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

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

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

Buy more EVs

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

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

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

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

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

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

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

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

Build more 5G, data centers, and other infrastructure 

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

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

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

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

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

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

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

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

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

Who are the key players? 

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

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

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

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

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

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

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

Potential concerns for a major infrastructure project of the digital age 

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

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

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

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

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

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

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

Apple’s supply chain companies in China face major production disruptions as Chinese cities follow the country’s strict covid policies with full and partial lockdowns since late March to tackle a new wave of Covid-19 outbreaks. Although Shanghai and nearby cities have recently begun to assist manufacturers in resuming operations, analysts still expect major disruptions to Apple’s shipments. 

Why it matters: China plays a vital role in Apple’s supply chain and its global shipments, with Chinese factories accounting for almost half of Apple’s total supply chain. iPhone shipments could fall behind by 6 to 10 million units, according to one analyst quoted by 9to5mac, an Apple daily news site. Meanwhile, expected arrival times for some iPad and Mac models have also been disturbed by weeks-long delays. 

Details: Shanghai began a two-step city-wide lockdown on March 28 as daily new Covid cases broke 4,000. The harsh control measures soon spread to neighboring provinces of Jiangsu and Zhejiang. These eastern regions are key to China’s high-tech manufacturing sector, including carmaking, semiconductors, and electronics. 

• Shanghai, its nearby Jiangsu province, and the southern province of Guangdong are home to more Apple supplier factories than anywhere else in the country, according to TechNode research on Apple’s supplier list. These three areas account for one-third of Apple’s total factories worldwide and 61% of China’s.
• At least 30 companies in Apple’s supply chain have factories in Shanghai, including Foxconn, a major assembler for Apple. Foxconn previously halted production at its iPhone assembly factory in Shenzhen on March 14 due to a lockdown in the southern city, before resuming production after one week. 
• Quanta is another key supplier based in Shanghai, which produces the MacBook for Apple. The company told Nikkei Asia that it had stopped production to comply with the local government’s Covid-19 prevention measures, beginning in early April.
• Apple’s second-largest electronic manufacturing services company, Pegatron, has also paused operations in Shanghai and neighboring city, Kunshan, according to Ming-Chi Kuo, an analyst for Apple.

Context: Shanghai’s ongoing weeks-long lockdown has triggered severe cascading effects in various industries from automobile to semiconductor to e-commerce. The Shanghai municipal government encouraged several key industries to resume production on April 16. But manufacturers still expect delays in the future. 

• On April 18, Shanghai released a whitelist of 666 companies of key industries to make sure they restart production as soon as possible. Auto manufacturers and suppliers account for more than a third of the list, followed by pharmaceutical companies, according to a “whitelist” created by the Ministry of Industry and Information Technology last week and seen by Chinese media Caixin.
• Following Shanghai’s footsteps, Suzhou also whitelisted 1,696 companies that play a key role in the region’s manufacturing supply chain to prepare to restart production, Foxconn was one of the companies on the list.

After China’s ride-hailing giant Didi was put under a cybersecurity review by the Chinese authorities last July, the country’s internet sector quickly entered a period of painful adjustments. Companies began closing unprofitable units and cutting staff wherever they could. Layoffs have since become so widespread that some Chinese tech majors have been attempting to soften the blow by telling fired employees that they have “graduated,” but it has become increasingly difficult to put a positive spin on such moves, as China’s consumer-facing tech companies go through a significant upheaval. 

Since July 2021, major Chinese tech companies have laid off at least 72,779 employees, TechNode research has found. After compiling news reports, company statements, and other sources from the past nine months, TechNode found 27 instances where major Chinese tech companies were reported to be making significant layoffs, with at least 10 such instances affecting more than 30% of employees at their respective companies. Some firms dismissed entire departments almost overnight.

After combing through the statistics, it is clear that layoffs have become a regular occurrence at Chinese tech companies. In the past nine months, there has been an average of two rounds of layoffs per month. Moreover, in the same period, ByteDance has had five separate rounds of staff reductions alone, making it the top cutter among the major tech companies in the country.

China’s “great layoff” first hit the edtech sector, prompted by a surprise national regulation barring all private curriculum tutoring, which took effect in July. It then hit less profitable units in the e-commerce sector, and most recently, it spread to Meituan, Alibaba, and Tencent, powerful leaders of their own sectors that had previously proven largely immune to the effects of any regulatory changes or downturns. 

Education, e-commerce, and the content and entertainment industry are the three sectors to bear the main brunt of this wave of layoffs. But just how far-reaching have the cuts been?

Cloud services, social platforms, and more

In March, Tencent, a major cloud service provider in China, started a 20% layoff of its team in the sector, affecting an estimated 12,000 employees. ​​The firm’s Cloud & Smart Industries Business and Platform and Content Group took the biggest hit.

Twitter-like microblogging service Weibo, one of the biggest social platforms in China, laid off at least 200 employees and introduced a stricter performance review standard in February 2022. Weibo has declined to describe the moves as a layoff, saying they were “structural adjustments.”

ByteDance also cut numbers at its customer service unit in October 2021, removing somewhere between 30% and 70% of the team due to what it termed “business adjustments.” 

Didi, which is still going through a national cybersecurity review that launched nine months ago and is looking to delist from the US stock market, reportedly cut 20% of its employees in February. 

Content and entertainment

The content and entertainment industry is another area where players large and small have been handing their employees grim news. Since last July, four major companies in the sector have undergone six rounds of dismissals and restructuring. 

ByteDance laid off at least 179 employees in two rounds last year, one of which was mainly focused on its gaming development business, Ohayoo. The company said that recently-hired college graduates would be reassigned to other vacancies as part of the round. The TikTok parent company followed this with another round of layoffs on October 20, aimed primarily at its commercialization and gaming businesses.

TikTok’s major rival in China, Kuaishou, started to lay off staff at the end of 2021, first in its commercialization team and then across multiple sectors. The company reportedly removed somewhere between 10% and 30% of its employees.

iQiyi, a Netflix-like streaming platform backed by Baidu, was reported to have cut between 20% and 40% of employees in December 2021. The company promised to compensate these unlucky employees, offering them bonuses based on how long they had worked at the firm.

While it’s undoubtedly been impacted by the overall economic downturn, the content and entertainment sector has also been hit by regulatory scrutiny, with crackdowns targeting celebrity culture and related idol content as well as the gaming sector. Pop Idol-like shows on platforms such as iQiyi have been banned and China put a pause on issuing new gaming licenses last year, essentially stopping companies from releasing new games. In addition, China has introduced strict controls targeting teenage players, limiting their playing time and payment for games. In response, Chinese gaming companies have shut down numerous development projects and turned to overseas markets, with their China workforces naturally being affected. 

E-commerce

E-commerce, a longtime booming sector in China, has also seen contractions. From July 2021 to March of this year, at least 11 major tech companies in the industry have downsized their workforces, according to TechNode statistics. 

Most recently, Meituan began on April 8 with an up to 20% cut across its business lines, including its core food delivery and hotel booking businesses.

Chinese e-commerce giant Alibaba has been through two rounds of layoffs in the first quarter of 2022 alone. The first round was in January this year, when it cut headcounts at its food delivery platform Ele.me and local shop review business Koubei. Two months later, Alibaba’s layoff expanded to the entire local service sector, with 30% of its employees losing their jobs.

Tencent also announced that it was making 30% of the staff at its e-commerce platform Mogujie redundant in late 2021, blaming the unit’s poor market performance. 

Community group buy, a subsector that caught on during the height of the first wave of the coronavirus pandemic in 2020, has seen deep cuts as part of the ongoing layoffs. The cash-burning sector quickly cooled down after the State Administration for Market Regulation (SAMR) demanded companies stop price dumping and other unfair competition practices in December 2020.  

Smaller players in this subsector have been hit hard, with one example being Tongcheng Life, which filed for bankruptcy last July. Those backed by bigger companies have also been forced to make adjustments to remain competitive. Didi’s Chengxin Youxuan cut about a third of its staff, while Alibaba-backed Nice Tuan stopped operating in several cities. 

Fast forward to late March, and JD was reportedly planning company-wide cuts of between 10% and 30%. Its community group buy unit Jingxi is thought to see the deepest cuts.

Other tech companies offering local services, such as apartment rental platform Ke.com and farm-to-table grocery startup Meicai, have followed suit. Ke.com cut its entire development team in October 2021, while Meicai laid off nearly half of its workforce around September 2021.

Dian, a Chinese startup offering rental charge packages for phones, was reported to have laid off 40% of its employees on March 1. According to Chinese financial media Lanjing, the company dismissed at least 2,000 employees. However, the company denied the news, saying it was merely making “adjustments in employee structure.” 

In addition, popular milk tea brand HeyTea, which makes heavy use of e-commerce and online promotions to support its business, was reported to have cut its workforce by 30% in February this year.

Education

After China’s new regulation on education agencies took effect in July 2021, there were at least five rounds of layoffs in tech companies focusing on education. More than 5,400 people lost their jobs.

Companies in the sector saw their stock prices crash after July 24. Within a day, Gaotu fell by 54%, New Oriental by 63%, and TAL Education saw more than 70% wiped off its share price.

Gaotu was reported to have laid off more than 10,000 employees in early August 2021. Another education giant New Oriental reportedly dismissed over 40,000 employees in mid-September. It wasn’t just the leading names in the industry who were hit, however,  Acadsoc, a Chinese company offering courses by foreign teachers, laid off 90% of its workforce on July 29, 2021.

Chinese tech unicorn ByteDance was also forced to make cuts. The company went through a series of downsizings in its education sector, with a first round in early August followed by a second round in December, shedding more than 1,000 employees. 

Looking ahead

On April 8, China’s internet regulator, the Cyberspace Administration of China (CAC), confirmed in a statement that 12 major Chinese tech companies (Tencent, Alibaba, Ant Group, ByteDance, Meituan, Pinduoduo, Kuaishou, Baidu, JD, NetEase, Weibo, and Bilibili) have laid off 216,800 staff from last July to March. However, CAC said “the number of employees in internet companies has remained stable,” disputing the layoff trend, adding that these companies have also hired about 295,900 new employees during the period. 

As painful as these adjustments have been to date, it seems unlikely that Chinese tech majors are in the clear just yet. Regulatory scrutiny will continue (perhaps in a more predictable fashion as the government prioritizes economic growth), rising geopolitical concerns mean that firms listed on US exchanges, in particular, will come under pressure, and China’s ongoing attempts to pursue a ‘zero Covid’ policy may mean further disruption for businesses. 

Since early March, China has extended lockdowns in the key growth city of Shanghai and introduced new control measures across the country to adhere to its zero Covid policy amid a resurgence in the number of coronavirus cases. As China’s economy takes a hit, the country’s tech sector is likely to come under more pressure. China’s State Council executive meeting on April 6 also acknowledged the challenge ahead, admitting that the country’s economy faces “complexity and uncertainties” that have exceeded expectations, and that “the recent Covid-19 outbreak in China has increased difficulties for market entities, and increased new downward pressure on the economy.”

There are some glimmers of hope, however. Although Didi’s investigation put a pause on Chinese tech companies seeking overseas listings, there appear to be moves to help Chinese businesses raise money more easily on foreign stock markets. Chinese Vice Premier Liu He said in a mid-March meeting that “China continues to support companies seeking to go public overseas,” offering the first major positive signal on the issue in nine months. Moreover, China’s securities regulator has proposed changes to long-standing rules in an attempt to avoid US-listed Chinese companies being delisted by American regulators.  

Nevertheless, the big picture remains unpredictable for China’s tech powerhouses. After years of unbridled growth, it’s clear that the industry has been through a turbulent period of late. Whether the widespread “adjustments” made across multiple sectors will be enough to stave off further disruption remains to be seen.

Chinese tech unicorn ByteDance has acquired no-code startup Hipa Cloud, a company that focuses on customized enterprise management systems, Chinese media outlet 36Kr reported on Monday. The acquisition appears to boost ByteDance’s enterprise software as a service business and transform the competitiveness of Feishu, its Slack-like messaging tool for businesses, in a sector currently dominated in China by Alibaba’s DingTalk.

Why it matters: ByteDance’s short video app Douyin (TikTok for the overseas market) has given the company huge success with its customer-facing business. Yet Feishu (Lark for the overseas market) has thus far failed to replicate that success in the enterprise-facing services sector. The acquisition of Hipa seems to be an attempt to change that. 

• The demand for customized team management and messaging tool systems for businesses has seen significant upswing since the beginning of the pandemic.
• Software development without coding has also become a major focus for the industry in recent years, with Microsoft, Google, and Github announcing no-code software development projects.

Details: Founded in 2019, Hipa Cloud focuses on no-code development platforms for enterprise clients, assisting them in developing customized management systems.

• Hipa Cloud announced on March 20 that it would be halting its services on May 31 following the ByteDance deal, urging users to export and migrate their data to other platforms, such as Feishu and Mingdao, ahead of the deadline.
• Hipa founder Chen Jinzhou and part of his team will be incorporated into ByteDance’s Feishu unit after the acquisition. Chen will report directly to ByteDance’s vice president Xie Xin who is in charge of Feishu, 36Kr reported.

Context: ByteDance first developed the Slack-like Feishu as an internal team collaborative management tool in 2016, launching it as a business in 2019.

• Rivals Alibaba and Tencent launched DingTalk and WeChat Work in 2014 and 2016 respectively. Huawei also released their own teamwork platform WeLink in 2017.
• DingTalk leads the market in China with 200,863 average daily downloads, while WeChat Work has 92,358 downloads per day. Feishu’s average daily downloads currently number just 19,795, according to Qimai Data.

What do the global empires of China’s tech giants look like? I began asking myself this question months before starting Expanding Empires, a reporting effort to map out the global tech investment footprint of China’s biggest investors. Now, we’re bringing it to an end.

Over the past six months, I’ve scraped, analyzed, and visualized data to provide a better picture of where China’s biggest tech companies are investing, how the geopolitical climate has led to dramatic shifts in their focus, and where they might be headed next. 

Funding rounds in which Chinese tech companies have participated—or in numerous cases, lead—have created some of the world’s biggest tech giants. In the US, these include mobility companies Uber, Tesla, and Lyft; in India, Paytm, Flipkart, and Bigbasket; and in Southeast Asia, e-commerce giants Lazada and Sea Limited. 

For the final edition of Expanding Empires, we look back at where overseas China tech investment started, how things have changed, and where it’s going. While each company has its own trajectory, there are some broad trends that appear to be defining China’s involvement in the global tech industry. 

The early days

It all started in the US. In 2008, just months before the housing bubble burst, before Lehman Brothers collapsed, before the global economy plummeted into a deep recession, Tencent bet on a little-known gaming studio in San Francisco. 

An $11 million investment in Outspark set the tone for Tencent’s rapid expansion abroad. The Chinese company would soon become the biggest gaming firm in the world. But more importantly, the investment marked the beginning of China’s scramble for a foothold in the US tech industry.

By 2015, seven years after Tencent’s first US investment, Chinese tech giants including Tencent, Alibaba, Baidu, and Xiaomi had taken part in nearly 40 funding rounds worth a combined $2.4 billion for US companies. 

China’s investment footprint in the US was largely driven by Tencent and Alibaba, and some of the funding rounds in which these companies took part were massive. In 2016, Alibaba participated in a $1 billion round for mobility firm Lyft. Two years later, Tencent took part in a $9 billion round for Uber. 

The list of big ticket names goes on: Tencent invested in Tesla, Reddit, and Universal Music Group. Alibaba plowed money in Magic Leap, Snap, and participated in several rounds for Lyft. 

Tencent is unique among its Chinese counterparts—it’s far more global. The company has funded more than 140 companies outside China—double that of Alibaba. Many of these were early-stage investments. 

2015 to 2017 marked a spring in Chinese tech investment in the US. By the end of 2017, Chinese companies had taken part in more than 100 rounds for US companies, totalling more than $9 billion. 

But by 2018, that had all begun to change.

READ MORE:
66 startups: How Alibaba spends billions on global investments
From funded to funder: how Tencent places its VC bets

The great switcheroo

Chinese tech companies’ investments appeared to be paying off. Valuations of companies they had invested in soared. They were participating in funding rounds with unprecedented frequency. 

In 2016, Alibaba, Tencent, and Baidu took part in 20 rounds for US companies. But by 2019, that had fallen to a meagre three. 

What had happened? One reason is the allure of Asia’s developing markets. But another is politics.

The Trump administration had become increasingly critical of China, and began pushing back against some of the country’s biggest tech companies. Chinese telecommunications giants ZTE and Huawei quickly fell victim to US scrutiny. Washington’s offensive nearly killed ZTE after the company was found to have violated American sanctions against Iran and North Korea.

But the scrutiny also extended to foreign investments in the US—particularly those that came from China. 

In late 2018, the US changed its foreign investment rules and began scrutinizing deals for non-controlling stakes in US firms. Previously, investment reviews only took place when a foreign firm took a majority stake in a US company. 

The changes were directed firmly at Chinese companies, as lawmakers feared their investments were abetting tech transfers from the US to China. 

The US-China Investment Project estimates that Chinese venture funding in the US totaled $400 million in the first quarter of 2020, down from $640 million during the same period in 2019, and $1 billion in 2018. A global pandemic beginning in China also contributed to this fall.

The resulting dropoff in investment was “distinctively Chinese,” according to a report by the US-China Investment Project. Despite the decrease in Chinese investment, overall funding of US startups largely remained the same. 

Driven away from the US by increased regulation and attracted by the potential of big returns from developing markets, China tech quickly turned to the other side of the Pacific, honing in on South and Southeast Asia. 

READ MORE:
Before the bans, China tech investment turned away from US

Alibaba had seen potential for growth in Southeast Asia and India for years. In 2016, the company bought Southeast Asia’s biggest e-commerce company: Singapore-headquartered Lazada. 

The deal was Alibaba’s biggest overseas investment. It followed up a year later with another $1 billion investment, upping its stake from 51% to 83%. Then, in 2018, it plowed in another $2 billion.

The move to Southeast Asia coincided with its pull back from America. Between 2010 and 2015 Alibaba participated in 17 US-based rounds. But since 2018, that number dropped to five. During the same period, Alibaba has taken part in 19 rounds in India and eight in Southeast Asia.

Tencent made similar moves, though the majority of its investments are in the US. The company first invested in Southeast Asia in 2016, when it participated in a round for internet platform provider Sea Limited for an undisclosed amount. It followed up with an additional $1.4 billion round in 2019. Sea runs some of the region’s biggest online platforms including e-commerce service Shoppee and gaming platform Garena. 

Tech investment proxy wars

Since then, Tencent and Alibaba have divided up Southeast Asia and India. The battle between these two companies—as well as Xiaomi—is focused on fintech and e-commerce.

Despite Alibaba and Tencent operating their own digital payment platforms in several countries across Southeast Asia, the two companies have backed more than a dozen e-wallets in the region and India—and no one startup is backed by both.

Alibaba and Tencent have taken different approaches when backing e-wallets. While Alibaba backs a mix of conglomerates that run e-wallets as part of a wider business, as well as fintech-first companies, Tencent has only backed the conglomerates. 

In Southeast Asia, on the side of Alibaba and its fintech affiliate Ant Group are Myanmar’s Wave Money, Thailand’s Truemoney, as well as Lazada and internet service platform Grab, which run e-wallets as part of their business. In India, the two Chinese companies have funded Paytm. 

Meanwhile, Tencent has backed Sea Limited, which operates Airpay and Shopeepay; Gojek and its Gopay system in Southeast Asia; as well as Swiggy Wallet and Ola Wallet in India. 

But it’s not just fintech. For Chinese companies, the stakes for tech investment are high in India and Southeast Asia at large.

“These investments are building the muscles for a world-class clash of titans—with the big guys competing head to head and local players serving as proxies for the foreign giants,” consultancy Bain & Company said in a report describing the scramble for market share in the region.

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Untapped markets

While the US has made it more difficult for Chinese companies to invest and competition in Southeast Asia heats up, another market has caught the attention of China’s tech companies: Africa.

Home to 1.3 billion people and six of the world’s ten fastest growing economies, the continent has a thriving tech scene. Firms like Huawei and ZTE have a long history in Africa. Roughtly 70% of all 4G base stations on the continent are made by Huawei.

But as connectivity across the continent improves, other Chinese companies have seen opportunities in providing—and backing—digital services. 

Tencent, gaming giant Netease, Meituan, and smartphone maker Transsion have already bet on African companies. Meanwhile, Alibaba has taken a different approach by launching training programs for aspiring African entrepreneurs. 

Their presence on the continent is still modest, but has grown steadily since 2018, with 2019 seeing record amounts of Chinese involvement in Africa’s tech sector. 

“Africa is often still a greenfields continent where Chinese companies have a more equal or better chance to compete,” Africa Analysis’ Dobek Pater told the South China Morning Post last year. 

Transsion, which controls around 40% of the continent’s smartphone market, has started delving into digital services in Africa. In 2015, the company launched music streaming service Boomplay through a joint venture with Netease. Primarily focused on the African market, 85% of its users come from Nigeria, Ghana, Kenya, and Tanzania.

Startups in Africa raised a total of $2 billion in 2019, according to data from global investment firm Partech. While a small percentage of the total came from China, Africa has seen an increase in attention from Chinese investors. 

Chinese-owned, Norway-based software company Opera in 2017 pledged to invest $100 million in Africa’s digital economy. The company later launched Opay, a super app that included payments and delivery services, in Nigeria. 

Meanwhile, Africa-focused fintech platform Palmpay launched in Nigeria after receiving $40 million in investment from Transsion and Netease. The deal also meant that Palmpay would come pre-installed on 40 million on Transsion’s phones this year. 

Ant Group, which runs one of China’s most popular payment platforms, has also taken notice. In 2019, the company partnered with Flutterwave, a Silicon Valley- and Lagos-based fintech company, adding Alipay as a payment method for Flutterwave’s 60,000 merchants. Ant has also partnered with South African mobile operator Vodacom to launch a payments app in the country. 

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From sanctions on Chinese companies in the US to uncertainty from app bans in India, Chinese tech investors have had a rough ride. But there have also been many successes. In some cases, the effects of their influence have been subtle, quietly backing startups worldwide. In others, like Alibaba’s takeover of Lazada, their funding has allowed them to take massive portions of a developing market. 

So what’s next? One of the world’s largest continents. Only time will tell how the battles between these Chinese companies, as well as with their US counterparts, will play out. 

For the past ten years, some of China’s biggest companies have divided the country’s tech industry. Now, they’re fighting proxy wars in the emerging markets of Southeast Asia and India, battling it out for a share of the regions’ digital real estate. 

“These investments are building the muscles for a world-class clash of titans—with the big guys competing head to head and local players serving as proxies for the foreign giants,” consultancy Bain & Company said in a report describing the scramble for market share in Southeast Asia.

China’s tech giants are known as jealous backers. When Chinese startups take money from a tech major, they’re often committing to a side and its associated ecosystem. That’s why Tencent invested in Pinduoduo—the e-commerce company’s business model is based on users getting their Wechat contacts to buy items with them.

How much do these proxy wars spill over into Chinese tech giants’ new stomping grounds—Southeast Asia and India? I wanted to know, so over the past few weeks I’ve scraped, cross-referenced, and analyzed public data to map just how divided the digital landscape is in India and Southeast Asia. Here’s what I found:

• Chinese tech majors including Tencent, Alibaba, and Xiaomi have ploughed more than $26 billion into startups in the Southeast Asia and India regions. 
• Very few of the startups have investment from the same Chinese tech giant, dividing the young companies into camps depending on where they received their funding.
• The battleground is predominantly focused on fintech and e-commerce.
• In Southeast Asia, Alibaba, Ant Group, and Tencent have made the biggest fintech investments. Meanwhile, Alibaba and Tencent lead in e-commerce funding in both Southeast Asia and India. 
• Also, in India, Tencent, and Xiaomi have participated in rounds worth more than $2 billion to fund mobility companies. 

In the past five years, companies including social media and gaming giant Tencent, e-commerce firm Alibaba and its fintech affiliate Ant Group, search company Baidu, and smartphone maker Xiaomi have participated in 89 funding rounds totalling nearly $26 billion for Indian and Southeast Asian startups. 

Simultaneously, Chinese investment has shifted away from startups in the US to those in Southeast Asia and India as a result of rising US-China geopolitical tensions.

Funding round totals
Corporate giants jealously guard information about their investments in order to avoid tipping off their rivals. As a result, our data includes the total value of each funding round—a figure that includes contributions from other investors. While the data is incomplete, it still functions as a proxy for undisclosed numbers, and allows us to gauge Chinese tech giants’ stakes in various industries and regions.  

Battle for fintech supremacy

Southeast Asia and India’s underbanked population are driving a fintech boom. 

Underbanked people typically don’t have sufficient access to commercial banking services. But with the advent of digital wallets in the region, they’re able to hail a ride, buy online, and order food for delivery. The higher availability of these platforms then stimulates a need for more fintech services. 

According to Bain & Company, digital payments in Southeast Asia have reached an “inflection point,” with transactions expected to reach $1 trillion by 2025. 

Chinese tech majors don’t want to miss out. While Tencent and Alibaba operate their own digital payment platforms in several countries around Southeast Asia, the two companies have backed more than a dozen digital payment platforms in the region and India. 

These companies collectively account for around 150 million users in Southeast Asia, according to a report by Dealstreetasia. Meanwhile, in India, that number reached more than 350 million in 2019. 

Tencent and Alibaba are each recruiting their own team. No fintech startup in the two regions has been backed by both companies.

We don’t know exactly how much Alibaba and Ant invested into e-wallets—of these investments, most were either for undisclosed amounts or into large conglomerates whose e-wallets are not the whole show. The one disclosed e-wallet investment, into Myanmar’s Wave Money, was for $73.5 million. 

Alibaba has backed companies that are focused solely on digital payments, including WaveMoney and Thailand-based Truemoney, as well as large conglomerates that offer payment services among others, including e-commerce giant Lazada and internet service platform Grab. In India, the two Chinese giants have invested in digital payments platform Paytm. 

Tencent has taken a different approach. The company hasn’t invested in any e-wallet-first companies, but has taken stakes in several large firms that, like Wechat, offer wallets. 

Tencent has taken parts in rounds for Southeast Asia and Indian companies that total $9.4 billion. These companies include Sea Limited, which operates Airpay and Shopeepay; Gojek and its Gopay system in Southeast Asia; as well as Swiggy Wallet and Ola Wallet in India. 

Online services

E-wallets are being used for services ranging from ride-hailing to food delivery to e-commerce. 

In Malaysia, the government is incentivizing use of digital payments by offering MYR 450 million ($108 million) initiative, giving MYR 30 to all Malaysians older than 18 who earn less than MYR 8,333 a month. The incentive can be claimed using a variety of e-wallets, including Grabpay. 

Like the e-wallets, Chinese tech majors are divvying up these digital commerce platforms. 

E-commerce is one major battleground. China’s tech giants have divided up their Southeast Asian counterparts. On the Tencent-affiliated side, we have Singapore-based Sea Limited—a behemoth covering e-commerce, payments, and gaming. On Alibaba’s side, we have Lazada, a Singapore headquartered e-commerce company the Chinese giant acquired in 2016 for $1 billion. 

The same is true in India, where the two companies have bifurcated the country’s e-commerce and food delivery sectors. While Alibaba backed food delivery startup Zomato. Tencent funded Swiggy. While Alibaba backed Bigbasket, Tencent funded Flipkart.

Earlier this year, Zomato was reportedly in talks with Bigbasket to offer groceries on its food delivery platform. Both companies are backed by Alibaba. 

Tencent and Alibaba have participated in rounds for e-commerce companies in the region worth a total of $12.8 billion. This total includes some investments we have already counted above as digital payments digital payments. 

Meanwhile, Chinese lifestyle services giant Tencent-backed Meituan, a far less active international investor than either Alibaba and Tencent, has also backed Swiggy.

Chinese tech firms are not only competing among each other, but also with their US counterparts, including Amazon, Facebook, and Google. 

Ride-hailing boom

With a combined urban population of around 800 million people, getting people from one place to another has become ever more important. Ride-hailing platforms have stepped in to fill this gap. 

Several Chinese tech firms have funded mobility startups in Southeast Asia and India, but there is less of a clear cut divide. Southeast Asia’s two biggest mobility companies, Grab and Gojek, compete head-to-head in Indonesia, Vietnam, Singapore, and Thailand. These two firms also offer a host of other services, including food delivery and payments.

What happens when new giants with connections to Tencent and Alibaba enter the field? Well, it depends: Meituan, backed by Tencent, has joined the older company in backing Gojek and Swiggy. 

Didi is a boundary-crosser—it was formed by a merger between Tencent- and Alibaba-backed ride-hailing firms—but has integrated with the Tencent ecosystem. However, it joined with Alibaba to back Grab.

Gojek has raised $4.8 billion from funding rounds in which Tencent and Meituan took part, while details of Alibaba’s 2018 investment in Grab were not disclosed. Now, Alibaba is reportedly looking to invest $3 billion in the Southeast Asian mobility firm. Chinese ride-hailing giant Didi took part in two of Grab’s funding rounds, worth $2.9 billion. 

In India, Xiaomi and Tencent are dividing up the country’s ride-hailing market. In 2017, Tencent invested in Ola Cabs as part of a $2 billion funding round. Then, earlier this year, Xiaomi backed Oye! Rickshaw—a company that provides last-mile electric rickshaw rides—as part of the company’s $10 million Series A. 

Chinese companies may have a harder time investing in India startups in the future. Indian officials this year launched an offensive banning more than 100 apps operated by Chinese companies and increasing scrutiny of investments from neighboring countries. 

What’s next

For China’s tech giants, Southeast Asia is an important market, and they’re in it for the long haul. Several companies have announced plans to bolster their presence in the region over the next new months. 

Tencent said in September that it had opened a new office in Singapore in an effort to boost its business in the region. Meanwhile, Bytedance reportedly plans to invest billions of dollars and recruit hundreds of employees in Singapore in the next few years. A source told CNBC that Bytedance had already begun moving engineers to the city, with previous reports claim the company aims to set up a data center to back up US data. 

The investment war between China’s biggest tech firms will likely only intensify as companies double down on the region’s burgeoning digital economy. But they won’t just be competing among each other. 

US tech giants are shown interest in investing in the same companies Alibaba and Tencent already have stakes. In 2018, Microsoft invested in Grab. Meanwhile, Amazon may be zeroing in on Gojek and Google is reportedly taking part in a $350 round for Indonesian e-commerce firm Tokopedia—one of Alibaba’s portfolio companies. 

The future battle for Southeast Asia may not be between Chinese tech giants, but US companies and their Chinese counterparts.

China tech in Africa is nothing new. Telecommunications giant Huawei has built around 70% of the continent’s 4G networks. Smartphone manufacturer Transsion commands 40% of Africa’s smartphone market. 

Over the past few months, TechNode has been mapping Chinese tech giants overseas empires. Initially focused on the US, Chinese companies have since 2018 slowed down investing in the country, as tensions between the two superpowers rise. As we’ve written previously, companies including Alibaba and Tencent have instead sharpened their focus on the developing markets of India and Southeast Asia. 

Africa is no different. Lifestyle services giant Meituan-Dianping, gaming behemoths Tencent and Netease, as well as Transsion have made big bets on African companies. Alibaba has taken a different approach by launching training programs for aspiring African entrepreneurs.

Meanwhile, big-ticket Chinese venture capital firms including IDG Capital, Sequoia China, and Gaorong Capital have sharpened their focus on Africa. Investors expect to see a boom in financial services on the continent as connectivity improves and under-served populations come online. 

Africa is a huge market with massive potential. The continent boasts six of the world’s ten fastest-growing economies. With a diverse mix of 1.3 billion people, its population is expected to surpass China’s by 2025. 

To be sure, China tech’s footprint remains modest in Africa, but the trends point to a major shift. Chinese tech titans see opportunities and conditions similar to those that lifted themselves in China before the internet boom. 

Humble beginnings

Like China in the early 2000s, Africa supports a massive population, an under-served market, and a growing pool of tech talent. As the demand for digital services has increased, dynamic tech hubs have sprung up in Nigeria, Egypt, Kenya, and South Africa. 

In the past decade, some Chinese companies have seen massive success in Africa. While the US has pushed countries around the world to exclude Huawei from their telecommunications networks, African countries have welcomed the firm as they push to improve connectivity. 

Huawei was instrumental in rolling out 4G rollout across Africa and is set to drive 5G adoption on the continent. Alongside Chinese rival ZTE, Huawei received preferential loans from the Chinese government to establish telecom infrastructure throughout Africa, found Iginio Gagliardone, a professor at the University of the Witwatersrand who has written extensively about the influence of China in Africa. The government loans enabled the two companies to expand their influence across the continent with little risk.

A few other firms bet the farm on Africa, like Transsion. Founded in Shenzhen, the phone maker’s primary markets are all in Africa. The company controlled more than 40% of the African smartphone market at the end of last year, according to the International Data Corporation (IDC). Transsion also holds nearly 70% of the feature phone market, IDC data shows. The company, which operates R&D centers in Nigeria and Kenya, went public on the Shanghai Stock Exchange’s Nasdaq-like Star Market last year. 

Driven largely by the Chinese government, Chinese investments in Africa have historically focused on infrastructure projects. Chinese foreign direct investment in Africa reached $5.4 billion in 2018, up 30% from the year before, according to data from the China Africa Research Initiative at John Hopkins University’s School of Advanced International Studies. 

But things began to change that year. At the Forum on China-Africa Cooperation (FOCAC) in September 2018, Chinese President Xi Jinping encouraged Chinese companies to invest $10 billion in Africa over the following three years, pronouncing an important shift from public to private investment in Africa. 

“China has demonstrated its readiness to invest in areas deemed by foreign investors and donors as too risky, not sufficiently profitable, or not high priorities in the aid agenda,” Gagliardone wrote in his book “China, Africa, and the Future of the Internet.” 

Since 2018, Chinese companies have sharpened their focus on the continent, and 2019 saw record amounts of Chinese involvement in the continent’s tech sector. 

Increased presence

Alibaba began its Africa expansion in 2017—the year founder Jack Ma made his first visit. The company believes that its experience in China prepares it to develop Africa. ”I found myself propelled twenty years back in time, to the time when Alibaba was founded,” Ma said after the trip. 

During the visit, Ma launched a $10 million fund for young Africa entrepreneurs to bring their offline businesses online and pledged to take 200 young business people to China to learn from Alibaba. 

He returned a year later when Rwanda became the first country to join Alibaba’s Electronic World Trade Platform (eWTP), which promises to make cross-border trade easier for small to medium enterprises. 

Chilli and coffee farmers in Rwanda have used the platform to sell their products on Tmall, Alibaba’s business-to-consumer marketplace, while Ethiopia became the second African country to sign eWTP agreements late last year. It remains unclear how many companies are benefiting from the initiative.

Meanwhile, other tech giants have also increased their focus on Africa. In early 2019, Chinese smartphone giant Xiaomi set up a business group to grab at sales on the continent in order to offset slowing growth at home. The move put Xiaomi at odds with well-established Chinese rivals rival Transsion and Huawei, which claimed a market share of nearly 10%. 

Transsion had been able to avoid fierce competition from domestic rivals in its home market by focusing on Africa, but those companies were now also looking abroad for new sources of growth. 

In 2015 Transsion launched music-streaming service Boomplay through a joint venture with Chinese gaming giant Netease. The service is primarily focused on the African market: 85% of its users come from Nigeria, Ghana, Kenya, and Tanzania.

The company launched the service to make its phones more attractive to buyers and to boost revenue from non-hardware sales. The initiative has so far been a success. In April last year, Boomplay raised $20 million from Chinese investors including Maison Capital and Seas Capital. 

Fintech focus

Complementing the spread of China tech in Africa, Chinese investors have also increasingly sought out startups across Africa. These investors are looking to place their bets on Africans without bank accounts.

African startups raised a total of $2 billion in 2019, more than 70% than the year before, according to data from global investment firm Partech. While Chinese investments comprised only a small portion of that total, Africa has received a major boost in attention from Chinese investors. 

Fintech services developed early in Africa. Ten years ago, fintech platforms in Africa were more developed than those in China, prior to the launch of Ant Group’s Alipay or Wechat’s Wechat Pay. “Mobile money,” which allows people to make payments, and deposit or withdraw money on even the most basic mobile phones, gained widespread adoption.

In 2017, Chinese-owned, Norway-based software company Opera pledged to invest $100 million in Africa’s digital economy. The company later launched super app Opay in Nigeria, which combined payments, food delivery, and ride-hailing services. 

Opay was a handful of fintech beneficiaries from a boom in Chinese investment in Africa’s tech sector in 2019. The company closed two funding rounds last year, raising $170 million to help its expansion plans. Investors included some of the biggest Chinese names: Meituan, Gaorong Capital, Sequoia China, and IDG Capital. 

“Opay will facilitate the people in Nigeria, Ghana, South Africa, Kenya, and other African countries with the best fintech ecosystem that Africa has ever seen,” Zhou Yahui, CEO of Opay and founder of Kunlun, said in a statement at the time. 

But due to the Covid-19 pandemic, the company announced in July that it was suspending its non-fintech operations, including ride-hailing and food delivery service 

Meanwhile, Africa-focused fintech platform Palmpay launched in Nigeria after a $40 million investment from Transsion and Netease. The investment also included a partnership with Transsion to pre-install the Palmpay app on 20 million of Transsion’s phones this year. 

The focus on investing in fintech is driven by a broad-based effort to bring financial services to Africa’s unbanked. According to the World Bank, nearly two-thirds of sub-Saharan Africans do not have bank accounts. In 2019, fintech received the most venture funding out of any industry in Africa, according to Weetracker. 

Ant Group has taken notice of Africa’s fintech revolution. Last year the company partnered with Silicon Valley- and Lagos-based startup Flutterwave to add Alipay as a payment method for Flutterwave’s 60,000 merchants. 

In July, Ant Group partnered with South Africa mobile operator Vodacom to launch a payments app in the country. The two companies aim to tap the 11 million South Africans who don’t own bank accounts. 

Driving digital services

Africa represents an opportunity that Chinese tech firms caught onto early, and show no signs of paring back. Many of these same Chinese firms thrived after the internet boom in China and stand to leverage their knowledge to help spread digital products across Africa. 

As the digital divide on the continent narrows, more people in Africa will adopt these services, and like in India and Southeast Asia, Chinese companies and investors won’t want to miss out. Their current push onto the continent is likely only the beginning. 

It wasn’t so long ago that China tech investment loved US startups. Now, the two tech markets feel like they’re on different planets.

So far, the American offensive specifically targets two companies, but ripple effects are creating uncertainty over just how wide-ranging the ban could be—especially for Wechat’s owner Tencent, which holds a formidable portfolio of US investments.

So how do geopolitical tensions affect Chinese tech’s overseas investments? Pretty significantly, it turns out. In fact, the story of American measures to stifle Chinese influence in its home market starts long before July.

I scraped and analyzed public funding data to pinpoint deals by Chinese tech majors in the US. The numbers highlight a turning point in 2018, when the US sharpened its focus on companies like telecommunications giants Huawei and ZTE. Since then, Chinese investments in US startups have fallen off a cliff. 

Tech giants like Alibaba, Tencent, and Baidu appear to have reversed their US investment strategies amid rising tensions between China and the US, as two superpowers tussle over the future of the companies that dominate the internet. 

Key takeaways:

• Chinese tech giants invested heavily in the US between 2010 and 2018, but quickly scaled back investments in US startups beginning in 2019. 
• The drop-off is partly explained by increased scrutiny in 2018, when the Committee on Foreign Investments in the United States (CFIUS) was given more power to review investments in US companies. 
• Since then, new Chinese investments in American startups have fallen dramatically. Contributions in the first quarter of 2020 dropped to $400 million, down by more than a third compared to the same period in 2019, according to the US-China Investment Project.
• The drop in funding occurred only among Chinese investors—overall investment flows into US startups largely remained the same in 2019.

Investment explosion

It started with a boom. After gaining a solid foothold in their home markets, Chinese tech giants started looking abroad for the next big thing. 

In 2008, Tencent became the first Chinese tech giant to set its sights on the US, investing in big-ticket companies like electric vehicle maker Tesla and social media giant Snap. 

The company has participated in 81 funding rounds for US startups since 2008. Its US investments peaked between 2014 and 2017, a period when it made three-quarters of its deals—62 in all. 

In 2010, the same year that Google bowed out of China over concerns of censorship and cyber threats, e-commerce giant Alibaba made its first move into the US. The e-commerce giant has since taken part in 27 funding rounds for US companies. These rounds totaled more than $5.4 billion. Given how companies guard information about their investments, the data presents only the total value of each funding round rather than Alibaba’s individual contributions.

Meanwhile, Baidu made its first US investment in 2013. Though it has taken part in significantly fewer funding rounds than either Alibaba or Tencent, Baidu’s investment peak came in 2016, when it participated in rounds for lidar-maker Velodyne, as well as fintech companies Circle and Zestfinance. 

Overall, Chinese venture funding in the US amounted to around $14 billion between 2013 and 2018, according to figures from the US-China Investment Project. Total investment spiked in 2018 at $4.7 billion, but otherwise plateaued between 2015 and 2019 at around $2.5 billion. 

The bust

Everything changed after 2018. In 2016, Baidu, Alibaba, and Tencent were involved in 22 deals in the US. In 2019, they took part in a paltry three investments.

The reason was almost certainly politics. As trade tensions between the world’s two largest economies flared, the US and Chinese tech sectors took most of the heat. Hostility grew and investments shrank.

Chinese investors that focused on US startups in previous years have sought distance from the sector. Tightening US regulations drove them away, while the prospect of bigger returns lured them to developing markets. New rules that give CFIUS extra power added another important reason for the decline.

In 2019, Tencent took part in just two funding rounds—one for social media news aggregator Reddit, and another for contacts manager Contacts+—a 90% decrease from its height of 23 deals in 2015, and a 70% year-on-year decline from 2018. 

While Alibaba’s US portfolio isn’t as expansive as Tencent’s, the company participated in 26 deals between 2010 and 2017, including high-profile investments into companies like mobility platform Lyft and Snap. Since 2018, it has taken part in only one US funding round.

Alibaba’s pullback from the US preceded Tencent’s. Business concerns may have also played a role, as the company pivoted to Asia’s lucrative developing markets when growth began to stagnate in its home market of China. Still, US scrutiny of Chinese firms was already intensifying, and rising tensions undoubtedly played a role in Alibaba shifting away. 

Even Baidu, which has far less at stake in the US given its smaller investment footprint, has pulled back from American investments. Just one of its 11 investments took place after 2018. 

As the number of Chinese funding rounds in the US declines, so does the amount of investment coming from China. The US-China Investment Project estimates that Chinese venture funding in the US totaled $400 million in the first quarter, down from $640 million during the same period in 2019 and $1 billion in 2018. Of course, a global pandemic beginning in China also contributed to this fall.

This dropoff was “distinctively Chinese,” according to the US-China Investment Project’s report. Despite the decrease in Chinese investment, overall funding in US startups largely remained the same. 

China’s tech giants have turned their eye to the developing markets. Firms including Alibaba and Tencent have increased their investments in the emerging markets of South and Southeast Asia. The two companies have divided up India’s tech scene without any overlap in their investments, while also making some big bets on promising tech companies in Southeast Asia. 

Tougher reviews

A significant factor contributing to the dropoff in China tech investment is the increasingly strict regulatory environment. In late 2018, the US introduced new measures that increase scrutiny of foreign investments in American companies. 

Dubbed the Foreign Investment Risk Review Modernization Act (FIRRMA), the changes gave CFIUS, an inter-agency body tasked with identifying risks from foreign investments, more power to scrutinize investments into American firms. 

FIRRMA came into effect amid fears that Chinese acquisitions of and investments into US companies were abetting technology transfers from the US to China, and having adverse effects on American companies and internet users.

Before the new rules, CFIUS typically reviewed deals only when a foreign investor took a controlling stake in a US company, focusing on deals involving sensitive technologies.

In early 2018, fintech giant Ant Financial found itself locking horns with CFIUS. The Alibaba-affiliated company had wanted to acquire American money transfer firm Moneygram, but was forced to withdraw from the deal after the regulatory committee rejected it over national security concerns. 

The proposed $1.2 billion deal would have made 2018 an even bigger year for China-US investment flows, increasing total investment that year to nearly $6 billion, based on figures from the US-China Investment Project. That figure would have more than doubled the previous year’s total. 

CFIUS has also blocked Chinese ownership of the LGBTQ dating app Grindr. The committee required Beijing Kunlun Technology, the app’s previous owner, to sell the app, citing national security concerns. Kunlun agreed to sell the app to San Vincente Acquisition in March. 

FIRRMA gave CFIUS a mandate to review non-controlling investments in US companies that produce critical technology, critical infrastructure, or that collect US citizens’ personal data. Critical technologies can include anything from semiconductors to batteries. 

Crucially, it also authorized the committee to target investors based on the country they are from. 

“While specific countries are not singled out, FIRRMA allows CFIUS to potentially discriminate among foreign investors by country of origin in reviewing certain investment transactions,” the Congressional Research Service, a US Congress-affiliated think tank, wrote in a February report.

According to CFIUS’ annual report, only three potential investments in critical technology originated from China in 2019. But even if CFIUS is not rejecting deals, the dramatic drop in Chinese investment shows that Chinese tech companies don’t think it’s worth trying.

“The broad impacts suggest systemic headwinds to Chinese venture activity, reflecting tighter investment screening and a deterioration in investor sentiment as US-China tensions increase,” said the report by the US-China Investment Project. 

Given the Trump administration’s latest move to shed Chinese technology from America’s digital networks, Chinese companies and investors will likely continue to be driven away by US politics.

As Chinese tech companies push abroad, India has been a land of opportunity. But rising tensions between the two countries are starting to raise questions about the future of Chinese tech in India.

In the past five years, firms including short-video giant Bytedance, e-commerce firm Alibaba, social media behemoth Tencent, and smartphone maker Xiaomi have participated in funding rounds for Indian startups totaling more than $12.3 billion, according to my analysis of public data. These investments have helped to scale Indian unicorns like Paytm, Snapdeal, Swiggy, and Ola.

Now, however, these Chinese companies could be caught in the crossfire of a geopolitical battle. On June 29, Indian officials banned 59 Chinese apps over national security concerns—including apps made by companies that have been investing millions in the country’s startups.

India’s technology minister referred to the move as a “digital strike” against China. The ban came just two weeks after a deadly border clash between the two nations that left 20 Indian soldiers dead.

What is at stake for Chinese tech companies in India? This month, I’ve delved into the data to explore how intertwined India’s tech sector is with China’s. What has emerged is a story of a China tech proxy war, and investments that may come back to bite China’s biggest tech companies. Here’s what I found:

• Two companies—Alibaba and Tencent—dominate Chinese investment in India. Both are vying for a piece of India’s biggest tech companies.
• None of those companies have investment from both Chinese tech giants, dividing India’s tech sector into startups that are Tencent-invested and those that won investment from Alibaba.
• In the last five years, Chinese firms accounted for 11.6% of total funding to Indian startups, according to Mumbai-based think tank Gateway House, with 96% of this money being associated with Alibaba and Tencent.
• Several other companies, including Bytedance and Xiaomi, have also backed Indian startups, but to a lesser degree.
• The future of Chinese investment now looks uncertain as a result of rising political tensions between China and India.

Surging funds

China’s investment in Indian startups has swelled in the past four years.

The reason is due in part to rising suspicion of Chinese capital in the US, traditionally a popular destination for these companies. As American startups became a less-popular proposition, Chinese tech firms looked instead to Asia’s emerging markets.

Now, India’s popularity comes with a price tag.

Apps produced by Bytedance, Alibaba, Tencent, and Xiaomi were among those banned by India’s government at the end of June.

Bytedance’s massively popular short-video platform TikTok and its India-focused social media platform Helo have been blacklisted. Meanwhile, around eight of Tencent’s apps have been banned, including the popular messaging app WeChat, which has more than a billion users around the world, and seven QQ apps, including QQ Music and Wechat predecessor QQ messenger.

In addition, Alibaba’s popular UC Browser and UC News apps, as well as Xiaomi’s Mi Call app have been outlawed.

A tale of two companies

Five years ago, India looked like a safe place for a Chinese company to invest and earn profits. That’s when Alibaba made the first move into India.

In 2015, the company invested in the Indian startup payments Paytm through its fintech affiliate Ant Financial.

This wasn’t Alibaba’s first overseas investment. However, it did represent an important shift for the company, moving its focus away from investing in the US in favor of the developing markets of India and Southeast Asia—a strategy that now defines its approach to investing abroad.

Tencent followed suit later that year, becoming one of several investors to take part in a $90 million funding round for the medtech startup Practo.

Five years later, the two companies have become China’s biggest investors in India. Alibaba and Ant Financial have taken part in 20 funding rounds for Indian companies. The combined value of these deals exceeds $5 billion.

Meanwhile, Tencent has participated in rounds totaling a combined $6.7 billion in India. Of the nearly 180 international rounds in which Tencent has taken part, 24 were in India.

Chinese firms accounted for 11.6% of the total funding to Indian startups in the last five years, according to Gateway House. Tencent and Alibaba alone make up a significant portion of this total, according to my analysis. The value of the rounds that Tencent and Alibaba participated in make up 96% of the total value of all rounds in which Chinese tech giants have taken part in India.

Through these investments, the companies appear to be dividing up India’s fintech and e-commerce sectors. On one side are the Alibaba-affiliated companies: Bigbasket, Paytm, and Snapdeal. On the other side stand the Tencent-invested firms: Swiggy, Khatabook, and Flipcart.

Alibaba had initially focused its attention on smaller bets on companies in mature markets, but they changed tack in 2015. In India, the company has set its sights on well-established companies central to its core business, the majority of which were Series C or above at the time of investment. Its strategy has paid off. Five of its investments in India have reached unicorn status.

Tencent has pursued a different strategy. The social media giant has taken more of a shotgun approach, investing in a wide array of industries from content and entertainment to online travel to digital security.

Wider focus

Aside from Alibaba and Tencent, several other Chinese tech firms have pushed into the subcontinent by expanding their services to Indian users and investing in the country’s startups.

With perhaps the largest physical presence out of all the Chinese tech giants, Xiaomi has seen its India revenue surge. The company holds the largest share of India’s smartphone market: nearly 30% as of mid-2019.

In the third quarter of that year, the company reported that one-third of its revenue came from its India operations. The country is so important to Xiaomi that they even have an India-focused smartphone brand, Poco, which it spun off earlier this year.

Since the beginning of June, Xiaomi has even begun sporting a “Made in India” section on its Indian website, claiming that 99% of all the phones it sells in the country are made there. The move is part of a 2014 plan by the Indian government to incentivize manufacturing within the country.

Aside from its own products, Xiaomi has also invested in several Indian startups, participating in eight funding rounds worth a total of $78 million.

These investments have predominantly focused on early-stage companies offering mobility and content and entertainment services. Investments in digital services make sense in a country with a rapidly growing internet population. Xiaomi describes itself as an internet company despite the fact that the majority of its revenue is derived from hardware.

Xiaomi has predominantly focused on India, with just one US-based startup in its portfolio, while a third of all international funding rounds in which Bytedance has participated involve Indian companies.

Bytedance’s investments come as the company has pushed its own services—most notably TikTok—in India. The content giant has invested $67.5 million in Dailyhunt, an Indian news aggregator.

But it’s Bytedance’s own apps that make it a big deal in India. The country is TikTok’s biggest market, boasting around 200 million monthly users. Bytedance also operates the Indian social media platform Helo, which had nearly 50 million monthly users last July, according to the company.

Souring relations

Rising tensions between China and India are threatening to bury Chinese companies’ early success on the subcontinent—and any future investments—in an unexpected geopolitical earthquake. India is taking steps to limit Chinese foreign direct investment in the country over concerns that the companies are state-owned.

Apart from blocking Chinese companies’ apps, India amended its foreign direct investment (FDI) rules earlier this year. The amended rules require any company from a bordering nation to get permission from the government before investing in an Indian company. The rules had previously only applied to Pakistan and Bangladesh.

Changes to India’s FDI laws are likely to have a “detrimental effect” on India’s startup ecosystem, according to Aurojyoti Bose, lead analyst at Globaldata. “Chinese companies have traditionally been the lead investors in some of the key startups in India, which also enabled these startups to scale up,” said Bose.

The new rules, coupled with tensions on the border and rising nationalism within the country, appear to have motivated the government’s move to ban the 59 apps.

The app ban, as well as the changes to investment laws, are raising questions about the future of Chinese tech in India. US companies already appear to be taking advantage of this. This week, Google announced that it would invest $10 billion in India, including equity investments, over the next five to seven years.

With no ceasefire in sight, Chinese companies with their eyes on India may start looking elsewhere for their next big investment.

It all started in 2008. That year, social media giant Tencent struck a deal to invest in Outspark, a small US-based gaming company.

Now, 12 years after Outspark’s $11 million Series B, Tencent has funded more than 140 companies outside China. These investments have been part of funding rounds worth a total of $46 billion, a total that includes other investors. Tencent has driven a set of companies that includes Uber, Gojek, and the studio behind popular mobile game “Clash of Clans.”

The idea for this newsletter came from a simple question we asked late last year: Where does Tencent put its money?

We thought finding the answer would be a matter of simply doing a search on Crunchbase. Two days of data cleaning and analysis later, we realized how little we knew. How many companies has Tencent taken a stake in? And in which industries? Good data just wasn’t available. So we decided to dig a little deeper.

I’ve spent the past few weeks scraping and analyzing the data in attempting to gain a more granular understanding of how the company operates around the globe. The data is still incomplete, because in most cases, Tencent’s individual contribution in each round is a closely guarded secret. Moreover, the terms of dozens of deals have not been made public, a common practice in the tech industry.

But what has emerged is a picture of a firm with global ambitions that has fashioned itself into something of a VC, taking stakes in companies unrelated to its core offering. I’ve plotted the data and here’s what I found:

• A third of all the funding rounds in which Tencent participated were focused on gaming companies. The majority of its acquisitions are also in this sector.
• The company has focused on small but numerous investments in early-stage startups. 
• The Covid-19 pandemic has had a negligible impact on Tencent’s investment volumes. 
• Tencent has a sprawling geographical footprint, but nearly half of all the funding rounds it has participated in are US-based. 

A tech VC?

Tencent’s international portfolio dwarfs that of rival tech giant Alibaba—the focus of the last edition of this newsletter. According to my analysis, the number of companies outside China that Tencent has invested in is more than double that of Alibaba.

While gaming is one of Tencent’s most important businesses, the company has spread its bets across a range of verticals. Some have connections to Tencent products, while others appear to be simply companies it believes in.

Tencent invests in a vast array of companies, from those that it pushes billions into, to smaller startups that it deems worthy of a few million dollars.

Mobility is a big-ticket item for Tencent, totaling more than $18 billion in investment rounds, or around 40% of the value of all global rounds in which Tencent has taken part.

But the company looks a lot like a VC. It has made dozens of bets on small, early-stage startups that focus on artificial intelligence, biotech, security, and aerospace.

Tencent’s approach is vastly different than Alibaba’s. While the Chinese e-commerce giant tends to focus on investments that could aid its new retail push, Tencent focuses more on returns.

Pre-Series C startups account for around 40% of all the rounds Tencent has participated in. (Companies up to Series B are widely defined as being early-stage.) The amount of money the company has contributed to these startups makes up just 6% of the total value of the rounds the company has taken part in.

Fifteen of these companies are gaming studios, while 12 focus on fintech. Of all startups from Seed to Series H, the vast majority were Series A or Series A+.

Global focus

Tencent has investments on every continent except Antarctica. Of the country’s more than 900 investments, around 180 are outside China. The company has injected money into several focus industries around the world. In North America and Southeast Asia, the focus is mobility. In these two regions, Tencent has spent billions of dollars on companies including Uber, Tesla, and Gojek.

In Africa, Australia, and South America, Tencent has been involved in high-value investments in fintech. In India, e-commerce comes out on top, albeit by a small margin.

Meanwhile, in Europe, the company has spent the most on gaming firms, including what was—at the time—the largest investment figure in gaming history.

According to the data, Tencent has shown little interest in the Middle East, particularly Israel, which has become a major focus of Chinese tech companies. The one investment we identified in the region was in Phytech, an Israeli firm that provides IoT and analytics services to farmers.

Another trend not represented in our charts: In more mature markets such as the US, Tencent makes lots of small bets in early-stage companies. In immature markets, it makes bigger bets—less frequently—on later-stage companies.

Betting on games

Tencent has attempted to dominate the global gaming industries through acquisitions and investments. Early on, its typical approach was to stay south of a billion dollars. It bought Riot Games for $400 million, its investment in Epic Games cost $330 million, and South Korea-based CJ Games’ venture round amounted to $500 million.

But in 2016, something changed. Tencent spent $8.6 billion on the Finnish gaming studio behind “Clash of Clans.” It stands out as their largest investment in a gaming company, and probably the largest it has made outside China. The only possible larger investment is Uber’s $9 billion fundraise in late 2017, in which Tencent took an undisclosed share.

Founded in 2010, Finland-based gaming studio Supercell started off developing browser games, but quickly made the switch to mobile. In 2012, the company released “Clash of Clans“ and “Hay Day”—both of which became hits in Apple’s App Store and Google’s Play Store. Clash of Clans has remained one of the top-grossing games in the App Store.

Supercell became one of Tencent’s largest-ever investments—made through a Luxembourg-based consortium, of which Tencent owned 50%. The Chinese tech giant went on to take a controlling stake in the consortium in 2019.

The acquisition was the largest in gaming history—only Activision Blizzard’s $5.9 billion buyout of “Candy Crush” developer King came close. For Tencent, Supercell was a means to become a mobile-first gaming company abroad, which executives had previously highlighted as an area of importance as gaming shifted to handheld devices.

Supercell also allowed Tencent to drastically scale its international presence. Because “Clash of Clans” was hugely popular outside China, buying Supercell was a way to quickly increase Tencent’s international market share.

For the most part, the values of Tencent’s gaming acquisitions were not disclosed. Details of the deals were shared in just five cases.

In the past 12 years, Tencent has invested in 11 gaming companies over 43 funding rounds. The value of these rounds total $11.6 billion, excluding those in which the terms were not disclosed.

No Covid slowdown

As Covid-19 began spreading across China in early 2020, the government took measures to limit the impact of the virus. Authorities shut down entire cities, bringing the economy to a halt.

According to the data, however, Tencent kept investing. The company took part in an average of four funding rounds per month during the first half of the year. Thus far, that amounts to 17 investments between January and June. During the same period in 2019, that number was 12.

At this rate, Tencent could outpace its 2015 high of 30 global investments.

Tencent’s sustained investments in the age of Covid-19 set the company apart from other VC investors, who had already been cutting back their investments before the pandemic hit. Tencent also stands alone among its peers, making smaller bets on lots of companies in various sectors in the pursuit of return on its investments.

If this trend continues, Tencent could keep the fire burning through China’s VC “ice age” and a slowdown in investments abroad, giving it more influence over global tech and positioning it for a post-Covid-19 world.

What do the global empires of China’s tech giants look like? It’s a harder question than you might think.

I’ve been wondering about this since last year, when we took a look at Tencent’s overseas investments. Trying to map out the company’s web of funding rounds and acquisitions, we realized this simple question is actually really hard to answer.

Startup investing is an opaque world—while private companies usually announce the names of participants in their fundraising, no one knows how much the players put in. There’s sources like Crunchbase that compile this data, but getting a full picture is not easy.

That’s why we’re launching a new reporting project: Expanding empires, a monthly newsletter about our efforts to map the global profiles of China’s biggest investors.

I’ve been building web spiders to gather data, analyzing it, and then visualizing the results. Our first focus: Alibaba.

Since 2010, the company, along with its fintech affiliate Ant Financial, have participated in global funding rounds for 66 companies. These funding rounds raised a total of $20 billion and helped drive the success of household names like Magic Leap, Lazada, and Zomato.

So where is Alibaba putting its money? What does its empire look like?

I scraped information about hundreds of Alibaba deals from corporate data platforms, and cross-referenced it with news accounts to identify the 66 overseas companies, revealing an evolving narrative that tells the story of a drastic shift in the company’s overseas strategy. 

Corporate giants jealously guard information about their investments in order to avoid tipping off their rivals. As a result, the data is incomplete and presents only the total value of each funding round rather than Alibaba’s individual contributions. 

In 10 years, Alibaba went from having no international footprint to making investments around the globe with more frequency and value. In its early days, the company went big on US investments. But later, it pivoted sharply to India and Southeast Asia, where it has placed big bets on well-established companies in developing markets.

Humble beginnings

In 2010, Alibaba made its first big deal outside China, according to the data I collected. 

The company was no stranger to bets on up-and-coming companies, but it had stayed close to home. 

In China, it had already participated in funding rounds totaling around RMB 435 million (about $61 million at current exchange rates), investing in companies from appliance giant Haier to courier firm Best Logistics. At the time, Alibaba had been listed in Hong Kong for three years and was operating e-commerce platforms serving millions of people in China. The company’s international footprint, however, was still small. 

But this was starting to change. In 2010, Alibaba launched a $100 million investment plan for its global online retail business AliExpress. Under the plan, Alibaba acquired US e-commerce software provider Vendio for an undisclosed amount—the Chinese company’s first major investment in the US.

The deal was a watershed moment for Alibaba, representing a significant advance in its push abroad. 

For the five years after its first US acquisition, Alibaba had its eyes trained on American companies. Around 90% of the 17 investment rounds the company took part in between 2010 and mid-2015 involved US firms, according to TechNode’s analysis.

During this time, Alibaba twice invested in ride-hailing platform Lyft, and once in social media giant Snap, both of which were already well established. These three deals totaled $4.5 billion. The company focused mostly on later-stage startups, the majority of which were Series C and above.

Unsurprisingly, a lot of the companies Alibaba invested in operated e-commerce businesses. Alibaba took stakes in companies like 1stdibs and Shoprunner, and Jet.com and Zuily. But many of its investments also focused on industries far from the realm of online shopping. 

Alibaba bet on industries that would eventually come to complement its new retail push, as well as those that would later inform features on its massive online marketplace Taobao. 

The company invested heavily in augmented and virtual reality technologies, and added to a portfolio of social media and messaging companies, an area where it had already fallen behind in China. 

But from mid-2015 onwards, the company went through a drastic shift, broadening its view beyond investments in the US. Instead of looking across the Pacific for opportunities, it began searching closer to home.

Alibaba changes direction

While Alibaba had its eye on the US market, the company itself went through a series of fundamental changes. In 2012, the world’s largest online marketplace delisted from the Hong Kong Stock Exchange. 

“Just as the IPO was a starting point for Alibaba.com and not the finish line, [the] privatization is not the end but rather a new beginning,” Jack Ma wrote in a letter to employees early that year. 

He was right. Just two years later the company went public on the New York Stock Exchange. At the time, it was the largest IPO in US history. 

But the year following its New York IPO was disappointing. The company was plagued by slowed growth, fierce competition, and a flagging Chinese economy. Alibaba’s share price plummeted by around 40% from a post-IPO high of $115 in the year following its listing as consumer spending slowed at home. At the end of 2015, the company’s total annual sales growth fell to its lowest point in three years. The company began looking for ways to boost its bottom line.

Alibaba began investing in companies with more frequency. Between 2010 and mid-2015, the Chinese e-commerce giant had participated in 17 investment rounds. It took just a year from June 2015 to mid-2016 for the company to reach the same number. 

But as it ramped up deal-making, the company was turning from the US to the emerging markets of Asia. 

Between 2010 and 2015 Alibaba participated in 17 US-based rounds. In the last three years, from 2017 to 2020, that number dropped to just five. Meanwhile, the company has participated in 19 rounds in India and eight in Southeast Asia (SEA).

Alibaba clearly saw potential for growth in these two regions. Both India and SEA have experienced an explosion of startup founding. In the initial stage of the boom, these areas were similar to China in the early 2000s, with massive populations, underserved markets, and growing pools of tech talent.

It was fertile ground for Alibaba. 

The company’s first Indian investment came in August 2015. Unsurprisingly, it was an e-commerce company much like Alibaba’s Tmall. The firm, Snapdeal, was founded in February 2010 and has risen through the ranks to become one of India’s largest e-commerce companies. 

Alibaba then went on to invest in a slew of other Indian companies. These included fintech giant Paytm, e-commerce platform Paytm Mall, grocery delivery business Bigbasket, and restaurant aggregator and food delivery platform Zomato.

Alibaba’s bets paid off. At least five of the companies it plowed money into have reached unicorn status. Paytm and e-commerce company Paytm Mall have collectively raised around $3.6 billion in rounds in which Alibaba and Ant Financial participated. Paytm is now worth more than $16 billion. 

Alibaba’s most frequent Indian investments focus on e-commerce and food delivery. The company has invested in both Zomato and Bigbasket five times. Bigbasket’s Alibaba-backed rounds have landed the company $650 million.

Massive acquisition

An e-commerce company is only as strong as its logistics network. Alibaba knew this. So it entered Southeast Asia through Singapore’s publicly-listed postal service.

In 2014, the Chinese e-commerce giant invested nearly $250 million in Singpost. A year later, it followed up with a $148 million cash injection. 

Then, it bought one of SEA’s biggest e-commerce companies.

Lazada was founded in 2012 by German entrepreneur Max Bittner with backing from Rocket Internet. In four years, it became the biggest e-commerce company in SEA. 

Alibaba acquired a controlling stake in the Singapore-headquartered company in 2016. It was Alibaba’s biggest overseas deal. It followed up a year later with another $1 billion investment, upping its stake from 51% to 83%. Then, in 2018, it plowed in another $2 billion.

Lazada is now Alibaba’s de facto representative in SEA. The company currently has operations in Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. 

Alibaba is attempting to duplicate its success in China, applying what it has learned to new markets. At the time of its last investment, the company said that SEA is a “key part” of its global growth strategy.

But Alibaba didn’t stop there. The e-commerce giant and Ant Financial have participated in rounds worth at least $6.75 billion in the region, though, like in most regions, the value of several funding rounds was not disclosed. 

Alibaba also counts Tokopedia, an e-commerce unicorn from Indonesia, as part of its family. The Chinese tech giant has participated in rounds worth $2.2 billion in the Southeast Asian company.

Alibaba: e-commerce empire

With billions spent on dozens of companies in its portfolio, Alibaba has become a major player in the world of startup funding. But unlike peer Tencent, the company doesn’t appear to have aspirations to become a global venture capital firm. 

My analysis reveals a simple investment strategy: Alibaba invests in companies to help its mission of global e-commerce conquest. While it primarily focuses on investments in e-commerce, it also branches out into companies that support the industry, including online payment platforms. 

The company has mostly abandoned the US, which is dominated by Amazon, in favor of markets it could win yet. Alibaba is betting big on SEA, home to Lazada—its biggest investment yet. 

With Lazada, the company has bought a major presence in SEA. But reporting suggests that integrating it into the Ali empire has been a challenge.

After taking a significant hit following the nationwide Covid-19 lockdown, electric vehicle (EV) sales in the world’s biggest market are finally showing signs of recovery.

In February, according to figures from the China Passenger Car Association (CPCA), new energy vehicle (NEV) sales plunged 77% year-on-year to a mere 11,000 vehicles—the lowest since January 2017, when Beijing began phasing out subsidies on electric vehicle purchases.

China’s biggest automakers have been the hardest hit by the virus. In March, the country’s NEV giants—BYD, BAIC, and Geely—saw their deliveries plummet by two-thirds year-on-year. This marked three consecutive months of decline, in which the automakers saw their deliveries fall by more than half.

Covid-19 had effectively crippled China’s mobility industry. In February, as lockdowns to contain the disease spread across China, the need for transportation services disappeared. Taxi and ride-hailing services—usually cash cows for China’s biggest OEMs—came to a standstill due to weak demand and poor revenue, the CPCA wrote in a March report (in Chinese).

BYD, BJEV, and Geely are the largest players in China’s business EV market. Not only do they supply EVs for mobility services in their home cities, but their vehicles are also deployed in countless cities nationwide as local governments electrify their taxi fleets.

Last year, BAIC reportedly received orders for more than 80,000 EVs from various ride-hailing services, while Geely inked a deal with Chengdu to replace the city’s fleet of 10,000 gas-powered taxis with EVs by the end of 2020. But the economic pressures faced by ride-hailing operators during the outbreak resulted in a “significant number” of new car orders being canceled, said Cui Dongshu, secretary-general of CPCA, on April 9. As infection rates climbed, electrification of these fleets became a low priority. Now, as more than 50 cities resume taxi services after a month-long suspension, China’s auto giants remain in the doldrums. 

EV startups taking the lead

However, there have been a few winners. Chinese EV darling Nio and the American carmaker Tesla have bucked the trend.

The US EV giant recently reported record-high first-quarter results but did not disclose figures for sales in China. However, according to figures obtained by CPCA, the company delivered 10,160 EVs in China last month. That figure made up over 20% of the country’s all-electric market, and Tesla trailed BYD—one of China’s biggest automakers—by just a few dozen deliveries.

Late last month, Tesla’s Shanghai Gigafactory achieved weekly production capacity of 3,000 Model 3s, and is poised to offload around 150,000 China-made EVs this year.

Nio, which has faced its share of struggles, also outperformed the country’s biggest manufacturers over the past three months. During the first two months of 2020, combined sales of its flagship ES8 SUV and smaller ES6 only decreased around 12% from a year earlier.

The fall was followed in March by a 12% year-on-year increase in deliveries to 1,533 vehicles. “All signs point to a much faster demand recovery in the premium segment versus mass,” Bernstein analysts led by Robin Zhu wrote in a research note on April 8.

This appears to explain Nio’s relatively strong performance in the crumbling market over the past few months. The company has beaten the giants in the Chinese luxury EV sector. Over the past year, sales of its ES6 came out ahead of Mercedes Benz’s EQC and Audi’s e-tron in China, according to official car registration data.

However, Tesla now poses a bigger threat. The China-made Model 3 and Y could take market share from Nio, preventing the Chinese EV maker from improving earnings, analysts at China’s Everbright Securities said in March.

Nio aims to sell 4,000 cars a month this year, which the company says could “basically support its operational targets,” including a double-digit profit margin in the fourth quarter. Bernstein analysts predict Nio sales will rebound in the second quarter as the pandemic fades. “But the threat of competition from Tesla will only become more pertinent over time,” they said.

Beijing’s bailout

The turnaround for smaller EV makers can be attributed in part to China’s push to revive its flagging EV sector.

Before the coronavirus outbreak, Beijing had already been fighting to keep its electric vehicle industry afloat. The sector had gone into drastic decline since June of last year, when authorities cut subsidies by up to 50% for EV purchases. The hope was that reductions would spur innovation in a sector many believed had become too reliant on government support.

But in early January, China’s industry minister said the country would suspend further subsidy reductions in order to counter the months-long slump. The announcement came 10 days before China’s economy was turned upside down by wide-ranging quarantines and stay-at-home orders to curb the spread of Covid-19. As infection rates soared, authorities shuttered production plants and closed brick-and-mortar stores. Although February is typically a slow month for China’s auto industry, the shutdowns led to an unprecedented decline in deliveries.

Beijing is now leading a sector-wide bailout of its EV industry by backtracking on plans to completely axe subsidies this year as well as lowering barriers to entry for new EV makers. The government hopes to restore growth in the world’s largest market for electrified transportation in an offensive that, at this stage, seems to be working.

As China moves closer to something resembling normalcy following the drastic disruption to the economy, the State Council, China’s cabinet, made a surprise announcement: Subsidies and tax breaks for EV buyers will remain in place until 2022. The government had originally planned to do away with them completely this year.

The communiqué, which came just two and a half months after regulators decided that no further cuts would be implemented in 2020, represent a dramatic shift in direction. After NEV deliveries slid by nearly 80% in February, authorities ultimately decided to take matters into their own hands instead of allowing the industry to stand on its own two feet.

Beyond subsidies

Postponing further subsidy cuts represents just one of the ways that Chinese authorities are attempting to restore the industry to its former glory and rescue automakers that have been deeply affected by the virus.

The country’s notorious production quota system is also reportedly being temporarily relaxed. The system has been used to drive EV production by requiring domestic automakers to follow strict guidelines on reaching EV building goals.

Bigger automakers—which have been some of the hardest hit in the past three months—may now be allowed to focus on better-selling gas-driven cars and to delay new EV launches in order to improve their dwindling cash reserves.

Local governments are also helping to bail out troubled automakers with massive cash injections. Nio has signed a deal with the government of Hefei, the capital of east China’s Anhui province, worth RMB 10 billion (around $1.4 billion). The long-awaited deal is expected to rescue the company from a liquidity crunch after months of no investment.

Meanwhile, the government of Henan province invested RMB 2.02 billion for a 60% stake in Shanghai-based EV maker Reech Auto. Although the company has yet to start producing vehicles, they have struck a deal with state-owned carmaker Changan to produce its vehicles.

Beijing is also making it easier for fledgling automakers to enter the market by lowering barriers to entry. The government will no longer insist that EV makers be capable of product development, according to draft changes to current policies released on April 7 by the Ministry of Industry and Information Technology. The measures had previously been put in place to calm a regulatory bubble that had seen nearly 500 EV companies established throughout China.

Luckin Coffee’s sudden admission of financial fraud has touched off a short-selling bonanza for US-listed Chinese stocks. In the weeks since it admitted to fabricating over half of its claimed revenue, a short-seller firm called Wolfpack Research made similar accusations against iQiyi, while TAL Education has admitted to smaller-scale inflated figures.

In US markets, e-commerce platforms are the heavyweights. Alibaba alone is eight times bigger than runner-up JD, and you don’t see anything but e-commerce until Netease at number four. You might notice the absence of Tencent—it’s listed in Hong Kong.

Share prices of e-commerce and edtech startups have boomed as more people are relying on online services during the Covid-19 pandemic.

Despite short-sellers’ fraud accusations, edtech startup GSX Education has almost doubled its market cap in the last year to $4.6 billion. TAL Education has also seen a 48% increase whilst streaming site Bilibili has gained 65% or $3.6 billion.

E-commerce has made strides, with second and third-tier city focused Pinduoduo leading the pack with a $25 billion increase, or 100% compared to last year. At 18% Alibaba’s growth might not seem so impressive in comparison, but it amounts to a staggering $85 billion.

Tencent Music lost $10 billion in market cap over the past year—a hefty hit, but at 37%, it is far less than Baidu’s eye-watering 41% $24 billion decline.

Of the firms that have released 2019 reports, Netease, JD, and Trip.com led the pack (Alibaba releases its annual reports in May). Leaving aside allegations of inflated revenue, iQiyi was the second-worst in the sample. The only bigger loser was Nio.

TechNode has identified nine US-listed Chinese companies whose stocks have fallen below their original issue price. Of them, 36Kr has fallen the most, losing 76% of its value. It is closely followed by Luckin Coffee with a 74% decrease.

Last week, iQiyi was trading below its $18 IPO price after accusations of fraud. It started a moderate rebound late on April 14.

Even as tensions between the two countries have grown, the US has attracted increasing numbers of Chinese IPOs. In 2018, 42 Chinese companies went public in the US, the most since 2006. The next year, a still-strong 38 firms listed in the US. 

But short selling frenzies may change this trend—a previous wave of Chinese short sales, starting with Muddy Waters’s famed 2010 attack on Orient Paper, helped tank the 2011 IPO count from 22 to five. It took until 2017 for the number to pass 20 again.

For the first time in history, a Chinese company has taken the top spot among firms testing autonomous vehicles on California public roads.

In 2019, Baidu drove 108,300 miles and reported six disengagements across its four vehicles, making for the lowest disengagement rate of all the companies listed in California’s annual report: 0.055 per 1,000 self-driven miles.

Baidu had drastically improved its performance over last year’s report, In 2018, the company reported one disengagement every 205 miles. This year, that number fell to one for every 18,050 miles. In doing so, the company managed to knock Waymo out of its top-ranked position. Baidu attributed the drop to rapid expansion in testing fields over the past three years. 

But as the industry matures, disengagements are increasingly being seen as a poor measure of performance, since road and weather conditions, which play a huge role in report results, are not included in the data. Meanwhile, Baidu’s reports contain significantly less information about disengagements than its peers, causing industry insiders to raise questions about the quality of the company’s tests.

Baidu’s human intervention

According to Baidu’s report, the company’s vehicles required human intervention in certain situations: when surrounding objects were not detected or were misclassified, when a decision made by the autonomous system was not appropriate to the scenario, or when there was a problem with the hardware.

However, Baidu does not provide any additional information about the situation under which these disengagements occurred, only broad categories. Meanwhile, several of its rivals’ reports provide more detail about each incident that resulted in a disengagement.

For example, where Chinese counterpart Pony.ai said of one disengagement: “Driver precautionarily intervened for a reckless neighboring vehicle cutting into vehicle’s lane,” Baidu would simply say “perception discrepancy,” making it difficult to gauge just how well the company’s AV system functions.

To be fair, self-driving startup WeRide also lacked detailed descriptions in its reports. These companies are not required to include comprehensive accounts of every disengagement. However, many well-established players do, including Cruise, Didi, and Zoox.

Other aspects of the company’s testing regime are also absent. The company does not mention in its report where the tests took place. Most other companies’ reports indicate where they are testing and whether they have expanded their operations in California.

Baidu is predominantly running its AVs in Sunnyvale in very simple traffic scenarios, two industry insiders told TechNode, who asked not to be named due to their proximity to the matter.

By contrast, General Motors-owned Cruise conducted all of its tests on urban roads in San Francisco, the third-most congested city in the US, according to Tomtom’s 2019 Traffic Index. Cruise reported a disengagement rate of 0.082 per 1000 miles.

A Baidu spokesperson told TechNode that the company tests in “diverse conditions,” including urban roads and scenarios involving pedestrian avoidance, left and right turns, lane changes, and traffic light recognition.

Road conditions can have a profound effect on disengagements, with more complex urban roads leading to more disengagements. Conversely, highway driving is typically seen as easy for AVs.

“If I wanted to look even better, I’d do a ton of easy freeway miles in California and do my real testing anywhere else,” Bryant Walker Smith, a self-driving car expert, told The Verge.

China’s major players

While Baidu took the top spot in the tests, four Chinese AV startups also made it into the Top 10. AutoX and Pony.ai came in fourth and fifth—right behind GM’s Cruise—with one disengagement every 10,684 and 6,475 miles, respectively.

Meanwhile, Didi Chuxing took the eighth position, reporting 1,535 miles per disengagement, a good result for a relative newcomer. Didi, China’s biggest ride-hailing platform, started testing in California in June 2018.

In addition, China- and California-based WeRide recorded 151.7 miles driven per disengagement, performing much worse than its Chinese peers but ranking higher than companies such as Apple, Mercedes Benz, and Toyota.

Most Chinese companies conducting tests in California revealed no further details about their operations when contacted by TechNode. However, their individual reports reveal a blurred glimpse into their performance.

Pony.ai, AutoX, and WeRide all claimed to have covered a big pool of testing scenarios in various traffic and weather conditions—either sunny days or heavy rain. However, none of them detailed when and where exactly a driver has to disengage the system. These companies gave no indication of whether these incidents occurred in downtown traffic during commutes or on empty highways at night.

In terms of test areas, all the four companies have vehicles being tested in the South Bay, while Pony.ai further expanded to Fremont, where it launched a pilot robotaxi program providing transport services from a train station to two government offices.

However, most of the areas have modest population density, around one-quarter of that of San Francisco, where GM Cruise tested its vehicles in the city’s “very complex urban environment.”

Among the four Chinese companies, Pony.ai reported that its vehicles covered the greatest distance. Its fleet of 22 vehicles logged 174,845 miles in California, the third-largest number in the ranking, although nearly a fifth of that of Cruise.

The Toyota-backed AV startup also detailed their disengagements in more detail than its Chinese counterparts. In the 27 disengagements recorded over the 12 months ending in November 2019, Pony.ai attributed eight of them to reckless driving by other vehicles, and 11 to suboptimal routes planned by software for the car to maneuver. The situations its vehicles encountered vary from insufficient yielding to reckless driving on the part of other road users.

A flawed system?

Other AV companies reported disengagements resulting from poor detection of road objects or mapping flaws in different traffic scenarios. Although such details were presented in Didi’s reports, the ride-hailing giant revealed few reasons for disengagements, not categorizing them as planning, mapping or control issues.

Alibaba-backed AutoX referred very generally to the company’s three human intervention cases as localization and planning problems. The low number of disengagements may result from fewer miles driven than other companies. Meanwhile, Nvidia-backed WeRide reduced its miles driven by nearly two-thirds in 2019 from the year before, making little progress compared to last year.

The furor over the reports has led an increasing number of experts in the field to call into question the effectiveness of using disengagements as a metric to gauge how a vehicle is able to drive autonomously.

Disengagement reports provide an opportunity to compare AV performance between companies but discrepancies in reporting make the metric insufficient to measure performance, experts say.

In a series of tweets last month, Waymo asked whether disengagement metrics lead to meaningful insights. The company added that most of its real-world driving experience comes from outside California.

Meanwhile, Cruise Co-founder Kyle Vogt shared similar views, saying in a blog post that the reports are “woefully inadequate” to judge whether an AV is ready to be deployed commercially.

An earlier version of this article quoted a TechNode source as saying that Baidu tests AVs on Bay Area interstate highways. In fact, the company denies that its vehicles have been tested on interstate highways, and a review of interview recordings suggested that we may have misunderstood our sources’ comments.

When life changes, people buy different things. And we are seeing some interesting trends in what people are buying online during the extended quarantined. From private and publicly accessible databases, such as Shengyi Canmou, a platform that tracks sales data from Alibaba’s Tmall, Meituan, and installment sales outlet Fenqile, we are able to take a more granular look at China retail trends by product category, identifying some bright spots.

Sales from these businesses dropped by 52.4%, around RMB 264 billion (about $38 billion). For online sales, Alibaba’s CEO Daniel Zhang said during Alibaba’s earnings call that apparel and consumer electronics were not doing well during the epidemic period.

The Covid-19 outbreak has resembled a very long holiday. Even now, life is not totally back to normal. Local governments extended the Chinese New Year public holiday. What would normally have been an eight-day holiday from Jan. 24 to Jan. 31, became a 10-day holiday which ended Feb. 2. At the same time, cities such as Wuhan were closed down, over 70 airlines suspended or reduced flights to and from China, and local authorities imposed quarantines and advised people not to go to public places. Furthermore, schools extended winter breaks and have moved to remote lessons indefinitely, and companies are encouraging remote work even though the Lunar New Year holiday has officially ended. In short, most of China has been at home for more than a month.

Grocery and cooking products

Across China, people have been cooking at home rather than venturing into public to dine out. In fact, most restaurants had already closed during the Spring Festival holiday, but as the outbreak spread, fears of contagion kept food and beverage venues from reopening, prompting a surge of interest in both recipes and kitchenware from home cooks. For the online group-buying platform Pinduoduo, egg poachers were included in the “Top Ten Best Selling Product List” for the period of Jan. 24 to Feb. 14.

According to Meituan, China’s largest local services platform, online searches for baking goods jumped a hundredfold during the Lunar New Year holiday. Sales of condiments also increased more than eight times during the same period. Instant noodles were the most popular food on Meituan among consumers born after 1990, with a sales volume of 15.9 million. 

Between Jan. 24 and Feb. 2, sales of vegetables on JD.com increased by 215% over the same period a year ago. Data from JD.com also shows that the vegetables category saw the highest sales growth during the Chinese New Year holiday, with sales increasing by nearly 450% compared with the same period in 2019.

Home cleaning products

Likely encouraged by the Chinese government’s advice to clean frequently touched surfaces and objects regularly to prevent the spread of the coronavirus, demand for home cleaning products has surged dramatically. Data from Shengyi Canmou shows that January sales of home cleaning products have jumped 210% year-on-year, as shown below.

Between Jan. 25 and Feb. 23, Tmall’s most popular store by sales value in the home cleaning category was Weica, a Chinese brand that sells antibacterial sprays. Total sales from the Weica Tmall store reached RMB 33.6 million during that period.

Personal care products

The Covid-19 outbreak has also boosted sales of personal hygiene products. On JD.com, 1.8 million bottles of disinfectant solution and 3 million bottles of liquid soap were sold during the Chinese New Year holiday. According to data from Shengyi Canmou, the total sales value of the body wash category increased by 96.9% to RMB 438 million in January 2020, compared to January 2019.

While TMall defines the category includes bath soap, bath cream, shower gel, handwash, bathing herbs, and intimate wash, this growth appears to have been on the medical side of the category. Shengyi Canmou’s data also shows that between Jan. 25 and Feb. 23, total sales from the Tmall flagship store of antibacterial brand Dettol reached RMB 22.7 million, making it the top store by sales in the body wash product category.

Medicine

Before the coronavirus outbreak, most people in China got medicine from public hospitals. According to online pharmaceutical platform Menet, sales revenue (in Chinese) for medicine in China was RMB 171.3 bilion in 2018, of which, RMB 115.4, or 67.4% of total sales revenue, came from public hospitals, while RMB 9.9 billion, or 1% of total sales revenue, came from online stores.

During the Covid-19 epidemic, many people in China have turned to online retailers to buy medicine as more consumers are looking for medicine and supplements which they believe will help them to battle the virus and consumers’ attempts to reduce person-to-person contact have cut down on visits to brick-and-mortar pharmacies. Meituan’s data shows that 200,000 packs of Chinese herbal granules (a remedy for colds) and 200,000 vitamin C supplement products were sold during the 10-day’s Chinese New Year holiday. Many elderly consumers are also choosing to shop via online medical services in order to have medicine delivered directly to their homes. Sales of prescribed drugs for chronic diseases, such as hypertension and diabetes, rose by 237% on Meituan during the holiday. 

Read more: For China’s online medicine, regulation just as important as demand

Electronics

Electronics are a mixed picture. Alibaba, which presented a broadly pessimistic picture of online sales during its recent earnings call, picked out electronics as down during the virus period. But Fenqile, a smaller player that focuses on installment sales and is the only company to release numbers for the category, saw substantially increased sales in its published data.

Schools have been closed indefinitely pending the progress of the coronavirus outbreak, which has led to a flurry of experimentation with online education. Many adults also accessed online education during the prolonged holiday, as well as working remotely rather than returning to their offices. These changing behaviors may have driven sales of computer-related products, such as laptops and keyboards.

According to Fenqile, sales of laptops on its platform increased by 50% between Feb. 6 and 20, compared to the same period last year; sales of peripherals such as earphones, keyboards, and mice also saw an increase of 30–50% during the same period. Fenqile also noted that the average daily sales of used iPads increased by 40% in February compared with January.

Conclusion

Social distancing, voluntary isolation mandated by authorities and increasing awareness on wellness and health during the Covid-19 outbreak have driven demands for products such as grocery and cooking products, handwash and soap, medicine and laptops and computer-related products. At the same, sales of non-essentials from offline retailers are seeing a big drop during the holiday season. For example, Adidas has seen its business activity tumble around 85% since the first day of Lunar New Year. Alibaba said during its most recent earnings call that apparel and consumer electronics were not performing well.

As people’s life in China will eventually move back to normal, we expect demand for groceries and electronics from online stores will gradually move back to pre-virus levels. Offline grocery stores, restaurants, and offline electronics stores offer better selections, experiences not available online, or a chance to try products before buying. At the same time, demand for disinfection and home cleaning products from online stores might remain strong, as we expect many consumers to maintain healthier habits and an interest in wellness beyond the outbreak period, and offline stores have no real advantages in these products.

The result? Bytedance is making money hand over fist. Based on a combination of corporate updates and internal leaks, it’s already estimated to have made large inroads on Baidu’s ad revenue, as illustrated below, well and truly staking its claim to be the BAT’s new “B.” This year, Bytedance is expected to bank $25 billion in revenue. If the company achieves this, it will have broken the $25 billion-dollar threshold three years faster than Facebook did.

The coronavirus outbreak has wiped billions in market capitalization from China’s digital giants. Those plugged into China’s physical economy, like Alibaba and Meituan, have been hit hard. Alibaba, for instance, shed $26 billion in market capitalization from Jan. 21 to Feb. 24.

Yet for social media and entertainment headline acts, like Tencent and Bilibili, the momentum’s gone the other way. Since the outbreak, Tencent’s added $18 billion in market capitalization, fueled by news of eye-popping gaming expenditure and overwhelmed servers (in Chinese).

Bytedance, as a strict digital economy player with little exposure to physical goods and services, is riding the same wave.

This flurry of activity has made a few players very, very uncomfortable.

Six of the company’s apps made it onto App Annie’s most downloaded in January. And, since the coronavirus outbreak, Bytedance has:

• Scooped up exclusive rights to stream holiday movies
• Revealed plans to make gaming a more prominent force in its entertainment empire
• Tested e-commerce integration with TikTok
• Promoted a popular coronavirus-themed game; and
• Extended from in-app search to a standalone search engine. 

Sources tell me this flurry of activity has made a few players very, very uncomfortable. In particular, the folks responsible for ad revenue at Baidu and Tencent are shitting kittens.

Here’s why.

First, the obvious. Bytedance is capturing eyeballs. Douyin’s latest daily active user figures suggest that a tick under half of China’s internet users open the app each day. And, as early as June last year, Bytedance’s news and boredom-busting entertainment properties commanded a total 1.5 billion monthly active users. That scale has Baidu eating Bytedance’s dust.

Second, something less obvious: Bytedance is nabbing chunks of the digital advertising pie under adverse conditions. China’s digital advertising industry is essentially a zero-sum game, where the top four players command 85% of the money pile.

While the pie’s slowly growing, economic headwinds are making brands look for efficiencies. The net effect is a slowdown in advertising revenue growth across the back end of last year, which bruised Baidu and Tencent.

As ad growth gets harder, Bytedance is one of the few digital advertisers that’s growing advertising revenue at scale and speed. It more than doubled its advertising revenue in the past year. That means price and result-conscious advertisers are reallocating their spend, taking dollars away from other platforms and handing them over to Bytedance.

Why are they doing that? This brings us to the least obvious but most important point—at present, Bytedance’s advertising platform is probably better than Baidu’s or Tencent’s.

Much about Bytedance’s recommendation algorithm is unknown. However, its ability to capture, parse, and stitch together data about news articles, short videos, and games users are interested in is incredibly valuable. This creates all sorts of targeting and retargeting potential for savvy advertisers. Industry chatter (in Chinese) and interviews with a handful of local companies suggest that advertisers believe Bytedance is more cost-effective than Baidu or Tencent.

As Bytedance itself has shown, there’s huge upside running advertising campaigns across its ecosystem. One of the company’s secrets in quickly making inroads into hyper-casual games is how it used Jinri Toutiao and Douyin to run hype-building ads and drive game downloads (in Chinese). Those are the kind of results advertisers are looking for as brands navigate China’s economic contraction.

All this is giving ad teams at Baidu and Tencent cold sweats. Economic contraction and coronavirus dislocated digital advertising growth, yet Bytedance is still hoovering up advertising dollars. If it wasn’t apparent before, it should be now: Bytedance is eating incumbents’ lunch.

This article was co-authored by Eliam Huang.

Consumers in China are increasingly embracing second-hand goods, buying everything from used cars to “lightly used” lipstick. This new habit is reflected in the rising “re-commerce market,” which is predicted to reach RMB 1.25 trillion (around $178 billion) in 2020, rising by 70% from RMB 742 billion in 2018, according to data firm MobData.

MobData includes second-hand car trading as a subcategory of re-commerce, as well as relatively smaller items, such as fashion, beauty and electronic products. However, other sources exclude cars, making their numbers not strictly comparable. In this article, we’ll focus on the non-car side of the market.

The re-commerce market is dominated by two marketplaces associated with Alibaba and Tencent. Alibaba’s Idle Fish (Xianyu), a spin-off from Taobao, is by far the biggest, while Tencent-backed Zhuanzhaun is a clear second place.

Mobdata’s RMB 1.25 trillion would be almost 46% of the RMB 2.7 trillion sharing economy market estimated for 2020 by the Sharing Economy Work Committee of the China Internet Association. The sharing economy market also includes ride sharing (e.g., taxis), co-working spaces, and Airbnb-style apartment rentals.

Second-hand takes off online

The increasing popularity of re-commerce is driven by growing customer demand for product variety, sustainability, and affordability: Consumers want to possess the latest in clothing trends, while budget constraints are a consideration for most shoppers. In a survey of Chinese consumers born after 1985, 60% of respondents said they would buy pre-owned goods to take advantage of cheaper prices, according to results released on Jan. 9 by research company CBNData.

A growing emphasis on reuse and recycling also encourages the trend. China Beijing Environment Exchange estimated that transactions on Alibaba owned re-commerce platform Idle Fish helped to reduce 100,000 tons of carbon emissions between 2014 and 2018, although it does not spell out the methods used to reach the estimate.

The online apps and platforms have driven a surge in second-hand shopping. There are around 99 million users of resale-focused apps as of August 2019, according to data firm Getuiand the China Internet Network Information Center. Leading apps include Alibaba’s Idle Fish and Tencent-backed Zhuanzhuan, with MAUs totaling around 24.4 million and 11.4 million, respectively, as of March 2019, according to research firm Bida.

The majority of users on these resale apps are young and from higher-tier cities—around 89% of the users are under 34 years old, and 58% are from tier-1 and tier-2 cities as of August 2019, according to Getui and data firm Jiguang. We also note that majority users on these platforms buy small item goods, such as beauty and fashion products, although the platforms also carry big-ticket items such as used cars.

Idle Fish

Alibaba’s Idle Fish, launched in 2014, is an integrated C2C pre-owned goods marketplace. It originally designed as a channel on Taobao dedicated to second-hand goods. Now it is a standalone app, but users can search Idle Fish in both Taobao and Alipay.

Users on Idle Fish can exchange ideas and information about pre-owned goods that they are looking to buy, as well as posting pre-owned items for sale. Idle Fish lets users create virtual communities called “fish ponds” to consumers to share ideas among each other. “Fish ponds”—communities based on interests, location or institutions—allow users to mingle, share news, and transact. For instance, a fish pond for fans of traditional Chinese clothing has 48,000 members as of Feb. 20.

Alibaba reported 60 million active sellers on Idle Fish during the 12 months ending Sep. 30, 2019, and 1.3 million active interest-based communities. The platform shares cross-platform accounts with Alibaba’s other marketplaces Taobao and Tmall. Currently, users can buy or sell on Idle Fish without paying a commission.

Some of the most popular sellers on the platform are celebrities. More than 100 celebrities have joined the platform to sell used beauty and fashion products, such as second-hand bags, clothes, footwear and cosmetics. Celebrities such as Zhang Yuqi, Zheng Shuang, and Ying Caier joined Idle Fish since 2018, attracting 20 million fans, according to representatives of the platform (in Chinese). Chinese actress Zheng Shuang has 2.6 million followers on Idle Fish as of February 20, 2020. She sold the Hermes notebook whose original price was about RMB 550, at RMB 150 on the platform. Shoppers view celebrity sellers as good sources of authentic and lightly used goods, so you usually have to be quick to snap such a deal.

Zhuanzhuan

58.com, one of China’s online classifieds and listing platforms, launched the Zhuanzhuan re-commerce marketplace in 2015. Zhuanzhuan works as a marketplace, allowing individual users (C2C) and businesses (B2C) to list and sell pre-owned goods to other users. It also operates a direct sales model—the platform sources pre-owned goods from users, as well as providing cell phone quality inspection services to improve the user experience.

Zhuanzhuan also partners with home appliance company Haier to provide quality inspection and maintenance solutions for household electrical appliances that are sold on the platform either by direct sales, third-party B2B, or C2C.

In order to establish trust on the platform, Zhuanzhuan gives users the option of importing their WeChat contact list. Users can then see what their own WeChat friends are selling on the platform.

Zhuanzhuan sells mainly 3C (computer, communication, and consumer electronics) products. Around 86% of consumers on Zhuanzhuan and other re-commerce platforms said they focus on mobile phones when browsing re-commerce platforms, and 52.5% of users buy and sell second-hand mobile phones on these platforms, according to a 2019 report by Zhuanzhuan and 36Kr. This is partly due to the frequent updates of phones in the market. However, nearly 57% of respondents also said they have purchased new phones first-hand in the last two years.

Conclusion

Re-commerce is poised to gain more traction in 2020, as Chinese consumers increasingly pursue price-effective buying options and concern for sustainability. With the popularity of re-commerce platforms, such as Idle Fish and Zhuanzhuan, consumers have more opportunities and conveniences to buy and resell pre-owned goods.

More sales of used goods may cut into sales of new goods. Consumers are likely to grow more discerning about the relative merits of new and used. When similar products at a discount through re-commerce, they may not want to pay the premium for new.

However, we also see these platforms to provide opportunities for brand-name products—perhaps by encouraging customers to update their wardrobes more frequently while selling old clothes. For instance, luxury brand Stella McCartney offered a $100 store credit to customers who consigned old products from the brand to resale platforms.

Chinese short video apps added nearly 150 million new daily active users (DAU) during the extended Spring Festival holiday compared with a year ago as residents search for ways to stay entertained during the Covid-19 outbreak, according to a recent data analytics report. 

Why it matters: The Covid-19 outbreak is pushing China’s already tech-savvy population further online for entertainment, daily necessities, and even health care. Consumption habits formed during the crisis may be helping to reshape a new normal for Chinese consumers. 

• The impact has varied across industries. Verticals with an offline business core such as online travel and mobility has cratered, while online entertainment and online sales of daily necessities saw a spike. 
• Social media growth is still robust, but was outpaced by short video.

Details: DAU for Chinese short video apps combined reached 574 million during this year’s extended Spring Festival, which ran 10 days from Jan. 24 to Feb. 2. Short video apps had a combined DAU of 426 million during last year’s week-long holiday, and prior to the holiday on Jan. 2 to Jan. 8 this year, the DAU count was 492 million, according to a Quest Mobile report published on Feb 12.

• Douyin led the pack, with DAU surging 39% year on year to 318 million during the holiday, while Kuaishou followed in second place with 227 million DAU, up 35% from the holiday period a year ago. Both of the apps recorded a peak in DAU peak on Jan. 24, the eve of the Spring Festival day, largely driven by red packet cash prizes for various holiday galas.
• The percentage of total time users spent online jumped to 17.3% for short video apps during the 2020 holiday from 11.8% during the holiday last year, a 47% increase.
• Users spent 139 minutes on social media apps during the 2020 holiday period compared with 121 minutes in the holiday period a year earlier, growing 14.9%. Users spent 105 minutes on short video apps during the 2020 holiday compared with 78 minutes during the 2019 holiday period, a 34.6% surge.
• Fresh produce e-commerce platforms nearly doubled DAU to 10.1 million in during this Spring Festival holiday from 5.3 million during the holiday a year ago.
• The gaming sector has seen a surge of engagement with average time spent on mobile games increasing to 159 minutes during this year’s holiday from 113 minutes during Spring Festival 2019.
• Covid-19 concerns sparked user growth of online healthcare apps led by Ping’an Good Doctor and DXY.
• Online travel platforms were hit the hardest, recording a 40% drop in traffic during the holiday.

Context: The shift in user attention to short videos is reflected in the migration of brand ad budgets, a major source of revenue for tech firms.

• Kuaishou handed out RMB 1.1 billion (about $143 million) worth of cash giveaways to users during the Spring Festival Gala, an annual event held by the state-backed China Central Television.

This article was co-authored by Wei Sheng.

China’s tech stocks have dropped sharply since Jan. 13, when an epidemic disease known as novel coronavirus went global. On Tuesday Feb. 3, they started to recover, but most have a long way to recover from January losses.

E-commerce giant Meituan Dianping opened at HK$109.20 (about $14) on Jan. 13, dropped to HK$99.50 by the end of the day Feb. 3, and has climbed back to HK$100.50.

The stock rise coincided with a strong monetary boost from Beijing on Tuesday. The People’s Bank of China injected RMB 400 billion (about $57 billion) of liquidity to the banking system and strengthened the yuan exchange rate to support the economy.

The liquidity injection was the largest in the past year, sending a strong message to markets that the government will support the Chinese economy during the virus outbreak.

Manufacturers of surgical masks, now widely used and sometimes mandated in China for protection against airborne viruses, have seen a surge in share prices. Stock for three Chinese firms TechNode analyzed have gained 40% in share price since Jan. 13, indicating that investors expect a prolonged health crisis.

But things are looking up this week in tech. Stocks on Shanghai’s tech board started to climb on Tuesday, gaining back on the past few weeks’ losses. The benchmark SSE Composite Index, in which the STAR Market is listed, has gained close to 3% since Tuesday.

China’s Nasdaq-style STAR Market has been on a roller coaster ride after it reopened on Monday. Most shares dropped during the first day of trading after the week-long break with 43 out of 79 listing companies seeing their share prices reach the tech board’s daily limit of 20% downside.

E-commerce bounceback

The e-commerce sector has been hit the hardest among those analyzed, as expectations for consumption were low in the past few weeks. Share prices of the six companies TechNode analyzed saw a 9.4% decrease on average until Feb. 3, and have since won back 5.4%.

Millions of people are staying at home this week due to obligatory work-from-home policies, adding on the fact that fears of the virus spreading is running high. But fear of the virus might prove beneficial for e-commerce companies.

“Alibaba and Meituan’s share prices dipped slightly, but are now on an upward trajectory, as investors price in how important e-commerce will be over the coming months,” Michael Norris, leader of research and strategy at AgencyChina, told TechNode.

Cities across China have ordered entertainment venues to shut down and shopping malls to take strict entry measures during the Spring Festival break which went from Jan. 23 through Feb. 2 after a last-minute extension.

“Over the coming weeks, the default for many folks’ consumption will be e-commerce,” Norris said. E-commerce and delivery platforms have already implemented “no-contact delivery,” meaning the delivery driver doesn’t come in person with the person receiving the goods. This scheme meets consumer desires and “the stock market has responded positively to these developments,” Norris said.

Luckin Coffee shares have dropped by 29%, from $44.17 on Jan. 13 to $31.35 on Feb. 3, the biggest drop among the companies analyzed. On Saturday, the US investment firm Muddy Waters delivered a further blow to China’s largest coffee chain, saying that it believes the company is inflating sales numbers. Luckin Coffee stock has increased by 24.56% this week, recovering to $39.05.

Luckin shares dip further despite refuting fraud claims

Shoppers going online

Smartphones and telecommunications companies have also seen a drop. The five companies TechNode analyzed showed a 2.3% decrease since Feb. 13.

“We predict the overall smartphone shipment in China to drop by 15% to 20% year on year in the first quarter,” said Fang Jing, chief analyst at Cinda Securities, a Beijing-based investment firm.

The drop is attributable to the government’s calls remain during the Spring Festival holiday in an effort to contain the spread of the virus, Fang said.

The holiday is usually considered a barometer of Chinese private consumption because of the traditions of gift-giving and family reunions. However, fears of the deadly coronavirus that has killed 491 people and sickened 24,363, based on official data, have kept shoppers away from the streets.

“We have seen shipments of smartphones through offline channels drop by 70% during the Spring Festival holiday,” said Fang. “If the situation is not going to take a turn for the better, the percentage will likely increase.”

Instead, people are going online for electronics consumption. Online shipments of smartphones are expected to account for as much as 40% in the first quarter, Fang said, adding that the proportion was only 28% in the same period last year.

With a small store footprint, Xiaomi relies on online sales, which makes it a strong contender for the coming months when e-commerce will become an even bigger pillar of consumption. Its stock climbed 3.29% in the time period analyzed, making it the only rising stock in the smartphones and telcos category.

Compounding on Xiaomi’s relatively good outlook in China, are good results in India. The Beijing-based company remains the top smartphone brand in India, according to research by market intelligence firm Canalys published on Jan. 29.

Supply chain delays

The epidemic also creates challenges and disruptions for supply chains in China, especially after authorities in some big cities announced rules barring companies from resuming operations for a certain period of time following the break.

Companies in Shanghai, for example, are not allowed to re-open offices before Feb. 10, meaning either remote work or a longer holiday. In the meantime, jobs that require the physical presence of employees, like factories, remain closed.

DingTalk, WeChat Work overburdened as hundreds of millions work remotely

Car manufacturer Hyundai had to close all its factories in South Korea after it ran out of critical components coming from China. The world’s fifth-largest automaker said it would take three to four weeks to switch to parts made outside China.

“We expect that most consumer electronics manufacturers will resume operations on Feb. 9 or Feb. 10, which means a delay of roughly one week,” said Fang.

“But, given that the first quarter is always a low season for electronics consumption in the year, the impact is limited. We expect that orders affected by the delay will account for less than 2% of smartphone makers’ annual orders.”

CORRECTION: An earlier version of this article erroneously reported Meituan Dianping’s stock price as though it were listed in US dollars. The company’s shares are priced in Hong Kong dollars.

US tech giant Apple handed over more user account data to authorities in China than any other country in the first half of 2019, according to the company’s biannual transparency report.

Why it matters: Apple’s report details the number of times governments around the world request information about the company’s users.

• While the report does not include detailed information about the kinds of information that is released to authorities, it provides insights into the relationship between big tech and governments around the world.

“Account-based requests generally seek details of customers’ iTunes or iCloud accounts, such as a name and address; and in certain instances customers’ iCloud content, such as stored photos, email, iOS device backups, contacts or calendars.”

—Apple’s transparency report

Details: Between Jan. 1 and June 30 last year China’s government petitioned for information relating to nearly 15,700 user accounts in 25 separate requests. Due to US regulations, Apple can only release transparency data six months after a reporting period.

• Apple said that it complied with 96% of China’s petitions for account information.
• The company did not specify the number of accounts in each of the 25 requests, only that it complied with the majority of them.
• Only one request related to content from user accounts, the company said. It is unclear how many accounts were included in this request.
• Meanwhile, authorities in the US, Apple’s home market, requested access to data from 15,300 accounts.
• Apple’s legal team reviews requests to determine whether they have a valid basis, according to the company. If no basis is found, the request is challenged or rejected.
• During the same period, Apple removed 194 apps from its App Store for legal reasons following requests from Chinese authorities, accounting for 90% of removals worldwide.
• The majority of China’s requests related to apps with “pornography and illegal content,” the company said.

Context: The number of accounts included in China’s requests has more than doubled compared with the second half of 2018, while compliance rates have fallen by 2 percentage points from 98%.

• Apple in October pulled from its Hong Kong App Store a crowd-sourced police-tracking map app after state-owned media People’s Daily blasted the company for “assisting rioters.”

It appears many Chinese tech executives had the same new years resolution for 2020: Do more fundraising.

Barely a couple weeks into the new decade, quite a few of China’s most prominent tech titans are heading to global capital markets looking for funding. Huawei is reportedly seeking to raise up to $2 billion in loans and bond sales. JD has filed to raise $1 billion in a bond issuance while also planning IPOs for both its JD logistics and JD Dada arms in the US. Fast-growing Luckin Coffee has also already filed to raise funds through both a $400 million bond issuance and a secondary share offering of $378 million. Additionally, US-listed Baidashu, Netease, and CTrip are all reportedly considering secondary listings in Hong Kong.

What’s driving this all-at-once cash grab? It turns out that the new year brings with it a perfect storm of converging factors that draw firms to the capital trough. And for a community of tech entrepreneurs who have struggled to secure financing in 2019’s “capital winter,” which saw a total deal value fall to $51 billion from $112 billion the previous year, there is hope that the worst could be over.

Window of opportunity

Shares in China’s major publicly-listed tech firms have surged in recent months, renewing the interest of investors. For many of these companies, this means share prices rebounding from a tumultuous past few years. Netease has returned to heights not reached since late 2017. Tencent’s shares are pricier than at any point since mid-2018. Xiaomi’s long-suffering shareholders, who saw the stock move consistently downward since the company’s much-hyped July 2018 IPO, have been rewarded by a rise of roughly 30 percent over the span of two months.

Renewed investor confidence has led many firms to wonder if the current moment offers a rare window of opportunity. “With share prices so high, it could be a good time to add to their war chest,” explains Jimmy Lai, former CFO of US-listed China Online Education Group and a current board member for three NYSE-listed firms. “There is a fear of missing out that may come into effect, as well as a herd mentality. No one wants to miss their window, and when their competitors are raising cash as well, nobody wants to be the company that doesn’t.”

The Hong Kong secondary listing

On Nov. 26, US-listed Alibaba issued a secondary listing on Hong Kong’s stock exchange, raising over $11 billion, the largest listing on any exchange for all of 2019 save for that of Saudi Arabia’s state oil giant Saudi Aramco.  In the big picture, the Hong Kong listing gave one of China’s largest and most strategically important tech firms a hedge against the possibility of proposed US regulations which would demand further disclosure from Chinese firms listed in the US, or perhaps even ban and delist them altogether. Alibaba’s blockbuster offering also provided a much-needed economic and morale boost to a financial center that had been rocked by protests, violence, and political conflict for much of the year.

Yet for Netease, Baidu, CTrip, and other US-listed firms considering following in Alibaba’s footsteps with a secondary listing in Hong Kong, the incentive to do so may not be anything more complicated than access to cold, hard cash. “Hong Kong investors behave differently than those in the US. The US stock markets are dominated by institutional investors, while Hong Kong has a larger percentage of retail investors. Being listed in both places provides more flexibility for firms when looking to raise further capital,” explains Jimmy Lai. “Now that Alibaba has done it successfully, some of these other firms are willing to give it a try.”

Indeed, the impact of Alibaba’s Hong Kong listing seems to be part of what is fueling the overall bullishness for Chinese tech stocks. As of Jan. 14, shares of Alibaba’s US-listed shares have risen roughly 15 percent since their Hong Kong IPO date of Nov. 26, a date that seems to serve as the point of lift-off for the current share price surges of Tencent, JD, Netease, Xiaomi, and others.

(Relatively) calm geopolitical waters

The feud between the US and China appears to be amidst a slight respite. A substantive—if limited—trade deal has now been signed and Trump’s provocative tweets and unpredictable behavior do not seem to rattle markets in the same way that they once did. While this is far from a return to normalcy, fears of trade war-induced economic Armageddon appear to have subsided, at least for the time being. And when fear subsides, it’s often good for markets.

Currency balancing act

Those inclined to hold a more bearish view of the Chinese economy altogether see Chinese firms’ efforts to tap international capital markets as one downstream effect of China’s central bank and financial regulators’ attempts to manage the country’s foreign currency reserves. Despite being a net exporter, the world’s second-largest economy is heavily dependent on imports for some of its most essential goods, including oil, metals, and agricultural products. As China must pay for such goods using foreign currency, this requires not only that they have a large stockpile of foreign currency reserves, but that those reserves be liquid enough to use.

As China’s leaders have been simultaneously managing a slowing and heavily-leveraged economy, trade tensions with the US, and their own global ambitions, ensuring healthy levels of liquid foreign currency has become an increasingly complicated task. In recent years, the People’s Bank of China has taken steps to limit capital outflows and restrict conversion from RMB to USD. While a large state-run oil company or agricultural goods importer may be able to convert freely, private firms, and individuals often face more obstacles.

As Fulbright University Vietnam professor and well-known critic of China’s financial system Christopher Balding puts it, “They’ve effectively started rationing US dollars.” For China’s technology firms, many of whom require foreign currency for their overseas expansion plans, getting that currency through international capital markets may be easier than converting their RMB-denominated assets into USD. Says Balding, “by raising money from outside China, it is a win-win for both the party elite in Beijing and for the tech companies as well. The companies get cash to fuel their expansion plans, and Beijing can see their firms expand globally without having to give them dollars to do so.”

Is capital winter over?

For the likes of Alibaba, Huawei, JD, and Netease, this may be an opportune time to raise funds on preferable terms. Yet for firms that have struggled lately, investors’ recent enthusiasm opens a door for a much-needed lifeline.

High-profile EV-maker Nio has struggled to stay solvent since its 2018 IPO and has seen its share price fall accordingly, yet a better-than expected quarterly earnings report and strong financial market tailwinds appear to be pushing them closer to another funding round. For viral media platform Qutoutiao, their resurgent share price could potentially allow them to do the same.

Yet for startups, who endured a difficult 2019 as capital winter went into full swing, it is unclear if the gains we are currently seeing will trickle down to them.  A thaw seems to be underway, but only time will tell if it is a true sign of spring.

Editor’s note: This post about Tencent investments originally appeared in our members’ only weekly newsletter, accompanying Elliot Zaagman’s analysis of Tencent’s global investment strategy published here. Sign up and read it first.

Tencent has an interesting investment strategy. In every sector except gaming, they spread their bets, usually taking only a 20% stake. However, as we discovered, that strategy still has room for variation. In preparation for Elliott Zaagman’s analysis of their investment strategy, we collected, cleaned, and visualized the publicly available data on how the tech major deploys its money.

One pattern was very clear: in relatively mature markets (US and India) they prefer to make a lot of small bets at the early stage. In immature markets (Southeast Asia and Africa), they go with larger players at later stages.

Our hypothesis: mature markets have already been won so it makes more sense to invest in smaller, but potentially disruptive companies. In immature markets, where they have less expertise and the market is still rapidly developing, it makes more sense to invest in companies who have already won or are about to. No matter which market, however, Tencent only likes making acquisitions in the gaming space, where it still garners the biggest proportion of revenue.

The data present is incomplete, though. We only included investments with publicly available funding data. Even then, we still don’t have exact figures on how much Tencent invested, no matter if they were led or followed-on. In addition, we don’t include the value of acquisitions, mostly of gaming companies (for gaming acquisitions, PC Gamer has a helpful overview). Elliott’s piece, the data he gathered and that we present below, is just one way of interpreting the data. If you have other interpretations, we’d be glad to hear them.

—John Artman, Editor in Chief

Venture capital funding for Chinese technology startups dropped by 51.5% year on year in the fourth quarter, according to a report by government institute released on Friday.

Why it matters: The decline affirms the so-called “capital winter“ which affected companies and investors in China’s tech sector over the course of 2019. The term refers to a significant slowdown in investment and fundraising activities.

Details: Chinese tech startups closed 403 funding rounds and raised a total of around $6.8 billion from venture capital investors in the fourth quarter, according to a report (in Chinese) by the China Academy of Information and Communications Technology, a research institute under China’s Ministry of Industry and Information Technology.

• To compare, there were 564 rounds which raised $14.1 billion in the same period in 2018.
• Early-stage investments, including seed and Series A funding rounds, accounted for 73% of all investment activities in the quarter.
• More than half of the money raised in the quarter went to Shenzhen-based Tenglong Holding Group, a data center service provider which closed a Series A worth RMB 26 billion (around $3.7 billion). Participating investors included Morgan Stanley Asia and China Nanshan Development Group, a real estate developer.
• Tenglong’s lion’s share of total funds raised also means that funds raised by other Chinese startups were significantly lower than the same period in 2018.
• The dramatic drop is attributable to “a cautious investment climate” and “limited investment returns,” according to the authors of the report.

Context: Some 336 startups in China were forced to cease operations in 2019, according to the Financial Times. These companies collectively raised RMB 17.4 billion from investors.

• Shanghai’s Nasdaq-style high-tech board opened in July in a bid to facilitate improved capital flow into the tech sector. However, more Chinese tech companies chose to list on overseas markets.

If there were an equivalent of cult entrepreneurship guide “Lean Startup” for Chinese internet entrepreneurs, the CliffsNotes version would look something like this:

• Step 1: Get investment
• Step 2: Get users
• Step 3: ???
• Step 4: Profit!

Trouble is, having plentiful users doesn’t always translate into a clear path to profit.

Just ask Little Red Book. Rumors abound that the “social e-commerce” platform gutted its e-commerce division’s staff by as much as half last year. Or ask Quora-like Zhihu, or travel review platform Mafengwo. Together, these three have raised more than $1.8 billion from investors, according to Crunchbase. The return on investment? A combined 220 million active monthly users, and no profits.

Each of these apps is content-driven, but without a successful, scalable monetization model. That spells trouble when trying to convert users and venture capital into profit.

Content castles

Let’s start with each platform’s content and scale.

Little Red Book is a platform to share and read product reviews and lifestyle tips across a gaggle of product categories. Think a hybrid of Instagram, Pinterest, and Net-a-Porter. It cracked 85 million monthly active users in the first half of 2019, of which a high proportion are women from China’s first and second-tier cities.

Zhihu, China’s equivalent of Quora, features Q&A that ranges from the asinine to the profound. Third party sources estimate the app has 35 million monthly active users, reading and adding to the site’s 28 million questions and 130 million answers.

Mafengwo is a travel experience sharing platform, focused on long-form content. The company claims over 100 monthly million users, but it has previously been embroiled in scandals for funny business with its numbers. I’d take that monthly active user figure with some skepticism.

Castles without moats

The trouble with freely available written content is, it doesn’t lend itself to making platforms meaningful returns. For individuals, it might be a way to make a living. But for large businesses, platforms, or portals, freely available written content is typically a loss-leader that aggregates demand and drives sales across other areas of the business.

Consider Meituan’s review platform, Dianping. This Yelp equivalent is the Meituan ecosystem’s most frequently-used function, but generates chump change compared to Meituan’s food delivery and travel units.

For content platforms that aren’t part of the Alibaba, Tencent, Bytedance, or Meituan universes, the trick is building compelling products or services that can cross-subsidize the cost of building and nurturing a large-scale content platform. This is where Little Red Book, Zhihu, and Mafengwo have struggled.

Little Red Book has had a crack at almost everything to make bank. It’s gone into cross-border e-commerce, physical stores, influencer monetization, and in-platform advertising. None of these appear to have gone according to plan.

More alarmingly, monetization efforts through overt in-platform advertising may be driving away users. According to analysis of Quest Mobile data (Chinese), Little Red Book’s monthly active users have declined from 98 to 72 million between August and October 2019. That’s a stinging setback, and the company will need to show meaningful improvement before they can confidently go to investors again.

Zhihu has been down a number of monetization paths in its eight-year history, with similarly displeasing results. It has tried monetizing experts, adding paid content featurettes, and incorporating Q&A livestreams. However, this multi-pronged effort wasn’t enough to stop Zhihu letting go of around 20% of its workforce (Chinese) in late 2018.

The stakes are now even higher. In August 2019, Zhihu raised a $434 million Series F. That’s the largest fundraise in China’s online content and entertainment segment for the past two years, and takes the company’s valuation ($3.5 billion) beyond Quora ($2 billion) and Reddit ($3 billion). All three cornucopias of information are valuation-rich, but none have turned a profit.

Mafengwo’s monetization should have been relatively straightforward: connect passionate travelers who read the platform’s reviews with relevant travel packages and take a cut of the proceeds. This would require pinching share from Trip (formerly Ctrip), which made $549 million from package sales and commission in 2018. And it hasn’t happened: the company recently announced plans to lay off 40% of its staff. Sources inform me that, without a fresh capital injection, things look bleak.

Content + scale still not enough

The internet’s widespread adoption gave rise to a particularly awful cliché: “Content is King.” This cliché has inspired a number of companies that aggregate content, of which a fair chunk have received generous investment. In investing in content-based companies like Little Red Book, Zhihu and Mafengwo, investors like Tencent (which has bet the trifecta) make some justifiable assumptions:

1. High-quality written content attracts audiences
2. High-quality written content across multiple themes or categories gives access to multiple high-value audience segments

But also some iffy ones:

3. Advertisers will pay to access these audience segments
4. Content platforms can provide advertising solutions which are attractive enough to advertisers to redirect spend from news websites and social media
5. Audiences won’t leave as the platform attracts more advertisers and incorporates more advertising formats

You’ve probably spotted that why the third, fourth and fifth assumptions represent some very big “ifs.” Zhihu, Reddit, and Quora—each independent of the digital advertising magnets that are the digital giants—have found out how difficult it is to nab advertising spend.

If I’m honest, I don’t think very much of these companies’ ability to build sustainable businesses and their future prospects as independent entities. However, I commend Little Red Book, Zhihu, and Mafengwo for exploring non-advertising revenue streams. They have recognized the limits of advertising revenue and have been nimble enough to try different commercialization models. Facing uncertain futures and a poor monetization track record, they’ll need to continue iterating while being paragons of frugality.

Eventually, however, we may have to accept that China’s written content platforms need deep-pocketed patrons—whether investors or integration with one of China’s internet giants—to eke out a continued existence.

The latest funding round of each company suggests where things might go: Alibaba’s sizing up Little Red Book as a content extension for Taobao, Kuaishou and Baidu are looking to wrestle over Zhihu’s question-based foothold in search, and Tencent is adding to its small tourism portfolio.

User retention and inroads into commercialization will decide each company’s fate.

The Chinese market for wearable devices reached 27.15 million units shipped in the third quarter of 2019, up 45.2% from 20.97 million units in the same time period last year, according to a report from market research firm International Data Corporation (IDC). The report predicts the market to reach 200 million units in 2023.

Why it matters: The report highlights the fast growth of China’s wearable devices market, and the fact that Chinese companies are the biggest players in this field.

Details: Xiaomi is leading the market, with a quarter of all shipments, but Huawei saw the biggest increase in shipments. The Shenzhen-based telecoms giant saw its shipments almost double in the last year, doubling its market share from 10.7% in the third quarter of 2018 to 20.7% in the third quarter of 2019.

• The market saw some consolidation in the time period , as the total share of the top five companies grew from 59.8% to 70.2% in that time period.
• BBK Electronics, the parent company of Oppo, is the only company in the top five that saw its market share decrease, from 9.8% to 7.7%.

Context: Xiaomi overtook Apple as China’s largest seller of wearable devices in 2018.

Additional contributions by David Cohen.

In the West, monopolies are a source of fear. Silicon Valley has tried for many years to convince users and regulators that the term should be rehabilitated. Since the 2016 American presidential election, however, the increasingly monolithic role of tech in Western society is coming under fire. Leaders of tech firms are being subjected to vitriol in public hearings in the US, while the EU searches for ways to curtail their influence in public and private life. In China, however, the role of tech in society is viewed in a much different light. For the state, big is beautiful.

Like the West, China has its clear tech winners. But there’s no easy comparison. Much ink has been spilled trying to understand Chinese tech majors by comparing them to Silicon Valley counterparts; just as American tech majors control ever more of the economy, so too do China’s. 

In China, more than anywhere else, the boundaries between online and off are increasingly blurred, giving tech giants outsized influence not just on how we consume, but also the broader shape of the economy. Since 2014, the growth in revenue for Baidu, Alibaba, and Tencent have outstripped China’s GDP by many multiples:

Far from the open space the internet was imagined as, these firms are defining it as a series of fiefdoms. Unlike US majors who have stayed relatively confined in their chosen verticals, China’s fiefdoms are sprawling empires encompassing almost every transaction in the consumer economy.

Bottom line: The heady days of the early internet are long gone. First envisioned as an open network freeing the flow of information, the global internet is now balkanized. While China was the first country to isolate its internet, we now see balkanization along company lines as well. Silicon Valley has its FANG (Facebook, Amazon, Netflix, and Google) while the Middle Kingdom has its BAT (Baidu, Alibaba, and Tencent) and TMD (Toutiao/Bytedance, Meituan, and Didi). To do business (not just online), entrepreneurs must rely on the giants for money, access to users, and much more. 

Competing fiefdoms: The two biggest fiefdoms are those of Tencent and Alibaba. Founded just a year apart, these two giants couldn’t be any different. Tencent began as a social media company with its release of QQ in 1999. Since then, it has expanded into gaming and content (movies, books, music, etc). Its CEO, Pony Ma, is notoriously media-shy and the company encourages a siloed approach to product development, encouraging teams to compete.

Alibaba, on the other hand, started as an e-commerce company. By creating a trust mechanism, Alipay gave buyers and sellers confidence to make transactions. Since then, the company has consolidated its e-commerce strength with a variety of services online and increasingly offline. Jack Ma, co-founder and former CEO, is outspoken, flamboyant, and always ready with a clever quip.

Valued at $75 billion, Bytedance is an outlier. A second-generation giant, Bytedance has amazingly grown from a news aggregator app into a real threat for both Alibaba and Tencent. Leveraging its powerful recommendation algorithm, Bytedance entertainment products are slowly eating away at Tencent’s hold on attention while their foray into e-commerce could potentially loosen Alibaba’s stranglehold as well.

Proxy war: Both Alibaba and Tencent, while expanding into peripheral verticals, also compete head-to-head: Tencent has allied e-commerce platforms Pinduoduo and Jingdong; Alibaba has social media/workplace tool DingTalk as well as music app Xiami and O2O services Koubei (which competes with Tencent-backed Meituan). These proxy plays are just another example of how ambitious these companies are. But they have to be: if they didn’t incorporate these new products and service models into their fiefdom, they would quickly become irrelevant and lose much of their hard-won market share, as Baidu has done.

A cautionary tale: If there ever was a company (and founder) who should have succeeded, it was Ofo and Dai Wei. President of the Communist Youth League at Tsinghua, Dai Wei was an up-and-coming leader. Zhen Fund, which claims to invest in founders more than ideas, saw a young, well-connected man who might just have what it takes to grow a company from nothing to a giant. However, Dai’s effort to play both sides (Tencent and Alibaba) doomed Ofo. 

Bike rentals, no matter which way you cut it, was a tough business. Dai made it even tougher by taking investment from, and allowing on the board, Tencent-backed Didi and Alibaba’s Ant Financial. Both wanted in on the booming bike rental market, but neither would allow the other to take control. Ultimately, Didi would instead buy and scale BlueGogo and Ant Financial would get into bed with lower-tier city success story Hello Bike.

The slow death of the open web: The web (as in the world-wide one) was meant to be open. The HTTP protocol and HTML language were created to allow anyone and everyone to create and disseminate information. It was about information, not monetization. However, over the past decade we’ve seen some of the smartest people create inventive ways to make money on top of the web infrastructure. But you can easily use the internet protocols without the web.

Eleven years ago, apps were a very novel thing. Many, at first, were ported websites with a mobile UX. By now, apps have evolved into the centerpiece of everyone’s phone: you can’t have a successful smartphone product without apps to back them up. 

Without companies dedicated to the open web a la Google and with the fierce competition in the China market, the open web is virtually dead in China. Baidu, even though very similar to Google, never had the same principles. Their search product, as it stands now, does more to drive traffic within its own fiefdom than actually fulfilling user requests for information. For companies, the open web means a much more shallow moat where users can flit from link to link. Apps, on the other hand, are sticky, designed to keep users inside as long as possible. “Deep linking” to other applications on a phone wasn’t even allowed until many iterations after the first version of iOS.

And the open web is only getting more dead: In China, private traffic has become the latest in monetization techniques. Using “open” platforms like Taobao, merchants pull buyers into their conversion funnels with WeChat groups 

For Chinese users, there’s almost no reason to open a web browser: all their content, friends, family, shopping, and playing are all done through apps controlled by one of the tech giants or their partners. 

This suits the giants very well. By keeping users in their ecosystem of apps and blocking deep links to competitors’ suite of apps, China’s tech majors are reinforcing their monopolistic fiefdoms while users are enjoying the fruits of even more consumption power.

Chinese semiconductor companies receive the most government support of any of their global peers proportionately to their revenue, states a report from the Organization for Economic Construction and Development (OECD). The report describes not only the enormous size of the Chinese apparatus supporting the local integrated circuit (IC) industry, but the unique role of government equity and cheap loans in the Chinese IC ecosystem.

Some non-Chinese companies like Samsung and Intel receive similar amounts of state funding, but because of higher revenues, the government funds support a significantly smaller proportion of their operations.

The OECD in collaboration with moorcroft debt recovery looked into public financial records of 21 international chipmakers which represent two-thirds of the global market. They found that Chinese companies receive higher government support relative to their revenues on average than their global peers. This support comes by way of cheap loans, investments at below market price, and direct budgetary support.

Tsinghua Unigroup, a semiconductor developer 51% owned by a leading state university in Beijing, is the largest recipient of government support in the sample. The Semiconductor Manufacturing International Corporation (SMIC), China’s largest chip manufacturer, is the largest recipient of funding as a proportion of revenue, getting government help equal to over 40% of its revenue.

In terms of Chinese semiconductor companies, only privately-held HiSilicon, owned by Huawei, made it into the global top 20 by revenue in 2018, in sixteenth place.

Disproportionate government ownership

Chinese firms received 86% of all below-market-equity investments among the firms surveyed. These take place via the Integrated Circuit Fund, a government company set up in 2014 to invest $23 billion in the industry, as well as through state-owned enterprises and local governments that acquiring stakes in chipmakers.

Semiconductor plants, known as fabs, are subject to a complex ownership structure in China, involving different levels of government in different parts of the company structure. One of these facilities costs around $20 billion to construct, the OECD said.

The government owns 95% of equity in fab Shanghai Huali, the OECD said. It is supported by a $1.8 billion injection from the national IC fund and $316 million from the Shanghai government. In addition, it is owned by the SASAC and Hua Hong Group, a state-owned semiconductor agency. Other examples in the report include 75% government equity in a fab in Wuhan, the provincial capital of central Hubei, and 57% in a Beijing fab.

But these investments have yet to produce significant returns, as profits remain low. Chinese firms’ assets doubled in the period 2014 to 2018, after the national IC fund was set up, but average profit margins were one-fifth of their global peers as of 2018.

Chinese IC firms lack their own chip designs, and usually act as manufacturers for overseas companies, which keeps profit margins low. In September, two Chinese companies announced plans to start making homegrown memory chips, but experts remain skeptical on if they can compete with incumbents.

“New NAND flash and DRAM players like Changxin Memory and Yangtze Memory are entering markets full of incumbents,” Stewart Randall, head of electronics and embedded software at Intralink, a consultancy that provides market entry services to China, told TechNode. “It will be extremely hard to gain market share. selling at a loss to gain market share may be necessary, but government funding can keep them going,” he added.

Better loans, budgetary help

The three largest recipients of below-market loans between 2014 and 2018 were Chinese; Tsinghua Unigroup at $3.14 billion, SMIC at $695 million and JCET at $688 million, the OECD said. State-owned Hua Hong Group also received a $71 million loan in that period, the report states.

These loans typically include better terms than those from commercial lenders, with lower interest rates and longer repayment periods. The loans came from state-owned banks, namely the Bank of China, China Development Bank, and China Construction Bank.

All other firms in the sample received little or no funding. The next largest non-Chinese recipient on the list was Korea’s SK Hynix, which borrowed $34 million from various lenders, including the Korean Development Bank.

Beijing is also helping China’s chip industry through direct cash injections, subsidized inputs and tax deductions. SMIC and Hua Hong were the greatest beneficiaries of such budgetary support, proportionately to their revenue, according to the report. SMIC receives fiscal help from the government equivalent to almost 7% of revenue and Hua Hong’s budget receives assistance equivalent to 5% of revenue.

The US-dominated semiconductor firm acquisitions from 1998 to 2018. But with the creation of the national IC fund, international buyouts from Chinese players boomed. Nearly three-quarters of all IC firm buyers were Chinese in 2016. Activity has since slowed as restrictions on capital outflows intensified.

With contributions from Wei Sheng

A series of recent changes to JD.com’s management team indicates that tech billionaire Richard Liu may be ready to take a step back from operations at the Chinese e-commerce giant he founded over two decades ago. 

JD is different from Chinese tech majors like Alibaba, which is based on a partnership system: JD doesn’t have an official co-founding team. Liu’s absolute rule has typified the company since its beginning. 

Liu stepped down on Dec. 5 as manager of a Xi’an-based unit that wholly owns JD Logistics, the firm’s delivery arm. Liu holds an indirect 45% stake in the subsidiary, according to corporate data platform Tianyancha. The development is the latest example of Liu withdrawing from the company’s ongoing operations:

• In May, Liu walked away from his role as the manager of the Jade Palace Hotel in Beijing, an iconic building in the capital that JD acquired for $400 million in February.
• He resigned as the legal representative for a subsidiary in Suqian of eastern Jiangsu province in July. The unit is a shareholder in JD Digital.
• In November, Liu stepped down as manager of two cloud computing units that the company registered in February.
• In the past month, he has given up top roles at four healthcare subsidiaries registered in Beijing, Yinchuan in Ningxia Autonomous Region, as well as Huizhou in Guangdong province. 

The moves echo remarks made at a November 2018 earnings call when Liu announced plans to start handing over some responsibilities to other top executives in order to “focus on new business lines.”

That announcement came amid a very public investigation by local attorneys in Minnesota over his possible prosecution over suspected “criminal sexual misconduct.” The allegations had led to Liu’s one-night arrest in Minneapolis on August 31.

The case, involving a 21-year-old female Chinese student at the University of Minnesota, was ultimately dropped by local prosecutors in late December due to “insufficient evidence.” However, the student, Liu Jingyao, filed a civil lawsuit against him and JD in April, seeking damages in excess of $50,000.

Key-man risk

Shares tumbled by one-third between September and December 2018 as analysts voiced concerns that the incident could harm the company’s access to Chinese government officials. They said the issue highlighted JD’s key-man risk, where an organization’s success depends to a great extent on one individual.

“Mr. Liu’s personal issues affect brand image. It also affects the authority of JD’s management team—you may no longer get invited to government meetings,” Li Chengdong, chief executive of a Beijing-based tech consultancy, told the Financial Times in an interview in November 2018.

Liu was not included in a list of China’s “100 outstanding private sector entrepreneurs” issued by the country’s top union and the ruling Communist Party’s Central Committee in December 2018. Rivals like Alibaba founder Jack Ma and Suning’s Zhang Jindong were included.

Liu, a member of the Chinese People’s Political Consultative Conference (CPPCC), the advisory panel for China’s parliament, was notably absent at the country’s largest political event in March. He resigned from the CPPCC advisory panel in November, citing “personal reasons.”

“As the CEO and face of the company, anything that happens to him would pose a key-man risk, where the company’s operations would go into dire state of affairs where decisions made might not be valid,” Derrick Chin, a Singapore-based analyst at Swiss financial services company UBS, wrote in an investment note published on December 3.

Firmly in control

Despite Liu’s moves away from power, he is still firmly in control of the company. He remains the CEO and chairman of the board of directors at JD.

Liu, with a 15.5% stake in the company, holds 79.5% of JD’s voting rights thanks to the company’s “dual-class” share structure where founders own a special class of shares with more voting rights. The company’s five-member board is inquorate without Liu, according to company statutes.

With his tight grip over the company, Liu’s departure brings more uncertainties after a slow recovery from a troubled start to 2019. On top of that, succession is still up in the air after severe brain-drain. During April, three top executives stepped down, including Chief Technology Officer Zhang Chen. General Counsel Rain Long Yu and Chief Public Affairs Officer Lan Ye.

A JD representative declined to comment when contacted by TechNode on Wednesday.

Breathing new life into the brand

Liu is trying to revive JD’s image again, an analyst who asked not to be identified due to the sensitivity of the topic told TechNode.

Many top-ranking executives have left the company and it has not made any merger and acquisition moves since last June, the analyst added. The company’s share price bounced back to $33.26 on Tuesday on the Nasdaq, a similar level to August 2018 when the sexual assault scandal was initially made public.

The rally is partially due to the strong financial performance of the company with revenues in the first three quarters of the year up 20.9%, 22.9%, and 28.7%, respectively. 

The company posted net earnings of RMB 134.8 billion ($18.9 billion) in the third quarter of this year, an increase of 28.7% year on year, the largest expansion in the last five quarters.

“I think the best way for Liu is to leave JD and remain as [an] honorary advisor,” said the analyst.

“He would still be able to have some impacts [on the company], which would be focused on what he wishes—the company’s vision and strategy.”

Additional contributions by Eliam Huang.

2019 was the year livestream e-commerce took off, with 250% year over year growth from 2018’s RMB 126.6 billion (around $18.0 billion), according to Chinese financial services firm Everbright Securities (in Chinese) and an estimate by Coresight.

The livestreaming e-commerce market is worth an estimated RMB 440 billion (around $63 billion) in 2019, according to Everbright. This equates to almost 9% of China’s total estimated e-commerce sales this year ($723 billion), or roughly 1% of the 2019 official estimate for total consumer good sales. According to the company, Everbright’s estimated sales revenues generated by livestreaming is based on industry forecasts, and surveys with major industry players, such as Taobao Live.

Online QVC

Livestreaming is becoming a go-to option for Chinese consumers seeking new products, promotions, or an impulse buy on a deal, especially for categories such as beauty and fashion, food, and home products. For instance, Taobao Live, Alibaba’s dedicated livestreaming channel, generated sales of RMB 20 billion during Alibaba’s Singles’ Day 2019 shopping holiday on November 11. This accounted for around 7.5% of the company’s total Singles’ Day sales of RMB 268.4 billion.

Livestreaming is like television shopping—think QVC—upgraded for the 21st century. It hosts real-time broadcasting of video content by presenters that model or try products. Viewers are able to immediately purchase the item from an embedded link online. Just like presenters on QVC, livestreaming hosts sell a wide range of products, from apparel and cosmetics to electronics and cars.

The big platforms

Taobao Live currently holds the largest share of the livestreaming e-commerce market in China.  The next largest players are short-video platforms Kuaishou and Douyin, according to Everbright.

Taobao Live was launched in 2016 and was the first service to use livestreaming to facilitate e-commerce. Following suite, Douyin linked up with Taobao and Tmall in March 2018, allowing viewers to buy products from these platforms without leaving the TikTok app. In June that year, Kuaishou introduced a similar feature that enables livestreamers to sell goods through an on-platform store.

Taobao Live features a wider range of products than its major rivals, including apparel, beauty, and parent-and-baby products, whereas Douyin is focused on the beauty and fashion sector. L’Oréal’s official Douyin account has over 121,000 followers, as of November 23, 2019. Livestreaming hosts on Kuaishou often help brands to clear inventories (in Chinese), as well as selling rural fresh produce and local handcrafts. The orange retailer “Home of Tangerines 471” (ganju zhi xiang 471), which sells local fresh tangerines, has 71,300 followers on Kuaishou as of December 5, 2019.

Even group-buying giant Pinduoduo is reportedly exploring adding livestreaming function to their platform, according to 36kr (in Chinese). Pinduoduo has posted job ads hiring a “live streaming celebrity manager” and a “creative video manager” on on Lagou.com (in Chinese).

How to use it

To some extent, livestreaming is a 21st-century iteration of television shopping. While lucrative for companies who sell products there, the latter has always been a niche retail channel: We estimate that television shopping channels accounted for less than 1% of total retail sales in the US in 2018, for example. By contrast, livestreaming may already contribute 1% of total retail sales in China, according to our analysis of estimates by Everbright Securities.

Brands and retailers should consider the most appropriate livestreaming platform depending on their product category. For instance, Douyin is the best channel for targeting beauty consumers, whereas Taobao Live offers greater category range, including apparel, beauty, and parent-and-baby products.

Even while livestreaming is helping to power e-commerce growth, history may suggest a natural cap on the impact of this channel. Livestreaming is still quite a small portion of retail, accounting for 1% at most of total retail sales in 2018. But we believe livestreaming is a good channel where shoppers look for deals and impulse buys, especially for categories such as fashion and beauty, food and home products.

But when livestreaming works, it does things traditional e-commerce doesn’t. Livestreaming works well with for certain kinds of e-commerce because it serves not only as a tool to showcase and deliver information about products, but also as a customer engagement channel in which shoppers can interact with the host. It gives customers feelings of a personal relationship.

This feeling of a relationship can help consumers overcome the confusion known as the “paradox of choice”: if shoppers have too many options, they might feel difficult to choose and end up not buying anything. A trusted host who gives shopping recommendations can help consumers to focus on one product and make purchasing decisions more easily.

Correction: An earlier version of this article wrote that the livestreaming e-commerce market saw estimated 71.2% growth from 2018 to 2019. The correct figure is 250%.

An earlier version of the chart “Taobao Live dominates livestream e-commerce by transactions” omitted the “other” category. It has been revised to include it.

Chinese electric car maker Nio reported November delivery data figures that were flat to disappointing October numbers, spurring a more than 6% drop in its share price on Thursday.

Why it matters: The November delivery numbers highlight weak sales for the company’s lower-priced five-seat SUV, the ES6, which was expected to be a key sales driver.

• However, Nio beat out rivals WM Motor and Xpeng Motors in new energy vehicle (NEV) sales amid slumping overall auto sales for the first 10 months of the year, according to data recently released by China Banking and Insurance Regulation Commission.

Details: Nio delivered 2,528 electric vehicles (EVs) in November, almost flat sequentially to October, when it delivered 2,526 cars. November marked the fourth consecutive month of delivery growth, the company said in an announcement released Thursday.

• ES6 deliveries decreased 7% month-over-month to 2,067 units in November, with ES8s making up the balance. Nio did not address the decline in ES6s.
• Still, Nio’s delivery results contrasted with falling overall NEV sales in the country, which accelerated to 45.6% year on year in October, the fourth consecutive month of decline.
• Nio has delivered a cumulative total of 28,743 vehicles as of end-November since it began delivering cars in June 2018, with the ES6 making up about 30% of the total sales. The company began delivering the ES6 in June.
• Nio founder and CEO William Li Bin attributed the “solid” delivery results to an expanded sales network, adding that it has opened 37 Nio Spaces, touted as “more cost-efficient” than its clubhouse-style Nio Houses, of which there are 21.
• ES6 was the world’s top-selling all-electric car in the high-end luxury SUV segment in October, Li said in a public event late last month.
• Nio’s share price rose more than 5% after market opened on Thursday, but pared the gains and fell 6.2% to $2.27 by market close.

“Our strong sales performance was also attributable to the competitiveness of our ES6 among all premium electric SUVs and the passionate endorsement by our existing users… As we continue to build more cost-effective NIO Spaces and improve the performance of the existing ones, we are confident in our deliveries going forward.” 

—William Li Bin

Context: Nio last month announced it will hold this year’s Nio Day, its annual press event, on Dec. 28 in Shenzhen, without revealing further details.

• Chinese media reported that the company is planning to launch its third mass market model, an updated ES6 coupe, roughly equal in price to the current ES6, which starts at RMB 358,000 ($53,000).

With additional reporting from Nicole Jao and Coco Gao. 

Food delivery drivers whizzing around on scooters have become commonplace in the streets and alleys of China’s sprawling cities.

Around half of the country’s internet users, typically located in urban areas, ordered takeout online in the first half of 2019 (in Chinese). As user growth slows, the two main players are focusing on profitability and order growth, while the drivers receive the short end of the stick.

The market is effectively a duopoly—Chinese tech giant Meituan Dianping and Alibaba’s food delivery arm Ele.me have outdone smaller players, and boast a combined six million registered couriers.

Ele.me told TechNode in an email that they have 3 million registered drivers, while Meituan said it employed 2.7 million drivers in a 2018 report.

Meituan advertises the positions using images of happy, proud drivers and slogans emphasizing the potential for high pay. But the ads omit some crucial details to the job—insurance 

In reality, fierce market competition and a lack of labor regulation have birthed algorithms that rule over drivers’ livelihoods and working conditions.

The overwhelming majority of food delivery drivers work under one of two labor regimes. Zhongbao, crowdsourced, delivery workers simply sign up to the platform and pick orders at will. With no contractual obligation to the company, they enjoy a more flexible schedule but receive no work injury insurance or social security. 

The platforms also contract companies around China to act as labor-management intermediaries, which formally employ drivers. These workers adhere to fixed contracts with a single delivery service, and get regular working hours and orders via contractors. 

“Even though they have a labor contract, many of them don’t have social security,” and often face “unpaid wages,” said Aiden Chau, a researcher at Hong Kong-based NGO China Labour Bulletin (CLB). The organization uses media reports and social media posts to maps strikes across different industries and locations in China.  

Low wages, falling further

The most common reasons for strikes are unpaid or diminishing wages, according to CLB’s strike map. The NGO gathers data on strikes and accidents from Chinese social media and local press reports. Many of the posts TechNode reviewed in October have since disappeared from Weibo.

Drivers have little to no legal right to demand higher compensation. After Chinese New Year in 2019, drivers noticed that their wages had fallen, said Chau. 

With lower pay per order, zhongbao drivers have to work longer hours to make ends meet. A driver who requested only to be identified as Liu told TechNode, “The pay is now too low. I can’t stand it anymore.” 

As a free agent, Beijing-based driver Ding works a 12-hour shift every day from 7.00 a.m. to as late as 11.00 p.m. Like many diligent delivery workers in China, Ding works weekends and holidays but considers his workload to be in the mid-range. “There are drivers who work from 5.00 a.m. to 11.00 a.m.,” he said. 

A Chinese University of Hong Kong survey of 45 drivers in 2018 found they worked 12.4 hours on average. 

Drivers have also noted that contractors are sometimes late or miss paying salaries. On Sept. 12, some 24 Ele.me couriers in northern Hebei province protested after they didn’t receive pay between May and August. 

Ding completes 30 to 40 orders per day, earning RMB 11,000 to 13,000 per month, decent by the industry standard. Food couriers earn RMB 7,000 to 8,000 on average per month, TechNode found in an informal street survey. 

Unlike other countries, these gig economy workers make the same or more than their white-collar counterparts, Michael Norris, research and strategy lead at AgencyChina, a Shanghai-based marketing and e-commerce consultancy, told TechNode. In 2017, the average salary in Shanghai and Beijing was around RMB 8,000, according to official data.

But drivers spend much of that money on remittances to support their families back home. The six million-strong food delivery workforce mostly comprises migrant employees from agricultural areas, born in the ‘80s or ‘90s. For many, a job in food delivery is far more attractive than hard labor in the fields and factories. 

Ele.me has started an initiative to provide “strict and regular assessments of our logistics vendors to protect couriers’ rights and a service hotline (10105757) through which couriers can share their feedback to help us better supervise the vendors,” a company spokesperson told TechNode. 

Drivers such as Ding work across multiple platforms, including Meituan, Ele.me, and parcel courier SF Express. But Meituan is trying to change that by locking workers in. The company has started a “loyalty program,” said CLB’s Chau. “If you do not join this loyalty program, your orders will be fluctuating or decreasing,” he continued. 

Meituan Dianping declined TechNode’s request to comment on this article. 

Speed over safety

The two leading platforms often promise deliveries within 30 minutes and pay couriers more for hitting this target. Fulfilling orders late can incur a penalty for drivers and they may receive fewer orders over time. 

Drivers have complained that the algorithm for calculating distances has changed, giving them impossibly short windows to make deliveries, Chau said. Ele.me’s use of as-the-crow-flies distancing to work out times spurred zhongbao workers to strike on July 9, a Weibo user said.

Short on time, drivers often break traffic rules. They ride the sidewalks, drive the wrong direction down streets, and run red lights. 

Tough deadlines and lower wages push China’s delivery drivers to take risks

“You know how the way delivery men ride their scooters like they had no care for their lives,” an Ele.me driver said. “It’s not like we don’t care about our own safety. We have to make a living, so we have to rush to get the meal delivered.”

Shanghai police reported a spike in road accidents in the first half of 2019, and food delivery workers were involved in more than 80% of them.

Ding doesn’t take days off, even in adverse weather conditions. “We have to work and earn a living. I work every day, even in snow and in heavy rain,” he said. 

During an August typhoon, a Shanghai driver died of electrocution (in Chinese) when driving through rainwater. Ele.me drivers said the platform threatened them with penalties if they didn’t work during the extreme weather event for an additional RMB 0.80 per order. 

Ding has been involved in just one car accident during his four years as a courier. He collided with an inattentive driver’s car door. Ding ended up in the hospital though he said it was minor. Fortunately, the driver at fault covered the damage and medical bills for Ding.

Not all drivers are so lucky. Because of the lack of formal contracts, they are “seen as providing services to the company, so when they have an accident, it is not seen as a work injury,” Chau said. Their injuries are not covered by work insurance, and they have to pay for treatment themselves, he added.

Ele.me has set up an initiative to provide insurance to all registered drivers, a spokesperson told TechNode. The plan “covers the main risks the couriers may face in their daily work, along with low-interest loans and other benefits,” he said.

Striking back

Drivers are fighting back with industrial action and protests. Their chief complaints, according to Weibo posts, are wage cuts, unpaid wages, and changes in the algorithms that administrate their work (all in Chinese).

The number of such strikes hit 56 in 2018, up from 10 in 2016 and 2017 combined, states CLB data. So far this year, CLB has reported 45 strikes across the country, and food delivery drivers made up 12% of all industrial action during July.

The strikes usually involve less than 100 food delivery drivers, though some involve larger numbers.

“Maybe not all protests are effective, but they definitely learn something, how to organize, how to deal with the government,” said CLB’s Chau. Often, drivers protest by staking out local company offices, waiting for management to hear them out.

“In the past, the customer service will tell them that it’s just the computer calculations,” Chau said. “When they talk to management, management will say that this is the policy of the company. They will know that it is not some neutral maths, but a decision made by management affecting their lives,” he continued.

Drivers sometimes go to great lengths to convince peers to participate. Chau said there had been cases of strikers slashing others’ tires to prevent them from working.

The workforce is also joining forces in more agreeable ways. Drivers set up a network in Shanghai’s Putuo district in February 2017 to connect five delivery driver trade unions from across the country. Local media reported at the time that there were 400 unionists nationally—a fraction of the total labor force. 

In China, only the National Federation of Trade Unions is recognized as legal. All trade unions are required to be affiliated with the national-level body. 

The union aims to protect workers’ rights and provide tangible services. “When we encounter grievances, face difficulties, and seek help, the trade union is our strong supporter,” said Yi Wu, a unionist driver, in January 2018. The Putuo union organizes welfare activities, including traffic education seminars, according to local media reports. 

“Because drivers are employed as independent contractors, they think it is very difficult to change the algorithm,” Chau said. 

But unionizing has done little in the way of protecting labor rights against China’s food delivery giants. They are just “paper unions,” Chau said, meaning that they haven’t achieved any reparations or policy changes for the drivers’ grievances.

Chinese tech companies that are better known for e-commerce services or consumer electronics are pivoting towards business-to-business (B2B) models as they look to grab a slice of the promising industrial internet of things (IoT) sector.

B2B IoT is expected to grow into a $1 trillion market in the next five years. It remains emergent and lucrative as factories, carmakers, and telecom players pursue large-scale digital transformation strategies.

JD.com announced a partnership last week with the State Grid to integrate the e-commerce player’s IoT platform with devices and meters at the state-owned utility, in a push to expand its IoT business into the energy sector.

In the same week, Xiaomi announced three IoT kits targeting different industrial businesses, as the Beijing-based electronics maker branched out from consumer-facing IoT efforts and smart home initiatives.

Worldwide spending on IoT is expected to come to $726 billion by the end of this year and hit a staggering $1.1 trillion in 2023, according to market research firm IDC, with an influx of expenditure in industrial segments.

Spending on IoT deployments from three commercial industries—discrete manufacturing, process manufacturing, and transportation—will account for nearly one-third of the worldwide spend total in 2023, said the report.

“While organizations are investing in hardware, software, and services to support their IoT initiatives, their next challenge is finding solutions that help them to manage, process, and analyze the data being generated from all these connected things,” said Carrie MacGillivray, group vice president of IoT research at IDC.

China’s long-awaited nationwide roll-out of commercial 5G last month could encourage companies to accelerate digitalization plans. The next-generation wireless technology promises faster speeds as well as low-latency connections, and is expected to drive growth in IoT technology.

Meanwhile, tech companies are scrambling to replicate their consumer market successes in the industrial IoT sector, and quickly forge out new revenue streams as their B2C segments meet with growth bottlenecks.

Xiaomi reported Wednesday 5.5% year-on-year growth in third-quarter revenue, in the company’s slowest-ever growth since its July 2018 listing in Hong Kong. The slowdown is partially due to declining smartphone sales, which dropped by 8% year on year in the quarter.

Xiaomo and JD’s steps join a trend in China’s internet sector where consumer-facing firms are branching out to B2B segments in the past few years. Social media giant Tencent, which owns WeChat, and e-commerce powerhouse Alibaba both have pushed into areas such as enterprise software and cloud computing.

JD’s energy push

The partnership, officially announced on Nov. 19, will provide the State Grid with access to JD’s IoT platform across its devices and meters on its electrical network nationwide, the e-commerce giant said in a statement to TechNode.

The devices include electricity meters, power distributors, humidity sensors, and temperature sensors, said JD, adding that a centralized IoT platform could “eliminate data islands, while collecting and analyzing information about energy usage across different devices” for its new partner.

The utility’s nationwide power grid operation generates a large amount of data and it requires a platform to handle and analyze it all in an appropriate fashion, John Zhou, head of JD’s IoT division, told TechNode.

“The most important thing is that these devices can provide feedback on their [the State Grid’s] electricity generation, consumption, and storage and be processed in a data center to improve efficiency,” said Zhou.

JD started its IoT venture in 2014 focused around home appliances and it grew into a key contributor to company e-commerce income, said Zhou. The Beijing-based firm expanded into industrial sectors after it gaining enough experience from the consumer market, he added.

“The whole digital economy is extending from the consumer side to the industrial side, so we are also looking for opportunities in the industrial IoT sector,” he said.

Xiaomi’s industrial revolution

On the same day as JD’s announcement, another Beijing firm Xiaomi unveiled a suite of B2B IoT solutions for companies working in the real estate, hospitality, and enterprise services fields.

The hospitality solution will allow hotels to install Xiaomi’s smart speakers, smart television sets, and multifunctional gateways in their guest rooms, Fan Dian, general manager of Xiaomi’s IoT unit, said at an event in Beijing.

The industrial IoT solutions leverage the firm’s successes in the consumer IoT segment, offering products and services found in its smart home ecosystem to businesses.

The enterprise services kit, for example, provides offices with devices such as connected air purifiers and smart light switches, which are already sold to Xiaomi customers as part of its smart home ecosystem.

Founded in 2011 and better known as a handset maker, Xiaomi has been aggressively expanding into IoT. The company announced in January that it would pour over RMB 10 billion (around $1.4 billion) into the development of artificial intelligence and IoT within five years.

Before last week’s announcement, Xiaomi’s IoT strategy was squarely focused on the consumer market with most of its connected devices designed for household use.

The company’s earnings from its IoT and lifestyle segment, which includes sales of smart home devices such as smart television sets, air conditioners, and smart locks, surged 44% annually to hit  RMB 14.9 billion in the second quarter, according to company filings (in Chinese).

“We have to make good use of our existing advantages as we explore the industrial IoT market,” Fan told TechNode on the sidelines of the event.

“But we do have the ability to provide independent solutions for other industries and we will do that at an appropriate time,” he said.

Michael Norris is a TechNode contributor and Research and Strategy lead at AgencyChina. He owns stock in Meituan, mentioned in this article.

A version of this article originally appeared in the Dispatch, Michael’s monthly newsletter, on November 12.

Alibaba’s 2019 Investor Day came and went without any of the fanfare that marked Alibaba’s 20th-anniversary celebrations in September.

In fact, the company’s Investor Day was so low key that it hardly made a dent in the company’s share price, which was up 3% a week after the relevant announcements.

This year’s Investor Day, hosted by CEO Daniel Zhang and CFO Maggie Wu, consisted of 13 presentations covering marketplaces, logistics, retail, cloud, and financial services.

Taken together, the presentations showcased Alibaba’s tightening grip over consumers’ wallets. All indicators show Alibaba is the dominant e-commerce and payments player, and the operative question is what supports or hinders it converting that leadership into O2O dominance.

First, a few topline numbers.

Alibaba’s marketplaces now report 693 million annual active consumers. If that number’s accurate, it means that around 80% of China’s internet users are active on one or more of these platforms.

Around 20% (~140 million) of annual active consumers in Alibaba’s retail marketplaces spend more than RMB 10,000 ($1,400) per year. That’s 1.5 times the average monthly salary in China.

This user base, plus strong growth in other business units, means big bucks.

Alibaba has increased its revenue seven-fold over the last five years, which beats out digital peers in both the United States and China (see figure below).

And, even when you strip out proceeds from businesses acquired or consolidated in the last year, that momentum has continued over the last twelve months.

Here’s what I took away from Alibaba’s Investor Day.

None of the below should be construed as investment advice. Repeat, this is not investment advice. Do your homework before you invest in anything. There, I’ve made it clear.

1. Alibaba’s retail marketplaces still have room to add users.
2. Alibaba has still got a way to go to connect marketplace shoppers to other services in its ecosystem.
3. Meituan’s not out of the woods yet, but its position looks strong versus Ali’s Ele.me.

Let’s rip into it.

Growth in the tank

China has around 850 million internet users, but not all of them have tried online shopping, according to the China Internet Network Information Center. In its August report, the center counted about three-quarters of mobile internet users as e-commerce users, and a little under half as on-demand food delivery users.

The folks at QuestMobile reckon that there’s a good spread of these potential e-commerce users across different city tiers—about 74 million in first- and second-tier cities, and 128 million in tiers three and below.

To put that into perspective, JD (China’s third-largest e-commerce player) has approximately 320 million active customers.

Additionally, my colleagues and I at AgencyChina have used demographic modeling to estimate that an additional 170 million Chinese internet users will come online in the next five years.

Added together, that means there’s potentially somewhere between 360 and 380 million online shoppers who are either on the cusp of shopping online or will be in the very near future. Although it’s got a fight ahead of it for these consumers’ minds and wallets, Alibaba’s core commerce growth still has plenty of runway left.

Connecting the ecosystem?

Alibaba’s ability to connect marketplace shoppers to other services in its ecosystem is a glass half-full or a glass half-empty proposition, depending on your perspective.

According to the reports, 25% of Alibaba’s annual active consumers are active on its on-demand food delivery platform Ele.me and lifestyle discovery service Koubei. A little less than half that proportion (12%) are paying subscribers to Youku, Ali’s digital media and entertainment platform.

At this point, if you’re the glass half-full type, you’d be pretty satisfied with that current level of penetration and optimistic that Alibaba will strengthen synergies across its ecosystem over time.

However, if you’re a little more pessimistic—like me—you’re looking at those figures and thinking that something’s not quite right. Two possible explanations come to mind:

• Propositions outside Alibaba’s core commerce marketplaces and financial services platform aren’t quite strong enough to attract and retain core commerce customers; and/or
• Integration between propositions isn’t strong enough

Consumer cross-over across the Alibaba ecosystem is something to keep an eye on going forward.

Local consumer struggles

Alibaba’s local services business unit encompasses on-demand food delivery platform Ele.me and lifestyle discovery directory Koubei, which merged last year.

Alibaba’s Investor Day presentation and subsequent quarterly earnings didn’t offer too much detail on how its local services business is doing, outside what it’s legally required to disclose.

From this, we can at least glean that Ele.me’s reported 245 million annual transacting users are significantly fewer than Meituan’s 423 million.

However, each player’s respective year-on-year transaction growth is roughly on par (Ali claims ~40% and Meituan claims ~30%).

That means Ele.me, even with its Koubei tie-up, is a firm second in the on-demand food and services sector.

That’s good news for Meituan’s share price, which has doubled since January this year. That signals the market is increasingly convinced about Meituan’s grip on the food delivery market and its ability to leverage its services marketplace to generate profit.

At the same time, the market is keen to know what Ali’s secondary listing in Hong Kong means for the services scrimmage.

Meituan’s stock is down 7% since news broke that Alibaba is eyeing up a late November listing to the tune of $15 billion. Presumably, some of these funds may be used to fuel a further “subsidy war” to pinch consumers and merchants from Meituan.

Alibaba shares surge 7% in Hong Kong IPO

To me, it underscores that for all the mess fast-flowing capital and loose valuations have caused, markets acknowledge that access to capital remains a key disruptive force.

As goes Ali…

Investors and markets have long seen Alibaba as a bellwether for China’s economy-at-large. However, Alibaba’s Investor Day presentation and subsequent quarterly earnings show that mental shortcut must be rejected. In fact, Alibaba’s marketplaces substantially outperform the “real economy.” China retail sales have grown only 8.2% year to date, and online sales 17%—while Ali’s (not entirely comparable) year-on-year core commerce revenue growth is a whopping 40%. Try chewing on that and see how the market looks.

I argued last week that video game streaming is emerging as the strongest part of China’s vast livestreaming sector, driven by the rise of e-sports and the dedication of relatively committed fans. Today, I’d like to return for a closer look at the sector, evaluate the current leaders—and ask if both will experience more competitive pressure if another tech titan enters the sector. I’ll take a close look at the numbers for these companies, showing how you can see value in this sector.

Huya-Douyu duopoly

China’s leading game streaming platforms, Huya and Douyu, control over 60% of the industry. The current market expectation is for this number to grow even higher with further consolidation. Huya went public in May 2018, while Douyu recently IPO’ed in July 2019, both in the US. Huya is more than 80% larger than Douyu with a ~$4.9 billion valuation, vs. Douyu’s ~$2.7 billion valuation as of August 26. Moreover, compared to Douyu, Huya has a slightly higher tilt towards game streaming with over 50% revenue derived from gaming, compared to 45% for Douyu.

When we look at streaming companies, what should we focus on? First, it’s important to understand how these companies generate revenue. Like entertainment streaming platforms, both companies receive over 85% of their revenue through virtual gifts. When we’re looking at these companies, the key factors are simple: how much revenue do they generate, and how much of it do they have to pay back to streamers to keep them on the site?

Revenue share: Over 80% of streaming revenue in China comes from virtual items that are gifted to broadcasters, in contrast to Western broadcasters and platforms, which rely almost exclusively on advertising and subscriptions as their primary revenue sources. The largest cost for any livestreaming platforms is the percentage of revenue share with content creators. A higher-quality platform should have better leverage with streamers, and therefore be able to payout less in revenue share while maintaining the same growth rate. Huya has been a better operator with stronger focus on unit economics, paying out just 47% of revenue to content creators, compared to over 50% for Douyu.

Streamer acquisition costs: Another large expense for game streaming companies is contracting professional streamers to its platform. For example, Ninja, one of the top game streamers on Twitch, announced that he was going to exclusively stream with Microsoft’s Mixer platform for a rumored $6 million over the next three years. While large signings make for splashy headlines, they generally do not benefit the platforms themselves because streamers will often migrate to a different platform after their contract ends. Many platforms failed in 2017 after a bidding war locked them into overpriced contracts with semi-professional and professional gamers. Although both platforms continue to acquire streamers, Huya has been more efficient, paying just ~10% of revenue to professional content creators in 2018 vs. Douyu at ~24%.

Mobile growth drivers: Mobile continues to be a strong area of growth for game streamers, both as a vector of viewing and of gameplay. Mobile counts for more because gamers tend to be more engaged on a mobile device vs. desktop streaming, which users may watch while multitasking. Huya has a higher user base for mobile games, particularly in Honor of Kings and Peacemaker Elite, two of the top e-sport titles in China. On the other hand, Douyu’s focus has been on PC games, which tend to have a shorter tail than mobile games.

Investing in emerging markets: Another key source of streaming growth is global expansion. Southeast Asia and Latin America are two emerging markets with high potential for a thriving livestreaming industry due to an increase in GDP/capita, high internet penetration and the presence of a strong gaming culture. Generally speaking, the cost of acquiring streamers in these regions of the world also tends to be lower. Private companies such as Omlet Arcade, which focuses exclusively on mobile game streaming and has nearly 1 million monthly unique streamers, have already made their way to these two particular markets to take advantage of the growth potential. Huya has a regionalized streaming service called NimoTV which competes with Omlet Arcade’s product. In the past two years, the platform has launched in a number of markets including Indonesia and Brazil. During its earnings call last quarter, management said that the platform has over 10 million MAUs and “growing rapidly.”

Margin expansion + multiple rerate: Falling initial signing bonuses for new streamers bodes well for the industry as it matures. Content delivery is currently a large cost for all livestreaming platforms, but this should come down as prices for bandwidth on content delivery networks (CDNs) across the industry fall due to increased competition and decreased bandwidth cost per user (the cost of CDNs have come down ~1/3 between 2016–2018). It is also likely that the revenue sharing ratio will drop a couple more points towards the low 40% range as the industry continues to consolidate. As e-sports grow in popularity, all companies in games streaming are likely to see stock prices rise in the coming three years.

While I believe that both companies will benefit from the upside in game livestreaming, Huya’s lower cost structure, higher profitability and a focus on emerging markets around the world make it a more attractive investment than Douyu.

Disruption from Kuaishou?

Kuaishou started as a short video platform known for a large user base of individuals hailing from Tier 3–4 cities and rural parts of China. It has distinguished itself from its rivals by giving users a glimpse of the Chinese countryside, attaining over 300 million DAUs. Tencent invested over $1.35 billion into the company, and it is now rumored to be valued at over $25 billion.

Unlike other short videos platforms, Kuaishou has decided to expand its livestreaming platform in order to grow and compete against rival Douyin. Kuaishou’s ambitions could put competitive pressure on the industry if there is a bidding war for streamers.

Kuaishou is at a disadvantage selling ads. Insiders say that many brands are reluctant to run advertisements on Kuaishou, since lower-quality user-generated content could hurt the brand. However, through streaming, Kuaishou could potentially capture an additional revenue stream in lower-tier cities previously not seen on Huya and Douyu.

Kuaishou disclosed in July 2019 game streaming DAUs of about 35 million, slightly higher than Douyu’s estimate of 26 million in 1Q19. The company is also planning to revamp its game streaming strategy to focus on professionally generated content similar to Huya and Douyu. While there is some concern that the entrance of Kuaishou could disrupt the current duopoly, I believe that the company will not be too aggressive about pushing users completely to livestreaming, lest it cannibalize Kuaishou’s main platform.

Conclusion: Games livestreaming is a very dynamic industry with both incumbent and new entrants. While the industry has certainly consolidated since 2017, leaving Huya and Douyu as the current leaders in the space, companies such as Kuaishou are also vying for a piece of the growing pie. I continue to believe that Huya will be a leader in this space given its lower streamer acquisition costs. Additionally, I can also see companies that focus on emerging market mobile game streaming, such as Omlet Arcade, gain more traction. I believe that as the domestic Chinese market becomes more saturated, games livestreaming companies in China will look to invest in emerging market platforms to further boost growth. Once a niche industry in China, the games livestreaming market has finally gone mainstream.

Clarification: article updated to reflect that Omlet Arcade has nearly 1 million monthly unique streamers.

While Tencent releases may continue to dominate the gaming headlines coming out of China in 2019, imaginative titles explicitly aimed at female users are quickly gaining mainstream attention as they forge their own position in the vast market.

China is home to more gamers than any other country in the world, and one-third of them play on their phones. The transformation of female-oriented gaming from a niche interest into a mainstream segment is something that industry players can no longer ignore, especially when thinking about monetization.

Since the second half of 2017, mobile dress-up games and dating simulators have surged in popularity in China. The latest dress-up hit is “Shining Nikki,” which racked up 44 million downloads on local app stores within a month of its August 6 launch, according to estimates from the analytics firm Qimai.

Choosing the most in-style outfit for your virtual avatar or wooing a digital boyfriend are not new or unusual concepts in modern gaming. However, these aspects are typically intended to complement the bigger picture and make content more immersive. A rare sparkling golden mantle in a multiplayer game can help the wearer stand out, regardless of his or her level of skill, while a well-written love story can inject life into role-playing game (RPG) characters.

However, female-focused games opt to focus purely on romantic aspects or making virtual characters look good. In contrast to the multiplayer online battle arena (MOBA) and first-person shooter (FPS) genres, which appeal mainly to male audiences, these new emerging titles target the other half of China’s population.

Coupled with the popularization of smart devices and the broader acceptance of gaming in recent years, these female-oriented games are creating a market segment of their own, analysts said. But like any rapidly expanding market, targeting female players is not without its issues and risks.

Stylish outfits and loot boxes

“Shining Nikki” is best described as a 3D dress-up RPG. Players control a young girl named “Nikki” and compete with AI-controlled characters in “styling battles,” in which the side with the highest score wins. Users are tasked with pairing clothing and accessories according to attributes such as “elegant,” “cute,” “mature,” and “pure,” to fit the theme of the battle and achieve a higher score.

Just like in other RPGs, “Shining Nikki” players earn desired items either by completing quests or spending real money on loot boxes. Clothing items are available at different levels of rarity; the less common items grant better stats. Players can also boost their score by using “phantoms of designers,” which are on upgradeable cards of varying stats and levels of rarity.

Once players progress far enough into the main story—traveling back in time to prevent a disastrous future with non-stop “styling battles”—the battle arena feature is unlocked, enabling users to participate in higher levels and generally more demanding matches with their fellow players.

As the third installment in the “Nikki” franchise, “Shining Nikki” is the first to adopt full 3D graphics, featuring highly-detailed character and clothing models, as well as realistic physics. When users rotate their character, the sleeves and skirt of her dress move dynamically.

Relationship simulator games tend to feature less sophisticated graphics, but their stories and systems are no less complex. In one of the genre’s best-selling titles, “Love and Producer,” players take on the role of a female producer trying to revive a media company on the brink of bankruptcy. They simultaneously develop romantic relationships with four handsome male characters: a genius scientist, a special forces officer, a corporate CEO, and a superstar who is also a genius hacker. Each has his own superpower, such as flight and time-manipulation.

While the plot in the early chapters of the game is identical to that of a corny romance novel, the story develops darker themes as it starts to integrate conspiracy theories, higher dimensions, and time travel.

To progress in “Love and Producer,” players need to collect and upgrade “bonding cards” of varying levels of rarity to produce TV shows with traits such as “affinity” and “creativity.” “Bonding cards” consist of artwork featuring the four male characters, with the rarest ones requiring users to pay considerable sums of real-world money to acquire and upgrade them.

Players can also collect special items and complete certain quests to unlock additional dating events, which generally come in the form of voiced artwork, as well as text message conversations with the male characters.

Although most female-oriented games are free, players say that in some cases spending money is unavoidable if they wish to enjoy a semi-decent gaming experience. “Love and Producer,” for instance, features timed events that reward users with extra rare “bonding cards.” The system gives users a few free event passes, but to complete the mission, users have to spend real money. “Try the events and you’ll find that there is no way you can get the final reward with just the free passes,” said Zhu Xiaoyu, a 24-year-old player of “Shining Nikki” and its 2D predecessor “Miracle Nikki.”

Less-competitive gaming

Compared to more hardcore mobile games such as MOBA title “Honour of Kings” and FPS game “Peacekeeper Elite,” which require rapid reaction time and strategic thinking, female-oriented releases are generally far less demanding in terms of focus and are relaxing to play, several female players told TechNode.

“You don’t need to think when playing female-oriented games,” said Yu Xueqi, a 25-year-old Ph.D. student. “Other titles stimulate your brain, but games like ‘Shining Nikki’ are just sweet, soft, and soothing.”

Although most female-oriented tiles have modes where users can battle in matches with each other, Yu told TechNode that she feels that competition is not central to the game, and she has never felt the pressure to be better than other players.

According to the players we interviewed, dress-up games also provide a wider and more aesthetically appealing array of clothing as compared with mainstream titles that allow users to customize their characters’ appearances. “You can also change how your character looks in ‘Peacekeeper Elite,’ but the skins are just ugly. The beautiful clothes in the ‘Nikki’ series are the primary reason why I play them,” said Zhu.

As for relationship simulators, the appeal for female players lies in the personas of the virtual boyfriends. In the App Store review section of “Love and Producer,” for instance, a user with the handle “Linxi uses the same name for every game” explained her preference for one of the main male characters.

“My favorite is Zhou Qiluo. He can switch from being sweet to cool to serious at any time. His naturally curly blond hair and clear blue eyes are also super cute,” the user commented. Another user named “poolijbsec” was more straightforward, writing “Xu Mo is so hot,” in reference to another male character in the game.

In January 2018, a group of fans took their affection for “Love and Producer” characters to another level. They reportedly spent RMB 250,000 (around $39,000 at the time) to hang an LED banner on a skyscraper in Shenzhen to celebrate the birthday of Li Zeyan, their in-game boyfriend.

While female gamers make up the lion’s share of players of such titles, they also attract some male users, who appear more interested in the competitive aspect. “I find the ranking system in ‘Shining Nikki’ pretty interesting. Most people did not pay much attention to the player-versus-player system when the game first launched, so I was able to quickly rise high in the rankings and receive some nice rewards. It felt pretty awesome,” said 21-year-old student Luo Yuxuan. “I didn’t find any of the clothing particularly attractive, but for the sake of having a full collection, I would try to get them all.”

A booming industry

Female-oriented games aren’t new. Paper Games, the developer of “Shining Nikki” and “Love and Producer,” has been developing dress-up games for mobile platforms since as early as 2013, but the market segment has remained relatively niche for several years. During this period, several female-focused titles from Paper Games and several other developers successfully secured a user base, says Liu Jiehao, an analyst at research firm iiMedia.

Female-oriented games went mainstream in China in 2017, with the help of viral titles such as “Love and Producer” and ”Travel Frog,” a game in which players help a cute amphibian prepare for trips by providing food and money. The category hit a market size of RMB 43.1 billion that year, according to a report from game research firm Gamma Data. Relationship simulators like “Love and Producer” have also helped the market better to define the idea of games for women, Liu said.

This new emerging market is expected to generate RMB 53.1 billion in revenue in 2019—and to achieve RMB 56.8 billion in 2020, according to the Gamma Data report. Female-oriented mobile titles are expected to drive the growth, bringing in an estimated RMB 40.2 billion next year, or 70% of the segment’s total revenue.

Analysts attribute the recent growth to growing interest among female gamers, coupled with greater purchasing power, as well as a greater emphasis on female players from the perspective of gaming companies.

“When the development of an industry reaches a certain stage, companies will start to experiment in more niche market segments,” Liu told TechNode. “As an essential part of the gaming market, female users and their needs will naturally attract the attention of developers,” he added.

Room for smaller players

In contrast to mainstream genres, dominated by industry giants Tencent and NetEase, the landscape for female-oriented games is less hostile to small- and medium-sized developers, analysts said.

Paper Games, for instance, remained a small studio for the first three years after it was founded; only recently did they expand from a medium-sized company of fewer than 500 employees to more than 600 staff. Happy Elements, the developer of the match-three title “Anipop” and male idol mobile game “Ensemble Stars,” was also a mainstay of the medium-sized tier until recently.

However, this doesn’t mean that barriers to entry in the market are low. “Compared with traditional mainstream genres that emphasize gameplay design and numerical setup, female-oriented games can be more demanding about art design and storytelling,” Liao Xuhua, an analyst with research firm Analysys, told TechNode. “The market could become increasingly competitive as the experience of existing players grows,” he added.

Player gripes

The rise of female-oriented games is not without its issues. Several well-known titles, such as Paper Games’ “Love and Producer” and NetEase’s “Yujian Love” have large numbers of what appears to be bot-generated positive reviews on their respective Apple China App Store pages, with some of them making it to the “most helpful reviews” section. Based on TechNode’s observations, a considerable number of fake reviews for “Love and Producer” were posted around the game’s launch in December 2017, possibly to create hype for the title.

Many players of female-oriented games have left reviews on app stores to complain about the overly aggressive monetization strategies of certain titles—such as Paper Games’ more recent releases and Tencent’s “Shiwuyu.” “Every event can cost several hundred [yuan]. Could you people be less greedy?” reads one comment on the “Love and Producer” App Store page from a user with the handle “You love to talk about this.” Many users have also expressed dissatisfaction that they cannot progress in the story if they don’t spend enough money on in-game purchases or grind away on repetitive gameplay.

“Shining Nikki” has been called out for trying to entice male users with inappropriate advertisements on platforms such as Weibo, the video streaming site Bilibili, and Q&A platform Zhihu.

One game ad frequently seen on different platforms reads: “Games that guys are addicted to! Choose whichever clothing and figure you want. Do you prefer cute lolis or domineering ladies?” Other ads employ slightly different phrasing but convey similar messages. “A game that all the guys around you are playing! Mature women, young girls, stylish girls …which style do you prefer?” a video ad on Zhihu says.

Some ads go even further by using sexually suggestive phrases such as “Raise your daughter until you are physically exhausted every day. This is the game that real men should play!” The slogan uses a Chinese phrase that, when understood in relation to the concept of “real men,” often means fatigue from excessive sexual activities.

“I support Paper Game’s effort to attract male users … but how would this type of phrasing come across to people who treat Nikki as their imaginary daughter?” one anonymous user commented on Zhihu.

When we think about livestreaming in the West, we mainly think of it as a recent trend introduced by companies such as Justin.tv and Twitch. However, countries in the East have been experimenting with livestreaming since early 2006, with companies such as YY in China being early movers. Today, the livestreaming industry in China continues to be significantly larger than the US in terms of users, demographics, and innovation, especially when it comes to product design and monetization methods.

The Chinese livestreaming industry experienced a period of boom and bust in 2016–2017. During this time, over 200 mobile apps with livestreaming features emerged. However, after government restrictions and a washout on a large number of platforms, the industry consolidated significantly. Today, only a few leaders in each vertical remain.

Source: iResearch

Out of all verticals, I am most optimistic about the gaming category because of the growth of e-sports. Compared to entertainment streaming, video game streaming is much more mass market, with limited revenue concentration among top customers. Additionally, its audience is more engaged and demonstrates a higher stickiness to the content itself.

Why video game streaming?

Simply put, China has the largest gaming population in the world with over 630 million participants. Even with the recent regulations on new gaming licenses in 2018, China remains the largest gaming market globally, bringing in revenues of ~$30 billion annually, according to Newzoo.  The industry is expected to grow at a 10% CAGR over the next five years. E-sports are a global phenomenon and an even stronger secular trend in China. In 2016, China’s National Development and Reform Commission even encouraged the development of e-sports tournaments on the premise of protecting intellectual property. With both the increase in gamer numbers and demand for quality content, the rise of e-sports in China has led to a boom in game streaming services.

A few reasons to expect steady growth:

1. Growing TAM and sticky user base: It is estimated that in China there will be over 450 million e-sport gamers by 2021 compared with 350 million last year. As opposed to entertainment livestreaming, those who watch game livestreams are more engaged—nearly one-third of users watch on a daily or monthly basis. Additionally, game streaming platforms enjoy a higher average revenue per paying user (ARPPU) than non-game streaming platforms (non-gaming ARPPU peaked in 2018). This is likely because gaming is more relatable and participants enjoy watching others to improve their own skills.
2. Rapid market consolidation: It is apparent that the biggest barrier to entry and threat to new and existing streaming platforms is the ability to preserve talent. Huya and Douyu have over 60% market share because of their brand presence and large capital base, allowing them to recruit the best streamers and organize the largest e-sports events. There is some brand equity associated with these platforms. Similar to a two-sided marketplace, users and broadcasters often gravitate towards platforms with the most content and the best well-known streamers.
3. game streaming platforms = Monetizable opportunity in the e-sports value chain: The e-sports industry is still in the early innings of its growth cycle. Excluding games sold, streaming revenue makes up more than three-quarters of the e-sports industry earnings. In the future, revenue opportunities will arise through media rights, ticketing, and merchandising. Livestreaming platform investors can partake in the current growth opportunities and take advantage of the optionality of future media rights from e-sports events.

Major players—past, present, and future

Similar to China’s broader livestreaming industry, the game livestreaming market experienced a period of boom and bust in 2016–2017, as smaller platforms lost both broadcasters and users. The largest casualty came in March 2019 when Panda.TV, backed by the son of Dalian Wanda Chairman Wang Jianlin, shut down after running out of cash.

Today, the two leading pureplay game streaming platforms are Huya and Douyu. Both companies went public in the past year. As the largest gaming company in China, Tencent has a stake in the livestreaming market, owning over 30% of both Huya and Douyu. Despite the stiff competition, there are still some second-tier platforms in this space, namely Longzhu and Huomao. Some of these smaller players are likely to either be acquired or eventually run out of cash as more users migrate to the largest platforms.

Looking ahead, some short-form video platforms are attempting to break into the livestreaming space with a particular focus on gaming. One possible threat is Kuaishou, which boasts over 300 million MAUs. Earlier in 2019, Kuaishou launched an independent streaming app called Diaomiao.

In my next piece, I will take a deeper dive on Huya and Douyu to break down what to look for when investing in a public company this space.  Also, I will explore a bit more on the emerging competitors that could disrupt the two leading platforms.

While Huawei’s US woes continue, one Chinese handset maker has already managed to do the impossible and gain a foothold in the market. OnePlus may not be as well-known as more prominent players such as Huawei and Xiaomi, but the company has secured a firm following overseas.

Amid reports that a new OnePlus flagship handset could land as soon as next month, TechNode looked at Wikipedia data to see how interested English-speaking markets really are in the Shenzhen-based company and how its popularity compares with the other players.

Wikipedia is often the first port of call for potential customers as they look to learn more about a brand or product. Hits on the online encyclopedia can act as a strong indicator of a brand’s level of exposure in different markets.

OnePlus has long pursued a “global-first” strategy, and Counterpoint ranks the company as the world’s fifth-largest premium smartphone brand, though it only makes up a 2% share. The company is not the only Chinese smartphone maker to pursue expansion into overseas markets, and it still trails players like Huawei and Oppo.

TechNode looked at Wikipedia product page view trends for the OnePlus 7 compared within equivalent flagships from Huawei and Xiaomi. Ever since the OnePlus 7 launched in May, it has drawn significantly more page views than the Huawei P30 or the Xiaomi Mi 9, two models that far outperform the OnePlus 7 in terms of shipments.

Cult following

Though the company was a relative latecomer to the smartphone market, it has built up a cult-like following among Android fans since its 2014 launch of the One model, a cut-price device featuring the popular open-source CyanogenMod operating system. The debut handset outperformed countless global competitors in terms of quality, performance and affordability. While CyanogenMod has since been discontinued, OnePlus’ reputation lives on—a key factor behind its click numbers.

OnePlus’ global presence expanded further in late 2018 with the launch of the 6T handset in the US market through partnerships with key carriers including T-Mobile, Verizon, and AT&T. At a time when Huawei and ZTE products were subject to a sales ban in the country, the 6T launch stood out.

Within weeks of its May launch, the OnePlus 7 Wikipedia entry was receiving close to double the views of the Huawei P30 page. Despite an earlier release and significant shipments overseas, the Xiaomi Mi 9 did not have a dedicated entry until April; among the trio, it still has the lowest daily views.

The trend in clicks on the OnePlus 7 page includes two major peaks, both far in excess of 3,000 daily views. The first occurred at its launch while the second one followed a major update of the handset’s OxygenOS system.

In terms of daily page views for Huawei’s P30 line, they hit an all-time high of more than 2,500 in April when the Lite variant model was announced. Another spike in clicks occurred in the middle of the next month when the controversial company was added to the US Entity List, effectively ending Google support for future products.

Stable reputation

Even beyond Wikipedia page views, OnePlus does punch above its weight against the industry mainstays. The firm also receives more consistent reviews on key platforms, according to a sentiment analysis undertaken by TechNode.

TechNode calculated sentiment scores for the three handset lines based on review articles and comments on The Verge, Engadget, and TechRadar websites. We counted the number of positive and negative words from content using the Bing sentiment model, a lexicon that simply categorizes certain words as positive or negative. The higher the score, the more positive the sentiment.

Technode found that while the P30 and P30 Pro garnered a higher sentiment score according to reviews, their score from comments came out the lowest. Although reviews of the OnePlus 7 and 7 Pro were less positive, their reader comments were considerably more positive.

Extra factors

Since the analysis only includes English-language websites, the presence of the three brands in other markets globally was not taken into consideration.

In recent years, Xiaomi has grown to lead the Indian smartphone market with a 28% market share in the second quarter. Huawei, on the other hand, has been successful in Europe, ranking second for shipments in the first quarter with a 26% market share, a mere five percentage points shy of the leader Samsung.

Xiaomi and Huawei’s global success is not reflected directly through the English-language Wikipedia pages. According to a Google Trends comparison, OnePlus 7 has been the most searched model in the US in recent months among the trio. However, the Huawei P30 proved a more popular search term on a global scale.

The firm’s decision to pursue a “one flagship per year” strategy has paid off based on the hype surrounding its products this year. OnePlus’ success in launching products in the US markets has also provided a leg up in efforts to compete with Huawei and Xiaomi abroad.

Investments in Chinese medtech firms increased in July, making the sector the most invested industry in the country after corporate services.

Some 39 of China’s 335 deals last month involved medtech firms, up from 34 in July, data from TechNode’s China Investment Trends (CIT) shows. The total investment value edged down to RMB 109.8 billion from RMB 110 billion.

Early-stage rounds (Angel, Pre-A, Pre-A) made up 37% of total investments in August and 4.3% of the total value. Strategic investments, IPOs and private placements comprised 35.2%, 17.1%, and 15.6%, respectively.

The data is provided by TechNode’s CIT platform, a database that follows the investments in Chinese companies, especially technology startups. The database tracks investment events in 37 sectors in the country using media and company records to provide customized and visualized data for users. TechNode aims to use this data to bring regular updates on startup investment trends in China.

Artificial intelligence, domestic services, and e-commerce also received relatively large investment amounts in August.

Corporate services received more funds than any other sector in July

Most targets in the top five sectors are still in the initial investment stage

Hifibio Therapeutics, led by the former head of Asian cancer research at Sanofi, received the largest single investment for a startup at RMB 470 million. IDG Capital led the C-round while Sequoia China, VI Ventures, Legend Star, LYFE Capital, Delian Capital, Hanne Capital, and Kite also took part. Founded in 2017 in Zhejiang province, the firm researches and produces antibody drugs to treat cancer and autoimmune disorder.

In terms of all fundraising in August, China General Nuclear Power Corporation was most successful, raising RMB 12.6 billion following a listing in Shenzhen.

Tencent was the most prolific investor in the month, inking eight deals.