not disclose specific reasons for withdrawing its lawsuit, and refused to comment on the possibility of collaboration between the two companies. Estee Lauder was not immediately available for comment.

“This might be the best outcome for both parties, settling the dispute in a peaceful way,” (our translation) Wang Jian, professor of University of International Business and Economics (UIBE) said when contacted by TechNode.

“Even if Estee Lauder Shanghai branch is granted exclusive license to sell products in China, it is disallowed to restrict other dealers from selling merchandise in the country,” Wang said in a blog (in Chinese). “Otherwise, it would violate the antitrust law as the monopoly should disrupt the market order and damage interests of consumers. There has been many lawsuits about intellectual property being misused as a a monopoly right, which is untenable in the Chinese market.”

Kaola’s statement is the latest in a series of twists and turns it has faced over the past year regarding accusations of selling counterfeit products. In a regulatory investigation launched in February 2018, NetEase was accused by both CCA and Estee Lauder of selling unauthentic skin care products on its platform.

NetEase later filed a lawsuit charging reputation damage against CCA and Estee Lauder, seeking RMB 21 million and a public apology. The Hangzhou-based e-commerce giant maintained that products were imported from reliable overseas channels, and how it imported and sold products to Chinese consumers were “completely” in accordance with the relevant national provisions in the country.

Despite the overall slowdown in the Chinese online retail sector, the cross-border e-commerce sector has been flourishing amid growing demand. Trade volumes reached RMB 9.1 trillion with a user base of more than 100 million in 2018, a 44% increase compared to the year prior, reported Renmin Daily citing market research firm iiMedia Research.

“Traditional companies have yet to adapt to the environment where the e-commerce distribution channels have been established. This may cause turmoil within the company and disputes among dealers. Estee Lauder should lower the prices in the offline market, while leveraging online trade channels to reduce the distribution costs,” Wang said.

Baidu is reportedly working on a major push into the music entertainment world including developing a music mobile app and several talent competition shows as part of a bigger initiative to capture user attention amid deceleration in its core businesses.

According to 36Kr, the company has formed a small special project team affiliated with Baidu’s content business group. The new team had originally planned to build a music video app similar to Douyin, Bytedance’s popular short video platform. However, this was later rejected internally with the aim to “make something bigger,” 36Kr cited a source as saying.

A reality TV competition is also on the agenda, with which Baidu seeks to achieve success like similar to “Singer,” a Hunan TV reality competition featuring professional singers, or “Produce 101,” a music talent show created by Tencent. The source said Baidu is more likely to outsource the production work given its inexperience in show business, though the project was currently in early stages of planning and could be changed.

A company representative declined to comment when contacted by TechNode.

Baidu was one of the very first tech giants in the country’s nascent online music market after it launched its music search service, Baidu MP3, in 2002. Over the next few years, the musical business achieved huge success, with some reports that it contributed up to a third of total traffic to the search engine. However, it faced harsh criticism from the music industry for allowing users to access a large number of tracks online and even download them for free.

Baidu launched its first copyrighted online music website Ting in 2011 amid tightened government scrutiny, though growth has been slow. According to Chinese research firm BigData-Research, Baidu was the sixth-largest music streaming platform 29.5 million monthly active users (MAU) while top music app QQ Music had 329.6 million, Tencent-owned Kugou had 303.7 million, and NetEase had 156.5 million as of February 2018. Baidu chose to ally with NetEase by investing an undisclosed sum in October, after NetEase Cloud Music began seeking independent financing in April 2017.

NetEase Cloud Music is partnering with record label Nippon Columbia in a bid to target China’s high-end paid users with a diverse music portfolio. The gaming and entertainment company is the first in China to collaborate with the record label.

Music from the Nippon Columbia label is now available for streaming on the platform, including pop music from anime voice artists and enka, a traditional Japanese music genre. A NetEase spokesperson told TechNode that free users can also access some of Nippon Columbia’s content library. However, offerings to free users were very limited, with most records provided to paid users with a starting price of RMB 8 (around $1.2) each month, based on TechNode’s observations.

“More and more NetEase Cloud Music users now listen to Japanese music and have gradually formed large, active Japanese music fan groups,” said Miyomatsu Abe, President of Nippon Columbia, in an announcement sent to TechNode. Further details about the deal were not disclosed.

The NetEase’s music streaming platform was an early mover in bringing Japanese music to China, distinguishing itself from its rivals with its long-tail marketing strategy. It looks to lure higher-end users who are willing to pay for the content they like out of the 20 million tracks available on the platform.

However, NetEase’s profits are suffering. The company recorded gross losses of RMB 326 million ($47.5 million) in its innovative business segment in 2018. It attributed the losses to higher copyright costs related to licensed music content and decreased revenue contribution from certain online platform businesses. NetEase spent massively on a single deal with Taiwan-based music label Huayan, paying RMB 170 million for 2,000 music tracks in 2018, 21st Century Business Herald reported citing local broker Guosen Securities.

China’s music streaming market is dominated by Tencent, which owns three platforms—Kugou, QQ Music and Kuwo—in a cash-burning rivalry with NetEase. According to research firm Trustdata, Kugou and QQ Music maintained their top and second spots as the two most-used music platforms with monthly active users (MAUs) of 109 million and 103 million, respectively, in March. NetEase Cloud Music ranked third with 52.8 million MAUs, followed by Kuwo with 51 million active users.

The Hangzhou-based internet giant stated that it doubled the number of paid users with robust growth in digital album sales in 2018, according to chief financial officer Charles Yang during its earnings call in February, though exact figures were not disclosed. Tencent Music grew its paid memberships 39.2% year on year to 27 million paid users in the fourth quarter of 2018.

Amazon is shrinking its e-commerce offerings in China, where market share for the US mega e-tailer is barely negligible amid fierce competition from countless rivals including giants such as Alibaba and JD.

“We will cease support for third-party merchants on Amazon China’s website starting Jul. 18, 2019,” (our translation) the company said in a statement to TechNode on Thursday. Amazon provides its merchants with tools to boost selling, including fulfillment and advertising services, according to its website.

Its withdrawal from the domestic marketplace will allow the company to sharpen focus on its cross-border e-commerce business, which mainly sells overseas products to Chinese customers, and its cloud computing service, it said in the statement.

The global e-commerce giant had struggled to gain share since it strode into China’s booming e-commerce industry in August 2004 through the acquisition of online book seller Joyo for $75 million from Xiaomi founder Lei Jun, the largest shareholder of the company at the time.

Yet according to market research institute eMarketer, Amazon China held less than 1% share of the total e-commerce market as of June 2018, eclipsed by Alibaba, which holds a share of more than half the market, and JD.com with less than a fifth. Social e-commerce platform Pinduoduo, local retailer Suning, and Tencent-backed Vip.com round out the top five.

Long time coming

To some, the news is just a formal acknowledgement of Amazon’s reality in China.

“Honestly, I didn’t even know they still had a domestic business left,” Ker Zheng, marketing specialist at a Shenzhen-based e-commerce solution provider Azoya, told TechNode.

“They should have done away with the domestic business a long time ago. There’s no point to compete with Alibaba, JD, and JD isn’t even that profitable,” he added.

Netizens on social media appear to agree. “Amazon shut their in-house inventory business several years ago. Third-party merchants business is also not doing well. For me, Amazon has quit the game for a long time,” (our translation) one  Weibo user using the handle Summer wrote in a post dated Thursday.

The company’s strategic decision to retain key segments is a reflection of its platform’s polarity in China. “Not a big deal for me as long as Kindle and the cross-border operation is around. Amazon offers smaller discounts than Taobao and JD,” a Weibo user going by Shanika said.

China’s e-commerce market requires deep commitment that not all companies are prepared for.

“Basically all platforms provide a commodity service, since everyone sells the same products. To differentiate you have to either provide a lower price or a better customer experience, which means wider product selection, faster shipping. All of that requires a ton of investment and not making money for a long time. JD is willing to do it but not Amazon,” Zheng said.

Commitment can also mean evolving with consumers. Cao Lei, director of the China E-Commerce Research Center, attributes the company’s failure to gain a solid foothold to its lack of innovation. “The e-commerce platforms in China, both old and new, have developed lots of localized business models, such as Pinduoduo’s “group purchase” model and multi-echelon distribution model, to acclimatize themselves to the local market. But Amazon has missed many chances to make innovations, and lost a large number of users,” said Cao.

Regardless of its missteps, Amazon maintains that the move is not a complete pull-back from the China market, but is “a transitional period” (our translation).

However, the US giant also lags the competition in the cross-border e-commerce segment.

China’s leading e-commerce platforms, including Alibaba and JD, announced commitments to assist with importing a combined $250 billion worth of foreign goods at the first-ever China Import Expo held in Shanghai in November.

Rivals Tmall Global, NetEase Kaola, JD Worldwide, and Xiaohongshu lead the market, leaving Amazon China with a 6% share of the vertical as of the fourth quarter of 2018, according to data from research institute Analysys.

“[It] makes much more sense to focus on cross border imports since they have an advantage in sourcing foreign goods,” Zheng of Azoya told TechNode.

Cloudy Skies

The company’s other remaining business in China faces hurdles of its own. Amazon Web Services (AWS), the empire’s cloud computing platform, is a slow mover in the burgeoning cloud computing market.

Figures from Synergy Research Group showed that it held the leading share of the Asia-Pacific region with 24.1% share in revenue in the fourth quarter of 2018. However, in China, domestic tech giants hold the lion’s share with AliCloud comprising 40.5%, Tencent coming in a distant second with 16.5%, and AWS with around 9.7% share.

AWS made its China debut in August 2016, when it licensed the rights to Chinese telecommunication and data service provider Sinnet to offer local cloud services. China’s cyberspace watchdog requires foreign enterprises partner with local companies in order to run cloud infrastructure services in China for data security reasons.

Stay or go?

Early reports about the company’s shrinking China business were fractured, signaling internal confusion about the move.

Reuters reported on Wednesday that Amazon was preparing to close its China marketplace by withdrawing support for third-party merchants over the next 90 days. Chinese media also reported the closure of its main domestic retail business in China, citing a source as saying some employees are now hunting for new jobs.

However, according to China Business Journal, Amazon China announced the decision to close its e-commerce business including the proprietary retail segment in an internal meeting that took place Thursday morning.

Amazon China’s president, Zhang Wenyi, who took the post in April 2016, will reportedly leave, according to an unnamed executive. Around 2,000 people work for the company in China, and will learn more about the company’s layoff plans next week, said the source.

Amazon is not the first international retailer to fail in China.  The platform’s refusal to adapt to Chinese consumer preferences may have also taken a toll.

“If Amazon continues its cross-border e-commerce into China, it is highly suggested that they adapt and provide Chinese consumers the entertaining shopping experience that Chinese consumers like, instead of a global interface and rigid structure pushed to the consumer,” said Ron Wardle, CEO of e-commerce solutions firm, Export Now (Shanghai) Inc.

Cao of the E-Commerce Research Center agreed that Amazon China’s special “foreign-company style” corporate culture led to its weak execution of innovative ideas. “Decisions such as changing festival logos and launching new projects have to be approved by the company’s US headquarters, which results in its inefficiency and lack of indigenization,” he said.

JD.com founder and CEO Richard Liu—a leading figure in China’s e-commerce landscape whose own company and management has recently come under close scrutiny—uses a battle metaphor to describe the dynamic in a March 2018 video interview.

“It’s like soldiers who are told that they only have 10,000 bullets and before shooting each of the bullets, they have to check with the general whether more ammunition is coming. How can you expect the soldiers to win a war like this?” Liu said.

Additional reporting by Emma Lee and Wei Sheng. With contributions from Colum Murphy.

Estee Lauder China is suing NetEase’s cross-border e-commerce platform, Kaola, for allegedly selling MAC brand cosmetics without authorization, the latest in a series of disputes the Chinese tech company is facing concerning product authenticity.

According to a filing released Friday on China Judgements Online (in Chinese), Estee Lauder China filed a lawsuit against NetEase in July 2017, saying Kaola used its MAC trademark without a license. The US cosmetics company demanded that Kaola halt selling, issue a public apology, and disclose its purchase channels. It also requested RMB 1 million (around $150,000 ) in compensation for losses.

The case is currently under trial by the First Intermediate People’s Court in the southwestern Chinese city of Chongqing. NetEase declined to comment when contacted by TechNode.

This is the second legal dispute between the two companies in the past year. NetEase was accused of selling fake Estee Lauder skin care products in an investigation launched by the state-backed China Consumers Association (CCA) in February 2018. However, NetEase denied the claim, saying the products sold on its platform were from “reliable overseas channels,” reported local media Huxiu (in Chinese). Estee Lauder China confirmed that the products were not authentic.

The Chinese internet giant later filed charges against CCA as well as the US-based cosmetics company for damaging its reputation, according to a filing released on Jun. 22. Beijing’s Haidian Court is still hearing the RMB 21 million case.

Kaola has faced accusations from consumers, as well. A Chinese customer with the surname Xian accused the company of selling a fake Canada Goose jacket to her in December. The investigation results were presented Friday in Hangzhou, with the Canadian company verifying the jacket as “authentic,”  Chinese media cited a regulatory official as saying.

Xian immediately responded on Weibo that she had yet to receive notice from officials, and that her rights were violated during the process. In a previous round of disputes in mid-January, NetEase announced it would send the jacket to one of the Canada Goose after-sales service agencies for verification. NetEase requested that Xian publicly apologize if the judgement supported the company, reported The Paper (in Chinese).

Latest mobile app rankings show that WeChat, Alipay, and QQ were the most used apps in February, according to Chinese mobile internet research firm Trustdata’s latest release (in Chinese). The company posted its February figures for China’s top 200 mobile app rankings on its official WeChat account Thursday.

China’s super app, WeChat, maintained its top spot, with monthly active users (MAU) growing 2.25% month-on-month in February to 1.01 billion. Alipay, the most used non-social app, ranked second with 608 million MAU. Tencent’s social networking app crossed the 600 million mark during the month, ranking third overall.

Taobao and Jinri Toutiao were the only two apps in the top 10 that declined in February. Taobao ranked fourth overall, but active user count softened 2.8% compared with the previous month. Bytedance’s top app Jinri Toutiao user activity weakened modestly in February, declining 1.5% month-on-month to 227 million.

February figures reflected increased user leisure time during the week-long Spring Festival holiday, with social, video-streaming and entertainment, gaming, photo-editing apps the most popular categories among Chinese smartphone users.

Within the top 50, Tencent’s hit title, “PlayerUnknown’s Battlegrounds Mobile” (PUBG Mobile), saw the fastest growth in February, surging more than 20% month-on-month. The hit game has been banned in several cities in India, leading to arrests.

Short video app active user size grew significantly during February. Bytedance’s Douyin (known internationally as TikTok) led with 303.6 million MAU, Tencent-backed short video app Kuaishou surged 10.7% month-on-month to 218.1 million, and Bytedance’s Huoshan ranked third in the category with 102.0 million MAU. Duoshan, Bytedance’s new video-based social app which launched January 15, made it into the category’s top-10 with 10.0 million MAU.

Active user count for food delivery platforms retracted in February. Meituan Waimai maintained its top spot as the biggest online food delivery platform with MAU of more than 15.6 million, however, it declined 7.3% month-on-month. Alibaba’s Ele.me ranked second with 10.7 million MAU, though February figures fell around 15% compared with January.

In cross-border e-commerce, Xiaohongshu MAU rose 16.3% month-on-month to 49.8 million; NetEase Kaola came in a distant second with 2.9 million MAU.

网易相册：停止新用户注册 5月8日停止运营 – TechWeb

What happened: Online gaming giant Netease announced on Thursday it will shutter its web album service on May 8. New user registration and prepaid service were shut down Wednesday, and premium users will be refunded. Netease did not specify reasons for the closure in the notice (in Chinese), but encouraged users to move onto its Tumblr-style blogging service, Lofter.

Why it’s important: The shutdown comes as Netease slashes nearly half of its workforce across several business units as the economy slows and following the government’s throttling of the online gaming industry last year. The company reported that its 2018 net income fell 42.5% year-on-year to RMB 6.1 billion (around $895 million). Netease was granted a license for only one game title in December when authorities resumed license approvals to a limited degree, following a nearly nine-month moratorium on granting licenses that began at the end of March 2018.

Chinese Premier Li Keqiang announced plans on Tuesday to reduce mobile access costs by at least 30% nationwide as part of a broader push for the country’s digital transformation in a number of sectors, including healthcare, education, and sports.

The country’s largest political event, dubbed the Two Sessions, kicked off on Sunday in Beijing. Chinese corporate executives, including Tencent’s Pony Ma, Robin Li from Baidu, and Xiaomi’s Lei Jun, attend the meetings as delegates.

In his opening remarks at the National People’s Congress (NPC) annual meeting, Premier Li said China will continue to lower the cost of mobile networking services by more than 30% from 2018 by end-year. High-speed broadband services will also be offered across the country, improving experiences for rural-dwelling residents for remote learning tools and medical services.

China’s three major mobile carriers — China Mobile, China Telecom, and China Unicom — had already lowered mobile access costs by more than 60% year-on-year as of the end of November, said state-owned media China Central Television, citing officials from the Chinese Ministry of Industry and Information Technology (MIIT) as saying on Monday.

Chinese tech entrepreneurs supported the call for better access on broadband and mobile, suggesting more government inputs into online public services.

Ding Lei, CEO of gaming giant Netease and Chinese People’s Political Consultative Conference (CPPCC) delegate, proposed “online digital schools” as a way to deliver improved teaching resources from major cities to students in impoverished areas. AI-enabled products and services, including translation devices and oral language evaluation, could be leveraged to promote self-propelled learning, Tencent Tech (in Chinese) reported, citing Ding.

Xiaomi CEO Le Jun suggested the government prioritize establishing policy standards for medical wearable devices and related platforms, according to Chinese media. The NPC representative also appealed for more incentives for applications using the Internet of Things (IoT) in the public health sector.

China is accelerating the pace of 5G network deployment, MIIT Minister Miao Wei told local media, saying the first batch of temporary 5G licenses would “be granted soon.” Several 5G phone models are expected to launch in the second half of this year, although wider 5G adoption is more likely timed for this time next year, Zhang Yunyong, head of research affiliate of China Unicom told Shanghai Securities News.

Chinese internet and gaming giant Netease is slashing up to 50% of headcount from several business units, including e-commerce arm Yanxuan and its Hangzhou-based educational product unit, as it focuses on core businesses and boosting returns.

The layoffs began in January, and is ongoing. Yanxuan will trim 40% of staff and Weiyang, NetEase’s pig farm business, will reduce employees by 50%, said an unnamed employee to Chinese media. The educational product unit, which runs Netease’s open online education platform, Icourse163, will downsize a third of its employees, and public relations lost more than 40% of its staff.

A company spokesperson told TechNode on Thursday that Netease is reorganizing to regain its core business focus and better leverage competitive strengths moving forward.

The layoffs appear to have been timed abruptly, with some employees being fired soon after being hired or promoted, according to Chinese media reports. The downsizing follows a round of restructuring earlier this year, as Netease recalibrates its e-commerce and gaming businesses.

Netease reported net revenues of nearly RMB 20 billion (around $3 billion) in the fourth quarter of 2018, with more than half coming from online game services and a third from its e-commerce sites Kaola and Yanxuan. However, e-commerce growth in the period ended Dec. 31 continued a downward trend, decelerating to 43.5% year-over-year from 67% in the third quarter and 75% in the second quarter. Gross profit margin also dropped to 4.5% from 10% a year earlier.

Internet and online games giant NetEase on Thursday released its unaudited financial results for the fourth quarter and the fiscal year ended Dec. 31, 2018, reporting substantial year-on-year growth in e-commerce and gaming revenue.

NetEase recorded net revenues of close to RMB 20 billion (around $3 billion) in the fourth quarter of 2018, increasing by almost 36% year-on-year. Within that RMB 20 billion, close to RMB 7 billion was from e-commerce, and around RMB 11 billion was from online game services, a 43.5% and 37.7% increase respectively compared to the same period a year earlier. The total net revenues of the company in 2018 increased 24% year-on-year to more than RMB 67 billion.

The growth in NetEase’s e-commerce revenue came from its e-commerce site Kaola and Yanxuan, both of which saw rapid growth in the past year. Kaola, the largest cross-border retail e-commerce platform in China, is reportedly in talks to merge with the cross-border retail business of Amazon to further expand.

However, its e-commerce revenue growth came at a cost. According to its earnings report, the gross profit margin for the fourth quarter of 2018 was 4.5%, falling from 10% for the same period in 2017. The internet giant attributed the low-profit margin to large-scale promotions and sales discounts during shopping festivals including Double11, held on Nov. 11 every year.

Online games have long been NetEase’s cash cow, and their performance remained steady in 2018, bringing in over RMB 40 billion. A considerable portion came from the self-developed mobile games the company released during the year, such as Knives Out, China’s top grossing mobile game in overseas markets for five consecutive months since August 2018. Other games including flagship titles such as Fantasy Westward Journey and New Westward Journey Online also contributed.

During the earnings call, Netease CEO Ding Lei said that the company has about 40 games in the pipeline awaiting approval from China’s State Administration of Radio, Film, and Television, media outlet Jiemian reported. Ding added that a lot of NetEase’s game are distributed and tested overseas and are not affected by video game licenses in China.

NetEase’s cross-border e-commerce site Kaola and US e-commerce giant Amazon reportedly have been in talks over a possible merger, according to Chinese media outlet Caijing (in Chinese).

According to the report, the companies signed a deal to combine China cross-border businesses in a stock-for-stock merger in late 2018. But, the negotiation process, initiated by NetEase, has been very difficult, according to a person close to the matter cited by Caijing.

TechNode reached out to Kaola for confirmation of the deal but the company did not immediately provide comment.

Launched in 2015, NetEase’s Kaola is the largest cross-border import retail e-commerce platform in China with a 26% market share in 2018, surpassing Alibaba’s Tmall Global and JD.com’s JD Worldwide, according to iiMedia Research. Kaola accounts for the majority of NetEase’s e-commerce sales.

Ker Zheng, marketing specialist at Azoya, a Shenzhen-based e-commerce solution provider that works with Kaola, told TechNode that the merger makes sense because “Kaola needs to procure a wider range of foreign branded inventory, and it needs help from Amazon.”

Although Kaola holds a dominant position in the market, it is a standalone site without the halo of big-named e-commerce sites like Alibaba’s Tmall Global. Zheng noted that because Tmall Global shares traffic with Tmall, in order to compete, Kaola needs a wider range of products and more inventory to fill up the site to attract traffic.

The merger could increase sales and exposure for Amazon in China, yet the impact on Amazon’s overall business remains unclear.

The US tech titan Amazon has found the Chinese market to be a tough battleground, mostly because of high competition from Chinese online retailers. According to iResearch, Amazon has less than 2% of the e-commerce market in China.

Kaola recently announced plans to open 15 new brick-and-mortar stores in 2019. Zheng of Azoya noted that if the company decides to further expand its offline retail business, the deal could have a bigger impact on Amazon’s business in China.

Cross-border e-commerce platform NetEase Kaola plans to open 15 new brick-and-mortar stores during 2019 in a bid to keep up with the new retail boom in China.

The company made the announcement at the opening ceremony of its flagship offline store in the eastern Chinese city of Hangzhou. The store’s opening marks a continuation of NetEase’s plans to tap the ongoing new retail boom, which aims to connect the online and offline worlds.

Netease Kaola CEO Zhang Lei said the company will strengthen its offline expansion during the year to create more interactive shopping experiences.

Online versus offline was an “either-or” retail equation not long ago. The popularity of new retail is creating a more favorable third option that combines both in-shop and online experiences. All major Chinese tech giants including Alibaba, Tencent, JD, Xiaomi, and Meituan have made similar moves.

The newly launched shop selected over 3,000 stock keeping units (SKUs) based on big data analysis of consumer preferences and behavior. The SKUs covers a variety of categories including cosmetics, maternal care, and child products, luxury products, electronics, and sportswear, among others.

The store will feature interactive screens, which allow for browsing products and viewing popular items, and testing areas for cosmetics. The company hopes the feature will decrease customers’ decision-making times.

Last year, NetEase Kaola, which targets white-collar consumers, opened two offline shops in Hangzhou and Zhengzhou, the capital of the central Henan province. Similarly, NetEase’s cost-conscious e-commerce site Yanxuan, also opened offline stores last year. NetEase partnered with CenturyMart in 2017 to make its products available to the supermarket chain’s Jingxuan Store, a rival to Alibaba’s Hema grocery store chain.

China approves third batch of video games; still no Tencent — Reuters

What happened: China’s broadcasting regulator on Tuesday approved the release of a third batch of video games. None of the 93 approved titles on the list were from Tencent, the world’s largest gaming company. Tencent’s domestic rival NetEase was also absent from the list for the third time. So far, the State Administration of Press, Publication, Radio, Film, and Television has approved nearly 260 gaming titles since late December 2018, when the approval process resumed.

Why it’s important: China stopped granting video game licenses between March and December 2018, amid a restructuring of various government departments. No new titles were therefore published for nine months, and domestic gaming companies suffered as a result. Tencent reportedly lost around $160 billion in market value during the period, with a slew of other game producers laying off staff and even closing down. Small and medium gaming companies are seen to benefit most from the lifting of the moratorium, as Tencent and NetEase have been excluded from all the three batches of license approvals.

88人靠看直播上清北 丁磊:这事太棒了 拿1亿推动落地 – Sohu

What happened: CEO of Chinese internet giant NetEase Ding Lei says the company will invest RMB 100 million (around $14.5 million)  in remote learning in response to a discussion about equal access to education. On November 13, a feature on how rural students are benefiting from live-streamed courses provided by a provincial school in Chengdu went viral on the Chinese internet. The story triggered heated debate about the role of technology in the country’s social welfare system.

Why it’s important: Ding’s gesture could be seen as ambition to set new strategies for NetEase Open Courses, a remote learning platform wholly-owned by NetEase. With social welfare on the agenda, the company might include more curriculum courses for K12, whether it be for charitable or commercial purposes. Technology could become an increasingly prominent driver of equal access to education, as the live-streaming project in Chengdu has shown.

网易云音乐完成新一轮6亿美元融资 百度参投 – Tech Web

What happened: NetEase’s music streaming platform, NetEase Cloud Music, has completed its previously announced funding round, raising over $600 million from strategic partner Baidu, General Atlantic, Boyu Capital, and other investors. NetEase remains the controlling shareholder of its music streaming business. In October, Baidu announced that it was leading a new round of investment in NetEase to bolster mobile content services.

Why it’s important: On NetEase’s second-quarter earnings call, CFO Charles Yang revealed that its music unit had over 500 million registered users. In terms of the number of monthly active users, NetEase Cloud Music is only the fourth largest service provider in China’s competitive music streaming industry—behind Tencent-affiliated Kugou Music, QQ Music, and Kuwo Music and ahead of Alibaba’s Xiami. NetEase’s biggest rival, Tencent Music, recently postponed its US IPO due to adverse market conditions.

Alibaba, JD.com Throw Weight Behind Beijing Import Drive– Caixin Global

What happened: Heeded Beijing’s call to boost the nation’s imports, China’s leading e-commerce platforms announced commitments to help import a combined $250 billion worth of foreign goods at the first ever China Import Expo in Shanghai. Alibaba leads the group with a $200 billion pledge to import goods from more than 120 countries over the next five years and JD plans to purchase nearly RMB 100 billion. Suning.com (euro 15 billion), NetEase Kaola (RMB 20 billion), VIP.com (RMB 10 billion) and Yangmatou (RMB 100 million) also joined the initiative.

Why it’s important: China is undergoing a dramatic consumption upgrade thanks to the robust economic growth in recent years. The country’s middle-to-high income consumers are fueling the demand for imported, quality goods. China’s cross-border e-commerce market has grown remarkably, with the proportion of imports to total e-commerce sales growing from 1.6% in 2014 to 10.2% in 2017, according to a joint report by Deloitte China, the China Chamber of International Commerce, and AliResearch. The surge has given rise to the cross-border e-commerce businesses in a series of traditional e-commerce tycoons like Alibaba’s Tmall Global, JD Worldwide, as well as vertical platforms focused on the sector, such as Xiaohongshu and Yangmatou.

Pangu Game (盘古游戏), a game development studio under NetEase, is said to be merged into tech R&D and gaming department Leihuo (雷火), according to an anonymous staff member at NetEase who leaked the information in a WeChat conversation (in Chinese).

Pangu is going to be a sub-department at Leihuo, but it’s unconfirmed whether there will be any personnel layoffs, a person close to the matter says, according to local media (in Chinese).

Leihuo is the development force behind some of NetEase’s most influential self-owned games, which include online game Qiannv Youhun (倩女幽魂),  based on an ancient love tale of a fairy ghost. The game invited celebrity Liu Yifei as a brand representative, but is widely criticized by players for being extremely money consuming.

“I haven’t seen any confirmed information on this. When I was there a few years ago, I heard that Pangu was originally part of Leihuo,” a former employee at NetEase Games told TechNode. “But [current NetEase Games staff] I’ve talked to know that Pangu is not doing very well,” they added. There is no public information of either Pangu or Leihuo’s performance.

The merger rumor was a surprise to many in the industry. On October 29, Pangu just co-established a center for game development with the animation faculty of China’s Central Academy of Fine Arts. Pangu and Leihuo also co-organized a game show for fresh developers at the same event. It is unclear whether it was a sign of an already on-going merger. However, considering tightening state regulation on the general content industry, NetEase’s decision (if true) is a necessary step to restructure the business and optimize input-output balance.

The company is now hoping to count on gaming, e-commerce, and advertising services to drive future growth. William Ding, Chief Executive Officer and Director of NetEase, commented in August that the company’s “PC-client and mobile games continue to serve as dual growth engines”.

According to the second quarter’s fiscal report of NetEase, online game services’ net revenues were RMB 10.1 billion (US$1.5 billion), up 6.7% compared with the second quarter of 2017. NetEase is going to release the 2018 third quarter financial results on November 14.

Netease Finance, Netease’s financial news aggregator, published a rectification notice that it would cease to update after Tuesday noon due to serious mistakes that were made while NetEase operated its finance channel. The channel said it would carry out thorough rectifications across the platform and build a “clear and honest” cyberspace.

The notice didn’t specify the cause of the rectification nor the closing date.

Online speculations are saying the rectification was due to an article by NetEase Research Institute (网易研究局), discussing individual income tax reform. NetEase Research Institute is a think-tank under NetEase news and focuses on China’s financial and economic news.

The article published after China’s central government solicited public opinions and adjusted the rates of individual income tax. Before the adjustment, domestic residents whose income were higher than RMB 3500 had to pay individual income taxes, and now only those whose income was higher than RMB 5000 need to pay. The rate hadn’t been adjusted for seven years. However, according to the NetEase article, the bar needed to be raised to more than RMB 10,000, in order to compensate residents’ growing expenditures on goods and services. The RMB 10,000 is based on the assumption that the tax rates were adjusted 9.5 years once. Nine and a half years is the average time between two tax adjustments since the Chinese government started levying the tax in 1981.

NetEase is a Nasdaq listed company that is better known for mobile games. Its famous game titles include Knives Out and Onmyoji. Apart from mobile games, NetEase is also operating e-commerce platforms, portal sites and provide email services.

Shares of Tencent and NetEase dipped Friday morning as the State Administration of Press, Publication, Radio, Film and Television of China (SAPPRFT) rolled out regulations against online games Thursday night.

According to the government paper, the Administration will regulate and control the total number of online games and limit the number of new online game titles. The Administration will also work on a content rating system that carries age recommendations and limit the time the underage can play online games for.

Further regulation on games is likely to worsen the already gloomy license situation in the gaming industry. Earlier in August, Tencent said a freeze on game approvals from Chinese authorities has negatively affected its revenues and it did not know when the situation would be resolved. Gaming revenues are the biggest source of income for Tencent.

The regulation is part of China’s newest campaign to “control and prevent myopia of children and teenagers.” The campaign was jointly launched by eight state administrations including the Ministry of Education, General Administration of Sport of China, Ministry of Finance and SAPPRFT on Thursday after China’s president Xi Jinping expressed concerns over the rate of myopia in Chinese children and teenagers earlier. Before Xi’s concern, the World Health Organization’s report shows there were 600 million nearsighted people in China and the rate of myopia in Chinese youth topped the world.

Despite the common belief that close-up activities can cause myopia, new research shows that the true cause of near-sightedness is insufficient sunlight.

The Chinese authorities have considered online gaming negative for the youth and tried to limit the younger generation’s access to it. Tencent launched an anti-obsession system last July when the state media criticized the company’s popular game Honour of Kings having a negative influence on Chinese youth. The system limits the time for underage player to at most 2 hours a day.

NetEase Blog (网易博客), the giant’s blog site and service, announced last night (August 20, 2018) that they will suspend all services and operations starting from November 30, 2018, our sister site is reporting (in Chinese).

According to an official statement (in Chinese), starting from midnight August 21, NetEase Blog has closed all user-end download channels, new blogger registrations, and VIP top-up services. The Blog also says users can no longer upload content or comment on existing ones. On November 30, the whole site, including all servers, will be shut-down.

But the end of NetEase Blog is not the end of NetEase’s personal content sharing business. The company encourages bloggers to transfer the content to Lofter, a light blog brand launched in late August 2011 under NetEase. Lofter allows users to share personal text and visual content with a stylish user interface (UI), closer community management, and better sharing settings for mobile devices.

Blogging, the sharing and networking format itself, has seen global collapses including that of My Space. Domestically, Tencent-backed WeChat, Sina-backed Weibo, and short video platforms such as Douyin are squeezing traditional online content sharing and interpersonal relationship models’ living space. Nevertheless, the shutdown is unlikely to have much significant or substantial influence on the company’s operation or fiscal performance.

NetEase Blog’s declining influence before the shut-down already implied a ceiling for advertising services and other related commercial earning-generation opportunities in the blogging sector. The company was aware of the situation and has been cultivating new profit channels such as games.

Additionally, according to the company’s unaudited fiscal report for the second quarter of 2018, the company now has a portfolio of major revenue consisting of online games, e-commerce, advertising services, and e-mail. Among the advertising sector, the top performing verticals in the same period were automobiles, internet services, and real estate.

NetEase Reports Second Quarter 2018 Unaudited Financial Results – NetEase, Inc

What happened: Chinese leading internet and online game services provider NetEase reported an unaudited profit of RMB 2.1 billion for the second quarter ended June 30, a 30% decrease compared with the same period last year. Online game services, the biggest segment of NetEase’s revenues, increased 6.7 percent compared with the second quarter of 2017, and e-commerce net revenues increased 75.2 percent.

Why it’s important: NetEase seems to be recovering from the unsatisfying earnings last quarter. In the first quarter, NetEase’s profit dropped 81%, compared with the first quarter of 2017 and now the decrease has narrowed to 30%. The increasing gaming revenues were mainly due to the strong performance of their existing games Chu Liu Xiang, Knives out and Identity V. kaola.com and Yanxuan, drove the growth of NetEase’s e-commerce segment. In the second quarter, Gaming made up 61.8% of the total revenues and e-commerce 27%.

Xiaomi Music has reached a copyright transfer agreement with NetEase Cloud Music, continuing the trend of music sharing among platforms after the government banned unlicensed music streaming in 2015.

The agreement will give Xiaomi access to music from HIM International Music and Tianyue Media, including such artists as SHE, Hebe Tien, Yoga Lin, Power Station, and Where Chou.

While Xiaomi Music is not a dominant player in the market, it was the first Chinese smartphone manufacturer to obtain licensing rights to Warner Music’s catalog, shortly after signing agreements with Sony and Universal.

With a smartphone penetration rate of 92 devices for every 100 individuals, China’s music streaming industry is enormous. Over 86% of users listen to music on their mobile phones, creating an increasingly competitive market for music streaming businesses, which is dominated by players including Kuguo Music and QQ Music.

This competition has resulted in various license infringement lawsuits and counter-suits between QQ Music, NetEase Music, Alibaba’s Xiami Music, and Kuguo Music, and competitors in the market. The turbulence eventually led to the government enforcing the previously mentioned music copyright regulations in 2015.

However, since then there has been a growing number of licensing agreements between platforms. Tencent Music and Entertainment (TME) teamed with Ali Music Group in 2017 on music copyrights. The company then reached a cross-licensing agreement with NetEase Music following copyright disputes.

Total revenue for the music streaming sector amounted to $522 million in 2017 and is expected to grow by 130% to reach nearly $1.2 billion by 2022. The average revenue per user (ARPU) will also see triple-digit growth during the same period, increasing from $0.84 to $1.69.

Taobao Xinxuan (or directly translated as Taobao Selected, 淘宝心选), is scheduled to open its second brick-a-mortar store in Shanghai today, June 28. With a shop-size of 230 meter squares, the store took only 30 days to come to its current shape, from design to product display.

The Taobao Xinxuan channel and product line

Taobao Xinxuan is both an affiliate shopping channel and product line of Alibaba’s own Taobao. With entry embedded in Taobao, it offers affordable quality lifestyle and functional daily necessity goods including home fragrance, smart power sockets, underwear, and sonic-control toothbrush. An aluminum 26’’ rose gold suitcase, for example, is priced at RMB 404.9 now.

According to the official Xinxuan site, the business’ location is Jiaxing, in the same province as Alibaba’s national Hangzhou headquarters of Zhejiang. The location is very likely to be where Xinxuan’s major logistics infrastructure such as warehouses are.

Xinxuan’s first physical store was opened in Hangzhou 2 months ago. The geographical allocation would optimize cost control, and stay close to China’s Yangtze-Delta region, one of the most affluent areas of the country where light industries and trading businesses gather. After 2 hours of opening, according to local media, the store was almost emptied by eager consumers (in Chinese).

In addition to China-made products, the Xinxuan store (both online and offline) offers products imported from regions including Japan and North Europe.

Serving needs or combating rivals?

Ironically, backed by China’s e-commerce market leader Alibaba, Taobao Xinxuan is not the first of its kind in China. NetEase Yanxuan (directly translated as NetEase Selected, 网易严选), launched in 2016, is one of the earliest pioneers in the affordable quality product segment in China. Yesterday, during the 1st anniversary of Taobao Xinxuan and its press conference, the Alibaba business’ model was available to the public for the first time.

Tabao Xinxuan says the past year was an internal alpha test (内测). Both the Taobao Xinxuan and NetEase Yanxuan businesses hope by directly connecting with OEMs and ODMs, they can acquire key resources in the design, manufacturing, channel, and consumer segments to create alternative market supplies, and to upgrade consumers’ available shopping options while also offering reasonably priced goods.

Taobao Xinxuan can also be seen as a natural expansion of Alibaba’s power in e-commerce big data and resource allocation. Market research that used to take a few months to complete can now be done in 10 minutes. As algorithms develop and Alibaba’s ecosystem consolidates, calculation of consumer profiles and market preferences are producing more detailed analyses and suggestions to new segments and divisions.

No business lives for rivals or concerns of rivalries. Businesses care for their own survival  more – most time, the stronger, the safer.

China’s tech giant NetEase has lost momentum in gaming, its most profitable sector.

NetEase shares dropped 6% when the market opened on May 17, US Eastern Time, after releasing its first quarter earnings after the market closed on May 16. The shares decreased to $250 from $266 the day before. Its diluted earnings per ADS, $0.91, missed analysts’ expectation of $1.99.

The company reported RMB 752 million net income for the first quarter ended on March 31, 81% down compared with RMB 3.9 billion for the same period last year. The decrease was mainly due to diminishing revenues from online game services, the company’s biggest source of income. Revenues from the sector were RMB 8.8 billion, 18.4% decrease compared with the first quarter of 2017. Revenues in gaming made up 62% of NetEase’s total revenues.

Despite shrinking profits, revenues from NetEase increased 3.9 percent compared with the first quarter of 2017, reaching RMB 14.2 billion. The increase was led by the e-commerce sector, the total revenue of which was RMB 3.7 billion, due to the rapid expansion of Kaola.com, which focused on cross-border e-commerce, and Yanxuan, which claims to adopt the original design manufacturer model.

Charles Yang, Chief Financial Officer at NetEase, admitted in the conference call that revenues from the company’s flagship mobile game Onmyoji and the mobile version of New Ghost “have come down from its peak a year ago”, although there remains “a substantial revenue generation on a stand-alone basis”. The decreased revenues from Onmyoji were partially offset by Knives Out (the company’s PUBG clone on mobile), launched in November, and Chu Liu Xiang, in February. Knives Out also achieved overseas success, especially in Japan, but Yang admitted “revenues for this quarter is still at a low single digit”.

Onmyoji, a mobile PvP (Player vs Player) and PvE (Player vs Environment) strategy game launched in September 2016 and quickly became the world’s top grossing game in October. However, in the earnings of fourth quarter 2017, the game, as well as the mobile version of New Ghost, had already been experiencing a decline. In the last quarter of 2017, gaming revenues were RMB 8 billions, a 10.7% decrease compared with the fourth quarter of 2016.

“We are committed to executing on our game diversification strategy, and we are becoming more adept at reaching non-MMORPG [massive multiplayer online role-playing games] users. As we work to expand our award-winning portfolio of online games, we expect our marketing costs will normalize going forward, compared with our marketing expenses in the first quarter of 2018. For 2018, we will work to ensure that each of our business lines continues to thrive, and we remain focused on creating additional value for all of our stakeholders,” concluded William Ding, founder and Chief Executive Officer of NetEase.

Chinese superheroes are finally joining the Marvel Universe.

One year after NetEase and Marvel announced that they would co-develop new superheroes, the first issue of their two co-authored comics will be released on NetEase Comics May 9th and May 10th.

The two comics, Warriors of Three Sovereigns (our translation; Chinese: 三皇斗战士) and Cyclone (our translation; Chinese:气旋), will have contemporary Chinese elements and reflect the spirit of the time.

Warriors of Three Sovereigns tells a story of an 18-year old college student who picks up an ancient sword to fight against Chiyou (蚩尤), a tyrant roughly dating back to between 2,850 to 2,205 years ago. In comparison to Warriors of Three Sovereigns’ references to China’s ancient legends, Cyclone is about a talented female architect, who can control air currents, protecting an eastern city after a resettlement project goes awry.

“The editor of Marvel Comics participated in the creation of the two heroes, so it’s fair to say they are Marvel’s first two official Chinese superheroes,” a NetEase spokesperson told us. “These characters will have various connections with the Marvel Universe, including the infrastructure of cities they live in, like Stark Industries advertisements.”

The artists of Warriors of Three Sovereigns and Cyclone are Chinese artists Gunji (Chinese:棍记) and Keng, who already has published comics before and had their own audiences. Marvel is to supervise the creation.

Both of the comics will be first published on NetEase Comics and then later in the US.

Apart from the new series, NetEase has introduced other 10 Marvel comics to the Chinese market, including The Avengers, Dr. Strange, Captain America: Steve Rogers and Civil War.

Marvel has gain household popularity among Chinese audience. Its latest superhero movie Black Panther grossed more than $100 million after two weeks of release, being Marvel’s biggest overseas market.

A few hundred people gathered around a wooden stage on their tiptoes waiting for their favorite singer. With the spotlight pointed at the side of the stage, Zhou Xingzhe, a 22-year old singer from Taiwan, walked onto the stage in a black suit. The crowd burst out in screams.

After a greeting and some interaction with the MC, the lights dimmed and Zhou started singing. The crowd sang with him and swung their bodies with the melody, extending their arms to clap to the beat. During the interludes, people were randomly selected to go on stage and talk with Zhou, leaving the rest wringing their hands in jealousy.  In the era of digital music and streaming media, it was a rare treat for fans.

This was one of ten live house performances that NetEase Cloud Music and Sony Music Entertainment, one of the world largest record labels, are cooperating to bring to China’s youth. Beginning next year, Yundou Live (云豆现场), the live house brand of NetEase Cloud Music, will play host to singers from home and abroad.

At a joint press conference, Ding Bo, vice president of NetEase Cloud Music said he aimed to make music live houses “as common as karaoke and movie theaters.” He anticipates Yundou Live to host its 1,000th shows in 2018, suggesting that NetEase Cloud Music is ready to expand its live music business.

Live houses, originally from Japan, are smaller music venues usually without seats. Performers stand on the stage and directly face their audience just a few feet away. “Live houses bring us closer to music, both physically and emotionally. It’s a visual and vocal treat for music fans,” Michelle Chan, PR Manager at NetEase’s marketing department told TechNode. “Offline performances also provide more ways of marketing and distribution and allow more interactions with fans.”

“Growing a live music business is consistent with China’s current consumption upgrade and Yundou Live will help NetEase Cloud Music build its music ecosystem, from online to offline,” Li Songlin told TechNode. Li works as an analyst with iiMedia Research, a consulting firm focusing on the new economy.

Launched in 2013, NetEase Cloud Music users reached 400 million in November 2017. The spinoff completed its Series A of RMB 750 million at a valuation of RMB 8 billion in April 2017, led by Shanghai Media Group. NetEase Cloud Music has become the center of the musical communities it’s built, including user-created and curated playlists, active comment areas, and independent singers.

A successful independent singer can generate large revenues from sales of their digital albums which are strengthened by Cloud Music’s precise targeting marketing strategy via the use of big data. Can’t Grow Up (无法长大), recorded by folk song singer Zhao Lei, sold more than 200,000 copies on Cloud Music, roughly worth RMB 3.6 million.

According to NetEase’s research on independent musicians in late 2016, the majority of musicians demand more effective and varied promotion and distribution channels and Yundou Live can provide that, Chan said.

Despite the emphasis on independent music, licensing issues are still an issue. In early April, Tencent, owner of QQ Music, told NetEase Cloud Music to take down Jay Chou’s music (in Chinese) after the license expired. This happened after China’s Copyright Administration demanded Tencent and NetEase to share 99% of their respective music licenses, implying Jay Chou being the other 1%. NetEase Cloud Music deleted all Jay Chou’s songs and was not able to confirm when they would be back on the platform.

A new business

The cooperation between NetEase and Sony is based on the common notion that live house business is promising, according to a NetEase press release.

In 2016 revenue from live music events increased to RMB 4.8 billion (in Chinese) from RMB 4.6 billion in 2015; live house revenues reached RMB 82 million, increasing 30% from RMB 63 million in 2015.

Tickets for live houses are usually around RMB 100, much more affordable than those of big concerts which are usually priced up to thousands of RMB. Chi Yongqiang, CEO of Mao Livehouse, once told China Business News that China’s live house market was on the eve of rapid growth. First opened in 2007, Mao Livehouse is among the first live houses in China and received tens of millions of RMB tens after pre-A funding in 2017.

“The advantage internet companies have in offline shows is that their large user traffic can facilitate the marketing and promotion, but the disadvantage is that they lack offline operation experience and physical venues, thus they usually cooperate with companies across the fields,” Li told us.

Currently, Zhou Xingzhe has more than 50,000 followers and 90,000 comments on NetEase Cloud Music, providing an easily accessible fanbase for live performances.

“Sony Music is experienced in offline shows. Zepp, operated by Sony Music, has a very active live house business,” Chan told TechNode. Zepp music halls hold both domestic and international shows and located in major cities in Japan, like Tokyo, Osaka, and Nagoya.

Despite the growth, China’s live house business hasn’t matured and companies still need to explore what business models fit best and identify their target audience. Li said this makes for a longer timeline

First launched on May 4, 2017, Yundou Live has held 469 live events for more than 130 performers and regularly performed in 32 cities. This partnership is the first time that Yundou has worked with a record label as big as Sony Music.

Benefits for Sony

“Apart from staying focused on the A&R [Artists and Repertoire, talent scouting and the commercial development of recording artists], we are also thinking about how to add value to the industry to be more competitive and provide better experiences for both performers and audience,” said Enrique Shen, Deputy General Manager at Sony Music’s Domestic Marketing and Artist Management and Development, “Cooperation with NetEase Cloud Music, is one of the areas we are exploring.”

Before NetEase, Sony Music Entertainment and Tencent Holdings, another China’s tech giant, jointly launched Liquid State, a new electronic dance music label.

According to Global Music Report 2017, Samuel Chou, CEO, China and Taiwan at Sony Music Entertainment, said labels should unite with the broader music industry, especially the live sector. “It’s not just about putting recorded music on streaming services, it is about supporting the artists and working together to build and define this new business.”

A character dressed in chainmail was pinned on the pebble-paved ground. To pass, it must avoid shells from left and right and outrun the monsters from behind. This is near the final level of the video game CodeCombat (极客战记 in Chinese). Jun Pan, a 12-year-old boy, was staring at the scene on a computer screen and ready for the challenge.

Instead of using arrow keys, the game requires players to write Python or JavaScrip to direct the character’s movements, so Pan run the 60 lines of codes he had written and his character started running zigzag. Then, he found the way out.

CodeCombat was first developed by the company of the same name, a startup educational gaming company in San Francisco, US and introduced to China by Nasdaq listed NetEase. It aims to teach students coding by having them play their game and supports Python, JavaScript, Lua, and CoffeeScript. Partnering with eight public middle schools, the game is officially one of the school students’ compulsory courses.

The game offers both free and paid packages: RMB 66 per month or RMB 648 for lifetime access. All players have access to main quests while paid users will have some extra quests and more characters to choose from as their avatars in the game.

A teacherless solution

The State Council of China issued the Development Plan on the New Generation of Artificial Intelligence last July, urging educational institutes to train more experts. In January, the Ministry of Education added AI-related subjects, such as big data and data visualization to the existing high school computer science curriculum.

Despite the fanfare from officials to develop the industry, shortage in teaching resources and the fact that coding isn’t in China’s “gaokao” (高考, High School Entrance Examination)—the exam that will decide which university students can attend—are holding back adoption in China’s schools.

Liang Zhang, a postdoc in Information Education at East China Normal University, said there are only 2,000 information and technology teachers in Shanghai, including primary, junior, and junior high schools and only 20 percent of them hold a relevant degree. Compared with 1.4 million in-school students in 2016, according to data from the Ministry of Education, that means one teacher has to look after 680 students on average.

Zhang said if computer science is to be included in the middle or high school entrance exams—which seems likely considering the attention the state government has been given to—then how information and technology is taught at school should be adjusted. Games like CodeCombat can really help.

Learning by playing

“Our students really love the game and it is entertaining and educating at the same time,” said Suying Zhou, party secretary of Jianlan Middle School, one of the eight schools using the game. Pan has played the game for two years and he told TechNode that he’s ready to take the second level of the National Computer Rank Examination, which most students usually take in universities. He said the game gave him a basic understanding of computer science.

“The thing about CodeCombat is that schools won’t need teachers to teach coding. Students can learn themselves by playing the game. Learning by playing is a bit low efficient, but the game gives instant feedbacks through how the characters are moving, which will increase students’ engagement,” Kai Weng told TechNode. He holds a doctorate degree in computer science and teaches at Zhejiang University’s College of Computer Science and Technology in Hangzhou.

The career path for future computer science experts remains promising as the industry is expanding rapidly. “Companies ask me for talented graduates so they can recruit, but the fact is that I don’t have many because we don’t have enough graduates,” Weng said, “Our graduates receive the most handsome salary package across the university.”

CodeCombat isn’t the first company trying to combine video games and coding. Neither is China the first to use video games in class. In 2002, MIT Media lab developed the first prototype of Scratch, a visual programming language, to help children ages 8 or up to develop computational thinking. Unlike CodeCombat, it uses drag-and-drop programming tools to build up algorithms and control characters.

As technology continues to shape the world and children are exposed to different forms of technology earlier and earlier, knowledge in computer science is vital. “It’s not like that we are trying to make every kid a future engineer,” said Shan Lin , vice president of RDFZ Xishan School, another of the eight public schools, “After learning computer science, we hope students not only be inspired by the learning process and continue to be curious about the word but be able to solve real-life problems and satisfy their curiosity themselves.”

South Korea’s PUBG Corp, the developer of hit game Player Unknown’s Battlegrounds (PUBG), is suing NetEase in the US District of California in Northern California for copyright infringement, unfair competition and trade dress infringement–imitating the visual appearance of elements of intellectual property–over the Chinese company’s Knives Out and Rules of Survival.

Even before PUBG Corp created a mobile version of its island death match officially released in China via Tencent, NetEase had released Knives Out and Rules of Survival for smartphones. PUBG Corp has alleged the games bear striking similarities to theirs in terms of gameplay, visuals, themes and even the advertising of the game on Facebook.

The case has been filed in Northern California and the 155-page document (via Gadgets 360) makes for interesting and somewhat amusing reading, especially around the copying of PUBG’s “winner winner chicken dinner” (晚上吃鸡) terminology for celebrating, which has become so mainstream in Chinese gaming that it now refers to this type of game in general (吃鸡游戏). The use of pans in PUBG as both weapons and armor and the use of rubber chickens as weapons has appeared in Rules of Survival.

PUBG Corp’s previous attempt at complaining to Apple’s App Store and response from NetEase are mentioned in the filing.

PUBG Corp, a subsidiary of Bluehole, is suing NetEase for $150,000 per infringed work and $2,500 per violation, which could potentially run to millions of dollars depending on the court’s findings. The plaintiff also wants NetEase to cease operating both games.

NetEase announced via its WeChat account that Knives Out and Rules of Survival were both developed in isolation of PUBG, according to Tencent News (in Chinese).

Four of China’s most popular news apps have disappeared from Chinese app stores as of 3pm today. The enforced takedown by authorities was reported by Sohu News before the deadline (the news on Sohu has since been deleted), and our checks of various domestic app stores show the apps have now been removed.

Jinri Toutiao 今日头条 will be suspended for three weeks, Phoenix News 凤凰新闻 for two weeks, NetEase News 网易新闻 for one week and Tiantian News 天天快报 for three days according to Sohu, which claims to have had the move verified by the Ali, Huawei, Xiaomi, 360 Mobile and OPPO app stores before the deadline. Tencent told them it didn’t have any comment.

The reason behind the takedown, as ascertained by Sohu, is “In order to regulate the dissemination [of news] in a legal manner, all online application stores must suspend the downloading of the four mobile applications”.

The takedown follows an announcement by the State Administration of Radio and Television on April 4 (in Chinese) that picked out Toutiao and Kuaishou as continuing to broadcast without having the relevant permits for online broadcasting, and for broadcasting programming opposed to social morality. The announcement also called on the two to go through their existing content and remove anything deemed unfit or pornographic and to reduce their overall output back inline with their management capabilities. Last year Toutiao explained how it was using AI to automate content-checking with humans watching a very small proportion. Its subsequent efforts to improve its content checking, including hiring Communist Party members, have not kept it safe from this round of suspensions.

Toutiao, the app to be removed for the longest period, had not responded to our request for comment at the time of publication. Its Toutiao Express app does not seem to have been affected by the move. Apple’s China App Store is still carrying the apps involved.

Blockchain technology is the new buzzword, luring Chinese tech giants to jump on the bandwagon. Several blockchain technology-based products have emerged such as Xiaomi’s cryptorabbits, Baidu’s cryptodoggies, and NetEase’s Lucky Cat. NetEase released a blockchain sharing platform dubbed “Planet” (星球基地), where users can store and trade their data. NetEase expects Planet to “engage individual value creators in value sharing.”

By using Planet, users are able to manage their digital assets, which are protected by Planet’s blockchain-based storage encryption technology. Companies or individuals who want to access individual data assets can trade directly with the real owner of these data.

Gu Feiyong, Product Manager of Planet, told TechNode that the platform is a new effort by NetEase Finance to revamp the business value and ecosystem by using blockchain technology. Users create useful data every day, including credit data, browsing trails, shopping, entertainment, travel, and more. Planet provides an ecosystem for users to better and more securely manage their behavioral data through blockchain-based storage encryption technology and realizes value enhancement with decentralized measures.

“Black Diamond” (黑钻) is Planet’s cryptocoin for trading digital assets and settlement. The users can earn Black Diamonds by completing tasks that reward users. Currently, the total number of Black Diamonds is 240,000.

Black Diamonds have similar characteristics to Bitcoin. Both are virtual currencies based on the blockchain technology and are generated from dynamic data.

Planet is seeking a daily production of 270,000 Black Diamonds in the first year, halved once every two years. It indicates the difficulty of getting a Black Diamond will grow over time, another similar characteristic to Bitcoin. Once awarded, Black Diamond cannot be traded.

Force, an indicator of user activity, is an influencer for the users’ capabilities to obtain Black Diamonds. The users can earn Force by browsing, trading, and having more social interactions on Planet. The higher the Force, the easier it will be for users to obtain Black Diamond.

Users with more than 35 pairs of Force have a chance to win an additional Black Diamond jackpot, called Lucky Drill, which also consumes a certain amount of Force. Failure to collect Black Diamond for 48 hours will suspend growth.

Users can also collect Force from different tasks, such as Sesame Credit authorization, facial recognition, shopping, entertainment, education, finance, inviting friends to register, etc.

NetEase said in a statement that the company is still advancing the technology that supports the system and the cryptocoin.

However, Planet has also raised controversies. Users are required to submit their info when they register, including names, ID cards, and the telephone information. Some insiders are concerned users’ private information can be misused, and even leaked to unknown companies.

“We do not store any user data. All user data can only be accessed by the user who holds a personal private key. Any third party, including NetEase Financial, cannot view users’ data without the permission,” says Gu.

Meanwhile, Sesame Credit authorization, which could previously add 30 units of Force has been recently disabled. WeChat, China’s biggest social messaging app, has also prohibited the promotion of Planet on its platform claiming that many users have complained about “induced sharing.”

Ablack market for Black Diamonds trading has surfaced. “Black Diamond does not support trading and this is certainly astray from our initial goal of launching the product. We remind users to pay attention to the screening of information to stay away from scams,” says Gu.

Currently, Planet is still in the internal testing stage. The user can only be invited to sign for an account. The project is hatched by NetEase, and there are no financing needs at this stage.

—Translation by Carol Peng and Emma Lee

Images courtesy of NetEase

NetEase has filed an RMB 10 million lawsuit against Alibaba’s Tmall for unfair competition, local media has reported (in Chinese). In the filing, the Chinese tech conglomerate accused Tmall of using Netease’s product search engine’s brand and product names as keywords to intentionally confuse and misguide users on 360 Search (360搜索).

Huihui (惠惠网), NetEase’s product search engine, offers advertising solutions for B2C and C2C partners. Huihui Shopping Assistant (惠惠购物助手) is a price comparison software that automatically compares prices when users browse e-commerce sites. As of November 2016, Huihui Shopping Assistant garnered over 100 million users.

NetEase said they discovered last year when entering search terms like “Huihui,” “Huihui Assistant,” or “Huihui shopping assistant,” the search results that popped up were all Tmall related results and none were about Huihui’s products. All results were linked to Tmall’s web pages.

The company said the confusion is caused by the keywords that Tmall allegedly used in its product descriptions, which included Huihui’s registered brand name and product name without permission. The company believes that Tmall intentionally confuses users by using the misleading keywords and that Tmall is taking advantage of Huihui’s good name and product awareness to gain more exposure and site traffic through malpractices, which NetEase claims that it has negatively affected Huihui’s business particularly in obtaining advertisement deals—a main source of revenue.

China’s copyright re-licensing circle is now complete. NetEase Music and Ali Music Group announced today that they have signed an agreement to swap music copyrights in a bid to enlarge the music pool of both platforms.

NetEase Music has access to catalogs of leading music producers like EE-Media, Avex Group, Forward Music and HIM International Music Inc., who hold the copyrights from a series of hit singers in Taiwan, Japan, and the Chinese mainland.

Read more: Music streaming apps upping the ante in a crowded market

On the other hand, Ali Music Group is reciprocating with a copyright swap for the catalogs of Taiwan’s Rock Records, Korean’s S.M. and BMG. These music production firms have a rich list of highly-coveted titles from Chinese and Korean top musicians such as Jonathan Lee, Wakin Chau, Fish Leong, Super Junior, Girl’s Generation, EXO, etc.

In order to regulate the music market, China issued a ban on unlicensed music streaming in 2015, which thereafter sparked heated competition for exclusive music copyrights. For instance, NetEase’s deal with Taiwan’s leading music production company HIM International Music Inc. for less than 2,000 songs cost them a whopping RMB 150 million ($23 million), local media reported.

The country’s copyright authorities play as important a role in settling the money-burning battle as in starting it. Since last year, China’s copyright office called for major music streaming players to discuss issues confronting the industry.

Through governmental mediation, Tencent Music and Entertainment Group (TME), which owns over 75% share in the country’s music streaming market, collaborated with Ali Music Group last year. TME then reached cross-licensing agreement with NetEase Music in this February after their copyright disputes. In addition to collaboration with local firms, Tencent is also actively seeking partnerships with foreign counterparts like Spotify in preparation for its estimated $10 billion initial public offering.

Read more: How Tencent’s empire is making music pay

China’s music streaming market is becoming a field for big players. Upon completion of the current deal, a copyright alliance among China’s top music streaming players has been formed. The formation of this alliance may ease the competition to some extent, but it leaves little space for smaller players. Smaller digital music streaming app Duomi has terminated its music streaming service this week.

Authorities in several provinces in China, including Beijing, Hunan, Zhejiang, and Hebei, are reportedly reinforcing inspection over online games (in Chinese) which distort history and spread explicit content, as reported by state media Xinhua.

The reinforcement came after the state’s plan jointly released last month by China’s publicity department, cyberspace management department and other relevant ministries to combat explicit and inappropriate online games. The statement also pointed out that many games lack cultural connotation as the market scale continues to grow.

The inspection this time focuses more on reviewing and removing games that “distort history, defame heroic figures, or spread deviant values.” Also, the move underscores a broader state’s plan to regulate content. WeChat, for instance, recently announced that its media platform will regulate user’s information dissemination behavior and those trying to conduct marketing activities by distorting China and CCP history.

Many popular online games are rumored to be included on the authorities’ list (in Chinese) for further inspection, including games like NetEase’s Onmyoji (“阴阳师” in Chinese), female-targeted romance game Miracle Nikki (“奇迹暖暖” in Chinese), and Tencent’s Contra Comeback (our translation, “魂斗罗：归来” in Chinese). These games are said to spread violent, exotic, and gambling content.

The state’s move might also get in the way of Tencent’s smash-hit game Honour of Kings. The game reportedly has over 100 million daily active users, and was criticized by state media last year for “spreading negative energy.” The game, also known as Kings of Glory and Strike of Kings, has already debuted in Europe and is available in the US under the name Arena of Valor.

China’s leading internet portal and gaming company NetEase saw its shares drop by 3.23% on NASDAQ (in Chinese) on Thursday US time after Xinhua reported that the government plans to clean up “illegal” and “inappropriate” online games.

China’s publicity department, cyberspace management department and other relevant ministries jointly released a statement (in Chinese) on Thursday outlining the government’s plan to regulate explicit and inappropriate online games. The statement specified that it is targeting games with large numbers of players which have significant social influence. The statement also said that the government will strictly ban games that contain illegal content from going abroad.

NetEase and Tencent are the companies that are most likely to be affected by the newly released guidelines. During the first three quarters of 2017, Tencent’s online gaming arm pocketed RMB 73.52 billion (roughly $11.28 billion) in revenue while revenues for the entire year are expected to exceed RMB 100 billion ($15.34 billion). For the first half of 2017, NetEase’s net profit reached RMB 6.89 billion ($1.05 billion). Tencent and NetEase are undoubtedly the two major players in China’s online gaming market, holding up 49% and 18% of the market share respectively, according to a report from GPC.

The state’s move may also get in the way of Tencent’s smash-hit game Honour of Kings. The game reportedly has over 100 million daily active users, and was criticized by state media earlier this year for “spreading negative energy.” The game, also known as Kings of Glory and Strike of Kings, has already debuted in Europe and is now available in the US under the name Arena of Valor.

The market for air purifiers in China is predicted to pass the RMB 100 billion mark ($15 billion) this year, with existing electronics brands moving into the sector as well as suppliers of the technologies involved expected to benefit as the market heads towards RMB 300 billion by 2020. A German company is part of a group that has just made the biggest ever single investment in a Chinese air purifying company.

Air pollution has increasingly caught the attention of the public and politicians alike. Beijing is one of the country’s most polluted cities and recent figures that showed that the air has not improved this year compared to last have added further pressure on the government. Various new policies have been introduced to counter the chronic issue this winter. More environmental monitoring staff are being sent out to inspect factories, construction work could be suspended and the use of coal has been further restricted.

According to the release to media of some of the figures from Qianzhan Chanye Research Institute’s “China Air Purifier Market Demand Forecast and Investment Analysis Report”—released as Beijing and surrounding area was under the pall of an orange warning for air pollution—sales of air purifiers have reached 5,740,000 units, up 19.3% on the previous year. Domestic producers are predicted to maintain growth of shipments of 30-35% in coming years.

For safety concerns, foreign brands had been preferred with even big names such as Xiaomi previously heavily criticized by Chinese media for quality issues. Domestic brands are beginning to catch up, however, with some trusted air quality apps such as those by Netease now crossing over into production.

352Huanbao Keji (352Enviroment Technology. “352” is a reference to doing something efficiently), an air filter developer and producer established in 2014, has today received over RMB 200 million in first round funding including Bertelsman Asian Investments (BAI) the Asian investment arm of German media investment group. Other investors in the round include Matrix Partners China and Huatai Xin Chanye (Ever VC).

On October 19th, the twenty-year-old Chinese tech giant NetEase announced that its second pork farm had just been launched in an idyllic county in the southeastern province of Jiangxi, spanning a 2.2 million-square-meter farm encircled with pine trees, just by a large reservoir.

Yes, Chinese tech tycoons aren’t always just about finding the next most disruptive thing in tech. Richard Liu, founder and CEO of JD.com started a free-range chicken project by subsidizing local farmers. Ding Lei, the 46-year-old shy, low-profile founder and CEO of NetEase has been raising organic, non-GMO black pigs for the last eight years under the company’s agricultural affiliate Weiyang.

When the pork was ready to go mass-market last winter, Ding served it to a group of friends who were some of China’s most prominent tech bosses: Sohu founder Zhang Chaoyang, Xiaomi CEO Lei Jun, Meituan Dianping CEO Wang Xing, Qihoo 360 CEO Zhou Hongyi, Baidu President Zhang Yaqin, to name a few. The meal was served during the annual World Internet Conference, a summit held by Chinese government agencies in the historic water town of Wuzhen in eastern China for high-profile figures to muse on internet trends and policies. Ding Lei in particular was psyched at the dinner, local media reported, not only because of NetEase’s impressive growth that year, but because he was one step closer to his vision: bringing better, safer food to Chinese people.

After episodes of food safety scares—from glow-in-the-dark pork to gutter oil—China’s more affluent class is increasingly turning to organic foods. Hormone- and chemical-free aside, NetEase’s black hogs grow up on vast, uncontaminated farmland and are, according to the company, nurtured with organic feed, customized music, and smart toys. They live for a longer cycle of 300 days before being shuffled to the slaughter house, compared to 150 days for regular pigs on the market. The farms are equipped with sensors to track the pigs’s health status to make sure the best meat is reared.

NetEase Weiyang is chasing after China’s insatiable appetite for pork. Since the Chinese economy started to grow rapidly in the late 1970s, pork demand expanded by an average 5.7% every year until 2014. China is now the world’s biggest pork market, and for the older generations who have suffered from years of starvation and poverty, pork is still considered a luxury today. Though there is a rising awareness to cut back on meat amongst the younger, better-educated generation, pork remains the most consumed meat in the Chinese diet.

It thus came as no surprise that NetEase’s first black pig on the market was auctioned off for nearly 110,000 RMB ($16,531) last December. The pork is currently sold in bundles of mixed parts on NetEase’s newly-minted proprietary e-commerce brand Yanxuan with similar price tags to other black pork brands: 159 RMB ($24) for 1.05kg, 198 RMB ($30) for 1.4kg, or 239 RMB ($36) for 1.75kg.

In April, NetEase Weiyang completed a 160 million RMB Series A round led by Meituan Dianping and Sinovation Ventures. JD.com also participated with a strategic investment. The money would be used for “promoting and copying” the farming model that it had trialed for years from its first farm, the company said (in Chinese). Ding’s well-intended pork project has, however, been called into question. Skeptics comment that Weiyang’s black pork, which took seven years to go mass-market (in a limited supply), is merely a publicity stunt by Ding.

“Yes, I am performing a stunt,” Ding said in a rebut to local media. “The important question is what the stunt is for. My intention is to explore new farming models by raising pork and at the same time, make a contribution to solving food safety problems. I am putting on a stunt to raise people’s awareness. So what’s wrong with it?”

This pursuit of quality craftsmanship has already been reflected in NetEase’s e-commerce business and gaming. Yanxuan, which launched in 2015, has seen surging gross merchandise value (GMV) by selling durable products of spartan aesthetics targeted at the rising middle class, similar to those of Muji’s. Like Tencent, NetEase derives most of its revenues from online video games. Its recent hit Onmyoji is widely praised for its beautiful graphics. There’s a saying in China’s tech industry: If it comes from NetEase, it comes with quality (网易出品，必属精品). NetEase’s pork game is seeking to live up to that praise.

Online retailer JD has done it again. This time it has gone into partnership with NetEase, another internet giant, to place its advertising in the last few remaining slots on the Chinese internet. This may be a slight over exaggeration, but it follows just a month after the announcement of a similar partnership with internet security firm Qihoo 360, which came a fortnight after the deal with Baidu which in turn followed deals with Tencent and Toutiao. But again, this is a two-way thing and JD will also be getting NetEase’s data to allow for precision targeting of users.

NetEase goes all the way back to 1997 and in some ways is a little like Yahoo. It’s one of the big internet portals and runs a popular email service as well the music streaming service NetEase Cloud Music. It is also one of China’s big online and mobile games developers with hits such as Fantasy Westward Journey and reaches a wide variety of different types of user. The spread of its services means JD will be able to track users across multiple touchpoints across the internet and mobile.

The press release states:

Using big data insights from both partners, JD.com and NetEase will offer tailored advertisement and shopping guidance content across the NetEase ecosystem. This is expected to increase the conversion rate for JD.com’s brands and merchants. Brands on JD.com will also benefit from access to new marketing channels via NetEase’s extensive product portfolio.

Along with the sale of their data, NetEase users can also look forward to the integration of JD’s live webcast channel into the NetEase News app’s live-streaming section “to provide rich, video-based shopping guidance to NetEase users,” whether or not they were actually hoping to catch up on the news.

Editor’s note: This originally appeared on China Tech Insights, an English research unit affiliated to Tencent’s Online Media Group.

Founded in 1997, the tech conglomerate NetEase is most well-known as China’s second largest gaming publisher after Tencent. Apart from PC and mobile games, it operates an array of other businesses, including e-mail services, a news portal, several mobile apps, a music streaming service, several e-commerce platforms and an online dictionary Youdao, just to name a few. Financial Times 2016 report described four Chinese tech giants BANT (Baidu, Alibaba, NetEase, and Tencent) as the answers to FANG (Facebook, Amazon, Netflix, and Google).

The new and popular online marketplace Yanxuan showcases styles such as normcore and simplicity, with natural hues and basic daily accessories to be purchased. Yanxuan was launched by one of China’s long-standing internet companies, NetEase, and its products look much like the widely-known Japanese brand MUJI at first sight. What they share in common are the similarities in their products’ aesthetic and style, with the ultimate goal of initiating a lifestyle and conducting some standards of values through their products. However, Yanxuan built its success through a totally different road from MUJI, or even Taobao and JD.com, while steadily becoming an outstanding representative of the industry. Yanxuan was once under the background of the stagnant growth rate of the overall e-commerce industry in China, it has seen rapidly soaring GMV (Gross Merchandise Value) quarter by quarter since its beta version was launched in 2015. China Tech Insights did a case study of Yanxuan and looked into the new trend of China’s e-commerce sector behind the success of the product.

An introduction of Yanxuan and the reason it caught our sight

Yanxuan is the latest trending e-commerce site launched by NetEase in April 2016, with a beta-tested version incubated in November 2015. It is more of a self-run e-commerce brand itself, resembling Amazon’s house brand Amazon Basics, rather than a platform for merchants and brands to base on.

With a slogan of “a better life doesn’t have to be costly”, it is dedicated to help build a more affordable yet quality life to young city dwellers by providing selected basic daily life products, ranging from home products, home textiles, kitchen ware and household appliances to daily life consumption products such as body& hair care, basic items of apparels, among others. Now products sold on Yanxuan are limited to nine main categories and the SKUs (Stocking Keeping Unit) are controlled around 7,000 items, according to Chinese media reports.

It boasts an ODM (Original Design Manufacturer) model, through which it partners with big manufacturers in China to design and manufacture products, which are then eventually sold directly from its own e-commerce platform to customers. The same big manufacturers in China contracted by Yanxuan are also the original producers for global brands. Yanxuan claims that in this way, it can provide quality goods with lower cost by eliminating the brand premium and cutting the cost of layers of distributors and retailers, and so forth. For instance, a pair of slippers are sold at RMB 29 on Yanxuan(which is claimed to be manufactured by the same manufacturer used by MUJI); a similar pair on MUJI’s official Tmall store are sold at RMB 89, and a similar pair of slippers sold by a random Taobao shop has a price tag of RMB 39.

Yanxuan has been quickly gaining traction after its launch, becoming a sudden hit among many Chinese consumers. First, let’s have a direct look at the search index chart (Fig 1) of “Yanxuan” from Baidu’s Index (the equivalent of Google Analytics). The first high point of searches came in November when the yearly online shopping Carnival Double 11 was launched. The curve steadily increased all the up into 2017.

Secondly, let’s take a look at its GMV statistics (Fig. 2). Even though the charts are providing essential information, they are not the only metric to measure the performance of an e-commerce company. Yanxuan disclosed that, as of 2016 Q3, its monthly average GMV reached RMB 60 million. According to an August report by news site Qdaily, Yanxuan ranked around 10 domestically in terms of GMV, however, its growth rate tripled that of the e-commerce industry on the background that the growth rate of the industry (in terms of transaction volume) has steadied at around 20% in three consecutive years. In 2017 Q2, NetEase saw RMB 3.35 billion revenue from its e-mail, e-commerce and other businesses, a 68.9% year-over-year growth, contributed largely by its new e-commerce site Yanxuan.

In terms of user base, according to NetEase’s 2016 Q3 financial results (Fig.3), Yanxuan gained 30 million registered users as of the end of September, which was just within half a year after its launch.

How will Yanxuan’s business model serve and provide premium goods at low cost?

As mentioned above, Yanxuan adopts the ODM model to achieve what it was meant for. That is to sell premium products at a lower price. In essence, what works best is Yanxuan’s full involvement in optimizing every link of the value chain, which includes such steps as research and design, the purchase and manufacturing of raw materials, storage and logistics, distributing, marketing, online sales, and after-sale services.

Exactly how involved is Yanxuan in the whole process?

First of all, Yanxuan was able to take advantage of the temporary decline when many China’s manufacturers were experiencing a harsh time seeking for a transformation to boost profits. They have been caught in the situation of gliding profits under the background that China is experiencing a slowdown in economic growth, as a result of underpricing from global branding businesses. These global branding businesses shifted their manufacturing center from southeastern coastal China to SE Asian countries. Yanxuan approached those manufacturers with cooperation terms of a higher gross margin than what they are earning.

Secondly, the partnering manufacturers of Yanxuan are ODMs. ODMs are those who design and sell products to branding businesses, and manufacture the products as specified, while in the end, the products will be rebranded by those branding businesses for sale.

Yanxuan would usually decide what items to launch before choosing which manufacturers to cooperate with. It has its own team of buyers to decide, select and purchase the most popularly daily used items within the various categories. This is then followed by a business development team which approaches manufacturers for cooperation. There are certain standards of criteria for choosing manufacturers, including its ranking in the industry, its scale, its experience in partnerships with international branding businesses, and much more. According to a 2016 report by DT Finance, approximately 43.6% of the manufacturers who have partnered with Yanxuan are experienced in manufacturing for global big names.

Samples, designed by manufacturers, will go through a process of tests and modifications by Yanxuan’s team before mass production orders can be placed. Suggestions of modification will be made in designs, usage of raw materials, functionality, customization, and so on. Products generally become finally ready for sale after being first assembled together, packaged and placed in the warehouse for storage (coupled with rounds of quality examination).

Yanxuan can control the quality of goods by being a part of the process or processes between the product design and manufacture stages. They also make the head decisions in order to cut cost by making optimizations in the latter stages, which include distributing, marketing and online sales. This technique resembles Xiaomi innovative smartphone retailing strategy, which was done by directing sales through self-owned online platforms. By doing this, Yanxuan limits the brand premium as well as the cost of layers of intermediary distributors. In terms of marketing, Yanxuan already has a head start due to its association with NetEase’s email service and its online content platforms.

Yanxuan’s is attaching more and more value to its own designing capability, whether that may be product design or visual design (including product packaging, website UI, etc.). According to Chinese reports, in May there were more than 100 employees of its own designing team, and several hundred contracted designers from all over the world. One of its next strategic focus is increasing the proportion of original product designs.

The reasons behind the ever-growing importance of the designing capabilities under the ODM model includes the following. First, it includes an effective way to get rid of the blame of copycatting from global brands and to build up its own brand recognition among consumers with differentiation in product design. Secondly, it includes the rising aesthetic needs from Chinese customers. It is widely known that China is experiencing a trend of consumption upgrading. Yanxuan targets young city dwellers, who pursue a high-quality life while still being price sensitive. Yanxuan provides satisfying goods in terms of quality, good taste, and affordable price. According to data tracking service Jiguang, 70% of Yanxuan users come from first-tier and second-tier cities, with Beijing, Shanghai, Hangzhou, Guangzhou and Shenzhen topping the list. In terms of age, those between the ages of 20–29 accounts for 33%, and 54% for the 30–39 age group. Individuals with a bachelor’s degree and above take up as high as 96.77%.

Apart from Yanxuan, e-commerce giant Alibaba and phone maker Xiaomi also followed the trend to launch their own self-operating platforms earlier this year. In regards to some of their products sold, it was clear that they mimicked the steps taken by Yanxuan, in dedicating themselves to providing a better quality life for all Chinese consumers. However, in the road of being an initiator, challenges go side by side with chances. First of all, such a heavy operating model means risks in the supply chain management and a high demand for cash flow. The second problem is how to effectively increase SKUs (stock keeping units) and expand in scale since the CEO of NetEase aims to increase its GMV to 20 billion RMB in 2018. Long-term challenges also include building a more recognizable brand and its own R&D (Research and development) capacity to increase bargaining power against manufacturers.

Tencent’s online gaming platform—and a likely competitor to Steam—WeGame will be fully online on September 1st, according to the company’s official website.

In addition to the date announcement, WeGame said that the platform has been receiving a makeover since July and that it will provide more games, content, and services, creating an open ecosystem for gaming.

Tencent upgraded gaming platform TGP (Tencent Games Platform) into WeGame in April 2017 when it announced that it aims to support players from all over the world. The company also said that it will no longer host web or mobile games but instead only focus on PC and standalone games. The new platform will put Tencent in direct competition with the biggest digital store for PC games, Steam, owned by Valve Corporation.

Tencent is currently the biggest gaming company in the world by game revenue. Its recent mega hit “Strike of Kings” (AKA “Honour of Kings” or “Arena of Valor”) has become the world’s most profitable game.

The company owns League of Legends developer Riot Games and has stakes in Activision Blizzard, Supercell, and Epic Games. Its newest figures for H1 of 2017 showed record revenue growth of 57 percent to RMB 106.16 billion ($15.67 billion) while profits hit RMB 32.8 billion.

Tencent’s main competitor in China’s gaming market, NetEase, has also been making waves recently, announcing its expansion to foreign markets.

Although China’s domestic mobile games market is set to slow down during this year, NetEase’s (网易) overseas strategy is on its way up boosted by great revenue results in the second quarter of 2017, Caixin reports (in Chinese)

NetEase’s latest earnings report show that the company had a net income of RMB 13.37 billion, an increase of 49.4% compared to the previous year. Online gaming services earned RMB 9.43 billion, compared to last year’s RMB 6.43 billion and RMB 10.73 billion in the previous quarter.

According to the report, mobile games accounted for 72.4% of its net income which signals that NetEase is relying more and more on this product. NetEase’s good results in this quarter can mostly be attributed to the success of mobile game Yin Yang Shi, also known as Onmyoji. The game scored great results in South Korea, Japan, Taiwan, Hong Kong, and New Zealand.

However, NetEase will need more than that to beat its biggest competitor Tencent which earned RMB 22.8 billion from online games in the first quarter of 2017. The company has recently announced its new merger and acquisition plan aiming to spread NetEase’s influence abroad. This represents a change of tactics for the company—NetEase CEO and founder William Ding was known to have a conservative approach to expansion, placing China’s domestic market as his main target.

According to a recent report from Bloomberg, NetEase plans to start global recruitment and is also exploring acquisitions or investments in foreign game studios. The company is hoping that by 2020 overseas transactions will make up 30% of its total revenue.

NetEase has set up R&D departments in Korea and the US and is planning to give priority to markets in North and Southeast Asia which are more suited to NetEase’s products. The company is also exploring possibilities in other markets and has already developed some products which are more suitable for the European and North American markets. In addition, NetEase has been actively looking for good global game products that can be introduced into China.

The foreign expansion can be viewed as a reaction to downward trends within China’s mobile game market. According to a report from NewZoo, China’s mobile game market will grow in 2017 but will slow down in 2018. The domestic market is now entering a more stable phase and overseas growth may be a way for NetEase to maintain high growth in the game business.

Chinese customers shelled out more than JPY 1 trillion on Japanese merchandise during 2016 via cross-border e-commerce platforms, and Tokyo-based marketing research company Fuji Keizai estimates that the number is projected to more than double in 2019 to JPY 2.1 trillion.

One of the fortunate beneficiaries of this phenomenon is Japan’s largest online shopping mall Rakuten Ichiba. Their B2B2C e-commerce platform global and internet services company Rakuten—which also operates the popular cross-border site known as Rakuten Global Market—saw sales triple in 2017 compared to the same period in 2016.

The transaction amount in Rakuten Ichiba’s flagship stores hosted by JD.com and Netease Kaola has grown by nearly 20-30 times compared to 2016. Rakuten Ichiba has been the primary platform for cross-border sales and accounted for more than half of all international sales transacted through these various e-commerce platforms.

“Our flagship stores hosted by our e-commerce partners in China do not directly compete with each other. There are so many exciting opportunities available to further grow Rakuten Ichiba’s cross-border trade and we’re working very hard for our Japanese merchant partners offering high-quality Japanese products to international shoppers, to make this happen,” Mitch Takahashi, the Senior Manager of Cross Border Trading Section, EC Company at Rakuten told TechNode.

Chinese e-commerce players also picked up on the growing customer demand for cross-border purchase. JD.com launched its cross-border e-commerce platform JD Worldwide (京东全球购), and Chinese gaming company NetEase started Kaola (网易考拉), their cross-border platform, in early 2015. Rakuten Ichiba was quick to open its official flagship store on JD Worldwide during the same year, followed by its official flagship store on Netease Kaola in 2016.

Netease Kaola is not on the list of top 10 e-commerce apps in China, but Kaola it is now offering extensive brands from Australia and Japan on its platform. Kaola’s transaction volume from Japan is ranked first, followed by the US, Germany, South Korea, and Australia.

“We have a strong customer demographic synergy with both Netease Kaola and JD,” Mitch told TechNode. “Although our most active shopping customers are among tech and social media savvy younger females, we also have tremendous success with targeted products and promotion campaigns for the adult males and their specific spending habits.”

Cross-border purchase is ubiquitous

“Now cross-border is becoming so normal. In 2014, only a few Chinese consumers were willing to make a cross-border purchase. JD Worldwide didn’t exist and Rakuten Global Market was the only place to enjoy cross-border shopping from Japan at that time,” Mitch said.

While Rakuten Ichiba carries a very wide selection of Japanese products, the official flagship stores on JD and Netease Kaola only sell some of these products. Mitch also mentioned Chinese shoppers are quick to follow the changing fashion trends of Japan.

“Chinese shoppers are very smart. These days, they know which products and fashions from Japan are popular and trendy, and are very eager to follow these trends,” Mitch remarked. “Change is happening so much faster in e-commerce. More people are now comfortable shopping online, not only in China but also around the world. They are enthusiastic and open to buy trendy new Japanese products from safe and secure online e-commerce platforms, such as JD, Kaola, and Rakuten Global Market.”

Learning from Rakuten’s expansion in China

Rather than entering the Chinese market full bore, Rakuten Ichiba wanted to take a gradual approach. They initiated its cross-border business e-commerce platform in 2008 in four languages including simplified Chinese.

Second, they allowed Chinese third-party payment options. In 2014, the Japanese company established a partnership with Alipay that also includes a special collaboration enabling Alipay customers to qualify for special discounts on their purchases.

Third, with a mission to deliver the best of Japanese products to Chinese online shoppers, Rakuten Ichiba opened an office in Shanghai in 2015 to support Rakuten’s flagship stores on a partner e-commerce platform. Rakuten Ichiba’s operation is still Tokyo-based, said Mitch. Customer service calls from China are handled partly in China, and partly in Japan.

Channel, product, and brand

Rakuten Global Market is now shipping its products to about 200 countries, with its highest sale coming from China, Hong Kong, US, Taiwan, and South Korea. Mitch says that there were three important things for Rakuten that helped China’s expansion: channel, product, and brand.

“Channel is where customers get to see the product. You don’t want to compete with strong local players who know the market and understand the consumer,” Mitch said. “Collaboration with JD.com and Kaola is doing extremely well. We’ll now expand our partnership to local media and content companies to increase the visibility of our channels.”

Second, the product is a differentiator for this Japanese player. Rakuten Ichiba in Japan is very selective to the brands that want to join their e-commerce site. They check the brand’s product quality, and only those passing the stringent merchant standards can open their online stores on Rakuten Ichiba. They not only have global brands but also original brands with better price and higher quality. Over 44,000 merchants in Rakuten Ichiba Japan have received a certificate from Rakuten.

“It’s somewhere between Taobao’s marketplace model and JD’s direct sales model,” Mitch noted. “The biggest difference from Taobao is that these online stores on Rakuten are not just owned by individuals, some are big enterprises with offline retail stores, and for online purchase, they work with Rakuten.“

Both for Japan and cross-border business operations, each brand has access to a warehouse that offers shipping and delivery logistics to consumers in China. Rakuten Ichiba operates a dedicated merchant product and sales management tool called Rakuten Merchant Server (RMS) that helps merchants with product inventory, warehousing, shipping, customer support, and product promotion management.

Many online stores at Rakuten Ichiba offer same-day delivery in major metropolises and next-day delivery to outside of Japan’s major cities. As for cross-border customers, Rakuten Global Express delivers the products to Beijing and Shanghai within three days.

Chinese internet portal and gaming company NetEase has reached a collaboration agreement with Disney and China International Comics and Games Expo (CCG EXPO) allowing them to publish 12 Marvel comics on NetEase’s digital comic platform, according to a report by ifanr (in Chinese).

Comics introduced on the platform include Guardians of the Galaxy, Amazing Spider-Man, The Avengers, Dr. Strange, Captain America: Steve Rogers, Civil War, Iron Man, and more. Right now, the most popular title is Civil War.

The two sides have also announced that they are developing a top-secret superhero from China. The aim is to create a modern Chinese superhero based on Marvel’s elements with inspiration from modern China. So far Marvel has only featured Chinese characters as supporting characters or as villains, such as the Mandarin from Iron Man.

The comics are just the first step. NetEasy and Disney plan to collaborate on developing games, films, novels, and other products.

Marvel, much like Disney, has been popular among Chinese fans for a while. So far, movies from Marvel’s series have grossed more than RMB 8 billion in China. Sales volume of related consumer goods, both in print and digital domains, have been rising by more than 55% for three years in a row.

Major listed Chinese tech firms have released their latest quarterly results, and most of them delivered strong performances. Here’s a roundup of some of the top performers, including BAT, JD, Weibo, and Momo.

Chinese tech companies listed in Hong Kong

Tencent (腾讯)

Market cap: US$329.84 billion

Tencent Holdings Limited (00700.hk) is China’s largest tech company by market cap as of August 22, and the 16th largest tech company in the world, according to Forbes.

Tencent reported May 17 better-than expected results for the first quarter of this year ended on March 31, 2017. The company’s revenue structure is composed of value-added services (revenue generated from online games and social networks), online advertising (revenue mainly comes from WeChat Moments, WeChat official accounts and the company’s mobile media advertising) and others (this revenue mainly includes payment-related services and cloud services).

Financial Highlights:

• The tech giant reports a 58% profit surge in Q1 driven by its popular messaging app WeChat and gaming business.
• The company’s revenue surged 55% year-on-year (YOY) to RMB 49.55 billion (around US$ 7.18 billion).
• The profit for the period was RMB 14.54 billion (US$ 2.10 billion), a 57 % increase YoY.
• Profit attributable to equity holders for the period was RMB14,476 million (USD2,098 million), an increase of 58% YoY.
• Basic earnings per share were RMB1.540. Diluted earnings per share were RMB1.522.

China Mobile (中国移动)

Market cap: US$228.45 billion

China Mobile Limited (00941.HK), the world’s biggest telecom carrier by subscribers, released April 20 its unaudited financial data for the first quarter of 2017. As of March 31, the total number of mobile customers was around 856 million.

Financial Highlights:

• Operating revenue was RMB184.0 billion (US$27 billion), up by 3.7% over the same period last year; of which, revenue from telecommunications services was RMB160.9 billion, up by 6.1% over the same period last year.
• Profit attributable to equity shareholders was RMB24.8 billion (US$3.6 billion), up by 3.7% over the same period last year.
• EBITDA was RMB67.1 billion, up by 3.0% over the same period last year.

Chinese tech companies listed in the U.S.

Alibaba (阿里巴巴)

Market cap: US$302.76 billion

Alibaba Group Holding Limited (NYSE: BABA) announced on March 18 its financial results for the quarter ended March 31, 2017. The company is the world’s largest retail platform (as of April 2016), and it is more than an e-commerce giant with businesses composed of core commerce, cloud computing, digital media and entertainment, innovation initiatives and others.

Financial Highlights:

• Revenue was RMB38,579 million (US$5,605 million) during the quarter, an increase of 60% year-over-year.
• Net income was RMB9,852 million (US$1,431 million), an increase of 85% year-over-year.
• Diluted EPS was RMB4.12 (US$0.60) and non-GAAP diluted EPS was RMB4.35 (US$0.63)
• Non-GAAP net income was RMB 10,440 million (US$1,517 million), an increase of 38% year-over-year.
• Mobile MAUs on its China retail marketplaces reached 507 million in March.

Baidu (百度)

Market cap: US$64.45 billion

Baidu, Inc. (NASDAQ: BIDU), the leading Chinese language Internet search provider, announced April 28 its unaudited financial results for the first quarter ended March 31, 2017. The search giant reported the second consecutive decline in quarterly net profit, after being hit hard by a advertising scandal last year. The biggest chunk of revenue still comes from online marketing, which made up 87.25% of the company’s total revenue in Q1. The company is now betting big on artificial intelligence to spur its future development.

Financial Highlights:

• Total revenues in the first quarter of 2017 were RMB16.891 billion (US$2.454 billion), a 6.8% increase from the corresponding period in 2016.
• Operating profit in the first quarter of 2017 was RMB2.006 billion (US$291.4 million), a 9.3% decrease from the corresponding period in 2016.
• Net income attributable to Baidu in the first quarter of 2017 was RMB1.777 billion (US$258.1 million), a 10.6% decrease from the corresponding period in 2016.
• Diluted earnings attributable to Baidu per ADS for the first quarter of 2017 were RMB4.63 (US$0.67); Non-GAAP net income attributable to Baidu in the first quarter of 2017 was RMB2.390 billion (US$347.2 million), a 1.3% increase from the corresponding period in 2016;
• Non-GAAP diluted earnings per ADS for the first quarter of 2017 were RMB6.85 (US$1.00).

The reduction in net profit can be attributed to the company’s soaring costs on bandwidth, content, research and development and equity incentives. The increased costs are largely related to AI, an area that Baidu is betting big on and hoping will improve their future growth.

JD.com (京东)

Market cap: US$56.90 billion

JD.com, Inc. (NASDAQ:JD), China’s second largest online retailer, announced May 8 its unaudited financial results for the quarter ended March 31, 2017.

It booked its first quarterly profit as a public company, and the profit increase is due in large part to declining logistics costs and expanded product line-up.

Financial Highlights:

• Net revenues for the first quarter of 2017 were RMB76.2 billion (US$1 11.1 billion), an increase of 41.2% from the first quarter of 2016.
• Net income reached RMB 239 million (US$35 million) for the three-months period, turning a profit for the first time since it was listed in 2014.
• Net income per ADS for the first quarter of 2017 was RMB0.17 (US$0.02), compared to net loss per ADS of RMB0.66 for the first quarter of 2016.
• Non-GAAP net income per ADS for the first quarter of 2017 was RMB1.03 (US$0.15), as compared to non-GAAP net loss per ADS of RMB0.15 in the first quarter of 2016.
• GMV for the first quarter of 2017 increased by 42% to RMB184.1 billion (US$26.7 billion) from RMB129.3 billion in the first quarter of 2016.

NetEase (网易)

Market cap: US$36.88 billion

NetEase, Inc. (NASDAQ: NTES), China’s leading internet and online game services providers, announced May 10 its unaudited financial results for the first quarter ended March 31, 2017. It is worth noting that the company derived 79% of its total net revenues from its online game services.

Financial Highlights:

• Net revenues were RMB13.6 billion (US$2.0 billion), an increase of 72.3% compared with the first quarter of 2016. Online game services net revenues were RMB10.7 billion (US$1.6 billion), an increase of 78.5%compared with the first quarter of 2016.
• Gross profit was RMB7.5 billion (US$1.1 billion), an increase of 63.2% compared with the first quarter of 2016.
• Total operating expenses were RMB2.7 billion (US$394.0 million), an increase of 57.8% compared with the first quarter of 2016.
• Net income attributable to the Company’s shareholders was RMB3.9 billion (US$569.9 million), an increase of 59.4% compared with the first quarter of 2016. Non-GAAP net income attributable to the Company’s shareholders was RMB4.3 billion (US$630.0 million), an increase of 62.6% compared with the first quarter of 2016.[1]
• Diluted earnings per ADS were US$4.29; non-GAAP diluted earnings per ADS were US$4.75.

Ctrip (携程)

Market cap: US$ 27.97 billion

Ctrip.com International, Ltd. (Nasdaq: CTRP), a leading online leisure travel companies in China, announced May 10 its unaudited financial results for the first quarter ended March 31, 2017.

Ctrip.com International, Ltd. is the top performer among Chinese online leisure travel companies listed in the US, including Tuniu.com (NASDAQ：TOUR) and Qunar.com (NASDAQ:QUNR). It was established in 1999 and has become China’s largest travel company. The company mainly derives its revenue from its accommodation reservation, transportation ticketing, packaged-tours and corporate travel management.

Financial highlights:

First Quarter of 2017 Financial Results and Business Updates

• For the first quarter of 2017, Ctrip reported net revenues of RMB6.1 billion (US$884 million), representing a 46% increase from the same period in 2016. Net revenues for the first quarter of 2017 increased 20% from the previous quarter.
• Net income attributable to Ctrip’s shareholders for the first quarter of 2017 was RMB82 million (US$12 million), compared to net loss of RMB1.6 billion in the same period in 2016 and net income of RMB645 million in the previous quarter.
• Gross margin was 80% for the first quarter of 2017, compared to 73% in the same period in 2016, and 78% in the previous period.
• Diluted earnings per ADS were RMB0.15 (US$0.02) for the first quarter of 2017. Excluding share-based compensation charges, Non-GAAP diluted earnings per ADS were RMB1.09 (US$0.16) for the first quarter of 2017.

Weibo (微博)

Market cap: US$15.40 billion

Weibo Corporation (NASDAQ: WB), a Twitter-like social media platform, announced May 16 its unaudited financial results for the first quarter ended March 31, 2017. Weibo span off from online media company Sina in 2014, which still has a 49.8% stake in the company. Alibaba took a 31% stake in Weibo, remaining the second largest shareholder.

Financial Highlights:

• Net revenues totaled $199.2 million, an increase of 67% year-over-year, exceeding the Company’s guidance between $185 million and US$190 million.
• Advertising and marketing revenues were US$169.3 million, an increase of 71% year-over-year.
• Net income attributable to Weibo was US$46.9 million, an increase of 561% year-over-year.
• Non-GAAP net income attributable to Weibo was US$57.8 million, an increase of 254% year-over-year.
• Monthly active users in March 2017 reached 340 million, an increase of 30% year-over-year, 91% of which were mobile users.

ZTO (中通快递)

Market cap: US$10.3 billion

ZTO Express (Cayman) Inc. (NYSE: ZTO), a leading express delivery company in China, announced May 18 its unaudited financial results for the first quarter ended March 31, 20171. Its major Chinese rivals include S.F. Express, STO Express and Shanghai YTO Express, which have all managed to go public since 2016.

Financial Highlights

• Revenues were RMB2,614.6 million (US$379.9 million), an increase of 33.5% from the same period of 2016.
• Gross profit was RMB730.6 million (US$106.2 million), an increase of 21.5% from RMB601.4 million in the same period of 2016.
• Net income was RMB502.9 million (US$73.1 million), an increase of 48.4% from RMB338.8 million in the same period of 2016.
• EBITDA was RMB804.8 million (US$116.9 million), an increase of 54.7% from RMB520.2 million in the same period of 2016.
• Basic and diluted earnings per American depositary share (“ADS”4) were RMB0.70 (US$0.10), compared to RMB0.47 in the same period of 2016.

Momo (陌陌)

Market cap: US$7.03 billion

Momo Inc. (NASDAQ: MOMO), a leading location-based social networking platform, announced May 23 its unaudited financial results for the first quarter 2017. Thanks to its strong performance in live streaming business, the company continued its outstanding performance.

Financial Highlights:

• Net revenues increased 421% year over year to US$265.2 million.
• Net income attributable to Momo Inc. increased to US$81.2 million in the first quarter of 2017 from $7.1 million in the same period last year.
• Non-GAAP net income attributable to Momo Inc. increased 615% to US$90.7 million in first quarter of 2017 from US$12.7 million in the same period last year.
• Monthly Active Users (“MAU”) were 85.2 million in March 2017, compared to 72.3 million in March 2016.

Internet giant Tencent recently announced a framework agreement with east China’s Wuhu City to build an e-sports-themed industrial park in the city.

Under the deal, the parties will build an e-sports town that embraces an e-sports theme park, e-sports university, cultural and creative park, animation industrial park, creative block, tech entrepreneurial community and Tencent cloud data center.

In addition, the parties plan to hold e-sports tournaments with national influence in the town.

Although the parties have yet to reveal the specific construction time for the project, the announcement signals Tencent is continuing to double down on its gaming business. Tencent’s online game segment revenue rose 25% year on year to hit RMB 70.84 billion in 2016, representing 47% of the internet behemoth’s 2016 revenue. This makes Tencent the largest online game publisher in China, dwarfing its rival NetEase, which grossed RMB28 billion in gaming revenue last year (in Chinese). In addition, Tencent is said to plan an Honor of Kings (王者荣耀) theme park in Chengdu city, home to Tencent’s game studio group subsidiary Timi Studios Group, which is also the developer of the popular mobile gaming title.

The role-playing game has amassed 50 million daily active users since it was launched by Tencent in November 2015. The sought-after gaming title recently took in a whopping RMB 3 billion revenue every month for the firm, revealed some Tencent staff.

Tencent and Wuhu city are not alone in the e-sports town initiatives. Last month, southwest China’s Zhongxian country announced that it will inject RMB 4 billion into its e-sports industrial park spanning 3 square kilometers in the next three years.

For local governments, the creation of the e-sports park can drive the development of their cultural and tourism industry, and boost the local revenue.

According to market research firm IResearch, China’s e-sports users numbered 117 million in 2016, with the market size reaching RMB 40 billion. And the market is expected to further grow in the next few years. This lucrative market is set to attract more capital to enter the sector.

Months after the funding rumor, NetEase Cloud Music, the music and radio arm of Chinese internet portal NetEase, announced that it has completed an A round worth RMB 750 million (approx. US$ 108 million). The round puts the company’s valuation at RMB 8 billion, boosting the company to unicorn status four years after its launch in 2013.

Chinese media conglomerate Shanghai Media Group (SMG) led the strategic investment, joined by Mango Cultural and Creative Industry Private Equity Fund, a fund established by Mango Media under the flagship of Hunan Broadcasting System, and CICC Jiatai Fund, the investment unit of China International Finance Company Limited.

The capital raised in this round will be mainly used for enhancing the user experience of the NetEase Cloud Music products, increasing investment on content, developing a healthy patent system and establishing a solution for the upstream and downstream music to provide the users with abundant resources of high quality music, introduced Zhu Yiwen, CEO of NetEase Cloud Music.

In addition to the capital itself, the deal would also put the music streaming service in content partnership with SMG and Mango, two comprehensive culture groups with extensive resources in music talent shows, movies, variety show, music, and more.

Along with the funding news, the company announced that it has amassed 300 million registered users. Over the past four years, the service showed great growth potential. In July 2015, its users broke 100 million and one year later, the number broke 200 million.

NetEase Cloud Music is considered the cool kid in the music streaming market with its smart music recommendation and partnership with indie musicians. The service is also bravely forging into the short video sharing market in an attempt to make the app more social and gain more paying subscribers.

Zhu disclosed that the company’s revenue comes mainly from membership, digital albums, ads, and branded physical products (including toys, notebooks, and cups). The company’s also planning to release a smart hardware product.

As a latecomer in the field, NetEase Cloud Music is still catching up to incumbents like Kugou, QQ Music, and Kuwo Music who have support from either Alibaba or Tencent.

Both Alibaba and Tencent have invested heavily in the entertainment industry to create synergy effects across all sectors. For example, Alibaba has acquired UC browser and Youku Tudou, investing over RMB 2 billion in the strategic transformation of Tudou.

Even with the new funding, it’s hard for NetEase Cloud Music to construct a big entertainment ecosystem to compete with these internet giants. But it’s also a good option to adopt a differentiation strategy by dig deeper in a smaller niche market and avoiding the music copyright barriers.

China’s gaming sector continued its boom in 2016, thanks to increasing internet penetration and its vast population. More than three-fourths of China-listed gaming firms reported gains for 2016, local media is reporting (in Chinese).

Among a total of 61 China-listed gaming firms, 52 have published their 2016 annual results as of April 9, with 47 of them making profits, according to data compiled by financial data provider East Money Information. In addition, 30 firms, or roughly 58% of the firms that issued results, have each grossed in more than RMB 100 million in net profit.

Perfect World (完美世界 in Chinese) and 37wan Network (三七互娱 in Chinese) were the top two performers, reaping RMB 1.17 billion and RMB 1.07 billion in net profit in 2016.

Despite their stunning performance, they are eclipsed by Hong Kong-listed internet giant Tencent and US-listed NetEase, which are the real heavyweights in the country’s gaming sector.

Due to its powerful distribution channels and vast user base, Tencent’s online game segment revenue rose 25% to hit RMB 70.84 billion, representing 47% of the internet behemoth’s 2016 revenue, according to the firm’s 2016 annual report. This makes Tencent the largest online game publisher in China.

Tencent is the operator behind the country’s top three highest-grossing PC client game titles, namely League of Legends (英雄联盟 in Chinese), Dungeon Fighter (地下城与勇士 in Chinese) and CrossFire (穿越火线 in Chinese).

While in the mobile gaming arena, Tencent’s mobile MOBA Honor of Kings (王者荣耀 in Chinese) has amassed 50 million daily active users since its launch in November 2015. The sought-after gaming title recently took in a whooping RMB 3 billion revenue every month for the firm, revealed some Tencent staff. (in Chinese).

As for its rival NetEase, it’s net revenue from online games reached roughly RMB 28 billion in 2016, up 61.6% from the previous year, according to its unaudited 2016 results (in Chinese).

Its popular gaming title Onmyoji (阴阳师 in Chinese), which made to the top ten outstanding games last year in China’s iOS app store, was rumored to bring in RMB 1 billion revenue every month (in Chinese).

Following a series of leaked rumors, Chinese tech giant Tencent officially announced the purchase of a majority stake in Supercell, the Finnish gaming company behind the hit game Clash of Clans. The deal will buy a 84.3% stake in the company for $8.6 billion USD from Japanese firm SoftBank Group Corp.

The deal values Supercell at $10.2 billion USD, almost double its valuation a year ago. When SoftBank bought a 51% stake in 2013, the Finnish company was valued at a mere $1.53 billion USD.

“We have agreed with Tencent that Supercell will continue to be operationally independent, exactly as it was under SoftBank’s ownership,” wrote Ilkka Paananen, CEO of Supercell, in a post on the company’s blog.

“Our headquarters will stay in Helsinki and we will pay our taxes in Finland. All of this is very important for us,” Paananen added.

Tencent’s partnership will offer Supercell access to Tencent’s gaming platforms, such as QQ Games, as well as access to some of Tencent’s other game-related purchases, most notably Riot Games. In turn, the tech giant will grow its mobile gaming business. Gaming is a core part of Tencent’s revenue, making up more than half of the company’s overall revenue in Q1 2016. Tencent’s gaming business model is based off of various value-added services, including the purchase of digital weapons, as well as VIP memberships.

In China’s heavily monopolized mobile gaming industry, Tencent is one of the top players, in addition to iDreamSky and NetEase. As of April 2016, the tech giant occupied almost half of the top 20 titles for Android mobile games in China, with games like King of Glory, Crossfire, and We MOBA. In addition to mobile games, the tech giant will continue to diversify its gaming portfolio through its pan-entertainment strategy, which it announced during last year’s ChinaJoy tradeshow.

Image credit: Supercell

Chinese tech giant Tencent may soon add the company behind mobile gaming sensation Clash of Clans to their already massive portfolio.

The Wall Street Journal reported on Thursday that Tencent is in talks to purchase a majority stake in Supercell from SoftBank Group Corp, according to people familiar with the matter. The deal that would value the Finnish gaming company at $9 billion USD.

When SoftBank purchased a 51% stake in Supercell in 2013, the company was worth $1.53 billion USD. The sale would free up some significant capital for Softbank, which also recently divested around $10 billion worth of Alibaba shares which the Japanese firm acquired as an early investor in the e-commerce company.

Tencent is also in discussion with other investors, such as Hillhouse Capital Group, who may join the deal as co-investors, according to the same sources.

“We don’t comment on market rumors or speculation,” a spokesperson from Supercell told TechNode. SoftBank and Tencent did not respond to requests for comment.

Supercell’s Clash of Clans has enjoyed extraordinary success in the Chinese mobile gaming market, which is primarily dominated by local players. Other notable companies in China’s mobile gaming industries include Chinese internet company NetEase, as well as mobile game publisher iDreamSky, which sold $15 million USD worth of shares to Tencent in the process of their initial public offering last April.

The multi-billion dollar deal with SoftBank will be Tencent’s largest to date. Just last December, Tencent purchased a majority stake in U.S gaming company Riot Games, the maker of hit eSports game League of Legends. In 2013, the Chinese tech company purchased almost half the stock of gaming firm Epic Games, totaling $330 million USD.

Gaming is a core part of Tencent’s business, accounting for over half of the company’s overall revenue in Q1 of 2016. According to market research firm DataEye, mobile games made up 36.6% of China’s digital gaming industry in 2015, a number that is expected to increase as tech companies shift their attention from PC games to mobile.

Image credit: clashofclans.com

Update (6/17/2016 14:28): This post was updated to include a comment from Supercell. 

Tencent-affiliated China Music Corp. (CMC), the company behind online music services Kugou and Kuwo, is planning a U.S. listing, possibly before the end of the year.

According to sources who spoke to the Wall Street Journal, the company has hired Goldman Sachs Group and Morgan Stanley for the IPO which could range between $300-600 million USD.

In January this year Kugou and Kuwo inked a syndication deal with with QQ Music, the leading music streaming service from Tencent. Under the deal the two CMC companies gained the rights to over one billion songs exclusively distributed by QQ Music within China.

Competition between China’s largest musics streaming services has intensified in the last year. Nudged on by government regulations, the industry’s major players have cracked down on piracy on their own platforms, leading to a spate of legal battles between top players. In late 2014 Tencent sued rival Netease over alleged infringements, leading Netease to immediately countersue for similar reasons. Last year Kugou was sued by both Alibaba and Netease, before dutifully countersuing both companies.

Kugou and Kuwo hold one of the largest stakes in the Chinese online streaming industry, due mostly to their impressive presence in the country’s underserved third and fourth-tier cities.

The Chinese market has historically struggled to monetize online music. An increase in proprietary restrictions and a growing number of consumers with disposable income could transform the industry however, and leading services are racing to stake their claim in the industry early.

Alibaba consolidated a collection of their own music investments last year under Alibaba Music Group, including music streaming services Xiami and Tiantian. In December last year Baidu announced the merger of Baidu Music with traditional music company Taihe Entertainment Group.

Related: China’s Music Streaming War: The Era Of Being Squished By Giants Is Not Over

The Chinese government might soon own a 1% stake in major tech companies such as Tencent Holdings Ltd., Baidu Inc., and NetEase Inc., according to anonymous sources who spoke to the Wall Street Journal.

The 1% stake is part of a proposal around content distribution and censorship, which is still being discussed internally. According to Bloomberg, the proposal gives government representatives board seats and stakes of at least 1 percent at major internet portals in exchange for news licenses. Under the proposal, these news licenses would be mandatory for all providers and distributors of “current affairs news,” which includes politics, economics, military, foreign affairs, and social issues.

Chinese tech companies, such as Tencent and Baidu, already comply with government regulations around content censorship, filtering out sensitive keywords, rumors, and what the government deems ‘gossip’. However, this new proposal is an aggressive reassertion of government oversight. If implemented, government officials would have even tighter control over online content, proactively blocking and monitoring content before it’s published.

Though the Cyberspace Administration of China (CAC) and the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT) regulate online media in China, “illegal” articles occasionally slip through, albeit temporarily. In March, Beijing-based Caixin Media Company published an article on free speech, featuring Jiang Hong, a member of the Chinese People’s Political Consultative Conference. A few days later, the CAC ordered the removal of the article, according to Caixin.

This proposal is the latest in a series of tightening regulations around content by the Chinese government. April was particularly eventful, as iTunes Movies and iBooks were blocked in China and online video celebrity Papi Jiang, whose latest video ad auction raised 22 million RMB (about $3.4 million USD), apologized publicly on Weibo after several of her videos were removed due to her use of curse words. These incidents align closely with a speech recently delivered by Xi Jinping at a symposium on cybersecurity , in which the President of China called for a more “clean” and “righteous” cyberspace.

Image Credit: Michel Temer

Plastic surgery app Meidaila (美黛拉) completed a $12 million USD series B round to boost their e-commerce functions, the company announced on Monday. The funding was led by the IDG Ventures and Pingan Ventures, and followed by the previous investor Banyan Fund.

Meidaila’s founder Zhao Ying is the former chief editor of Chinese internet company NetEase. NetEase has been unwillingly called ‘the best startup incubator‘, as companies founded by some former employees of the online news service have been particularly successful in the market.

“The success of the beauty medical platform depends on how quickly they build consumers’ trust,” Zhao Ying said in a statement. “Meidaila’s team hail from NetEase content team, which gives us a strong boost on KOL marketing.”

Meidaila runs a mobile app and a website introducing a number of plastic surgery hospitals and skin care clinics around the area with discounted deals, and arranges consultations with professional plastic surgeons and dermatologists while the company takes a 10 – 20% cut on the service fee. 

On average, a customer uses the service five times in four months, and spends about 4,000 yuan ($617 USD) in one quarter, according to the Guangzhou-based startup. Eighty percent of the transactions come from post-1990’s users, the company also noted.

 In China, the beauty industry has long been treated separately from the medical industry. Most Chinese cosmetics companies focus mainly on e-commerce, such as Vipshop and Jumei, or on-demand O2O services for hair dressing and nail polish. However, China is now seeing a plastic surgery boom, where the medical industry is complementing the beauty industry, along with skin care clinics. Plastic surgery is now valued at 400 billion yuan ($62.6 billion USD) and is expected to double by 2019, according to the China Association of Plastics and Aesthetics.

The market also includes many domestic players including Beijing-based Zhenyoumei, Hangzhou-based Meimeifenqi, Shenzhen-based Qiumeiwang, and Beijing-based Zhengbameirong. Xi’an-based Visbody in China makes a 3D human body scanner which can predict cosmetic surgery outcomes and virtual fittings.

Image Credit: Shutterstock, Meidaila

China has the most active gaming community in the world. Despite a 15 year ban on gaming consoles – and a generation of kids who grew up without an XBox, Playstation, or Nintendo 64 – China’s game industry raked in about $22 billion USD in revenue last year, more than any other country, according to market research firm Newzoo.

Drawing from a list of predictions by Niko, a market intelligence firm specializing in Asia’s gaming industry, we’ve compiled five predictions for China’s digital gaming industry that we think you should know about:

1. Growth in China’s Mobile Gaming Industry is Slowing

This year, China’s mobile gaming industry is expected to continue growing, but not as sharply as it has in the past. Smartphone sales, which add more paying gamers to the market, are slowing as the domestic smartphone market saturates. China’s overall digital gaming industry will be affected, as mobile gaming made up 36.6% of China’s digital gaming market in 2015.

In 2015, revenue from China’s mobile gaming industry surpassed that of the U.S, bringing in $6.8 billion USD of combined domestic and export revenue. The industry also enjoyed a year-on-year growth rate of 22.9% last year, according to a report by big data mining and analytics firm, DataEye. Revenue from China’s mobile gaming industry has increased steadily and rapidly over the past few years, growing from $2.3 billion in 2013 to $4.4 billion in 2014.

2. Virtual Reality Games Will Take Off In China

You’ve probably heard this a million times, but 2016 might finally be the year for virtual reality gaming to excel.

That’s because VR hardware and software are finally ready for it. In China, VR headsets and equipment are now widely available and accessible thanks to Chinese companies including ANTVR, LeVR, DeePoon, and Baofeng. This year, Facebook’s $2 billion VR darling, the Occulus Rift, will finally launch with shipments coming out on March 28th (pre-ordering has already started!).

VR content is also becoming more accessible. Foreign companies like Jaunt, Immersive Media, and NextVR are offering games, videos, and live-streaming in virtual reality. In 2015, Jaunt received $65 million USD from Walt Disney, China Media Capital (CMC), and Evolution Media Partners, a sign that the company might target the Chinese market soon. Cheap panoramic cameras like the Insta360 and platforms like Immersive Media’s im360 Server Platform have also helped to lower the barriers to entry for VR content production and publishing.

3. China’s E-Sports Ecosystem Will Expand

Niko says e-sports are defined as “professional or amateur tournaments and organized competitions involving specific game genres,” which the Chinese Game Publishers Committee specifies as Massive Online Battle Arena games, Action, Shooting, Casual, Poker and Trading Card Games.

According to Newzoo, more than 170 million people worldwide watched e-sports in 2014. In 2016, China’s e-sports ecosystem, dominated by tech giants including Tencent and NetEase, is expected to expand as more people in China become e-sports spectators.

China’s e-sports ecosystem has grown rapidly. Already, it encompasses a wide variety of industrial players, such as developers, publishers, e-sports clubs, organizers, e-sport platforms, and live broadcasting sites.

The e-sports industry is a lucrative one in China, with some e-sports commentators earning up to 10 million RMB (about $1.5 million USD) each year. In 2014, the World Cyber Arena (WCA) hosted an e-sports event in China where prize pool estimations varied between $95,000 USD and $1.1 million USD.

4. China’s Gaming Market Will Consolidate

China’s gaming market is incredibly crowded. In 2015 alone, the SAPPRFT (State Administration of Press, Publication, Radio, Film and Television) in China approved 750 games.

In 2016, consolidation in China’s gaming market is expected, especially among small to mid-sized gaming companies, while bigger companies like Tencent and NetEase continue to battle each other for the top 10 titles in mobile gaming.

Similarly, we expect more small and medium-sized gaming companies to dig into new market segments, like girl games, warfare strategy games, and animation or comic games, as they face increasing pressure from competitors and market preference for quality products.

5. Pan-Entertainment Will Drive IP Monetized Content

In 2016, Chinese gaming companies are expected to invest more in pan-entertainment strategies, which can provide opportunities for IP (intellectual property) monetization.

Pan-entertainment is cross-sector collaboration across different media such as books, movies, games, animation, and comics. For example, “Hua Qian Gu,” a popular Chinese T.V series, was jointly released with a mobile game of the same name in June 2015.

For tech giants like Tencent, who own stakes in animation, digital books, and film, pan-entertainment can be a way to leverage content across different platforms. The company announced its plans to create pan-entertainment businesses during the 2015 ChinaJoy tradeshow, and hired two famous Chinese authors, Nanpai Sanshu (南派三叔) and Liu Cixin (刘慈欣) last March as part of their strategy.

The U.S. based-online learning platform Coursera has announced that the users can now use Alipay to earn and purchase Verified Certificates according to the company website. The online education provider also claims that it now has a million registered users in China, its largest market outside of the U.S. 

Coursera’s entry into China has been facilitated by a slew of partnerships, helping it to localize content and extend their platform capabilities. The addition of Alipay, one of the country’s largest e-commerce tools, is the next step into a market where education apps are currently thriving.

In July 2013 two top Shanghai-based universities Fudan University and Shanghai Jiaotong University, reached partnership with Coursera to provide open online courses. Three months later, Coursera partnered with Chinese science community Goukr to translate English courses into Chinese. 150 Goukr volunteers took part in the translation project in partnership community translation website Yeeyan.  

Coursera partnered with NetEase in late 2013, a major Chinese distributor of open educational content. Since then, NetEase has been operating the Chinese version of Coursera, ‘Coursera Zone’, translating video courses into Chinese and supporting video hosting in China. To improve video streaming speed, Coursera has also begun storing copies of video files on locally hosted NetEase servers. 

Until now, Chinese users have had to find a way around the payment process, which requires a Visa or MasterCard-enabled account. In order to earn a Coursera certificate, users would have to borrow foreign cards or go through foreign payment agencies.

“We’ve learned that many of our Chinese learners wish to earn verified certificates, which has been challenging due to payment constraints,” said Coursera’s CEO Rick Levin. “Thanks to an integration with Alipay, all learners can now purchase certificates and share their accomplishments publicly, with employers and friends.”

Other open course sites in China are taking advantage of the hungry market, including Chinese versions of EdX, XuetangX, and Kaikeba. EdX is founded by MIT and Harvard University graduates, and partnered with Peking University and Tsinghua University, another two top Universities in China. 

BAT are also busy with their move to take a bite out of the market. Alibaba and Peking University jointly established a Chinese MOOC Platform to provide online courses for the global Chinese-speaking audience. Tencent also established a joint venture with New Oriental Education & Technology to develop educational apps and services. Baidu leverages its own Q&A site Baidu Zhidao and works with after-school tutoring platform Zuoyebang, as well as offering video courses on Baidu Weku. 

Image Credit: Shutterstock

As mobile connectivity surges in China, a handful of companies are battling it out for top spot in one of the country’s fastest growing revenue makers: mobile gaming.

Internet giant Tencent currently owns 14 of the top 30 most downloaded games in China, according to game-industry media company Gamegrapes, however other players including Netease and Chanyou are vying for the spot.

Internet giant Tencent has come out on top by successfully leveraging its triple-roles as a game developer, publisher and game platform using WeChat. NetEase listed four apps among total 30. 3D games such as MMORPGs are largely produced by Sohu’s online game subsidiary Changyou, developer of Tianlong, seizing users with games based on classic Chinese novels. 

Perfect World developer of classic IP games, acquired its rival Shanda Games last year, now boasting its 600 million users. Supercell’s Clash of Clans started from Helsinki, Finland is now a worldwide favorite topping several charts in China.

Other games such as One Hundred Thousand Bad Jokes is gaining popularity for its familiarity, made from serialized comics from Chinese website YouYaoQi. Buying the license from a renowned animation or movie has found favor with game developers, since the people put great value on brands. 

Smartphone OS market share in China shows that Android takes 72.8%, while iOS takes 25%, Window and Blackberry phones hardly show mere percentage, while in the U.S., Android takes 51.9% and iOS takes 42.8%. With a handful of app stores in the market like UC, 360, Baidu, Mi, Wandoujia, competition is hot in game distribution. Tencent’s Wechat proved mobile messaging platform a great money making platform for game distribution attracting revenue from its self-developed games and acquired game companies. To make a diversion, Wandoujia announced a new revenue share structure that benefit game developers last year. Recently, Xiaomi’s App Store MiUi reported its 100M userbase, which helped its third-party mobile games to reach high sales revenue last year. 

To foreign companies, GameGrapes’s partner, Tianxiao Shi highlighted on localizing the games apart from translation. “Foreign companies should understand China’s users when localizing the product. You need to analyze the trend, discover why people like certain game, and try to adapt to your games to cater to China users. For example, South Korea’s games are strong on design capacity, so they should focus more on the story. It’s better to provide free games since Chinese users are not yet used to paying model.” Shi pointed out, adding that “It’s important for foreign companies to find a good publisher to launch their product. “

Shi released information on the state of the gaming industry on the Chinese game market at a conference held in Seoul co-hosted by Money Today and AppAnnie. 

Image Credit: GameGrapes

Chinese MOOCs – an online course platform for the global Chinese-speaking audience and anyone interested in Chinese language and culture – was recently jointly launched by Alibaba and Peking University, one of the foremost Chinese seats of education.

On the platform there are currently more than 20 pre-recorded courses provided by Peking University. A handful of colleges in Greater China have signed up, and it is expected more universities will join the program.

Like Coursera, all the courses on Chinese MOOCs are for free and certificates are offered for the completion of some courses.

Chinese MOOCs is similar to XuetangX.com, a MOOC site launched in October 2013 by Tsinghua University, another top Chinese university, on top of Open edX, the open source initiative by online course site edX. XuetangX has fourteen universities in Greater China on board.

There are a few more MOOC sites in China, including Cnmooc.org which is operated by Shanghai Jiaotong University, and icourse163.com, jointly established by icourses.cn, a state-backed course site for higher education, and Chinese internet company NetEase.

NetEase also operates a Chinese version of Coursera, translating video courses on the latter into Chinese and hosting them in China. The translated courses are offered for free while NetEase pays for translation and cloud storage. Guokr.com, offering popular science content, reached similar partnership with Coursera in late 2013.

Chinese MOOCs is another effort in online education by Chinese e-commerce giant Alibaba Group. The company launched Taobao Tongxue (“schoolmate” in Chinese) in 2013, enabling teachers to give live courses or sell recorded courses and other formats of educational materials.

Several other big Chinese companies, including the aforementioned NetEase, have invested considerably in online education. Tencent, which is dominant in China’s social network and gaming markets, enabled giving and selling classes through its QQ Instant Messaging tool in 2013. The company also established a joint venture with New Oriental Education & Technology, a leading private education company, to develop educational apps and services.

Editing by Mike Cormack (@bucketoftongues)

It is no exaggeration to say that cross-border online shopping is standing at the cusp of the next great leap forward for China’s booming e-commerce sector. The industry recorded sales of over RMB3 trillion (roughly US$483 billion) in the first half of 2014, of which RMB300 billion came from cross-border retailing, according to data from the China E-commerce Research Center. The compound annual growth rate of China’s cross-border e-commerce trade value stood at 31% during 2008-2013, while the total number of cross-border online shoppers exceeded 18 million in 2013, according a Nielsen survey. The growing market has thus attracted many new entrants to share the growing cake.

Chinese internet company NetEase opened its cross-border e-commerce site Kaola for public test on January 8, expanding beyond its home turf as a news portal and email provider. Kaola now offers a variety of products in baby and maternal care, healthcare, personal care and cosmetics, and plans to expand beyond these categories after its formal launch. According product type and users’ requirements, the goods are either shipped from domestic bonded warehouses (taking 1-3 days for delivery) or from overseas directly (which take 7-30 days).

There is no doubt Kaola could pick up users quickly from NetEase’s existing user base. But going beyond that is not the only factor leading to a successful e-commerce platform: other crucial aspects include product management, logistics and supply chain management, for instance.

SF Express, a leading Chinese express logistics company, today launched cross-border e-commerce platform SF Haitao (our translation). The site’s product inventory is similar to that of Kaola, perhaps not surprisingly given that these three are the best sellers across most cross-border platforms in China. In addition to its logistical backing, SF Haitao also promises to offer foreign products, RMB settlement, and Chinese sales service.

Of course, NetEase and SF-express are not the first companies to target this market, which is becoming increasingly competitive with the entrance of new players.

Chinese e-commerce giant Alibaba dubbed 2014 “the year of globalization”. Tmall International, the overseas shopping division of Alibaba’s Tmall marketplace, recorded a ten-fold sales growth between February and November last year. In addition, Alipay and Taobao, the payment and C2C market place of Alibaba, are expanding to Australia, one of the most popular cross-border shopping destinations for Chinese online buyers.

Amazon China opened direct shipping for Chinese cross-border shoppers in October last year, making it more convenient for customers to shop for goods from Amazon stores overseas.

Chinese home appliance retailer Suning also launched its U.S. e-commerce website targeting Chinese cross-border shoppers looking to buy American products.

Moreover, e-commerce platforms dedicated to this sector are evolving rapidly. Metao, the cross-border e-commerce site formerly known as CNTaotao, secured US$30 million of Series B financing led by Vertex Venture in 2014. The company claimed nearly 1 million users with monthly sales of over RMB10 million as of last November. A similar platform Ymatou claimed more than 1 million users and more than 10,000 daily orders, according to Mydrivers.

Editing by Mike Cormack (@bucketoftongues)

A surprising number of the top tech startups in China were founded by former employees of the online news service of Chinese internet company NetEase. These include YY (online interactive entertainment), Momo (mobile social networking), Snowball Finance (financial social media), Chunyu (mobile healthcare) and Jingguanyu (online education). All the founders or CEOs of these startups were once chief editor or deputy editor-in-chief at NetEase News.

There are, of course, also many good tech startups founded by former employees of other big Chinese internet companies such as Alibaba and Tencent, but few of them have expanded beyond their former employers’ core business (e-commerce with Alibaba and social/gaming with Tencent). By contrast, those founded by NetEase alumni have little to do with the core functions of NetEase, such as e-mail, online news and gaming.

YY started as a voice chat service for game players and has since transformed into an interactive video platform. The sectors the platform now covers include music, gaming, education and dating. The majority of its revenues come from virtual item sales. So far it’s the only company of its kind in China or even around the world. YY went public on the NASDAQ in late 2012 and now is trading at a US$3.5 billion market cap.

Chunyu Doctor is a mobile healthcare app enabling users to interact with doctor, with the platform paying doctors to answer questions. Doctors can list their offerings while the platform gets a revenue share. Founded in 2011, Chunyu raised Series C funding earlier this year.

Financial social media Xueqiu (or ‘Snowball’) is one of the most popular social media for financial professionals and stock investors. It has raised three rounds of funding totalling over US$53 million.

Momo is the new star in China’s social networking market. Co-founder and CEO Tang Yan worked at NetEase from 2003 to 2011, when he left his post of editor-in-chief at NetEase’s news service. Four other co-founders of Momo also came from NetEase. Tang’s wife, now director and the president of Momo’s US operations, once worked at NetEase too.

Momo co-founders include Li Yong, former editor-in-chief and vice president at NetEase, who also founded online education startup Beijing Jingguanyu Technology. The company developed Fenbi.com, a social platform, and recently shifted focus to Yuantiku, an online database and solution for exam questions. It has raised three rounds of funding.

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Local media jokingly call NetEase “the best startup incubator”, but NetEase doesn’t seem to be amused. NetEase has showed no interest in the startups founded by its former employees. NetEase alumni don’t find their former employer proud of what they’ve achieved, either.

Momo is expected to be listed in the U.S. tomorrow. NetEase appears unhappy about that, and today issued  a statement accusing Tang Yan of breaching his employment contract. It claims Tang founded Momo when still working at NetEase and hired his wife’s advertising company, causing a conflict of interest. (Tang’s wife co-founded an advertising company after leaving NetEase).

According to Momo’s IPO filing updated two weeks ago, Tang last month received a letter from a law firm on behalf of Wangzhiyi Information Technology (Beijing), a company affiliated with Netease, which addressed the issues mentioned above, requesting Tang apologize in writing. Tang had not done so before NetEase’s statement.

It’s unknown whether NetEase will take further legal action, but it is considered odd by many in China’s tech industry that a former employer should litigate one day before a former employee’s company goes to IPO.

Editing by Mike Cormack (@bucketoftongues)

The microblog war in China is over. A wave of startups has long since died. The Weibo (“microblog” in Chinese) platform run by Sina, the leading online news portal, has beaten all the others built by the big Chinese internet companies. Tencent’s Weibo division was eliminated several months ago. Tencent hasn’t shut the site down but there’s no dedicated staff for it. Netease Weibo is asking users to move all their micro-posts to its blog site Lofter. Charles Zhang, CEO of Sohu, acknowledged the failure of Sohu Weibo in mid-2012. Baidu Shuoba, which differed from others in requiring identity verification (as with Facebook but Baidu wanted it to have Weibo functionality), didn’t get any traction and was closed in August 2011.

Aggregation platforms and third-party application developers that emerged for the microblog gold rush have become useless.

Fanfou, launched a little more than one year after Twitter launch, was one of the earliest Chinese copycats. It was quite popular among news-hungry Chinese netizens and reached one million users in less than two years. But before long Fanfou, thanks to the user demographic, would find itself busy deleting or filtering posts that Chinese authorities found offensive. What the small Fanfou team could manage wasn’t insufficient for the authorities, and the site was shut down in mid-2009. Fanfou wasn’t alone: several other similar services were closed at the same time.

Sixteen months later Fanfou was restored, but by then the major Chinese internet companies had entered and come to dominate China’s micro-blogging market. (Fortunately, by then Fanfou team also built Meituan.com, a group-buying site which is now the market leader).

Sina wins the Weibo war. Now what?

It is often rumored that Sina Weibo has hundreds of employees in Tianjin, a city an hour from Beijing, monitoring posts on the platform. Employees at its Beijing headquarters receive requests for deletion from time to time and can make them disappear within minutes.

This is one of the reasons that the big Chinese internet companies have become major players in the Weibo market. They can afford the labor costs and have experience through operating online news sites, blogs, or other content businesses of handling commentary and deletions.

Almost all big Chinese internet companies joined in after Sina launched its Weibo in August 2009 and saw it quickly become popular. Netease’s was launched in January 2010, Tencent’s and Sohu’s in April the same year, and Baidu’s in September.

Though most of them would claim hundreds of millions of registered users, Sina was swiftly ahead in active users and popularity. Most companies essentially channelled the users of their core products, such as Tencent’s QQ IM and Netease’s mail service. Sina, on the other hand, took advantage of its experience and resources as a news agency.

As well as creating eyeball-drawing posts, Sina staff did everything they could to get every possible category of content contributors on board, from news organizations to celebrities. For a long time, Sina evaluated employee performance through the number of celebrities or famous people in each industry an employee invited to sign up and how active they were. There were stories about Sina editors being fined for not having enough people on board.

Now Sina is the definite winner in the Weibo war and its stock price has reflected the hype of being “the Twitter of China”.

But after Weibo was spun off from Sina and went public in the U.S. as Weibo Inc., people would find that the active user base of Weibo in China is actually limited and that expanding monetization approaches beyond advertising is difficult.

According to a report by CNNIC, as of June 2014, total users of all Weibos decreased 1.9% to 275 million compared to six months previously. After reaching a peak of 330 million, the number began to decline.

In the second quarter of 2014, Weibo Inc. made US$77.3 in total revenues, with 77% of that from advertising and rest from other paid offerings like gaming. The total would be substantially smaller if Alibaba hadn’t invested and pledged US$380 million in ad spending over the next three years. The majority of Weibo’s advertisers are believed to be those of Sina’s online news site.

From how it operates content to the business model, Weibo is essentially much like Sina’s online news business. Since online news sites in China are expecting declines and shifting to other formats, it’s very likely Weibo will be just the Sina news portal in the micro-blogging era.

Lots of tech companies have their head in the cloud. Youdao, a sub-brand of Chinese internet company NetEase, recently launched Youdao Cloud Cooperation, an enterprise platform where users can communicate and share notes, spreadsheets and files in real-time, allowing them to create and edit documents online while cooperating with other colleagues.

The tool is available across multiple platforms, including PC, Mac, web, iOS and Android, and is compatible with most mainstream document formats. William Ding, NetEase CEO, said the service is aimed at small teams with less than ten members in the file editing and sharing scenario.

Jiang Weihang, NetEase technology director, said traditional enterprise software usually costs a lot and demands promotion by IT departments. He doesn’t think this model suits the Chinese market. Consequently, Youdao Cloud Cooperation will adopt a freemium model, rather than the premium or subscription models adopted by most current enterprise services.

Youdao started as a search engine sub-brand under NetEase. Although Youdao Search didn’t gain traction, the other two products, Youdao Dictionary and Youdao Note, performed much better. As of the end of 2013, Youdao Dictionary claimed nearly 400 million active users and had started to explore the online education sector. Youdao Note, the Evernote clone, announced it had 15 million users last year.

Youdao is seeking to expand this success from individual to the enterprise market. Ding added that Youdao Cloud Cooperation is going to be another strategic focus of the NetEase, on par with NetEase News and EasyChat.

Most Chinese small teams use QQ, email or online disk to share files, but such solutions can lead to version control and cooperation problems, according to statistics from Youdao.

Compared with other Yammer-like enterprise social services like Teambition and Mingdao, Youdao Cloud Cooperation is more similar to WPS Light Office, Google Docs and Office 365. Since Google services are blocked in China, the unavailability of Google Docs, a service widely used by foreign small teams, has left space for domestic services in this sector to prosper.

Tencent also rolled out enterprise-level service Enterprise Account to tap this sector.

Online education is in full swing in China. The newly emerged range from Coursera-like platforms, online services for schools, to learning apps. While some hope to change China’s education market drastically, many don’t believe it will change in the near future that the private education market, through the Internet or not, is pretty much about pre-exam courses or language learning.

NetEase, one of the largest Chinese Internet companies and early mover in China’s online education market, didn’t expect they’d roll out an online class platform focusing on English-learning.

Earlier this year, the company launched Youdao Open Education Platform for third parties to list and sell courses and other educational content. Unlike other newly launched Chinese online education platforms, such as Tizi.com (for K-12 education), the plan of the Youdao one is to leverage the user base of Youdao Dictionary.

Youdao is a brand under NetEase that has developed a variety of Internet products, from general search to Evernote-like app. Back in 2007, Youdao launched a dictionary application, a PC client. Along the way more versions, Web-based application and mobile apps for all the mobile operating systems, would be launched and now it has had more than 400 million users, with 60 million active users.

The dictionary application has been making revenues through advertising and broke even in the third quarter of 2013. And now the company concludes Chinese users are used to purchasing goods and services online. The company also believe English-learning and online education market in general will continue to grow.

The whole idea of the Youdao Open Education Platform is to have third parties, from teachers to educational content publishers, list their content or courses and share revenues with them. Apart from online courses, more features are available to make interactions between teachers and students easier.

A couple of teachers have tried out the platform. Wang Changxi, a renown teacher that has been teaching English and producing materials, is satisfied with the result that the audience of one class is about the size of all the students of his in a mid-sized Chinese city.

Youdao Dictionary has 210 million users on mobile. The company said, when launching the platform, they’d develop separate mobile-friendly features.

NetEase was an early mover in Internet-powered education in China. The company established Public Courses, a program offering online courses licensed from Western colleges or organizations and Cloud Courses for skill learning. Public Courses became the official partner of Coursera in the second half of 2013, introducing English courses in the same way like before and having got a dozen of Chinese universities on board.

The Public Courses and Coursera classes are for free while NetEase has been spending tons of money hiring translators to produce Chinese subtitles. It’s unknown whether or how NetEase will monetize the viewers, but what for sure is English-learning is one of the most mature categories with willing payers in China’s online education market.

Zhou Feng, SVP of NetEase and CEO of Youdao, believes English-learning is big enough a market in China in the near future. And it has advantages over other similar platform operators such as YY, the online video software company. YY is offering educational content on TOFEL and GRE for free trying to build a user base, while Youdao Dictionary has had a large user base and the only purpose of those users’ is learning a language — for most it’s English.

NetEase, one of the biggest Internet companies in China, launched an online course platform today. On its live classes, educational apps, e-materials, and other tools will be available.

Not only will NetEase upload educational content, it will also introduce third-party educational organizations onto the platform. For the traditional educational organizations who don’t know how to establish online presence, NetEase will offer tech support.

Almost all the big Internet players in China, Alibaba, Tencent, YY and Baidu have launched similar platforms to their advantages.

NetEase but was one of the first in China to put effort in online education. The company’s online portal began offering online courses licensed from western universities in 2010. In 2012 Cloud Class, an e-learning service for students, was launched — But this project seems to haven’t got traction.

Youdao, a brand under the company and who developed the platform, developed some of the most popular educational software in China, including Youdao Dictionary. Youdao has had 400 million users with 60 million monthly active.

NetEase is the official partner of Coursera in China, hosting content for it and translating other languages into Chinese.

The company also invested in Tizi, an online education service for K-12 that was founded by the founder and former CEO of Jiayuan.com.

NetEase Games launched an oversea strategy for online game sector, planning to set up a dedicated team which will be responsible for the promotion of its homegrown online games in global markets (report in Chinese).

The company planned to introduce its premium online games of Dragon Sword, Heroes of Kingdoms and Qiannvyouhun to the overseas markets. Dragon Sword, a blockbuster powered by next-gen 3D technology, will be promoted in Asia-Pacific region and Europe. The game has already been introduced to Taiwan, the report added.

According to the report, this Hangzhou headquartered team will be composed of two parts responsible for global region and South Korean region, respectively. The team is overseen by experienced talents from Europe and South Korea.

NetEase Games also planned to set up the first overseas subsidiary in South Korea, and then in other parts of the world. The preliminary focuses of this plan are countries in Asia-Pacific region, such as South Korea, Taiwan, and Vietnam.

China Telecom (HK:00728) and NetEase (NASDAQ:NTES) jointly launched the long-awaited mobile messaging app, named EasyChat (Yixin in Chinese). Aiming at WeChat, the app is more than a WeChat clone.

Apart from what WeChat can do, EasyChat supports sending voice messages to mobile or fixed-line numbers for free. Tencent’s WeChat previously partnered with China Unicom that rolled out WeChat Wo, a custom SIM card. China Telecom goes even farther as the feature must have impact on its existing revenue generators, text messages and calls. China Telecom and NetEase established EasyChat Technology, with the former controlling 73% of the company.

Email and cloud music services provided by NetEase are integrated in it.

Users who registered EasyChat accounts will get 300M free data and those send more than five messages per month on EasyChat can get 60M data in the following month. Both of the free data plans are not restricted for EasyChat usage. In addition, EasyChat reportedly will provide free data service to e-surfing subscribers from Jan. 2014.

In order to avoid competition, EasyChat will zero in on personal instant messenger market and Yiliao, a similar service offered by China Telecom, will focus on government and enterprise users.

Almost every single Chinese Internet company is operating an app download and management service — you must have heard that Baidu is going to buy one for $1.9 billion as many others are capable of developing one in-house.

NetEase Apps Box, an Android app management tool developed by NetEase Inc., has been opened for public testing on July 16 (source in Chinese). The release of this service signaled that NetEase App Center, which mainly concentrates on iOS system, is expanding to Android system.

Its features includes Smart Filling (not official translation), apps management, one-click installation and data synchronization, etc.

Smart Filling, a major feature of the service, can classify the apps in a smartphone automatically. Subscribers can install average apps with a single click on one button, rather than download and install them step by step. NetEase App Box recommends the hottest mobile games and apps to you. In addition, the box also provides data backup services.

Currently, NetEase Apps Box is only available to clients with invitation codes. Users who are interested in the app can apply for invitation codes at here.

NetEase, one of the biggest internet portals in China has announced it is launching an insurance comparison platform http://baoxian.163.com/. It will focus on auto insurance with the cooperation with various partners such as China Ping An, Pacific Insurance and Sun Insurance. The goal is to help give insurance consumers choice and transparency when selecting the most suitable auto insurance.

In July, Swiss Re Group estimated that the Chinese insurance industry grew by 26.2% and is now the world’s sixth largest insurance market. Within 10 years it could become the second largest in the world. The NetEase Director of insurance products, Zhang Lei said that the “country’s vehicle population has increased more than thirteen hundred million, more than 100 million units, up about 15%.” It makes sense that as people become wealthier, they are looking to protect their valuable assets and will pay good money for it.

To alleviate the pain of complicated insurance jargon, the platform will aim to make the process easy to understand and buy. Each insurance company will have their customer service plugged into it and provide personal service.

In China, insurance agents have dominated the market and account for 70% of sales revenue. However NetEase is banking that, as the Chinese population becomes more comfortable with buying online, car insurance will be a natural extension to its business.

One thing we discussed yesterday is about loyalty.  Ken said he had a former colleague who started from a junior position in Netease.  The person was quite smart and very soon got noticed by senior executives in Netease.  He was promoted again and again.  And finally, he became the project leader of a new game.   But, after working on the game for about a year, he quited and took the whole development team with him.

“Actually, at that time, he is already very well rewarded financially.  William Ding (Netease’s CEO) never badly treat anyone who can help him.  And, he could make total decisions on the game.  But, he was still not satisfied.  He thought the success of a game completely depended on his own talent.  So, why he had to share the benefit with the company ?”

Just like today, there were a lot of VC willing to support a game developer with a track record.  The person got funded and soon the game was finished and launched.  But, it was a total disaster.  “It might get 20,000 peak concurrent users (PCU).  Very far from a major hit,” said Ken.  The most popular online game in China is Netease’s Fantasy Westward Journal, with 2.5 million PCU.  A hit game gets at least 200,000 PCU.

“The person totally overestimated his own ability and underestimated the company’s contribution to his previous success,” said Ken, “Netease gave him a lot of opportunities to grow and try out new ideas.  But, he did not appreciated.”

Actually, similar stories happened in many internet companies in China.  Just recently, I heard the whole development team of 91 Assistant has left their company, NetDragon, and started a new one making similar products.  Again, they are supported by VC.   I don’t know what would happen in the end.  But, lack of loyalty among staff is quite common in China.  Many people leave their companies just for slightly higher paid in another firm.

A former Microsoft executive told me, he was asked by Steve Ballmer to evaluate Microsoft’s operation in Japan and China.  When he found out the way the Chinese staff are, he suggested Microsoft to concentrate its development force in Japan, where the staff are much more loyal.

“Microsoft like to invest in its own staff by training them.  If they are only going to leave the company in a couple years, for a few thousand more in another company, why we would want to invest in them ??”

Netease officially launched its Game channel today and wants it to be the No.1 portal focus on gaming industry. But obviously, they picked up a very wrong date. General Adminitration of Press and Publication (GAPP) of the People’s Republic of China just issued an official press release saying the review of “World of Warcraft” (The Burning Crusade) was halted and the application from Netease for the operation of WoW in China had been returned.

GAPP explained: it clearly told Netease that Charging and New account registration was not allowed during the private test, but Netease ignored it and allowed the public registration from 19th, Sept, which as GAPP described, “Illegal Behavior”. Netease will be published and GAPP also warns Netease that Netease’s Internet service could be suspended too.

Netease is in very big trouble if WoW is ‘banned’ in China. So who can be the help?

[update: an official from Ministry of Culture of China already said the suspending of WoW by GAPP is NOT appropriate..]