A Tesla car owner who protested against the company during the Auto Shanghai show in early 2021 has been forced to apologize for damaging the US car company’s reputation by alleging that Tesla sold defective cars, Chinese media outlets reported on Wednesday. 

Why it matters: The verdict marks the latest victory for Tesla in China after it faced mounting numbers of car owner complaints over various quality issues including unintended acceleration and brake failure in the past two years. 

• Among infamous cases are the woman who climbed onto the top of one of Tesla’s electric vehicles at the Auto Shanghai show in April 2021, and an accident resulting in two deaths and three injuries in southern China last November.

Details: A local court on Nov. 9 ordered a woman surnamed Li from the northwestern city of Xi’an to apologize to Tesla and pay the company RMB 2,000 in damages in addition to bearing the cost of vehicle appraisal totaling RMB 20,000 ($2,800). The public apology should remain on social media platform Weibo for at least 15 days, the court ruled.

• The female owner alleged faulty brakes caused an incident in March 2021 when her China-made Model 3 crashed into a car coming the other way in the capital of Shaanxi province. Tesla has denied the claim. 
• Li took part in a protest at the Tesla booth during that year’s Auto Shanghai show when she wore a white T-shirt with the words “brake failure” above a Tesla logo. Another female car owner surnamed Zhang then clambered atop a Tesla to express her anger. 
• The Chinese court required a third-party appraiser to conduct systematic inspections of the vehicle after Tesla filed a lawsuit against Li for defamation. The result showed no proof that any mechanical failure had contributed to the accident. 
• A company representative confirmed the news to Caixin on Wednesday, saying the automaker was attempting to appeal for higher compensation. It is also suing Zhang for damaging its reputation without taking further steps, as she rejected a third-party investigation of her car. 

Context: Tesla in May launched a recall involving over 1.1 million EVs in China following an investigation by Chinese regulators that showed Tesla owners could hit the accelerator pedal rather than the brake by mistake when its regenerative braking system was switched on by default. Beijing said the recall was intended to reduce the chance of accidents. 

• The US carmaker shipped 771,171 vehicles from its Shanghai gigafactory during the first ten months of this year, of which 462,355 were for domestic sales, a growth of 37.9% from a year earlier, according to figures from the China Passenger Car Association. Retail sales of new energy vehicles in China, mostly battery EVs and plug-in hybrids, increased 34.2% year-on-year to more than 5.9 million units over the same period, the CPCA figures showed. 

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

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

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

Buy more EVs

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

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

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

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

Shop more online 

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

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

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

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

Build more 5G, data centers, and other infrastructure 

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

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

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

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

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

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

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

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

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

Nio will expand its charging network by building at least 400 battery swap stations across China this year, alleviating a major concern among potential buyers that cars have insufficient driving range to travel between charging points, its president said on Monday.

Riding the wave of China’s speedy EV adoption, the electric vehicle maker also launched a special service campaign for owners during this year’s Lunar New Year holiday season, including unlimited free battery swapping and personalized customer service.

Why it matters: Nio’s recent moves to shore up its charging network and customer service capability are expected to further enhance its place in the Chinese luxury car segment, according to president Qin Lihong, who spoke to reporters in Beijing on Monday.

Charging infrastructure: In what Qin described as “a stress test” to check how Nio could “provide users with seamless services that were beyond their expectations” (our translation), Nio swapped nearly 1.25 million EV battery packs between Jan. 13 and Feb. 5 in China. For comparison, the company completed just over 800,000 swaps with a chain of 143 service stations between May 2018, when its first swap facility began operations, and mid-August 2020.

• Nio ran a network of 1,305 battery swap stations around China for a user base of nearly 290,000 drivers as of last year and will build more swap facilities than its previous estimate of 400 this year, Qin said, without giving a new number. The EV maker initially planned to expand its charging network to 1,700 swap stations in 2023, chief executive William Li said on Dec. 24 at Nio’s annual press conference.
• The eight-year-old company also claimed to be carmakers’ biggest EV-charging provider, with a network of 13,629 charging piles in China as of December. During the Lunar New Year holiday season, 76% of the charging sessions using Nio’s charging piles came from non-Nio cars, of which 17.6% were from BYD, 15.8% from Tesla, and 4.1% from Xpeng models. Official figures showed that China had nearly 1.8 million public charging piles as of December.
• Senior vice president Shen Fei said that Nio would scale up its charging operations at a pace that is in line with the increase in its sales volume. This not only refers to the build-up of swap stations but also applies to hybrid locations that include swap facilities and charging piles, which the company believes will better serve clients at peak times.
• Qin added that the seasonal campaign will not significantly impact Nio’s financial results but rather enhance its reputation for premium service and experience, as the company reduced advertising spend accordingly to keep its gross margin flat. Nio began offering owners six free swaps a month in late 2020, but maintains its policy of unlimited free battery swaps for an undisclosed number of early owners.

Unexpected services: In addition to existing, regular on-call valet charging and parking services it offers to car owners whose vehicles are running out of power, Nio provided a wide range of personalized, value-added services during the recent Lunar New Year holiday season.

• This ranged from family photoshoots at the company’s clubhouse-style flagship stores to the feeding of pets at the homes of Nio owners who were traveling, which a Shanghai-based Nio owner surnamed Dai described as “trivial but touching” when contacted by TechNode on Monday.
• Shen clarified by saying that these service options did not put pressure on its business, as most of them were provided unofficially by frontline employees who were simply working hard to fulfill customers’ needs.

Industry outlook: Nio remains optimistic that this year’s sale figures will exceed the roughly 184,000 units Lexus sold in 2022 in China. The auto upstart expects solid growth momentum for the country’s EV market despite a recent slump as China dropped its COVID-19 prevention measures.

• Qin added that intelligent, electrified, and high-end vehicles will continue to gain traction in the world’s biggest auto market, citing the average sale price of passenger vehicles in China, which is RMB 30,000 ($4,422) more in 2022 than in 2019.
• Industry observers expect rising competition and waning profits for Chinese automakers this year amid Beijing’s phase-out of EV purchase subsidies and a slow post-pandemic recovery. The China Passenger Car Association estimated passenger EV sales will reach 8.5 million units in 2023, representing an increase of around 50% from a year ago.

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

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

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

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

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

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

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

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

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

Editor’s note: China is on holiday for the Lunar New Year, or Spring Festival, from Jan. 21 to Jan. 27. For the week, TechNode has prepared three yearly summary reports. They include a list of the most-read articles, an in-depth feature on the rising Chinese EV sector, and an analysis of the growth of China’s overseas shopping apps. 

In 2022, many Chinese tech companies struggled to keep growing amid slowing demand, drastic Covid control policy changes, and heightened geopolitical tensions. 

TechNode looked back on articles published in this tumultuous time and saw readers gravitate toward several topics: new Chinese consumer tech products, the rise of Douyin and Shein in e-commerce, the US’s chip sanctions on the entire Chinese semiconductor sector, and key moves from China’s tech giants. 

Below are the 10 articles read the most by TechNode readers in 2022: 

1- A guide teaching programmers “to live longer” goes viral on GitHub among Chinese tech workers

A Chinese-language guide on GitHub entitled “HowToLiveLonger” was trending within the Chinese tech community in late April. Despite its serious and scientific tone, the new “guide” appeared to be a pointed joke, taking aim at ongoing overwork practices in China’s tech industry and their impact on employees’ mental and physical well-being. Its popular reception in Chinese tech circles reflected the community’s mood. 

2- ByteDance acquires two new entertainment companies

Chinese tech unicorn ByteDance acquired cinema ticketing platform Yingtuobang and online comics service Yizhikan Comics to further ramp up its push into the entertainment market, Chinese media outlet Tech Planet reported in mid-January. 

With the new acquisitions, the Beijing-based TikTok developer further expanded the reach of its entertainment empire, which already consisted of short video apps, short- and long-form video platforms, news aggregation services, online novels, gaming, music streaming, idol management, and virtual idols.

3- Tencent reported to be cutting 20% of its workforce

Chinese tech giant Tencent reportedly planned to lay off around 20% of its staff in mid-March, joining a lengthy list of tech firms trimming their workforces since 2021. 

Deep-pocketed tech titans such as Tencent and Alibaba, which are generally less vulnerable to small market fluctuations, have largely maintained their headcount until recently. The two giants have not been immune to China’s ongoing economic downturn, regulatory curbs, and international trade tensions.

4- China’s NFT market: Who are the major players, and what makes them different?

In China, the NFT digital art market is bustling with new players and projects. That may come as a surprise for people familiar with China’s strict approach to cryptocurrency, with the country having fully banned crypto trading and mining in 2021. However, China has also embraced controlled versions of blockchain technology, such as the digital yuan, encouraging its growth in various sectors. So far, China has allowed NFTs but banned people from speculating and trading them. 

NFTs are viewed more as a derivative of blockchain technology rather than a tradable asset in China. Tech majors such as Alibaba, Tencent, and JD have built their own platforms where users can buy and collect NFTs but are prohibited from trading or reselling their purchases. Most Chinese tech giants don’t even use the term NFT, hoping to stay on regulators’ good side and avoid association with the global crypto market. Instead, they use the term “digital collectible.” 

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

In early October, the US announced a new set of semiconductor export restrictions aimed at cutting China off from accessing certain high-end chips and further limiting the country’s ability to make advanced chips themselves. 

The US Department of Commerce’s Bureau of Industry and Security issued nine new rules, imposing export controls on advanced chips, transactions for supercomputer centers, and transactions involving certain entities on the Entity List. The rules also imposed new controls on certain semiconductor manufacturing equipment and on transactions for certain integrated circuit end uses. 

6- Chinese semiconductor firms bear heavy fallout of US chip sanctions

After the US issued one of the broadest export controls on semiconductor technology to China in a decade in October, China’s semiconductor industry saw its market value tumble. At least 13 China-listed semiconductor firms saw their market value decline more than 10% in less than a week, and five saw a more than 20% decline. 

Issued by the US commerce department, the comprehensive restriction bars companies from shipping advanced chips and chipmaking tools to China unless they obtain a special license. More specifically, the restrictions aim to cut off China’s access to and ability to make advanced chips under 16nm or 14nm, DRAM memory chips of 18nm or more advanced, and NAND flash memory chips of 128 layers or more. These technologies are essential to supercomputing and artificial intelligence. 

7- Gadget review | Oppo Watch 3 Pro: a high-end Android watch that lasts for days

Chinese phone maker Oppo released its new generation of smartwatches, the Watch 3 series, in August with a price tag of RMB 1,599 – RMB 2,099 ($228 – $300). The company first entered the watch market in 2020, updating its range annually since then.  

The latest series has a new look and offers more premium features such as long battery life, and an always-on feature supported by a LTPO OLED display. 

The version TechNode tested, the Watch 3 Pro, is currently only available in mainland China and Oppo has yet to reveal any plans regarding overseas markets, but there is an expectation that it will eventually be sold internationally. 

8- Gadget review | Xiaomi 12S Pro review: Flagship made for photographers and gamers

Xiaomi launched the 12S Pro in China in early July. The phone is the mid-range offering in Xiaomi’s new 12S lineup (including the 12S, 12S Pro, and 12S Ultra), which updates annually and targets a broad range of mid-end to high-end users. The series is also the first set of Xiaomi phones to use Leica lenses. TechNode got a hold of the 12S Pro and spent a week using and testing it. 

The phone is a solid choice as a primary daily device. The Leica-branded cameras can lure photography lovers, and the 12S Pro’s specs offer a quality entertainment experience. We would also recommend it to avid gamers and video watchers.

9- Douyin sees e-commerce sales more than triple in the past year

TikTok’s Chinese version Douyin announced in late May that its online sales had more than tripled for the year ending in April 2022, an impressive growth rate for the e-commerce up-and-comer when other majors were slowing down due to an economic downturn in China.

Chinese short-video platforms such as ByteDance-backed Douyin and Kuaishou are quickly eating into the market shares of e-commerce giants such as Alibaba, JD, and Pinduoduo, thanks to their widely popular social content.

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

Shein was among hundreds of thousands of Chinese startups that tapped into the country’s emerging cross-border e-commerce industry when it was founded in 2008 in the eastern city of Nanjing. 

More than a decade later, it’s a Chinese fast fashion decacorn (a private technology company worth more than $10 billion) with a market cap of $100 billion. Only three other tech juggernauts — ByteDance, Alibaba’s Ant Group, and SpaceX — have surpassed that benchmark, according to Crunchbase’s private unicorn list.

Shein is a much lesser-known name than its local peers, such as Alibaba and JD. Its relative anonymity is largely due to its unusually low profile, typified by the lack of public information on its mysterious founder Xu Yangtian, also known as Chris Xu. However, Shein is a name that is increasingly difficult to ignore, as its extraordinary growth has people comparing it with big-name rivals like Amazon and Zara.

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

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

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

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

Build a modern industrial system

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

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

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

Push an innovation-driven development strategy

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

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

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

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

Transition to green and low-carbon development

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

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

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

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

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

Since last week, several major Chinese social media platforms, including the Twitter-like Weibo and TikTok sister app Douyin, began to test displaying the names of commercial agencies responsible for content production on influencer accounts’ profile pages.

Why it matters: The move comes three months after platforms began displaying users’ IP locations. It is part of Chinese authorities’ declared aim of building a “healthy online environment.” 

Details: Douyin began displaying details of multi-channel network (MCN) on influencers’ profile pages on July 21. Weibo made the same move on Monday, showing the name of MCN responsible for commercial content. MCNs are third-party organizations that provide assistance and production services for online content creators and are a booming part of China’s digital economy. 

• In June, Douyin released a note saying that the platform would display the names of MCN agencies on the profile page of any affiliated accounts, according to an article posted on 36Kr on July 22. This week, Android users with the latest version of Douyin will also see this feature.
• A Weibo influencer first reported that the platform will display MCN information on profiles on July 23. Weibo officially rolled out this feature on Monday.
• Neither Douyin owner ByteDance nor Weibo responded to TechNode’s inquiries regarding this issue.

Context: The MCN market in China recorded revenue of RMB 33.5 billion ($4.96 billion) in 2021 and is predicted to exceed RMB 54.5 billion in 2023, according to iiMedia Research.

• There were over 30,000 MCN agencies in China last year, with that figure set to reach 40,000 in 2022, according to data from iiMedia Research. An analyst from the agency attributed such growth to the rise of the country’s influencer economy in a report.
• On March 17, the State Council Information Office of China announced that regulating online content would form a major part of its work in 2022, naming the review of multi-channel network operations as a key area of its focus.
• Zhang Yongjun, head of a government department under the Cyberspace Administration of China, said at a conference in March that platforms “should publicize lists of MCNs and their client accounts in an appropriate way, and display the MCN name on account profiles.”

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

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

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

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

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

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

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

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

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

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

June 30, 2021 – Didi goes public in the US

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

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

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

July 6, 2021 – US shareholders sue Didi

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

August 9, 2021 – SoftBank scales back China investment

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

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

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

December 2, 2021 – Didi prepares to quit New York

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

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

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

June 11, 2022 – Didi delists from NYSE

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

July 21, 2022 – Didi fined for$1.2 billion 

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

Two people were killed after a Nio testing car plummeted off the third floor of a parking garage at the company’s Shanghai headquarters on Wednesday. The electric vehicle maker claimed that its vehicle was not at fault in the accident.

Why it matters: If the vehicle was not at fault, the incident should not greatly impact Nio’s vehicle sales. However, it potentially delivers another blow to the company’s reputation following a high-profile accident involving a Nio car last year.

Details: Based on preliminary investigations by the local police, there is no indication that the deaths of the two testing workers were related to an issue with the vehicle, Nio said on Thursday in an announcement published on the Chinese Twitter-like platform Weibo. It was not immediately clear what caused the crash.

• The two workers – one a Nio employee, the other a staff of a partner company – were testing Nio’s digital cockpit features and were killed Wednesday afternoon after the car drove off from the third floor of the garage and landed on the company’s campus in the city’s Jiading district. The tragic case was an “accident unrelated to the vehicle,” the company added in their statement.
• Nio shares closed slightly up 2.2% on Thursday amid a broad market rally that saw rivals Xpeng Motors and Li Auto jump 7.8% and 6.6%, respectively.

Context: Last year, Nio’s credibility took a hit when a 31-year-old Chinese entrepreneur died in a car crash while driving his Nio ES8 with the car’s driver-assistance functions activated. Nio notes in its user manual that the company’s technology currently requires active driver supervision and does not make the vehicle autonomous.

• Nio’s vehicle margin fell to 18.1% in the first quarter of this year, down from the 21.2% during the same period last year and the 20.9% recorded for the fourth quarter of 2021, due to the industry’s ongoing supply chain constraints, worsened by China’s Covid lockdowns.
• The Tencent-backed EV maker delivered 37,866 vehicles for the first five months of this year, an 11.8% increase from a year earlier. Deliveries of rivals Xpeng Motors and Li Auto more than doubled year-on-year to 53,688 and 47,379 vehicles over the same period.
• Earlier this month, the Shanghai-headquartered automaker launched the ES7, a new electric sports utility vehicle that boasts improved comfort and advanced self-driving technologies, with a starting price of RMB 468,000 ($69,825). 

On Wednesday, China’s media regulators released a new regulation to tighten scrutiny on livestream hosts’ behaviors. 

Why it matters: The rules require online streamers to adhere to a set of similar standards applied to the country’s tightly regulated traditional media hosts, a sign of further tightening the fast-growing and lucrative industry. 

• Livestreaming e-commerce and entertainment have become part of Chinese people’s online shopping routine. Recently, education companies New Oriental have been able to utilize livestreaming to make a major comeback after China’s new rules on private tutoring cut off the bulk of its income.

Details: The new rules are jointly released by China’s National Radio and Television Administration and the Ministry of Culture and Tourism. It consists of 18 guidelines for livestream hosts.

• The guidelines emphasized that livestream hosts must uphold correct political values and social values, create and promote more “positive” stories and maintain a “wholesome” taste. In addition, it advised hosts to self-regulate and avoid content that only focuses on viewing traffics, has morbid aesthetics, caters to fandom culture, or promotes money worship. 
• Livestream hosts in professional fields like law, medical health, education, and finance must obtain relevant qualifications and approvals from the streaming platform. Tencent’s WeChat told the Chinese media outlet The Paper (in Chinese) late Wednesday that it will draft punishment measures for people who disobey these new rules.
• The rules also mention that streaming platforms should take responsibility for their implementation, giving positive encouragement to rule-followers and punishing those who break the rules. Users who severely violate the new rules will be put on a blacklist and will receive a permanent streaming ban.
• The rules also apply to virtual hosts and the human vocalists behind virtual hosts.

Context: Since earlier last year, China has been pushing to further regulate the livestream industry. In late last year, several top livestream hosts stopped their streams due to inappropriate or illegal behavior.

• One of the country’s top e-commerce streamers, Viya, was banned for tax evasion in 2021 and was fined RMB 1.3 billion ($270 million). Before she was banned, her livestreaming generated RMB 8.3 billion in sales on the first day of the Singles’ Day shopping holiday in 2021.
• China’s 315 Gala this year, an annual event highlighting consumer rights abuses, spotlighted fraudulent promotions and scams in the livestream industry.

Chinese regulators released a list of 60 newly approved domestic titles (in Chinese) on Tuesday after another approval pause in May, including titles from notable gaming firms like HoYoverse (formerly known as miHoYo) and Perfect World. In April, the regulators resumed approving new games for the first time in eight months. 

Why it matters: China’s National Press and Publication Administration (NPPA) usually releases a list of approved gaming titles monthly. With no games approved for May, gaming firms seeking to bring new titles online continue to face uncertainty. 

Details: The NPPA, China’s government department for publishing news, films, and games,  gave licenses to 60 new games in June.

• 58 of the 60 listed titles are for mobile platforms (including tablets). The other two are a web game and a client game targeted mainly at desktop users. In comparison, 40 of the 45 approved titles in April were made for mobile platforms.
• The list also didn’t include any titles for console platforms like Xbox, Playstation, and the Nintendo Switch.
• A new title from HoYoverse, developer of the globally popular game Genshin Impact, was approved for June. In addition, Perfect World, the operator of Dota 2 on the Chinese mainland, received a license for an Otome game, a story-based game targeted at women.
• Of the titles approved, 16 are designated as being in the “beta” phase, indicating that a new policy issued last August that allows local governments to approve games in the beta phase has come into effect.

Context: The NPPA’s eight-month halt on the issuance of new gaming licenses had major ramifications for the gaming industry in China, causing a sharp decline in the growth rate of the industry, as well as the downsizing of major players in China’s gaming sector.

• As a result of this uncertainty and stricter policies around teenage gamers in China, gaming companies like Tencent and NetEase began more aggressive expansion overseas as their local business slowed.
• There are still no signs of relief for overseas titles in China to get approvals; the last batch to be licensed was June 2021.

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

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

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

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

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

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

Local Chinese governments are releasing economic stimulus packages to boost consumption, including measures targeted at boosting car sales, as Shanghai gradually emerges from a two-month Covid-19 lockdown. 

Why it matters: The latest government measures, ranging from voucher programs to new quotas, could be a sign of recovery in China’s auto sector, which has seen production halted and raw material prices surged amid a spate of recent Covid-19 outbreaks across the country.

Details: Many Chinese cities have released a host of measures to help boost demand for cars as part of their economic stimulus package. The Shanghai municipal government on May 29 unveiled (in Chinese) 50 stimulus measures, which included giving out 40,000 new car plates and handing out cash incentives for gas car owners trading in for EVs. 

• Consumers will also receive rebates of RMB 10,000 ($1,503) per car for any trade-in of gasoline vehicles for new electric vehicles (EVs) for the rest of the year, as stated on the notice of the municipal government’s official WeChat account.
• Cui Dongshu, Secretary General of the China Passenger Car Association, on Monday told Jiemian News (in Chinese) that he expects Shanghai’s stimulus package to increase sales of passenger vehicles by around 150,000 units, of which two-thirds could be new energy vehicles, which includes all-electric vehicles and plug-in hybrids.
• On Monday, a Nio spokesperson told Chinese media The Paper on Monday that the company expects the stimulus measures to accelerate EV adoption, adding that orders for its models in the city have increased “significantly” in May (our translation).
• A number of local authorities also released similar cash subsidies for people to buy cars. Shenzhen on Thursday announced (in Chinese) plans to lift its limits on the number of new vehicles allowed on the city’s roads by allocating 20,000 new license plates to quotas and providing incentives of up to RMB 20,000 for new car purchases.
• Both the central Chinese city of Zhengzhou and Shenyang, the capital city of the northeastern Liaoning province, announced new voucher programs of RMB 100 million to boost vehicle buying earlier this month. Meanwhile, car buyers in the central city of Wuhan could receive a subsidy of RMB 8,000 or RMB 3,000 for each trade-in of new energy vehicles or combustion engine vehicles, respectively.  

Context: China’s central government has pledged to strengthen the current state subsidy to EV makers to encourage auto sales, as the latest wave of Covid-19 cases has disrupted auto parts supply chains and forced carmakers to drop their outlooks for the year.

• During a State Council executive meeting on May 23, Beijing unveiled dozens of new stimulus measures, including cutting car purchase taxes by RMB 60 billion, in the hope of helping the industry withstand the impact of the pandemic, SCMP reported.
• China’s auto sales dropped by nearly half to 1.18 million units in April compared to the same time a year earlier, according to official figures. Major automakers such as Tesla were hit hard by supply-chain constraints and a month-long production shutdown.
• Local EV upstarts Xpeng and Li Auto earlier this month issued a gloomy outlook for the second quarter of this year, after reporting record declines in vehicle deliveries for April.

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

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

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

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

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

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

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

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

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

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

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

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

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

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. 

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

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

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

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

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

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

Chinese video platform Bilibili announced on Wednesday that it is implementing new rules (in Chinese) to combat the rise of hateful speech and inappropriate content on the platform.

Why it matters: This is another self-cleaning act from China’s video platform. Bilibili has made at least seven announcements to remove inappropriate content since January to comply with tightening content control from Chinese regulators. 

Details: Bilibili said it had noticed an uptick of videos that make unethical jokes about the dead and attacks others based on their gender, occupation, and age. The platform said such disrespectful content is “plaguing the community.” Bilibili will start implementing the rules by deleting such content for the first month. After that, content creators will face account suspension if they continue to create such content.

• The new rules banned three main types of content. The first one is mocking death, sickness, and disability. The second is jokes about disasters and tragic social events. Last, is hateful content directed toward a particular gender group and other groups. 
• The platform gave a few examples: videos making fun of tragic events such as the deaths of NBA star Kobe Bryant and former US President John F. Kennedy, and misogynistic and misandrist content.

Context: As of 2021, Bilibili had 271.7 million monthly active users and 10 million newly uploaded videos per month. The platform has become a thriving community for vloggers and fans of animation, comics, and games. 

• Following Chinese regulators’ scrutiny of toxic and negative content online in January, Bilibili went through a large-scale content moderation to crackdown on content involving cyberbullying, softcore porn, online frauds, and others.

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

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

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

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

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

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

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

READ MORE: Automakers in China still face many hurdles as some resume production

IP proxy services have become a sought-after tool in China less than a month after the country’s main social media platforms started to reveal all users’ location information.

Why it matters: Chinese internet users are in a cat and mouse game with the country’s social media platforms which have dealt a blow to users’ privacy by forcing them to reveal their geolocation. 

• Since April 15, major Chinese social media platforms including ByteDance’s Jinri Toutiao and Douyin, Kuaishou, and Xiaohongshu announced that they will start to display all users’ location information by way of revealing the region where their IP addresses are located. Weibo did the same in late April. Most Chinese users don’t have an option to turn off their IP locations. Thus, many online businesses are selling fake IP proxy services to help users to cover up their true location.
• The new measure has already exposed many accounts for promoting content unrelated to their locations. For example, an account with an IP address in the central province of Hunan was shown running a marketing account on local fun activities in the capital city, Beijing. 

Details: Chinese media outlet The Paper on Thursday reported (in Chinese) that many businesses are now selling services that change IP addresses for as little as RMB 6 ($0.9) per day on e-commerce platforms like Taobao. Many of these businesses say that they can alter location information (in Chinese) on platforms like Weibo and Douyin.

• The new rules have had an eye-opening effect on many users. For instance, the Weibo account of Bill Gates, the founder of Microsoft, shows it has an IP address in the central province of Henan, possibly revealing the whereabouts of the team that runs the account (the IP address is only revealed to logged in users). Meanwhile, many popular marketing personalities with overseas images and selling points are shown to be located in China. 
• IP addresses can reveal users’ approximate geographic information. An IP proxy service can route one’s connection to another location so as to hide their real location. 

Context: Social e-commerce platform Xiaohongshu is one of the few platforms that gives users the option to hide their location information. 

• Toutiao, ByteDance’s algorithm-driven feed platform, began displaying the location of users’ profit pages on April 15.
• Weibo announced that it would display all users’ locations (in Chinese) based on IP address on April 28. The Chinese version of TikTok, Douyin, also began showings the user’s’ IP locations on April 29.
• On April 30, Quora-like Zhihu also rolled out a similar feature to display location information (in Chinese) in all new replies, aiming to maintain a “healthy and clear community.”

Nio and Li Auto’s vehicle deliveries halved in April compared to the previous month, while Xpeng saw a nearly 41% drop. These Chinese EV upstarts have cut production as China fights a new wave of widespread coronavirus outbreaks with frequent lockdown measures since late March.

Why it matters: The massive drop comes as a wave of omicron cases and strict lockdown measures have led to severe supply chain and logistical disruptions to automakers and parts suppliers in Shanghai and surrounding areas, a major auto manufacturing hub for the country.

Details: Li Auto took the biggest hit among the main Chinese electric vehicle (EV) makers, reporting a 62% monthly drop to 4,167 vehicle deliveries for April. Nio saw vehicle deliveries plunge nearly 50% to 5,074 units in April from a month earlier, while Xpeng’s volume dropped 41.6% to 9,002 over the same period.

• Li Auto’s vehicle assemblies in Changzhou, a neighboring city to Shanghai in the eastern Jiangsu province, sat idle after stockpiles of components became depleted during the past month. Over 80% of the company’s parts suppliers are located within the region and many were hit by factory disclosures and logistics difficulties over the period, president Shen Yanan said in an announcement.
• With a factory in the eastern city of Hefei and its global headquarters in Shanghai, Nio was also forced to halt operations for a few days early last month before parts of its business resumed operations beginning April 14. Xpeng was less affected due to its operations being primarily based in the southern city of Guangzhou, saying that it is navigating the pandemic-driven disruption.
• Some traditional auto majors with southern bases weathered the storm better, with Shenzhen-based BYD selling (in Chinese) 106,042 vehicles to customers in April, up 313% from a year ago and 1% up a month earlier. State-owned GAC, also with manufacturing bases in the southern Guangdong province, said that deliveries of its Aion-branded EVs increased 23% year-on-year to around 10,200 last month.
• The ongoing lockdowns have also had minor effects on smaller players such as Leapmotor and Hozon, which reported decreases of 9.7% and 26.7%, respectively, in April deliveries month-on-month. Leapmotor delivered 9,087 vehicles last month, followed by Hozon’s 8,813, local media reported.

Context: The China Passenger Car Association projected total passenger vehicle sales in China in April will plunge to 1.1 million units, a 31.9% drop compared to the same period last year, as the auto industry needs time to recover from the effects of the pandemic.

• Some automakers like Tesla and Volkswagen are gradually resuming production at their factories in Shanghai and the surrounding areas, which have been shut down for weeks due to the lockdowns but still face various hurdles such as parts shortages and a limited workforce.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Top automakers Nio, Tesla, and Volkswagen, are temporarily closing their plants in China as a new omicron-led coronavirus outbreak spreads through the country. Following China’s covid zero policy, cities rush to implement lockdowns, creating broken links in the local supply chain.

Why it matters: The spread of the highly transmissible omicron variant is the latest hit to automakers in China after struggling for months to cope with raw material and parts shortages resulting from continued high demand and now worsened by the Russia-Ukraine war.

Details: Nio, Tesla, and Volkswagen have closed their assembly plants in China – without providing a targeted return-to-work date.

• Nio said on April 10 that it had temporarily stopped production lines at its plant in the eastern city of Hefei, after parts suppliers suspended operations earlier in “multiple” regions including Shanghai, the eastern Jiangsu province, and the northeastern Jilin province. Vehicle delivery is also delayed, according to an announcement (in Chinese).
• Tesla on March 28 closed its Shanghai Gigafactory for four days as the local government enacted citywide lockdown measures. The shutdown has since been extended indefinitely due to a severe lack of staff and components, news website Electrek reported on April 6, estimating a potential production loss of at least 24,000 vehicles. The US EV giant delivered 65,814 vehicles last month, an 85% increase from a year earlier, according to CPCA.
• Volkswagen announced on April 1 that its Shanghai plant, operated as a joint venture with China’s SAIC Motor, was due to be closed for five days, a few days after a 48-hour suspension during mid-March. The production suspension is still ongoing, however, according to a Monday report by Chinese media Caixin. Previously, the German automaker’s joint venture plants with FAW Group in Changchun (the capital city of Jilin province) also shut down on March 13. FAW on Monday announced that it had begun reopening facilities, local media reported.

Context: China’s overall car production volume could slump by 20% with the current omicron outbreak, Cui Dongshu, Secretary General of the China Passenger Car Association (CPCA), said on Monday during an online conference, without giving a timeframe.

• In March, China’s passenger vehicle output fell slightly by 0.3% to 1.82 million units from a year earlier, with the luxury segment the hardest hit as production volume declined 31% on an annual basis, according to the latest figures published by the CPCA.
• Last month, the passenger electric vehicle (EV) sector saw strong growth with retail sales up 137.6% from a year ago to 445,000 vehicles last month. The CPCA did not provide an estimate on auto sales for 2022 since the situation remains fluid, but maintained its estimate of passenger EV sales at 5.5 million units for 2022, Cui said.

Since digital artist Beeple sold his work Everydays: the First 5000 Days (a digital collage image) for $69 million last March, the market around trading digital art, a popular type of NFT, has reached a fever pitch all over the world. 

A non-fungible token, or NFT, is a blockchain-based record that represents unique items that are non-interchangeable. You’ve probably heard about some of the most common forms of NFT, such as digital art, photographs, music, video, in-game items, and other forms of media, but NFTs can really be used to show ownership of just about anything. 

Since the first NFT work by artist Kevin McCoy appeared in 2014, the market stayed quiet for a few years before it started taking off in the past two years. Popular NFT trading platform OpenSea launched in 2018, steadily introducing more people to trading digital arts. Last year, the market saw an increase in popularity, with trade volume hitting $23 billion, according to Forbes. 

In China, the NFT digital art market is also bustling with new players and projects. That may come as a surprise for people familiar with China’s strict approach to cryptocurrency, having fully banned crypto trading and mining last year. However, the country has also embraced controlled versions of blockchain technology, such as the digital yuan, encouraging its growth in various sectors. So far, China has allowed NFTs but banned people from speculating and trading them.

NFTs are viewed more as a derivative of blockchain technology rather than a tradable asset in China. Tech majors, like Alibaba, Tencent, and JD, have built their own platforms where users can buy and collect NFTs, but are prohibited from trading or reselling their purchases. Most Chinese tech giants don’t even use the term NFT, hoping to stay on regulators’ good side and avoid association with the global crypto market. Instead, they use the term “digital collectible.” 

This article dives into some of the most notable Chinese NFT platforms to give a picture of China’s NFT marketplace, its characteristics, and the differences between the market for NFTs in China and the rest of the world. 

Key players in the Chinese NFT space

Most Chinese NFT platforms are built on consortium blockchains or Blockchain-as-a-Service (Bass) infrastructure, giving companies and organizations authority to govern the platform. This is in direct contrast to popular global NFT platforms, which are built on public blockchains, meaning that they are permissionless, allow anyone to join, and are decentralized in nature, such as Ethereum or Solana. 

The most significant difference between NFT projects in China and the international market lies in this concept of decentralization, where decision-making power is taken from one centralized entity and given to member-owned communities, known as Decentralized Autonomous Organizations (DAOs). While there’s continued debate about the actual degree of decentralization of projects within the international community, with many projects working towards full decentralization, China’s NFT market strictly follows the country’s laws and regulations, and its projects are overwhelmingly centralized.

BSN: BSN-DDC

China’s state-backed blockchain infrastructure Blockchain Services Network (BSN) released on Jan. 24 its own NFT infrastructure called BSN-DDC, short for Blockchain Services Network Distributed Digital Certificate.

BSN-DDC provides companies with blockchain infrastructure to build their own NFT platforms that comply with Chinese regulations. 

The infrastructure has integrated 10 public blockchains, including Algorand, Cosmos, Ethereum, Polkadot, Tezos, and Nervos. These integrated versions of public blockchain work differently from their original versions: they set restrictions on who can govern the blockchain, identify all participants, and use fiat currency for payments instead of cryptocurrency.

Ant Group: JingTan (Topnod)

Alibaba’s fintech affiliate Ant Group launched its digital collectible platform AntChain Fan Points last June, which was renamed Topnod (Jingtan in Chinese) last December. The platform runs on a consortium blockchain built by AntChain, Ant’s blockchain arm. 

Users are not allowed to resell digital collectibles bought on Topnod, and can only gift them to authenticated users after holding them for more than 180 days.

Collections on the platform often have a price range of RMB 20-30 (about $3 to $5) and a limited collectible count of 8,000 to 10,000. The platform uses its own payment system on Alipay, one of mainland China’s two main cashless payment companies. All users need to complete real-name identity verification and transact with fiat currency.   

The platform boasts a fast and cheap transaction speed. “Topnod was able to provide a technical capability to process 100,000 digital collectible transactions per second during a Spring Festival digital campaign in 2022. This leads the consortium blockchain industry,” a Topnod spokesperson said. 

Topnod works with various national museums in China to produce digital versions of historical relics. They also work with painters, ethnic minority embroidery artists, and more. Topnod recently collaborated with the Shanghai Symphony Orchestra, releasing 10,000 pieces of audio collectibles from the earliest symphony phonographic record in China, priced at RMB 19.9 ($3.15) apiece. The collection featured two pieces of the 1929 recording from the Spanish composer Manuel de Falla’s ballet piece El amor brujo.

Tencent: Huanhe

Tencent’s digital collectible platform Huanhe is built on Tencent’s Zxin Chain, a government-authorized enterprise blockchain network, and has a more diverse collection when compared to Topnod. Huanhe works with museums, well-known artists, auto brands, consumer product brands, and charity organizations to release various digital works. 

Chinese platforms often use digital collectibles to promote cultural heritage and accelerate the digitization of the cultural and museum industries. For example, Huanhe offers digital versions of murals from the famed Dunhuang Mogao Grottoes, at RMB 118 apiece ($18), around the same price as a digital painting by the famous painter Qi Baishi, as well as other ancient Chinese artworks. 

Huanhe also works with consumer brands, such as car companies or household consumer product companies, to release digital collectibles. These collectibles are often free and lottery-based and serve primarily as a marketing tool for these brands. For example, Chinese household paper brand Qingfeng released a free collection of five different 3D flower artworks, which attracted 14,154 participants in the lottery.

Another collection from The Imperial Palace Museum’s cosmetic brand offered limited editions of digital collectibles if people purchase a physical cosmetic product.

All digital artworks purchased from Huanhe can be displayed in the user’s own 3D virtual gallery inside the app. And similar to other Chinese digital collectible platforms, Huanhe doesn’t support secondary trading. 

NFTCN marketplace

NFTCN, unlike other digital collectible platforms in the China market, is a marketplace for independent artists and collectors to create, sell and collect NFTs. The marketplace sells digital and physical art using NFTs, with a built-in gallery to exhibit user collections. According to its website, the marketplace uses back-end technology that is based on a side chain of Ethereum, without any further elaboration. 

Buyers transact on the platform by purchasing special cards from the website in fiat currency to avoid crypto transactions. Unlike other Chinese NFT marketplaces, NFTCN actually has a secondary marketplace where collectors can resell their collections. For example, an item named “Violent Goose #78” was first sold at RMB 599 ($94.79) on March 7, then resold for more than double the price the following day. 

Comparing the Chinese NFT market to the rest of the world

Investing with regulatory risk

Although Chinese regulations bar people from reselling and trading NFTs and digital collectibles, many collectors still hope for capital gains from these purchases in the future as policy changes. 

In February, a group member from a private Topnod collector WeChat group commented with enthusiasm after a successful digital collectible purchase on the platform, “still waiting for a secondary market for Topnod,” as seen by the author. 

Collectors in China have also made efforts to get around the NFT trading bans. Last June, a Dunhuang digital collection part of the inaugural sale on Ant Group’s platform quickly sold out. The collection was originally priced at around RMB 10 ($1.58). Buyers immediately put the collection on a second-hand trading platform called Xianyu, asking for around RMB 100,000, with one listing asking for RMB 1.5 million. The platform quickly took down NFT-related products and blocked “NFT” in search results. 

In February, as some collectors approached the 180-day holding period set by Chinese platforms, some were looking for ways to sell their ability to “gift” collections. Ant’s Topnod announced in late February that it had punished 56 users who tried to trade their collection by trading their rights to “gift” the collection. 

Digital property rights

NFT’s immutable nature, which inherently creates digital property rights, gives it more value over other forms of digital media like a JPEG. Suppose the developer of a decentralized NFT marketplace, developed on a decentralized public blockchain, decides to abandon the project. In that case, the NFTs released by that marketplace will still live on the public chain. For example, Hic et nunc, a Tezos-based NFT marketplace, discontinued its service last November, but all NFTs released are still available on the Tezos blockchain. 

But things could be different for Chinese NFT marketplaces, mostly built on non-public blockchains. Users have digital property rights as long as the platform maintains its blockchain. Still, but they can lose their rights to access those digital purchases if other governing parties decide to discontinue the blockchain. 

In addition, the NFT community believes that NFTs play an important role in building the metaverse, an immersive 3D virtual space. Some collectors are betting on the Chinese NFT market to go through a profitable phase in a controlled, centralized way, as they watch prices of virtual land, virtual events, and virtual clothes rise rapidly on global NFT markets.

READ MORE: Metaverse in China: Investors and tech leaders say they are prepared

Know your customer (KYC) vs. Anonymous

All Chinese digital collectible platforms require users to register with their real-name identification to comply with the law. Known as the KYC policy, the rule can help prevent money laundering and capital control. 

By comparison, the international NFT market is largely made up of communities of anonymous (“anons”) users. This attribute helps people participate in the market with less discrimination, protecting privacy while maintaining transparency on a public ledger. Traditional financial systems can often be biased, taking into account an individual’s background when offering loans or other financial products. With an “anon” system, people are given equal investment opportunities. Skin color, gender, age, or education background are not considered when investing in NFTs or decentralized finance (DeFi) products.

Beijing this year aims to expand 5G infrastructure, set up a national system of data centers, keep a tight regulatory grip on big platforms, and push e-commerce in rural China, according to goals set forth this week at the annual lianghui  (“two sessions”) meeting of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC).

China plans to bolster the tech sector by increasing state funding in key areas such as chip manufacturing and improving the capital market so more tech firms can raise money domestically. Having a growing and self-sustained tech sector is central to the government’s plan to achieve these set targets, according to government reports presented in the meeting.

Given the ongoing surge in the pandemic in China, an economic slowdown, and uncertain global geopolitical pressure, many of the goals for 2022 will be particularly challenging to achieve. The GDP growth target of 5.5% is ambitious, despite being the lowest in a decade (It was 6% last year; no target was set in 2020 due to the pandemic). 

Members of the NPC and CPPCC, the nation’s top legislative bodies, meeting from March 5 to March 11, emphasized the need for a stable growing economy as China prepares to host the all-important 20th Party Congress in autumn. This year is also the second year in China’s 14th Five-Year Plan (2021 to 2025), which is set to make the country wealthier and more equal, growing China’s per capita GDP to the level of moderately developed nations and expanding its middle-class. 

Achieving self-sustainability in semiconductors and strategically important areas such as AI, biotechnology, and advanced manufacturing tools and machines are high on the government’s priorities. The government will fund small startups that possess innovative tech in the manufacturing, fostering what they called “little giants,” according to the Ministry of Finance’s report filed to the meeting and released to the press.

New energy vehicles will continue to be embraced. The government aims to build more green energy power structures to ease its reliance on fossil fuels. In key growth areas like Beijing, Shanghai, and Guangdong, the state will fund national laboratories and tech innovation hubs to attract tech talents. 

Reassuring capital markets

China will “promote the development of venture capital,” Premier Li Keqiang said on March 5 at the opening of the six-day NPC assembly. The remarks sent an assuring signal to worried tech venture capitalists after China’s year-long tech crackdown erased trillions of dollars in market cap from Chinese tech majors like Alibaba, Didi, and Meituan. However, the country will still be mindful of the systematic risks brought by “unregulated and disorderly expansion of capital,” Li said in the government work report.

Despite the fears spawned by last year’s regulatory crackdowns, venture capital investments in China jumped almost 50% from $86.7 billion in 2020 to a new record of $130.6 billion for 2021, data from research firm Preqin shows. However, venture capital pivoted to financing hard tech areas like semiconductors and robots rather than highly-regulated areas like edtech. 

In addition to leveraging venture capital, the country plans to improve the operation of public capital markets by reforming China’s new third board, an over-the-counter share trading platform serving small and medium enterprises (SMEs). China made the first step of reform by launching the Beijing Stock Exchange last November, targeting small tech startups and enhancing the connectivity of the multi-level capital markets.

Infrastructure priorities: 5G, data centers 

Regulatory crackdowns on large internet platforms will likely continue this year, as the Supreme People’s Procuratorate, the state’s prosecutor, said in the NPC that it plans to closely monitor anti-monopoly, anti-competitive behaviors, and guide the capital market to orderly development. 

China plans to construct more 5G stations and further utilize data as a critical national resource to bring more value from its increasingly digitized economy. China’s economic planner, the National Development and Reform Commission (NDRC), said in a report released to the assembly that it will launch several “major infrastructure projects,” building 5G networks, artificial intelligence (AI), and an integrated national system of big data centers.

China elevated data to one of the key economic resources in the 14th Five-Year Plan released last year. In 2021, China laid the groundwork for keeping data secure with a slew of regulations. This year, it will further the work to allow data to be better classified and defined to better share and trade data, said the NDRC report. 

Building countryside e-commerce

As China faces continued weak consumption in 2022, the government hopes to compensate by expanding rural e-commerce. The government work report proposed to strengthen the construction of business ecosystems in county-level communities and to improve rural delivery services. The economic planner’s report shows that express delivery services now cover more than 80% of the country’s administrative villages, which will “further unleash consumption potential in rural areas.”

In 2021, China’s total online retail sales increased 14% year on year to RMB 1.3 trillion ($206 billion), or 30% of China’s overall retail consumption of RMB 4.4 trillion, according to NDRC’s report.

In addition, the economic planner wants to boost cross-border e-commerce as part of its efforts. For example,  China plans to expand the scope of the pilot scheme for cross-border e-commerce retail imports and started planning on building seaports, inland ports, and overseas warehouses.

Smaller manufacturing startups

In 2021, manufacturing accounted for 27.4% of China’s GDP. The country aims to upgrade this key sector by nurturing homegrown startups specializing in robotics, automation, industrial software, and other smart manufacturing tools. 

Since the US-China trade war in 2018, China has rushed to reinforce its manufacturing supply chains and make sure it doesn’t rely too much on foreign supplies in core technologies. China has funded more than 4,700 startups since 2021 and plans to invest in 3,000 more this year.

The government called the state incubation the “little giants” project, setting out to give out RMB 10 billion ($1.58 billion) over the years to fund startups in key manufacturing areas. These areas include high-end machine tools, aerospace equipment, marine engineering equipment, advanced railway equipment, electric power equipment, new materials, biomedicine, and high-end medical equipment. 

Yet more support for semiconductors

China’s semiconductor industry has seen an exponential increase in investments and government support since 2019, as the country’s top chipmakers faced US sanctions. The government vowed to rely less on foreign technology in its chip production, but the complexity of this high-tech industry means China’s pursuit of self-sufficiency will be a long-term effort. 

The government vowed to keep throwing money and support into this effort. China’s Ministry of Finance said in its report to the NPC assembly that it would channel funds to the integrated circuits industry through market measures. It would also give tax cuts to the chip industry, alongside other sectors like industrial mother machines, 5G, biotech, and agricultural equipment. 

The NDRC said it will guide semiconductor makers to gradually expand their production, stabilize supply chains in and outside of China, and will help them connect with suppliers. It also vowed to pay close attention to raw materials prices, helping suppliers and manufacturers secure production resources. 

’Moderating’ clean energy policies and supporting NEVs

Chinese policymakers have faced significant challenges as they tried to meet ambitious carbon reduction goals over the last year, ranging from heavy reliance on coal to a nationwide power crisis.

China will continue its efforts to reduce the use of coal and promote renewable energy sources, according to the government work report. And yet, the moves to reach its emissions peak will be done “in a well-ordered way,” Li said, adding that energy supply will be ensured “in accordance with overall planning,” in addition to efforts to build wind and solar power plants. 

Last year, the central government imposed strict measures by enforcing energy consumption mandates and intensity limits. As a result, at least a dozen Chinese provinces introduced power cut measures in September. This, along with soaring energy prices, forced many factories to reduce or even halt their operations late last year. 

Beijing will also push the country’s EV industry forward to drive consumption and cut carbon emissions. The NDRC, the economic planning agency, said in its report that it will continue to boost purchases of NEVs and build more battery charging and swapping facilities. Meanwhile, the  Ministry of Finance pledged to maintain subsidies and tax exemptions for NEV purchases.

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

ByteDance, one of China’s newest tech giants, caused an uproar in the venture capital circle when it dissolved its strategic investment department on Jan. 18, reassigning at least 100 employees in the process.

The company said the move aimed to move staff into different units to strengthen internal collaboration. However, outsiders have speculated that the move, along with changes to the company’s investment strategies, represents an urgent shift from ByteDance as it looks to abide by China’s anti-monopoly regulations.

ByteDance’s decision and other Chinese tech giants’ recent moves to divest investments signal a change in China’s corporate venture capital funds (CVCs). They are downsizing after being major players in the capital circle for more than a decade and having nurtured promising startups to success. 

The golden decade of Chinese corporate venture capital

From 2010 to 2019, the top 10 companies in China’s equity investment market by CVC investment amount were Tencent, Alibaba, Fosun Group, JD.com, Baidu, SoftBank Group, Qihoo 360, Ant Financial, Suning Group, and Sunac China, half of which are CVCs in tech companies. In 2019, 10 industrial groups, including Tencent, Alibaba, Baidu, and Ant Financial, invested RMB 90.467 billion ($14.23 billion) in total. CVCs accounted for nearly 80% of their total investment during the same period.

CVC investment in China can be traced back to 1998, a relatively late start compared with other countries. During that first decade, Chinese CVCs remained in a tepid state. However, in 2010, Chinese CVC investment began to develop, as traditional industry giants and tech companies started to establish their strategic investment departments. 

Since 2015, under a government policy of encouraging entrepreneurship and innovation, Chinese CVC investment began to accelerate. During this period, the number of corporate venture capital institutions peaked at 170. In addition, the scale of startups and the amount of investment also expanded significantly. Since 2016, the total investment of Chinese CVCs has been on par with independent venture capital.

CVCs can generally be divided into two categories, the traditional enterprise CVC, and the tech one.

In traditional industries, manufacturing is the backbone of CVC entities, with these companies typically involved in media, games, real estate, medical care, logistics, automobiles, and consumer electronics.

Companies behind tech CVCs usually fall into two distinct groups: older tech giants like Tencent, Baidu, and JD.com, and newcomers focused on mobile devices like Bilibili, ByteDance, and Xiaomi.

Chinese tech CVCs have continuously driven the development of the real economy while serving the strategic development of their parent companies, becoming an essential part of China’s capital market.

The trillion-dollar investment playground for giant CVCs

Today, tech companies account for 20% of CVC companies in China, contributing a sizable part. Data shows that many CVCs within tech companies have been more active in foreign investment than those in traditional companies.

Take ByteDance as an example:

ByteDance mainly invested in content industries related to its own business in its early days. As traffic on the short-video platform Douyin (TikTok’s China version) began to peak, ByteDance sought growth in other areas by investing in education, consumption, e-commerce, medical care, finance, games, and even more niche areas like business-to-business services and hard tech.

Data shows that ByteDance has invested in 193 projects since its establishment and has increased the number of foreign investments every year since 2019. ByteDance invested in 64 companies in 2021, with a cumulative investment amount of nearly RMB 35 billion, which accounts for almost 10% of ByteDance’s total revenue in 2021, according to enterprise database Qi Chacha.

Tencent has one of the most successful CVCs in China. The company’s investment department was established earlier than most CVCs in China. Tencent is also a stakeholder in many well-known Chinese tech companies.

Tencent (including its sub-companies) had made more than 1,180 investments as of December 2021, IT Juzi data showed. Tencent invested in 250 companies in 2021 alone, more than the sum of Baidu, Alibaba, 360, JD.com, Xiaomi, ByteDance, and Bilibili. According to data shown in its Q3 report, Tencent’s 2021 investment projects are valued at RMB 1.75 trillion, which is almost equivalent to the total GDP of China’s northern Shanxi province (home to around 35 million people) in 2020.

Tencent prefers investing in pan-entertainment media industries, especially the gaming industry, one of its main business lines. The company is also heavily involved in corporate services, finance, education, healthcare, and new food and beverage chain brands.

Tech CVCs may invest less in tech

As ByteDance disbanded its CVC (which it called strategic investment department), copies of apparently official regulatory documents called “Rules of Practice for IPO and Investment of Tech Companies” (our translation) began to spread on the Chinese internet. The files showed that tech companies who want to conduct IPOs, or seek investment or fundraising will need to seek approval from China’s internet watchdog Cyberspace Administration of China (CAC) if they meet two standards: they either have more than 100 million users or more than RMB 10 billion in revenue in the past year, or, deal with sectors heavily regulated, such as media and financial services.  

Many commentators believe the document caused ByteDance to dissolve its CVC department, despite CAC denying issuing such a file. However, as Chinese regulators keep up the anti-monopoly crackdowns on top tech companies, many firms will look to cut down their strategic investments to err on the side of caution. 

Even before ByteDance dissolved its strategic investment department, other tech majors had already begun to cut ties with invested companies. 

Alibaba Group first sold its 5.62% stake in media firm Caixin in 2019 and withdrew its investment from Mango Excellent Media ahead of schedule in September 2021 with a loss of RMB 2.3 billion. Daniel Zhang, the CEO of Alibaba, stepped down as board of directors at both Didi and Weibo in late 2021 and early 2022.

Meanwhile, Tencent began reducing its shares in JD.com by paying a mid-term dividend; it later announced that it would reduce its 2.7% stake in Sea, the largest tech company in Southeast Asia, and give up its super-voting rights, with a total divestment of $3.1 billion. 

Tech giants’ CVCs have played a positive role in China’s platform economy, but at the same time, they have stifled small and medium-sized startups’ development, says Hu Jiye, a finance professor at China University of Political Science and Law. Top tech companies have sometimes forced startups to follow their strategy by holding shares and suppressing competition, Hu added, stating that startups can only survive by abiding by the rules set by these tech giants. The Chinese government considers this behavior disorderly expansion and the abuse of the companies’ dominant market position.

Hu believes that the voluntary contraction of tech CVCs could benefit small and medium-sized enterprises and that Chinese CVCs will enter an era of regulated development, leaving behind an unregulated era.  

Chinese ride-hailing platform Didi wants to lay off 20% of its staff, Chinese media LatePost reported on Monday night. Didi is showing stress signs after Beijing launched a cybersecurity review on the company last July.

Why it matters: Didi is trimming its workforce to reduce operating costs and better cope with intense competition in the ride-hailing market. Other ride-hailers started going after Didi’s market share in China after regulators ordered the removal of Didi’s apps from app stores to review the company for cybersecurity reasons. The review, launched in July, is still ongoing.

Read more: Didi app ban ignites race for ride-hailing market share

Details: Didi will lay off about 20% of its staff across major businesses, including ride-hailing service, package delivery, and bike rental, Chinese media LatePost reported Monday, citing people familiar with the matter. Didi has already begun laying off employees in its corporate research lab in mid-January. 

• Sources told LatePost that the lay-offs will be completed by the end of this month. The company reported an average of 20 million trips per day in January, a 20% decrease from 25 million rides during the first quarter of last year. In addition, Didi’s share of the ride-hailing market fell from nearly 90% to 70%.
• R-Lab, Didi’s corporate research lab set up in 2017 and incubated its food delivery project, will close its operation in China, while overseas staff from the lab are consolidated into its international business group. 
• Didi’s self-driving subsidiary will be excluded from the job cuts, the report said.
• The ride-hailing giant has been unable to add new users. At the same time, it has also experienced a shrinking existing user base since the Chinese government launched a cybersecurity probe into the company in July. Meanwhile, its new businesses have made slow progress, the report said.
• Didi did not respond to a request for comment by TechNode on Tuesday morning.

Context: Didi’s domestic ride-hailing business took a hit due to Beijing’s investigation. The company posted a net loss of RMB 30.4 billion ($4.7 billion) in the third quarter of 2021, compared with a net income of RMB 665 million during the same quarter a year earlier. Its revenue decreased by 13% quarter-on-quarter to RMB 39 billion over the same period.

• Didi’s biggest rival Amap has taken this chance to build up market share, achieving 5 million daily rides on average since last September. The Alibaba-owned map platform is planning to launch a standalone ride-hailing app and establish its own car fleet, moving away from being an aggregation-only platform for third-party drivers, the LatePost report said.

58 Freight, one of Asia’s biggest logistics carriers, has gotten the green light from the Hong Kong stock exchange to proceed with its listing, the company’s updated prospectus shows.

Why it matters: 58 Freight operates in both the Chinese mainland and the Hong Kong market, known as Kuaigou Dache in the mainland and GoGoX in Hong Kong. GoGoX, formerly known as GoGoVan, is the largest logistics service provider in Hong Kong and merged with 58 Suyun, the freight business unit of Chinese online marketplace 58 Daojia, in August 2017.

• In the mainland market, the company is a distant second to Lalamove in the on-demand logistics sector with just a 5.5% market share, compared to Lalamove’s 54.7% share, according to market research firm Frost & Sullivan.

Details: The company has received approval from the Hong Kong stock exchange for its initial public offering (IPO) with CICC, UBS, BOCOM International, and ABC International acting as underwriters on the deal, according to an updated prospectus released on Feb. 6.

• The company said it has more than 26.5 million registered users with a pool of nearly 5 million drivers as of September 2021. To compare, Lalamove stated that more than 20 million people used its services with over 3 million drivers as of March 2018.
• The company’s revenue increased 27% year-on-year to RMB 473 million ($74.4 million) for the first nine months of 2021, with a gross profit margin of 36%, an increase of 1.4% from the previous year. Its net losses reached RMB 660 million in 2020.
• 58 Daojia currently own a 51% stake of GoGoX. Alibaba’s online marketplace Taobao is the third largest shareholder with a 13% stake in the company, according to its prospectus.

Context: Lalamove initially weighed a $1 billion US IPO in June last year, but later shifted the listing plan to Hong Kong as the Chinese government tightens rules for technology companies listing overseas, Bloomberg reported.

• Another competitor of 58 Freight, Full Truck Alliance, went public in June 2021 and raised $1.6 billion on the New York stock exchange, just a week before the US listing of Chinese ride-hailing giant Didi. In July of the same year, Beijing launched a cybersecurity investigation into Full Truck Alliance’s logistics platforms.

Editor’s note: 
China is on holiday for the Lunar New Year, or Spring Festival, for the week of Jan. 31-Feb. 6. TechNode has a number of our previous reports on the widespread layoffs and cutbacks that have recently taken place across a range of Chinese tech sectors and have included major Chinese tech companies, from Alibaba and ByteDance to Kuaishou.

Since late 2021, China’s tech industry has entered an adjustment phase. Many tech majors are cutting back in some areas while doubling down on others, responding to China’s slowing economy and tightening regulations. Companies have called the strategy “qufei zengshou” (“cutting the fat and strengthening the weaknesses”). 

From e-commerce giant Alibaba to content tech leaders ByteDance and Kuaishou, companies are rejigging business units, scaling back loss-making teams, and cutting offerings that no longer comply with a raft of new regulations. At the same time, they are implementing shorter working hours and better work benefits to appease both the regulators and public outcry over the industry’s infamous overwork culture. See below for a curated list of relevant reporting from TechNode: 

Alibaba and Ant Group

November 4
Alibaba reshuffles local lifestyle businesses
Yu Yongfu, the newly appointed CEO of Alibaba’s Local Life department, geared up for a major organizational reshuffle in November, local media LatePost reported. Yu planned to reorganize the local life services sector of the company – which includes travel service Fliggy, delivery platform Ele.me, and map app AutoNavi – into ten business units, including five consumer-facing business units, four enterprise-facing segments, and one infrastructure service unit for logistic support. Yu, the former head of Alibaba’s entertainment arm, was appointed as chief executive officer of Alibaba’s local service department at the start of the month. Alibaba’s move came on the heels of organizational adjustments made by ByteDance and Meituan. 

December 6
Alibaba appoints new CFO and restructures business units
Alibaba announced on Dec. 6 that deputy chief financial officer Toby Xu will replace Maggie Wu as the company’s chief financial officer next April. Separately, the company said it will create two new units for domestic e-commerce business and international e-commerce business. Trudy Dai will lead the domestic unit, and Jiang Fan will head the global one. The Chinese e-commerce giant is overhauling its business structure at a time of increasing regulatory pressure and rising competition. 

December 15
Alibaba expands employee benefits as China looking to improve working conditions
Chinese tech giant Alibaba announced an employee benefit program on Dec. 14 in response to Beijing’s call to improve working conditions. The program offers a range of benefits, including an extra one-week accompanying leave for family visits, an additional 10-day parental leave, a 20-day paid vacation for employees who have worked in the company for more than 10 years, plus extra subsidies for transportation and team outings. The company also adopted a more flexible work schedule, allowing employees to work outside of the office one day per week.

December 29
Ant Group shuts mutual aid fund Xianghubao
Alibaba’s financial affiliate Ant Group shuttered Xianghubao, the world’s largest mutual aid fund, on Jan. 28 amid Beijing’s regulatory crackdown on financial services. The four-year-old fund claimed more than 100 million registered users and said it had aided 180,000 people in need over three years. The move was one of a series of blows to the extensive business interests of Ant Group after regulators halted its planned mega IPO in November 2020. 

ByteDance

November 2
ByteDance started shorter working hours of ‘1075’
TikTok parent company ByteDance started to implement a lighter work schedule called “1075,” working from 10 a.m. to 7 p.m. five days a week, according to an internal document at the beginning of November. The new schedule was a departure from the Chinese tech sector’s infamously grueling work schedule of “996″ (working from 9 a.m. to 9 p.m. six days a week). ByteDance asked staff to seek permission at least one day in advance to work beyond the new hours. The move meant ByteDance became one of the first Chinese tech companies to mandate shorter hours. 

November 3
ByteDance to reorganize businesses into six new units
ByteDance hatched plans to regroup its main businesses into six new business units, according to an internal memo that was made public at the start of November. News aggregator Toutiao, Xigua Video, and search engine Baike were merged with Douyin, the Chinese version of TikTok, as part of the move. Dali Education, the company’s edtech unit which was hurt by the country’s online tutoring crackdown, was reassigned to oversee vocational learning services and employee development. Zhou Shouzi,  chief executive officer at TikTok, stepped down as ByteDance’s chief financial officer to focus on his duties at the short video app. 

November 25
ByteDance begins another round of edtech layoffs: source
ByteDance laid off more than 1,000 staff from its edtech businesses following the deep cuts it made in the sector in August. The new round was concentrated in the K-9 education units, a person with knowledge of the matter told TechNode. The person declined to be identified.

TikTok owner ByteDance became the latest Chinese tech giant to retreat from online tutoring services targeting students up to grade nine, or K-9, due to China’s crackdown on private tutoring services in late July. 

December 16
ByteDance cuts talent development center and scales back HR department
Another week, another reported round of job cuts. ByteDance planned to lay off its talent development center, according to an internal statement revealed by local media on Dec. 15. The employees were set to be transferred to other departments if they find suitable roles. The rest were to be laid off with compensation. The center was part of the company’s human resource department. ByteDance said in the statement that the talent center was disconnected from the company’s demands. The tech giant also hinted at further downsizing of its human resource department in the future. 

January 19
ByteDance cuts nearly 100 jobs in investment unit: report
A month later and the Chinese tech giant laid off nearly 100 employees in its strategic investment unit, Chinese media outlet Tech Planet reported on Jan. 19, citing several sources with knowledge of the matter. Team lead Zhao Pengyuan was transferred to the office of the company’s president together with four other members of the senior management team, according to the report. A ByteDance representative confirmed the “ongoing adjustment” of the investment team, but sought to portray it as a normal annual reshuffle to “strengthen business focus” and “reduce investments in businesses that have low synergies with other lines of service.” The company said at the time that some details regarding the changes were still under discussion, adding that it planned to transfer the employees in the investment team to other departments. 

Kuaishou 

December 9
Kuaishou starts a new round of layoffs: report
Chinese short video platform Kuaishou started a new round of layoffs, Chinese media The Paper reported on Dec. 8. Mid-level managers and low-performing employees were likely to be cut, according to the report. It was unclear how many people were due to be affected, but Kuaishou staff posted on China’s business social platform Maimai that the company was set to cut 10% to 30% of its employees. Kuaishou’s downsizing followed layoff moves from ByteDance and iQiyi. 

December 31
Kuaishou slashes employee benefits after layoff reports
The layoff reports were followed in Chinese media by news of cuts to employee perks to limit internal spending. The company narrowed down housing subsidies, only offering employees less than three years of support. It also canceled free meals and afternoon tea breaks for 2022. However, the company did expand maternity benefits, pledging to offer maternity allowance up to RMB 3,000 ($470) to employees. 

January 5
Kuaishou reportedly making major jobs cuts across its key teams
On Jan. 4, The Paper again reported that Kuaishou was in the midst of a wide-ranging layoff across all major teams, citing unnamed employees at the short video platform. The cuts, which reportedly began in 2021, affected the company’s main units, including e-commerce, algorithms, globalization, commercialization, and gaming. Kuaishou’s e-commerce team planned to cut 10-15% of positions, the algorithm recommendation group 30%, and the globalization team 25%, the sources told The Paper. Reports in early December had stated that Kuaishou was laying off people in the commercialization department. 

Tencent, Baidu, and beyond 

November 10
Tencent’s employee retirement package sparks envy online
Tencent released an employee retirement benefits plan in early November, prompting widespread discussion online over its generosity. The company claimed to offer long-term health insurance to employees who have worked for more than five years, which remains in effect even after staff leave the company. When employees have worked at Tencent for more than 15 years, they can retire early by receiving a bonus package or continue to work at the company. The retirement package includes lifetime health insurance, a six-month salary, and a choice between 50% of locked stock options or bonuses based on years of service.

December 3
“China’s Netflix” iQiyi poised for massive job cuts
Chinese video platform iQiyi reportedly planned to lay off 20-40% of its workforce as the Netflix-like firm tried to reduce costs amid increasing losses. The company had 7,721 employees in 2020. That means the layoff could have wiped out some 1,500-3,000 positions. Referred to as the largest round of job cuts in the company’s history by local media, the layoff was reportedly set to affect a range of business units such as content, gaming, and smart hardware. Middle-level management and senior employees were likely to be at the center of the storm according to reports. 

December 24
Baidu reportedly lay off staff at mobile business arm
Chinese search giant Baidu started a layoff at its mobile ecosystem group, which oversees its search and mobile businesses, several Chinese media outlets reported on Dec. 24, citing different sources. It was unclear at the time how widespread the layoff was, though several media outlets reported that the job cuts affected various business lines, from gaming to livestreaming to education. The Paper first reported the news on the night of Dec. 23 before retracting its story. Jiemian News reported the layoff was part of a “small-scale adjustment,” citing unnamed sources. Sina News reported the layoff was large-scale and included a cut of 300 people in the gaming department. The last two reports are still available at the time of publication.

January 13
Dingdong Maicai plans massive job cuts: report
Chinese online grocer Dingdong Maicai planned sweeping job cuts affecting several business units of the company in mid-January, according to Chinese media outlet Sina Tech. The reported workforce cuts were set to impact different departments, with the procurement team facing the largest reduction in the number of posts to just 50% of its current workforce, followed by a 30% cut for the algorithm unit, 30% for the operations team, and 10-20% for the firm’s recruitment arm. Dingdong’s headcount had already shrunk by around 10,000 compared with its peak, the report cited an employee of the company as saying. The Beijing-based firm recorded a RMB 2.01 billion ($320 million) net loss in the third quarter of last year, more than doubling its RMB 828.6 million net loss over the same period of 2020.

January 13
Chinese restaurant supplier Meicai cuts 40% more jobs ahead of Hong Kong IPO: report
Meicai, a Chinese app that supplies farm-to-table produce for restaurants, started a new round of layoffs affecting around 40% of the company’s workforce, Chinese media outlet iFeng reported on Jan. 12. The reported job cuts came just five months after a previous round of redundancies in September when the company cut at least half of its employees across several teams. The latest adjustment was reportedly in preparation for a Hong Kong IPO aimed at raising $300-500 million in the first half of this year. The Beijing-based company shelved a US IPO plan last July as Beijing tightened restrictions on overseas listings for Chinese firms. 

January 21
Youzan, a Chinese e-commerce service provider, starts mass layoffs after doubling losses: report
Youzan, one of China’s largest e-commerce service companies, reportedly planned to lay off 1,500 people, or nearly 30% of its employees in early 2022. Youzan, which develops software helping merchants to sell products on various Chinese online platforms, had faced substantial challenges as one of its major clients, social video giant Kuaishou, developed its own software services as it aimed to rake in more profit from the booming livestream retail sector.

For many Chinese tech watchers, the year 2021 can be divided into two distinct periods: before and after Didi’s cybersecurity review. 

Prior to news of the investigation into the ride-hailing giant, observers followed a broad range of topics: Luckin’s unlikely comeback, ByteDance’s moves to address US concerns, and a looming crackdown on crypto mining among them. 

After the Didi announcement, regulatory changes became the dominant thing to watch. As authorities unleashed an avalanche of new rules and regulations, companies were frightened into inaction on a range of important activities: pursuing overseas IPOs, raising funds for edtech companies, or buying up peers to maintain competitiveness in the market. 

Chinese tech companies will feel the impact of these events for years to come. As China goes on holiday for the Lunar New Year, or Spring Festival, for the week of Jan. 31 to Feb. 6, TechNode looks back at an eventful year and brings you a round-up of the stories that you read the most.

Luckin lives on

The Big Sell | Luckin is not dead
After admitting to financial fraud in April 2020, Chinese coffee chain Luckin delisted from Nasdaq, taking time to stay low and address multiple class-action lawsuits from shareholders. But Luckin is still very much alive: despite some closures, its stores are still a ubiquitous presence in Chinese office districts. Even more surprisingly, reports in early 2022 suggested Luckin may look to relist in the US, although the company subsequently denied this.

Luckin founder’s new noodle shop is no Luckin
Lu Zhengyao, the founder of Luckin Coffee who was forced out of the company following a 2020 admission that as much as half of the coffee chain’s sales were fictitious, is back in the retail game. This time, he’s running a noodle shop. But is it any good?

Didi’s IPO changes everything

How did Didi get in trouble with data regulators?
On July 2, three days after Didi went public in New York, authorities at the Cyberspace Administration of China said that they had launched a “cybersecurity review” of Didi to “guard against risks to national data security” and “protect the public interest.” They also ordered operators to pull Didi’s app from all app stores. The review is still ongoing – and the aftershocks still being felt. 

Insights | State investors place their bets as rivals close in on crippled Didi
China’s state-owned investors are pouring millions of dollars into promising new ride-hailers as the market leader Didi loses momentum following the suspension of its app in the wake of the suddenly-announced “cybersecurity review”. T3 was close to raising funds of $600 million, while Cao Cao Mobility raised $590 million. 

ByteDance moves

TikTok moves off Alibaba Cloud: report
ByteDance decided to stop hosting TikTok and other overseas apps on Alibaba Cloud in May, a heavy blow to the e-commerce giant’s cloud-computing branch. TikTok has an estimated 700 million monthly active users worldwide. Alibaba saw a significantly slower quarterly revenue growth rate in the first quarter of 2021 due to ByteDance’s decision.

ByteDance to end weekend work
ByteDance became one of the first Chinese internet companies to say it was attempting to curb overworking culture. It announced on July 9 that it would cancel weekend work days at the beginning of August. The controversial weekend schedule was known as “big and small weeks,” requiring staff to work every other Sunday.

Lark, ByteDance’s Slack-like app, eyes $1 billion global revenue in five years
ByteDance plans to accelerate the overseas commercialization of its workplace communication app Lark this year. The company is aiming for global revenue of RMB 6 billion ($940 million) in the next five years. Lark, known as Feishu in the Chinese market, is ByteDance’s bet on the enterprise-facing services sector. 

Semiconductor strategizing 

SILICON | Can Arm fend off Allen Wu’s latest autonomy moves?
The board of Arm China voted overwhelmingly to remove CEO Allen Wu in June 2020 after an investigation found he had failed to disclose conflicts of interest. But Wu’s supporters within Arm China soon refuted the findings and refused to replace him. In practice, Wu remains the chairman and CEO of Arm China. TechNode contributor Stewart Randall calls the situation “a red flag for any foreign tech company considering a joint venture in China.”

Where China is investing in semiconductors, in charts
As China realizes its heavy dependency on foreign imported chips poses major risks, the country has quickly dialed up investments in semiconductors. In 2020, China saw a whopping 407% increase in investment in China’s semiconductor firms. 

The great mining migration

Crypto miners start move to North America as China vows crackdown
In May, major Chinese crypto mining companies began moving their operations to North America in anticipation of a renewed crackdown on the industry in China. Texas in the US and Alberta in Canada are two top destinations for Chinese mining companies looking to move overseas. The moves proved to be prescient – the latter half of 2021 saw sweeping crackdowns on crypto mining across China.

In the first week of 2022, China’s main internet regulator, the Cyberspace Administration of China (CAC), announced a revised version of its cybersecurity review regulations. These little-known regulations played a key role in crippling Didi’s listing on the New York Stock Exchange last summer and, starting next month, the revised rules will officially place more restrictions on Chinese companies seeking overseas listings.

Called the Measures of Cybersecurity Review, the then-obscure set of rules was cited by the CAC regulators last July as the basis for launching a security investigation into ride-hailing giant Didi, just three days after its IPO. Specifically, the CAC cited the need to protect national data security and public interest. It also ordered app stores in China to immediately remove Didi’s apps. The regulator pointed to a previous version of the Measures, the National Security Law, and the Cybersecurity Law as the legal basis for the review. 

Didi has since announced plans to delist from the US and is considering a Hong Kong listing. At the time of the publication, Didi is still undergoing the cybersecurity review and its apps remain unavailable on domestic app stores. The Didi investigation initiated an intense period of regulatory moves in China, upending business plans and the stock prices of many Chinese tech giants. 

The revised Measures is due to take effect on Feb. 15. When first released in 2017, the regulations focused on improving the security of hardware and services used in networks, ensuring that regulators had the power to do a “security review” when a matter concerned national security. That version of the law was never put into use, but a revision in April 2020 introduced the concept of “cybersecurity review” and refined the scope of the review. 

This 2020 version was the CAC’s legal basis for the initial Didi review. Less than two weeks after launching the Didi review, the CAC released a draft revision of the Measures requiring deeper scrutiny of companies planning to go public overseas. This version was refined and published on Jan. 4, 2022, becoming the latest iteration of the Measures.   

TechNode examined interpretations of the Measures from Chinese regulators and top Chinese law firms to understand the focus of the Measures and how it might affect Chinese companies seeking overseas listings. All quotes have been translated from Chinese and edited for clarity. 

Hong Kong listings should be easier to pursue 

Several leading Chinese law firms said in public analyses that companies should face an easier cybersecurity review process should they choose to go public in Hong Kong. The Measures will require online platforms which plan to go public overseas and hold information on more than 1 million users to apply for a cybersecurity review. Hong Kong, China’s special administrative region and a hot spot for fundraising, doesn’t count as overseas, so this new rule shouldn’t apply, several attorneys wrote in their interpretations. But companies should look closely at their own businesses and assess whether their activity will affect national security: If so, even a Hong Kong listing could trigger a cybersecurity review.

The dust around the Measures of Cybersecurity Review has settled, its impact on overseas listing
Zhong Lun Law Firm, Jan. 10

Following the expression used in the draft version, the Measures didn’t give a clear definition for what counts as an “overseas listing.” However, listing in Hong Kong is unlikely to be regarded as an overseas listing, considering the standard definition of overseas and the definition given in the Exit-Entry Administration Law. In addition, Regulations on Network Data Security Management (draft for comments and released by the CAC on Nov. 14, 2021) separated the issues of “overseas listing” and “Hong Kong listing” into two different sections under Article 13. Therefore, Article 7 of the Measures shouldn’t include listing in Hong Kong. And companies going public in Hong Kong won’t need to apply for cybersecurity reviews. 

But will all Hong Kong listings be exempt from the review? Not necessarily. But the review process will be different from foreign listings…

According to the Data Security Law, as long as data processing activities affect or may affect national security, a security review will be triggered, which will, of course, apply to Hong Kong listings as well…According to Regulations on Network Data Security Management, the cybersecurity review for Hong Kong listings will be more flexible than the mandatory requirement for foreign listings. For Hong Kong listings, a cybersecurity review will only be triggered when there is a real risk that affects or may affect national security. 

China’s cybersecurity review system has entered a new stage: Interpretation of the new changes in the Measures of Cybersecurity Review
Fangda Partners, Jan. 5

Whether a company goes public in Hong Kong, the US, or other countries, as long as the action has or may impact national security, there is a possibility that the company will be subject to cybersecurity review. Therefore, to judge whether a company faces security reviews when seeking a listing abroad, one should look beyond the requirements in the Measures (online platform operators holding more than 1 million users’ information and planning to go public overseas must apply to the Cybersecurity Review Office for a cybersecurity review), and consider whether the listing would result in “core data, key data or large amounts of personal information being stolen, leaked, damaged, illegally used or illegally spread out of the country.”…

We believe that, with the official release of the Measures, the regulatory attitude on Hong Kong listings is evident. There is no need for companies to actively apply for a cybersecurity review when listing in Hong Kong…However, this exemption does not mean that the company will not be subject to a cybersecurity review. The Measures still give power to members of the cybersecurity review office to initiate a review if the company’s listing abroad affects or may affect national security. 

The focus of China’s cybersecurity reviews 

The CAC said in an interpretation of the Measures that the review focuses on protecting the safety of key data while preventing foreign governments from exerting control and influence over Chinese companies and their data should they choose to go public in a foreign country. This interpretation mentioned that several US laws had given the US government more power to exert control over data in its jurisdiction. It cited laws such as the Holding Foreign Companies Accountable Act, the executive order on Securing the Information and Communications Technology and Services Supply Chain, and the CLOUD Act. Therefore, the CAC hopes the Measures can serve as a defense to limit risks.

Expert Insights | Keeping up with the times and building a defense line for national security reviews
The CAC, Jan. 5

The cybersecurity review system mainly focuses on two types of risks. Firstly, “the risk of core data, key data, or large amounts of personal information being stolen, leaked, damaged, illegally used, or illegally spread out of the country (Article 10.5).” Secondly, during the process of companies going public, there is a risk of foreign governments influencing, controlling, or maliciously exploiting critical information infrastructure, core data, large amounts of personal information, and other cyber information security risks. (Article 10.6)”

The first risk mainly focuses on critical information infrastructure providers using its job of buying network products and providing services to illegally collect, store, utilize, and provide to an overseas entity “core data, key data or large amounts of personal information.” In other words, network products and service providers shouldn’t undertake secret action with collected data, nor should they damage users’ power to access and use their own information. 

The latter focus refers to companies being placed under the jurisdiction of foreign laws after they list abroad. It could allow foreign governments to use legal and judicial power to “exert influence, advocate control, and maliciously use core data, key data, and large amounts of personal information” controlled by network operators, endangering our country’s sovereignty, security, and interests. 

Length of cybersecurity review

“Security and development first”: The Measures of Cybersecurity Review officially released 
King and Wood Mallesons, Jan. 4

The Measures didn’t drastically change the review process and the timeline compared to its draft proposal, apart from updating the special review process from three months to 90 working days. The update aims to unify time calculation in the regulation, but more importantly, extend the timeframe of the special review process.

According to our calculation, the regular cybersecurity review takes up to 70 working days (10 + 30 + 15 + 15). For the special review process, the longest required time can be more than eight months (70 working days + 90 working days + unknown number of extended days).

Youzan, one of China’s largest e-commerce service companies, is reportedly planning to lay off 1,500 people, or nearly 30% of its employees. The company is the latest Chinese tech firm to cut workers as Beijing enters the second year of tightening regulations. 

Why it matters: Youzan, which develops software helping merchants to sell products on various Chinese online platforms, has faced substantial challenges as one of its major clients, social video giant Kuaishou, is developing its own software services as it aims to rake more profit from the booming livestream retail sector.

• The contribution from marketers on Kuaishou has fallen by half from its highest level when it accounted for 20% of Youzan’s gross merchandise volume (GMV) in the first half of 2021, according to its interim financial report released in August.

Details: Earlier this month, Hong Kong-listed Youzan kicked off a wave of layoffs in departments involving research and development (R&D), Chinese media Sina Tech reported Thursday, citing people with knowledge of the matter.

• More job cuts will be conducted among various departments this year, as the people estimated that more than 1,500 employees would be forced to leave the company. Hangzhou-headquartered Youzan had 4,358 employees as of Sept. 30.
• The company recently parted ways with Chen Jinhui, a former executive at Baidu’s takeaway service who joined the company as a vice president of sales channels in mid-2017.
• Youzan did not immediately respond to TechNode’s request for comment.

Context: Multiple Chinese big tech companies, including Bytedance, Baidu, and Kuaishou, have been carrying out layoffs and lowering their growth targets amid a slowing economy and a tightened regulatory environment.

• Youzan reported a 10% year-on-year decrease in revenue to RMB 1.17 billion (around $185 million) for the first three quarters of 2021, while its losses nearly doubled from RMB 340 million in the same period of 2020.

Read more: INSIGHTS│The TechNode community reviews China tech 2021

Chinese regulators extended the clampdown on top-earning influencers in the past month by tightening scrutiny over e-commerce sales stars such as “livestreaming queen” Viya and “lipstick king” Li Jiaqi, along with “the godmother of WeChat commerce” Zhang Ting. Tencent shed large stakes in both online retailer JD and Singapore’s SEA, owner of Shopee—possibly in response to mounting pressure from antitrust regulators. Job cuts among Chinese tech giants extended from video app Kuaishou and fashion e-commerce site Mogu. Inc., to online grocer Dingdong Maicai and fresh produce service Meicai. Cross-border e-commerce titan Globalegrow and online luxury seller Secoo fell from grace. And Alibaba overhauled its domestic e-commerce business.

1. Viya and other top e-commerce influencers tamed

News: Taxation authorities in Huangzhou municipality in Zhejiang province imposed a RMB 1.34 billion ($210 million) fine on China’s top livestreamer Viya for tax evasion on Dec. 20. Viya’s social media accounts on all mainstream platforms such as Weibo, Douyin, and Taobao Live, where she had more than 120 million fans, were erased from public view overnight. Four days later, Li Jiaqi, another top livestreamer and a sales rival of Viya, was summoned by Zhejiang Consumers Council for questioning over various unregulated practices. Meanwhile, on Dec. 23, the Market Regulation and Monitoring Administration of Yuhua District in northern China’s Shijiazhuang city opened a pyramid scheme investigation into Ting’s Secret, an online cosmetics brand founded by Taiwanese celebrity couple Zhang Ting and Lin Ruiyang.

Insights: The recent fines of and investigations into top celebrities and livestreamers signal that Chinese authorities are expanding their crackdown on the illicit e-commerce practices of individual influencers, who increasingly wield as much power as platforms. Similar to the $2.8 billion fine imposed on Alibaba for antitrust violations last April, punishment of the most prominent figures is regarded as a warning for everyone in related fields to fall into line. In the wake of Viya’s fine, more than 1,000 livestreamers stepped forward to pay back taxes. The crackdown on top influencers may offer growth opportunities to hosts with small and medium-sized followings, given that the demand for brands to sell and consumers to purchase products through livestreaming is still growing. Also, tighter reins on high-income individuals come at a time when Beijing is beefing up its “common prosperity” initiative to redistribute wealth in the country.

News links: CNN, Global Times, TechNode

2. Tencent slashes shares in JD and Shopee-owner SEA

News: Tencent plans to reduce its shareholding in online retailer JD from 17% to 2.3% by selling interim dividends to shareholders, making it no longer JD’s top shareholder. Both Tencent and JD said their business partnerships wouldn’t be affected by the shareholding change. On Jan. 5, Tencent further unloaded 14.5 million shares in Singapore SEA, owner of Southeast Asian online retailer Shopee, for $3 billion. The Chinese tech giant dropped its stake in SEA from 21.3% to 18.7% and plans to further cut its voting stake in the company to less than 10%.

Insights: Tencent’s share sale drummed up expectations that the firm and other tech peers may shed holdings in their portfolio companies as Beijing takes a closer look at the extensive reach they have on China’s internet. Since Tencent has been one of the most active Chinese investors over the past few decades both inside and outside China, its portfolio now includes vertical giants such as JD, Pinduoduo, Bilibili, Meituan, and Didi. A Tencent tie-up has been an invaluable endorsement for startups, bringing them easy accessibility to various services under the Tencent umbrella from the likes of WeChat to hit games. 

So what’s at stake in the share reductions? They raise concerns that existing partnerships will change. Tencent said in its statement about the JD share distribution that it invests in companies to “help fund the development and expansion [of their portfolios]” and exits the investment when the company is “consistently capable of self-financing their future initiatives.” 

In the case of SEA, Tencent may have been merely seeking financial returns, according to sources from Chinese media outlet Caixin. Nonetheless, cutting ties with Tencent would help SEA, long regarded in Southeast Asia as a Tencent agent outside China, to ease regulatory risks it faces in foreign markets, a Caixin source said. 

Tencent might further reduce its shares in other Chinese tech companies, but the shareholding change won’t affect their strategic partnerships, Aron Li, an analyst at Tiger Brokers, told TechNode. Regardless, share prices of JD, Pinduoduo, and Bilibili dipped on the news. Similarly, the resignation of Alibaba CEO Daniel Zhang from the board of Weibo is being interpreted as a signal that Alibaba is cutting its ties with the Twitter-like super app.

News link: TechNode, Reuters 

3. Layoff rumors shake e-commerce unicorns

News: On Dec. 22, Tencent-backed fashion commerce site Mogu Inc., more widely known as Mogujie, was reported to be laying off more than 30% of its staff, mainly from the company’s tech department. This was followed in early January by reports that Kuaishou had launched a new round of layoffs, with 10%-15% of positions in the e-commerce team losing their jobs. Adding to the wave of reported layoffs was news of job cuts in the fresh produce and grocery industry. Last week, Chinese restaurant produce supplier Meicai cut another 40% of its staff after halving its workforce in September last year,while Dongdong Maicai was reportedly planning a sweeping layoff as well. The latter denied the news, saying that any personnel moves were simply a “normal adjustment” within the company.

Insights: Job cuts have mounted in China’s tech sector over the past few months after a tumultuous year in which Chinese regulators rolled out a series of measures to rein in the industry. E-commerce platforms have not been exempt from such scrutiny. Although they sell different product lines, both Mogu and Kuaishou have bet on livestream e-commerce to drive revenue. Regulatory headwinds for live commerce make that a difficult task, especially for smaller players who also face rivalry from incumbents like Alibaba-backed Taobao Live and ByteDance’s Douyin. Layoffs at Dingdong Maicai and Meicai underline the further cooling of China’s online grocery craze which last year witnessed a slew of casualties such as Tongcheng Life and Shixianghui. Even the once deep-pocketed players like US-listed Dingdong and Meicai are feeling the chills of market consolidations.

News Link: TechNode (Story 1, Story 2, Story 3, Story 4) 

4. Collapse of Chinese vertical e-commerce giants Globalegrow and Secoon 

News: Cross-border e-commerce giant Globalegrow is entering clearance procedures after filing for bankruptcy in June 2021. Valued at RMB 40 billion in 2017, the company racked up more than RMB 3.3 billion in debts as of 2020. Separately, Chinese online luxury retailer Secoo filed on Jan. 5 for bankruptcy and restructuring in Beijing No.1 Intermediate Court, data from China’s corporate intelligence site Tianyancha showed. However the company subsequently denied the bankruptcy reports to local media and revoked its bankruptcy application on January 6. Shares of the Nasdaq-listed company are trading at $0.38 per share with a market cap of $27 million. That’s more than 96% from an all-time cap high of $770 million in 2018.

Insight: While some are still struggling to stay afloat, an increasing number of former heavyweights in the e-commerce sector are falling from grace. Both Globalegrow and Secoon are among the early bellwethers. With more than a decade of history, the pair had led the country’s cross-border e-commerce and luxury e-commerce sectors, respectively. Globalegrow’s asset-heavy approach in running cross-border business with substantial product inventory and lots of locations and warehouses collapsed during the pandemic. The company reported around RMB 3 billion in losses in 2020, whereas it recorded an RMB 710 million net profit in 2017. In contrast, Secoo has faced a years-long decline even though it has outlived many of its early-stage competitors. Jing Daily attributes the fallout to over-diversification, an issue that has led to the failure of many former tech giants including Leshi.

News link: Jiemian (in Chinese), NetEase Tech (in Chinese)

5. Alibaba restructures back-end operations of Taobao, Tmall

News: Alibaba announced on Jan. 7 a major organizational reshuffle aiming at connecting the back-end operations of its core retail marketplaces Taobao and Tmall. Led by the company’s head for domestic business Turdy Dai, three operation centers were set up to focus on platform strategies, user expansion, and development for merchants.

Insights: Alibaba is further integrating its C2C online marketplace Taobao and B2C platform Tmall as the company seeks to realign its two cornerstone services to create more synergies. As consumer growth is reaching a ceiling in China, Alibaba is hoping the move will reinforce its commitment to enterprise-facing services. In addition to aiming to improve consumer experience, the change is intended to offer a streamlined path to convert small and medium-sized individual merchants on Taobao into enterprise clients on Tmall. The aim is to assist the development of these smaller sellers while keeping them within the Alibaba ecosystem. Breaking barriers between the two services should also cut costs and improve organizational efficiency within the company. Tmall, formerly known as Taobao Mall, was spun off from Taobao in 2011 to address different user demands.

News link: TechNode

Chinese state media asks regulators to eradicate crypto mining activities in the country. A top Chinese stock photo and video site launch an NFT-like platform. Ningbo sees blockchain tech as a future growth point in the city’s digital economy five-year plan. Changsha becomes the first Chinese city to process tax payments and fees in digital yuan. 

Mining eradication

Chinese state-backed newspaper Economic Daily published an op-ed to ask regulators to eradicate crypto mining activities on Dec. 25. The piece acknowledges recent success in cracking down on mining operations from state-owned enterprises, adding that regulators also need to go after personal mining projects or small operations. For example, some internet cafe operators, graphics card sellers, and harddrive sellers mine crypto independently with high-performance equipment. Since May, Chinese officials have been on a widespread campaign to sweep mining operations across the country. (China Star Market, in Chinese)

Photosite NFTs

Stock photo and media agency Visual China Group (VCG) launched a digital collectible platform called Yuan Shijue (meaning meta visual) on Dec. 26. The platform is powered by blockchain technology and sells digital artworks similar to non-fungible tokens (NFTs). The inaugural sales include ‘The Hope Project (Big Eyes)’ by Xie Hailong, a photo featuring a schoolgirl in a rural area, and an iconic photojournalism work in China. The piece is selling at RMB 199 ($31) and is limited to 10,000 copies. VCG will donate the sales to a youth development foundation. Similar to most Chinese NFT-like selling platforms, buyers aren’t allowed to resell or create derivative works, aligning with the government’s goal of preventing speculation in the market. (Lanjinger, in Chinese)

Blockchain tech and digital yuan

• The eastern city of Ningbo released its five-year plan on the digital economy on Dec. 27, emphasizing digital economy expansion. The municipal government laid out planned future growth points such as a new generation of AI and blockchain technology. The plan aims to reach RMB 1 trillion added value in the digital economy, increase its GDP proportion to 15%, and ensure a public data openness rate of more than 30% by 2025. (People’s Daily, in Chinese)

• Changsha, in central China, became the country’s first city to use digital yuan to pay taxes and fees as part of an experimental pilot program. Recently, a financial manager of a landscape company paid RMB 4,502 taxes in the national digital currency. As a result, the process will be rolled out to all residents and Changsha’s taxpayers can pay digitally once they open a digital yuan wallet. (Hunan Daily via cnBeta, in Chinese)

A Chinese province has used blockchain tech to manage 21 regional prisons. Officials in Zhejiang randomly selected 20 state-owned companies to check for crypto mining activities. Yunnan energy bureau claimed mission accomplished for its mining crackdown. 

Blockchain in prisons

Chinese media reported on Dec. 10 that 21 prisons in eastern Jiangsu province had successfully passed the Ministry of Justice’s “smart prison” review process. The system is the country’s first attempt to use blockchain technology in managing its prison system. The province aims to set up an integrated online platform to manage the region’s prisons, incorporating more than 800 functions and 1,200 procedures to streamline the assessment of prisoners, administrative rewards and punishments, commutation of sentences, and parole. (Xinhua Daily, in Chinese)

Mining crackdown progress report

• Officials in eastern Zhejiang province formed an inspection group to spot-check state-owned enterprises in the jurisdiction for crypto mining activities. The group, made up of staff from Zhejiang Provincial Commission for Discipline Inspection and the province’s Cyberspace Administration, investigated 20 state-owned companies and 36 IP addresses with no advance notice. The investigation found a number of companies were using public resources to mine and trade virtual currencies, violating Chinese rules and regulations. The official didn’t reveal numbers for the companies involved. (China Star Market, in Chinese)

• The Energy Bureau of southwestern Yunnan province announced that the province has stopped all hydropower stations providing energy to “illegal” bitcoin mining. As of September, the province found 246 small and medium-sized hydropower stations were supplying power to mining companies after three rounds of investigation. The Bureau said all power supply to mining companies had been suspended, and most of the mining machines and factories had been dismantled. The official said the clean-up campaign saved about 2 billion kilowatt-hours of electricity a year. (Jiemian, in Chinese)

Virtual wallet frauds

Chinese cybersecurity company Qihoo 360 has launched software that it claims will block “virtual wallet fraud models” to prevent people from losing money in virtual asset frauds. The software will block activities or platforms that induce users to install fake virtual wallets, including fake virtual wallet websites and fake cryptocurrency exchanges. (Lieyun, in Chinese)

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, the guys are joined by Trivium China’s Tom Nunlist to discuss China’s evolving data regulation. They go over the three pieces of legislation that are shaping the country’s broad policy towards data, and how it diverges from the frameworks in the US and Europe, and how China’s assertive approach to such policy may impact the future of data protection standards globally.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• Bilibili
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Kuaishou

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Guest:             

• Tom Nunlist – @freefader

Editor:

• Peter Isachenko

Podcast information:

• iTunes
• Spotify
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this earnings episode, the guys welcome back Michael Norris to discuss September quarter earnings for Baidu, Tencent, and Alibaba. They also answer some listener questions towards the end about which company will benefit the most from opening walled gardens as China ramps up antitrust regulations.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• Bilibili
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Kuaishou

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Guest:             

• Michael Norris – @briefnorris

Editor:

• Peter Isachenko

Podcast information:

• iTunes
• Spotify
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

A corrupt Chinese official was prosecuted and investigated for supporting companies in cryptocurrency mining. The case offered some clues on what prompted China’s ban on crypto mining. Three days after the prosecution, the Chinese government plans to launch another sweeping crackdown on large-scale mining operations. 

Corrupt Party officials and mining

A senior provincial Chinese official was prosecuted for abusing his power by setting up enterprises to mine cryptocurrencies, according to an official announcement made this past weekend. Xiao Yi, the former vice-chairman of Jiangxi province’s CPPCC (Chinese People’s Political Consultative Conference, a political advisory body), was fired and expelled from the Party for “violating laws and Party disciplines,” according to a Nov. 13 announcement from the Central Commission for Discipline Inspection, an internal organ monitoring corruption and other wrongdoings among Party members. 

In 2017, Xiao led a group of officials to visit Germany, facilitating a $1.69 billion deal to set up a “supercomputer computing service center” between a Fuzhou high-tech zone, Genesis Mining (a mining company in Germany), and Chuangshiji Technology (a company in Fuzhou city). Xiao was also the Party Secretary of Fuzhou city in Jiangxi province (not to be confused with the capital of Fujian province). The project later turned out to be a large cryptocurrency mining center. 

Since 2018, Genesis Mining and Chuangshiji have gotten into legal disputes over half a million items of crypto mining equipment that could be worth about $200 million, according to The Block. Chinese courts ruled in favor of Genesis Mining in June. Chinese journalist Colin Wu reported that some in the industry believe that the legal disputes might have contributed to China’s decision to ban crypto mining in June. (The Paper, in Chinese and Cointelegraph)

More crackdown on crypto mining

On Tuesday, the Chinese government said during a news conference that it will begin another rectification of large-scale industrialized crypto mining activities. China’s National Development and Reform Commission (NDRC) said the country will focus on cracking down on large-scale mining centers, mining centers backed by state-owned enterprises, and bitcoin mining centers. The government may impose punitive electricity charges on entities if they are found to be mining. The NDRC also said crypto mining is an illegal financial activity and has a “severe adverse effect” on China’s goal of achieving carbon neutrality by 2060. (China Star Market, in Chinese)

At least half of the 1,000 surveyed Chinese urban consumers are looking to buy an electric vehicle (EV) as their automotive purchase, an increase of 16% from the 2019 findings, a survey by consultants AlixPartners found. It’s the latest sign of an accelerated transition from gasoline vehicles in the country.

Why it matters: China’s EV market is recovering faster than expected following subsidy cuts by the central government and a shakeout due to the pandemic.

• One out of five new vehicles sold in China in September was a new energy vehicle (NEV), referring to battery-powered cars, plug-in hybrid cars, or hydrogen cars. The NEV penetration rate now exceeds 20% of all new car sales for the first time, data from China Association of Automobile Manufacturers (CAAM) show.
• At this pace, China has already met, at least in the month of September, the target it set to be reached by 2025 — NEVs accounting for 20% of new car sales — Stephen Dyer, managing director of AlixPartners, told reporters in Shanghai on Thursday.

Details: The survey of 1,000 Chinese car buyers in major cities found that 50% are now believers of all-electric vehicles, meaning they are very likely to buy one as their next vehicle; that is double the world average of 25% and the highest share among potential car buyers surveyed in seven countries by AlixPartners. 

• The 2021 survey released Thursday covered about 8,100 respondents from seven countries, including China, France, the UK, and the US. The approximately 1,000 surveyed in China lived in large cities, with roughly half aged between 36 to 55, the research firm said. 
• Also, over 99% of current Chinese all-electric owners remain highly satisfied with their purchase and expect to buy an EV again as their next auto purchase, which is 2% above the global average, according to the AlixPartners survey.
• Chinese consumers are motivated to buy EVs as more of their acquaintances recommend them. 26% of those all-electric car believers say friends and family are their biggest influences on their purchases, compared with 11% of those not interested, the report said.
• AlixPartners consultants advise that more “grassroots” marketing channels such as greater use of social media could connect likely buyers to current all-electric car owners and significantly influence their purchase decisions, potentially resulting in a “network effect” growth of sales.

Context: China’s NEV sales almost tripled to more than 2.15 million vehicles from a year ago during the first nine months of this year, according to CAAM figures.

• Xu Haidong, chief vice engineer of the industry association, last month expected the country’s NEV sales to surpass 3 million units this year, more than double the 1.4 million sold last year, Reuters reported.

Chinese tech majors take a stance against trades and speculations against non-fungible tokens (NFTs). Local authorities look for crypto-related activities in an economic development zone in eastern Jiangxi province. China’s high court supports more blockchain tech. China’s Ministry of Industry and Information Technology pushes to create more blockchain standards. 

NFTs self-regulation

Chinese tech giants Ant Group, Tencent, and JD.com, signed a “self-regulation” convention on NFTs with state organizations on Oct. 31. The tech giants vowed to boycott speculative activities surrounding NFTs, or “digital collectibles,” as they called them. Last week, Ant Group and Tencent stopped using the term “NFTs” to refer to or describe their NFT platforms and products, in an attempt to distance their products from the crypto market. (Coindesk)

Crypto crackdown

An economic development zone in China’s eastern Jiangxi province recently investigated and clamped down on cryptocurrency activities. The zone in Ganzhou city teamed up with the municipal branch of China’s central bank, the city’s economics and financial office, the zone’s Public Security Bureau, and other entities as part of the move. The group went into two areas in the zone — Hengke Industrial Park and International Enterprise Center (our translation) — to check companies’ offices, business licenses, and business activities for crypto-related activity. (Ganzhou economic development zone committee, in Chinese)

Blockchain fans

• China’s highest court emphasized its support for implementing more modern technology in the country’s judicial system at a Monday meeting. The court declared that it supports the use of the internet, AI, big data, cloud computing, blockchain, and 5G and that it hopes to use such technologies to build “smart courts.” (Jiemian, in Chinese)

• China’s Ministry of Industry and Information Technology (MIIT) is pushing to introduce more industry-wide blockchain standards. The Blockchain Standards Committee at MIIT said it will play a guiding role in drawing up the standards. The head of the committee, Wang Zhijun, said at an Oct. 29 meeting that the goal was to establish itself as the authority in the standardization of blockchains in China and win more respect from the international community. (CNII, in Chinese)

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, the guys are joined by South China Morning Post’s Josh Ye to discuss China’s gaming industry. They go over recent regulations, misconceptions, and whether Chinese gaming firms have a leg up in the future of the “metaverse.” James and Ell also briefly discuss Luckin Coffee, Evergrande, and antitrust regulations.

To read more of Josh’s work on gaming in China and much more, check out the Pro Edition of SCMP’s 2021 China Internet Report.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• Bilibili
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Kuaishou

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Guest:

• Josh Ye – @TheRealJoshYe

Editor:

• Peter Isachenko

Podcast information:

• iTunes
• Spotify
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

Two popular online brokers in China that provide overseas trades ceased showing Bitcoin ETFs on their platforms. Ant Group and Tencent stopped referring to NFTs as NFTs, using “digital collectibles” instead. The former governor of China’s central bank longs for a day that the digital yuan will become the world’s best central bank digital currency. 

Bitcoin ETFs and NFTs 

• Chinese online brokers Futu and Tiger Securities stopped showing Bitcoin ETFs after two such ETFs were launched in the US last week, according to a report by Chainnews on Oct. 25. One of the ETFs, ProShares Bitcoin Strategy ETF (BITO), was once the most popular stock on Tiger Securities. (Chainnews, in Chinese) 

• Ant Group and Tencent stopped using the term “non-fungible tokens (NFTs)” to refer to or describe their NFT platforms and products, Chinese news outlet Jiemian reported on Oct. 23. Instead, the two tech giants are now describing NFTs as “digital collectibles.” Chinese authorities have not banned the usage of NFTs, but state media have warned of a “huge bubble” in NFTs. Both Tencent and Alibaba later responded to Chinese journalist Colin Wu, stating that their business is different from overseas NFTs platforms, and that they refuse to use virtual currencies. (Jiemian, in Chinese)

Digital yuan and blockchain

• Li Lihui, former governor of China’s central bank, said China should build the digital yuan (China’s state-backed national digital currency) into the world’s best central bank digital currency. Speaking at an asset management forum held in Beijing on Oct. 23, Li said the goal will uphold the country’s monetary sovereignty, protect its financial security, and grow its power. Li suggested the central bank should improve the underlying technical architecture, upgrade its digital currency operations and management, and promote digital currency in more use cases. (Chinanews, in Chinese)

• A government-backed big data development administration in China’s eastern city of Wenzhou issued the region’s first blockchain-powered certificate of personal digital assets last week. The system can reportedly be used to protect personal data, including marriage registrations, residency registrations, social security records, and real estate mortgage data. (China Star Market, in Chinese)

Some Chinese crypto investors are looking for ways to bypass the country’s crackdown on crypto trading. Hardware wallet company Keystone stops selling its wallet to mainland Chinese customers. Guangdong government uses blockchain to facilitate bank loans for businesses. 

Crackdowns on crypto 

• Chinese media outlet Beijing Business Today reported on Monday that many Chinese crypto investors are registering overseas company identities to bypass crypto exchange restrictions on Chinese users. The reports found an increased demand for overseas company registration services, which has prompted numerous third-party companies to sell those services on China’s e-commerce apps. Major crypto exchanges have stopped serving mainland Chinese customers since China increased its crackdown on crypto trading in September. (Beijing Business Today, in Chinese)

• Keystone, an open-sourced hardware wallet company, said it will stop selling its wallet to mainland Chinese users to comply with Chinese laws in a Monday notice. The company cited the Sept. 24 directive from China’s central bank aimed at cracking down on speculative crypto trading. (Blockbeats, in Chinese)

• Authorities in China’s eastern province of Zhejiang launched an operation in early September to rectify and shut down crypto mining operations that use public resources. The operation screened 4,699 internet protocol (IP) addresses and found that 77 entities that use 184 IP addresses are suspected of mining crypto using government and other public-owned resources. (Zhejiang Cyberspace Administration, in Chinese)

Blockchain usage

China’s southern Guangdong province has issued the country’s first certificate for public data assets using blockchain technology. The provincial government gave the certificate to a local metal manufacturer on Oct. 16. The document verified the manufacturer’s electricity usage in a certain period, which can be used as a mortgage certificate for bank loans. The provincial government’s data administration team built a blockchain-based platform to facilitate the process and plans to issue more certificates. (Guangdong Government, in Chinese)

Money laundering 

Police in China’s southwest province of Guizhou busted groups using cryptocurrencies to launder money worth RMB 800 million ($124 million). Police in Zunyi had been investigating the cases since July. They found 332 scam cases, arrested close to 100 suspects, and traced RMB 800 million to money laundered through crypto and other channels. (Guiyang Wanbao, in Chinese)

More global crypto exchanges to cut ties with mainland Chinese customers in the wake of new rules cracking down on crypto trading in China. Bitmain announced they will stop shipping popular crypto-miner Antminer to mainland China. China’s search giant Baidu registered a new blockchain software platform. 

Cutting ties with mainland China

• Two crypto investing and exchange firms have announced plans to retire all existing mainland accounts by the end of this year to comply with new rules in China. China’s central bank issued a directive on Sept. 24 stipulating that it considers overseas crypto exchanges providing crypto trading services to mainland Chinese users as “illegal financial activities.” Matrixport and Mexc have both announced that they will retire existing mainland Chinese users. (China Star Market, in Chinese) 

• Crypto mining equipment maker Bitmain announced on Oct. 10 that it will stop shipping Antminer to mainland China to comply with local rules. Antminer refers to a series of Bitmain’s crypto mining equipment. For customers who have purchased long-term products, Bitmain said staff “will contact them to provide alternative solutions.” (Cointelegraph)

• Jihan Wu, a co-founder of crypto mining machine maker Bitmain, told “The Best Business Show” (streamed on Youtube on Sept. 28) that retail crypto investors would soon disappear in China. “They will all retreat from crypto, and only those high net-worth Chinese families will stay in crypto,” Wu told the host Anthony Pompliano. Bitmain plans to move most of its production out of China in response to the country’s latest crypto crackdown. (AMBCrypto)

Baidu registers blockchain software

• China’s search engine giant Baidu has registered copyright of a new blockchain software called “Du Yuzhou,” according to the enterprise database site Tianyancha. Du Yuzhou’s official website was launched in June 2018. Du Yuzhou’s website said it aims to become a cultural and entertainment application ecosystem built with blockchain technology. (China Star Market, in Chinese)

• China’s state-backed blockchain project, the Blockchain-based Service Network (BSN), will expand its global presence by setting up two new portals in Turkey and Uzbekistan in late December 2021. Red Date Technology, the company providing tech support to the BSN project, has signed an agreement with the Turkish Chinese Business Matching Center (TUCEM), a Turkish consultancy firm, to launch two international BSN portals in Turkey and Uzbekistan. The new portals will allow blockchain developers to build blockchain-as-a-service (BaaS) applications. (Cointelegraph)

Huobi personnel reshuffle

Zhu Jiawei, COO of Huobi, left the crypto exchange in April “to spend more time with family,” according to an announcement made public on Wednesday. Zhu joined the exchange in 2015 and had assumed top roles, including Assistant CEO and Director of Operations. Founded in China in 2013, Huobi stopped providing services to mainland Chinese customers in late September because of the country’s year-long crackdown on cryptocurrency trading. (CLS, in Chinese)

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, the guys are joined by tech founder and financial blogger Ming Zhao. They discuss the broader context of Evergrande’s growth and collapse, and what this means for the broader Chinese economy. Topics include China’s balance-sheet expansion, off-balance-sheet lending, and past instances of heavy leverage and collapse for Chinese firms.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• Bilibili
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Kuaishou

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Guest:

• Ming Zhao – @fabiusmercurius

Editor:

• Peter Isachenko

Podcast information:

• iTunes
• Spotify
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

A Sept. 24 directive from the Chinese government prompted crypto companies worldwide to stop serving mainland Chinese users. Huobi and Binance stopped new registrations for mainland Chinese customers. Alibaba said it will bar sales of mining equipment next month. Mining pool F2Pool stopped servicing mainland Chinese users. 

Crypto companies exit China

• China’s central bank and eight other government agencies jointly issued a directive on Sept. 24 to prohibit overseas crypto exchanges from providing services to mainland Chinese users. At least 13 institutions with crypto trading businesses have announced plans to cut ties with mainland Chinese customers after the directive. Two major exchanges, Huobi and Binance, had already halted new registrations for mainland Chinese customers. (China Star Market, in Chinese)

• Alibaba announced on Monday that it will prohibit the sale of crypto mining equipment and related tutorials and software, effective from Oct. 8. The announcement is a reaction to Chinese government agencies’ further notice of the crackdown on crypto trading on Sept. 24. (Alibaba)

• On Tuesday, Chinese journalist Colin Wu reported that market data websites with crypto information such as Coinmarketcap, Coingecko, and Tradingview have stopped providing services to IP addresses coming from mainland China. (Wu Blockchain)

• Crypto mining pool F2Pool said it will no longer provide services to Chinese customers. The company said in a new user agreement that it reserves the right to restrict or cancel the account should it come from China. Founded in 2013 in Beijing, F2Pool is one of China’s longest-running Bitcoin mining pools. (China Star Market, in Chinese)

1,400 blockchain companies

A deputy director at China’s Ministry of Industry and Information Technology said on Monday that China has more than 1,400 blockchain companies and has established a relatively complete supply chain in the sector. (Securities Times, in Chinese)

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, the guys are joined for the second time by John Artman, tech editor at the South China Morning Post. They go over some of the SCMP’s 4th annual China Internet Report released recently, and talked about the four areas of China tech regulations: antitrust, fintech, data security, and cryptocurrency. They also go over China’s recent crackdown on overseas IPOs and what that means for overseas investors.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• Bilibili
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Kuaishou

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Guest:

• John Artman – @knowsnothing

Editor:

• Peter Isachenko

Podcast information:

• iTunes
• Spotify
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

Philanthropy is shifting from a “nice to have” initiative to a “must have” commitment for Chinese tech giants.

Chinese internet firms ramped up their donations for the public good over the past few months, giving away billions of dollars to causes ranging from technology innovation to bridging income inequality. The move is widely viewed as an effort to placate a state that lately seems to be scrutinizing their every move.

Bottom line: Under intensifying regulatory pressure, Chinese tech companies are scrambling to show their willingness to operate and invest in compliance with the state’s broad goal of “common prosperity.” The change forced these tech titans, many already suffering selloff pressure due to tighter state reins, to seek a balance between shareholder interests and the higher operating costs due to huge donations.

Brief timeline: Tech giants such as Alibaba and Tencent are already active donors through their corporate funds. The companies’ billionaire founders are also writing large checks for charity from their personal foundations. Alibaba’s Jack Ma topped Forbes annual China charity list with nearly $500 million in donations in 2020. Tencent’s Pony Ma came in third with about $402 million, and ByteDance’s Zhang Yiming was fifth with $189 million. Pinduoduo’s Colin Huan topped the Hurun China Philanthropy List 2021 with donations totaling $1.9 billion.

Unlike previous donations that tended to be sporadic initiatives by individual companies, there’s a newfound generosity from nearly every major tech company over the past few months. 

• Tencent invested RMB 50 billion ($7.7 billion) in “sustainable societal innovation” projects in April. The gaming titan later doubled the sum, giving an additional RMB 50 billion to the company’s “common prosperity fund” in August.
• Alibaba announced in August an investment of RMB 100 billion across ten key initiatives to promote common prosperity in China. The company will establish the Alibaba Group Common Prosperity Advancement Working Committee, chaired by chief executive Daniel Zhang, as a permanent mechanism dedicated to delivering on the key initiatives by 2025. The committee will focus on technology innovation, economic development, high-quality employment creation, care for vulnerable groups, and the establishment of a common prosperity development fund.
• Pinduoduo rolled out in mid-August a RMB 10 billion agriculture initiative to address critical needs in the agricultural sector and rural areas such as food security and agricultural technology. In March, Pinduoduo founder Colin Huang stepped down as chairman after giving away 2.37% of his shares, worth $1.85 billion, to charity last year.
• Meituan’s founder and CEO Wang Xing in June donated $2.3 billion worth of Meituan shares; his company is still undergoing an antitrust probe by regulators following his controversial comments hinting of discontent with the government, wiped tens of billions of dollars off Meituan’s market value.
• Xiaomi founder and CEO Lei Jun transferred $2.2 billion worth of shares in the company to the corporate Xiaomi Foundation and the personal Lei Jun Foundation in July. This is in addition to the nearly $1 billion that Lei announced in April he would donate to charity.
• Zhang Yiming, founder of TikTok developer ByteDance, is giving RMB 500 million of his own money to establish an education fund. 

Compared with previous donations, tech firms’ burst of generosity over the past months was mainly directed towards the goal of public welfare and reducing inequality, a goal made explicit in the company’s five-year plan released this March.

The donations are mainly directed to fields like technology innovation, poverty alleviation, welfare of low-income groups, agricultural/rural development, education, basic science/research, healthcare, and small- and medium-sized enterprise (SME) support.

READ MORE: INSIGHTS | Tech in the five-year plan

A change in priorities for economic growth

When former Chinese leader Deng Xiaoping ended the country’s planned economy and embraced a free market in the 1980s, he said allowing some people and regions to get rich first would speed up economic growth and achieve the ultimate goal of common prosperity. Now, the priority seems to be shifting to the latter.

• On Aug. 17, Chinese President Xi Jinping called for the nation to achieve “common prosperity” in a speech, asking to rationally “adjust” excessive incomes and for wealthy individuals and companies to return more to society.
• Xi’s call came as Chinese authorities stepped up regulation of tech companies in multiple areas, including antitrust, data security, and privacy, ending the country’s long-standing laissez-faire regulatory approach towards the tech sector.

The changes also came as income inequality becomes an increasingly pressing problem in Chinese society.

• China’s top 1% own nearly 31% of the nation’s wealth, according to a study by Credit Suisse.
• Chinese Premier Li Keqiang said in May 2020 that 600 million people, or roughly 42.9% of China’s population, have a monthly income of RMB 1,000.
• China received a score of 0.465 on the Gini index of the World Bank, which measures economic inequality. The score ranges from zero to one, with one meaning complete income inequality. A score of 0.4 or above is considered at a “warning level.”
• “Alibaba is a beneficiary of the strong social and economic progress in China over the past 22 years. We firmly believe that if society is doing well and the economy is doing well, then Alibaba will do well,” said Daniel Zhang, chairman and chief executive of Alibaba Group, in a company statement on Sept. 3.
• Resentment toward tech companies is growing in China. Whether restaurant owners on food delivery platforms or startups in crowded verticals, small businesses feel they are squeezed by the digital behemoths.

Investor sentiments

While donating tens of billions of dollars for social initiatives out of their profits, the Chinese tech companies, mostly listed, face the double pressure of convincing investors that they are making the right decision to sacrifice short-term profits for long-term growth prospects.

• Chinese tech stocks have experienced a stunning sell-off since the beginning of this year as Beijing widened its crackdown. Intensified regulations over monopolistic behaviors, overseas listings, and data security, coupled with massive fines, wiped out hundreds of billions of dollars in market value of Chinese tech companies.
• “As platforms grapple with increased regulatory scrutiny inside and outside of China, investors will need to come to grips with the impact of regulatory burden and compliance costs on EPS (earnings per share) and ROIC (return on invested capital),” said Michael Norris, head of research and strategy at AgencyChina.

How effective philanthropic displays will be? 

But the efforts raise other questions: Will these philanthropic displays be enough to ease the wrath of regulators? Norris thinks there’s little chance internet platforms can avoid regulation through their social impact investments. 

• “However, these investments can signal internet platforms are responsible market participants. This hits the right notes with regulators who’ve been tasked with curbing exploitative practices and market irregularities,” Norris said. 
• “Think of it as stakeholder capitalism, with Chinese characteristics,” he added.

New opportunities under the disguise of donation?

The government’s attention to areas like tech innovation, agriculture, education, and basic science means opportunity for tech companies. By entering these strategic areas, they could expect returns from those donations, or investments, if they have aligned their business with the broader strategic goals properly. But the time for such returns may be long.

• Started as a social ecommerce platform, Pinduoduo has become laser-focused on “digitizing agriculture”, an initiative that aligns with the government’s drive to modernize agriculture and boost development for rural areas.
• Pinduoduo said in a statement that the company will be able to “get back” because the users “have placed their trust” in the platform.
• “I observed that both Tencent and Alibaba pledged to support SMEs. This might mean that some of the investment is applied to existing subsidies or retains discounted take rates,” said Norris. 

A lasting change?

China has lagged when it comes to charitable efforts, partly due to China’s tradition of passing fortunes through a family line. Back in 2010 when Microsoft co-founder Bill Gates and billionaire investor Warren Buffett invited Chinese moguls to a dinner to discuss philanthropy, lots of them turned down the invitation for fear of being asked to make a donation.

However, there’s been a significant change in charitable giving, especially since 2008, when donations struck a chord with larger groups due to the Sichuan earthquake. Donations for fighting the COVID-19 outbreak and helping victims of the recent flood in Henan peaked as tech firms tried to fulfill their social responsibilities, a concept specified in the country’s corporate law.

Chinese tech billionaires still have a long way to go to be on track with philanthropic models comparable to western counterparts like Gates.

Global venture capital (VC) seems to be hedging its bets on Chinese tech startups as a sweeping regulatory crackdown continues. On Aug. 10, Alibaba-backer SoftBank said it would pause investing in China until “the situation is clearer.” SoftBank funds are also major investors in Beike, Bytedance, Didi Chuxing, and Zuoyebang, among other Chinese startups.

But the latest data shows 2021 so far hasn’t been a bad year for VC investment in China. Are US dollar funds really pivoting away from the massive market?

Bottom line: There are signs that foreign VCs are adjusting their investments in China because of recent regulatory changes. But venture capitalists we talked to on the ground said they are optimistic, arguing that stricter regulations can be an “opportunity,” even as they expressed worry. 

Signs of a retreat: Multiple reports have suggested that international funds are planning to reduce their investment in China as a result of the crackdown.

• The value of venture deals in India surged to $7.9 billion (RMB 51.3 billion) in July, surpassing China on a monthly basis for the first time since 2013, according to research firm Preqin. VC investment in China the same month was $4.8 billion, it said.
• On Aug. 10, SoftBank Group Chairman Masayoshi Son said the funds would take a “wait-and-see stance” until the situation in China settled in “a year or two,” the Financial Times reported.
• In a plot twist, SoftBank China Capital, the Japanese conglomerate’s VC branch in China, said in a statement on its website on Aug. 12 that it is still “committed to investing in excellent high-tech startups in China.” But the statement was deleted soon after, Chinese media reported.
• SoftBank has continued to invest in China in 2021. On Aug. 18, autonomous vehicle startup Neolix said it had received “hundreds of millions of RMB” in a financing round led by SoftBank Ventures Asia.

Numbers show little change: VC investment this year in Greater China, which may include Taiwan and Hong Kong, totaled around $67 billion, the “highest level seen in recent years,” according to Preqin.

• In the second quarter, Chinese startups raised $30 billion, up 39% year on year from the same quarter in 2020.

Fewer unicorns: However, the creation of unicorns—startups with more than $1 billion in valuation—seems to be slowing down in China. 

• Only three Chinese companies have attained unicorn status in 2021 as of June, while 132 American companies reached billion-dollar valuations during the same period, according to Rui Ma, a China tech investor and analyst, who cited data from CB Insights. 
• By contrast, some 42 unicorns were declared in China in 2018, compared to 51 in the US.
• Unicorns are defined by their valuations given by investors. The slowdown in China likely reflects cautious investing more than a lack of good companies.

Reasons to worry: There are reasons for investors to worry. Chinese tech companies enjoyed a laissez-faire environment before regulators moved to rein in the sector last year. The firms were rarely restrained by privacy laws or antitrust laws despite repeated public outrage. Now, the situation is changing rapidly. 

• The authorities have stepped up regulations on antitrust, privacy, data security, and overseas listings.

No exit? One of the regulatory areas that could hit overseas VC funds the hardest is China’s July regulation on data security and overseas IPOs: It requires companies that control data of more than 1 million users to seek permission from regulators before filing for IPOs overseas.

• This will seriously affect US listings of Chinese firms, potentially making US dollar funds’ exits more difficult. 
• But the regulation won’t affect exits in Hong Kong, which can be an attractive destination for companies looking for a mid-point between China and the US.
• “We haven’t seen a major shift in investing by US dollar funds focused on China, because the exit path via Hong Kong remains clear,” William Bao Bean, a Shanghai-based general partner at the VC firm SOSV, told TechNode.
• Another reason for investors to be concerned is the unpredictability of China’s tech policy. The most chilling example is the nation’s sweeping regulations, issued in July, affecting its private education sector, making many edtech firms’ businesses illegal overnight.

US flows falling: This is not the first time we asked how politics affect VC investment. In August 2020, we asked venture capitalists and analysts whether the US-China tech war had affected dollars floating into Chinese tech startups. The answer we got was “no,” because money was “not political.”

• Money may not be political, but money is rational. By the end of 2020, full-year data showed a significant drop in US VC investment in China, according to the US-China Investment Project, a research initiative led by Rhodium Group and the National Committee on US-China Relations.
• The total value of US dollar-denominated VC investments in China in 2020 halved from the previous year, to $2.5 billion. That was a fraction of the nearly $20 billion recorded in 2018, said the project in a May report.

What VCs say: Venture capitalists already invested in China seem to be optimistic.

• Bean of SOSV said the regulatory shifts in China are an “opportunity.”
• “I’ve covered the China tech market since 2003 and the only thing that one can count on is regulatory changes in China. Institutional investors on the ground understand that these shifts in enforcement represent an opportunity,” he said.
• “I feel confident in the future prospects of China tech startups and we are helping them go global and taking advantage of the increased competition that will result from the market restructuring,” said Bean.
• Ron Cao, founder and partner of Chinese VC firm Sky9 Capital, told TechNode that he is “confident” about investing in Chinese tech startups. There are still huge markets to be created by the digitalization of many Chinese industries, including consumer, enterprise service, and software as a service (SaaS), he said.
• “The government regulation is certainly an important changing factor, but it is not a decisive factor,” said Cao.

China’s top executive body published a new regulation to protect critical information infrastructure on Tuesday, which is likely to bring stricter cybersecurity oversight to companies in a wide range of sectors, including tech. 

Why it matters: In July, regulators initiated one of the nation’s first cybersecurity reviews of ride-hailing giant Didi, citing regulations indicating Didi was treated as a critical information infrastructure operator. The new regulation provides detailed definitions of what would qualify as critical information infrastructure (CII), and the responsibility and obligations of businesses treated as critical information infrastructure operators (CIIOs). 

• Chinese tech companies need to know whether they are CIIOs, said Calvin Peng, a senior partner at Jincheng Tongda & Neal law firm. Companies classified as CIIOs should expect much stricter regulatory oversight, especially regarding national security matters, Peng added. 
• Companies have little say when it comes to deciding whether they would qualify as CIIOs, Peng said. Peng’s law firm has seen some regional Chinese government agencies start reviewing companies to determine if there are CIIOs in their region as early as June 2019. 

Details: The regulation defines critical information infrastructure as essential network facilities and information systems used in industries such as public communication, information services, energy, transportation, water conservancy, finance, public services, e-government, national defense science and technology, as well as other industries that would seriously endanger national security and public interests if their data was leaked or the systems get damaged. 

• The central government “attaches great importance to the protection of critical information infrastructure,” Chinese government agencies said in a press conference (in Chinese) on Tuesday. “Critical information infrastructure is the central nervous system of economic and social operations, and it is the top priority of network security,” it said (our translation).
• CIIOs must conduct security examinations and risk assessments every year, said the regulation published (in Chinese) on Tuesday. Peng said companies that may not be classed as CIIOs at first could be classified later on as their businesses expand and change. 
• Companies should prioritize purchasing “secure and reliable network products and services,” said the regulation. Operators need to pass a cybersecurity review before they buy any network products and services that could affect national security, it said.
• The regulation takes effect on Sept. 1.

Context: The regulation comes as Beijing pushes to protect critical data and develop a new economy driven by government-led data exchanges and data marketplaces. The nation has set up multiple “data exchanges” to trade data ranging from a collection of adult faces intended for AI training to voice data collected from mobile phones, TechNode recently reported.

• The country in June passed a comprehensive Data Security Law, stipulating how data can be used, collected, protected, and developed in China. The law, as well as the regulation, will take effect on Sept. 1.

A dozen years after it set out to build an industry from scratch, China boasts the world’s largest number of electric vehicles. More than 6 million clean-energy cars and trucks are running on Chinese roads. 

That’s 6 million electric vehicle (EV) batteries that are going to wear out one day. The oldest electric cars are starting to retire their batteries: More than 200,000 tons of them went offline in 2020, Xinhua (in Chinese) reported in April, citing figures from the China Automotive Technology and Research Center. From 2021 to 2030, the auto industry will shed 7.05 million more tons of EV batteries—about 168 times the weight of Beijing’s Bird’s Nest Stadium, Greenpeace wrote in an October report. 

It’s either a huge mountain of toxic waste, or a gold mine of rare metals. It all depends on battery recycling.

There are no public records of how much of the 200,000-plus tons of the EV batteries retired last year got recycled, but it is widely agreed that the current recycling rate is very low. China first authorized EV battery recycling in 2018, but the first batch of licensed recyclers have found it a tough business. With high costs, limited demand, and competition from cheaper pirate recyclers, it will take more carrots and sticks for the industry to take off. The key, experts told TechNode, is likely to be stronger enforcement of rules that make carmakers responsible for disposing of end of life batteries.

Second lives for old EV batteries?

If you’ve owned a device with a rechargeable battery, you already know: They wear out. The longer you use a battery, the less charge it holds. 

EV batteries are good for eight to 10 years. By the end, they’ll store only 70% to 80% of the charge they held when new. That’s when they reach the end of their useful life in a car.

The battery pack is the most single most expensive component of an EV, accounting for about 30% of the total cost to consumers. It pushes up the cost of an 80.5 kWh battery pack in Tesla’s Model Y crossover to about $9,250, BloombergNEF estimated in a December report. The components may be still useful after batteries reach the end of their first life: A customer recently sold the used battery pack of his EV to an unnamed “highest bidder” and earned more than RMB 10,000 ($1,544), according to a Xinhua News Agency report (in Chinese) in April.

The first five companies got on the white list in July 2018. That was it until December 2020, when the Ministry of Industry and Information Technology (MIIT) certified 22 more companies to recycle EV batteries. While forging alliances with automakers, these little-known companies vary greatly in backgrounds. They are subsidiaries of big battery makers or associates of cell material suppliers, or simply units of traditional scrap recyclers.

A few of these larger players already claim to be profitable. A Shenzhen-based company called GEM is a leader in the industry, with a 10% share of the market and a client list of more than 280 domestic and foreign automakers. The company, which is also the country’s largest battery materials producer, said in its 2020 annual report (in Chinese) that the amount of batteries it recycled more than doubled from 2019, its first year to turn a profit from the practice. It didn’t disclose any numbers, however. 

Other recycling companies are still investing heavily to scale up the business. For example, Hefei-based Gotion High-tech, along with the government of the city’s Feidong district, on March 22 announced they would invest RMB 12 billion ($1.85 billion) to build a new facility for the manufacturing and recycling of raw battery materials in the capital of eastern Anhui province. The move came just two weeks after Gotion established a recycling subsidiary with a registered capital of RMB 50 million. The Volkswagen battery supplier aims to ensure annual production of 100 gigawatt hours (GWh) of batteries by 2025, with raw material sourced from used packs.

Yet many of the other white-listed recycling firms are struggling to break even, according to Yang Xulai, a professor at Hefei University and a former research lead at Gotion High-tech. One reason: Not enough spent batteries are being funnelled to proper recyclers, since owners of EV vehicles are not required to turn them over to an MIIT-licensed company. 

As a result, over half of spent batteries are probably being recycled by unsustainable, polluting practices, Bao Wei, a general manager at Zhejiang Huayou Holding Group, a recycling partner of BMW in China, told business news site Caixin (in Chinese) in January.  

Where did the batteries go? The easiest and most profitable destination is the illegal one: Unscrupulous companies, usually traditional auto scrap yards, strip the electrolyte packs of valuable raw materials like cobalt and nickel, and dump the hazardous leftovers in a nearby landfill or waterway. That’s in violation of environmental regulations but enforcement is lax.  

The licensed players thus find themselves competing against lower-cost rivals which can pay higher prices to EV owners for their waste batteries, as they are normally not subject to environmental regulations and have been disposing toxic battery wastes to landfill without proper treatment.

“This leads to a low collection volume of waste batteries for qualified recyclers, and this problem gets further exacerbated by poor consumer awareness of the importance of waste battery treatment,” Chinese and Australian researchers wrote in a paper published in May.

The three types of EV batteries 

Whether their processes are dirty or clean, recyclers consider the materials in nickel-manganese-cobalt (NMC) batteries and nickel-cobalt-aluminum (NCA) batteries the most valuable. These two types of batteries are known for enabling a long driving range with a high-energy density. However, the two current mainstream recycling techniques, which recover materials through burning or the use of strong acids, produce extensive chemical waste and greenhouse gases—and at very high expense, experts told Caixin in a January report (in Chinese).

When it comes to the third type of battery, Lithium Iron Phosphate (LFP), which offers a shorter driving range but boasts better thermal stability, the outlook is less promising. The key components are too cheap for recycling to be economical. Dismantling one ton of spent LFP batteries for key materials only generates revenue of about RMB 9,300 ($1,440), which is far from covering the cost of recycling, investment advisory firm Guangzheng Hang Seng said in a report in mid-2018.

The potential profit that can be extracted from an expired NMC or NCA battery fluctuates with the fluctuating prices of cobalt and nickel. At the metals’ current prices, the 60-kilowatt NMC811 battery used in a Tesla Model 3 might yield revenue of RMB 6,254.

Nonetheless, the recycling business could take off soon, spurred by the anticipation of a shortfall in cobalt, nickel, and batteries’ other raw materials in the coming few years. Demand for cobalt used in EV batteries will reach 980,000 tons over the decade to 2030 in China, around seven times the global output of the raw material in 2019, in Greenpeace’s estimation.

Read more: Drive I/O | How Chinese EV batteries broke through

Storage and solar power

There may be alternatives to stripping spent EV batteries for their components. Perhaps they can be converted into lower-quality batteries or used for something other than powering machines. 

MIIT in a draft guideline (in Chinese) issued in October 2020 called for recyclers, EV makers, and battery suppliers to cooperate to produce new uses for spent EV batteries. In particular, the guideline  encourages companies to repurpose old batteries for backup power systems for utility-scale projects or telecommunication base stations. One such model is BMW’s reuse of EV batteries to power the forklifts in its local factory in northern Shenyang city. Such a forward-looking policy could help “enhance overall electric grid efficiency and reliability,” wrote the regulator.

Other companies such as State Grid, the country’s largest public utility, are hoping to repurpose EV batteries for energy storage. Old packs can be reassembled into a battery energy storage system that can store solar energy power for use during periods of scarcity and provide greater flexibility for grid demand spikes.

Economic deterrent

However, this storage industry is also having trouble squeezing out profits in the face of technical and commercial challenges. Second-life batteries need to be standardized in performance and safety standards, such as charge capacity, recharge time, and longevity. But the hard reality is: Batteries from different manufacturers vary greatly in design and construction, since they are custom-designed to work with a given car model, consulting firm McKinsey wrote in a 2019 report.

Recyclers need to take battery cells apart for standardization, refurbishing, and reassembly before they can be used in energy storage. Yet the performance limits and health status of these batteries vary greatly and are often not disclosed to recyclers by battery manufacturers and carmakers, according to Bao of Zhejiang Huayou Holding.

Then there are safety concerns, which have led to large energy storage plants recently being banned from using spent EV batteries. Nonetheless, Beijing is still pushing for more trials, including battery storage programs for small-scale commercial and industrial facilities such as 5G base stations.

All these practical challenges combine to form an economic deterrent: It is simply cheaper for energy  companies to start with all-new batteries than to use retired packs, according to Zhao Guangjin, an expert with State Grid.

Whether the next stage is energy storage or recycling of materials, the transportation of spent batteries is another steep expense because both the transport vehicles and warehouses need to be customized with safety measures. 

Regulatory and business outlook

A national market foundation has been set, but the government will need to provide a mixture of carrots and sticks to help the market gain scale, Zheng Mingyang, Toxics Campaigner at Greenpeace, said in an interview with TechNode on July 14. For instance, South Korea has made it mandatory for car owners to return EV batteries to designated drop-off sites. “Such mandatory enforcement measures to end users is worth consulting,” Greenpeace wrote in its October 2020 report (our translation). 

Greenpeace has proposed incentive and punitive measures to ensure players such as automakers, battery makers, and recycling companies bear their responsibilities and develop new applications for used batteries. For instance, the government should levy higher taxes on battery makers that use original raw materials, while rewarding battery makers that use recycled materials.

Loss-making companies also need an incentive to look for the value that second-life batteries promise. Zhang Tianren, chairman of recycling company Tianneng Group and a delegate to the National People’s Congress, the Chinese parliament, in March called for stimulus policies such as subsidies and tax cuts for certified recycling companies, most of which are struggling to eke out profits. 

The vice chairman of China’s biggest battery supplier, CATL, publicly dismissed the idea as “a fake proposal” in late 2018. Huang Shilin said that the company was developing new battery types made for energy storage. In 2020, the Tesla partner sold 2.39 GWh of batteries for energy storage systems, according to its annual report. 

The Chinese government has established a policy framework that places responsibility for battery recycling on EV makers, experts warn that it’s not clear how it plans to regulate the sector. Beijing has not specified a clear target for the overall collection of waste batteries, nor a clear definition of the scope of authority among multiple central and local government agencies taking a shared responsibility, according to a paper by Chinese scientists published in May in the Journal of Environmental Engineering and Landscape Management. 

One murky legal area concerns automakers’ responsibilities. According to regulations issued in 2018, the makers are required to make their dealers buy back spent batteries from auto customers. Direct-sale companies like Tesla, Nio, and Xpeng are responsible for taking back the old batteries themselves. Unfortunately, dealers have little motivation to do so.They still face no penalties for failing to take back batteries. They are more motivated to sell cars than to take back batteries, Caixin (in Chinese) reported in January, 2019 citing Zhang Guofang, a professor at Wuhan University of Technology. 

Local governments with significant auto industries may offer a way forward. In a draft action plan (in Chinese) issued by the Guangzhou Municipal Development and Reform Commission on June 22, both domestic and foreign automakers would be required to report the establishment of recycling stations for EV batteries in the city. Meanwhile, Shanghai authorities plan to create a recycling network across the city and an online tracking system to manage the fabrication, sale, and recycling of EV batteries by the end of this year, Chinese media The Paper reported. 

For now, the major obstacle to clean reuse remains profitability. Being on the cutting edge of market creation, each stakeholder needs a little more incentive to be part of a sustainable recycling process. 

 “If there is money to be made, more companies and investments will be attracted,” (our translation) Huang Shan, an industry insider told China National Radio.

ByteDance is scaling back its online education businesses and laying off half of its in-house Pre-K tutors, according to a report by Late Post (in Chinese) on Thursday. 

Why it matters: ByteDance is grappling with the fallout from recent regulations that impose strict limits on edtech companies’ business operations and financial activities, and completely ban online tutoring for pre-school children. The company is scaling back its Pre-K focused-businesses and focusing more on other sectors such as vocational education.

• The new rules are seen as an attempt to ease pressures on school children, who have suffered from China’s highly-competitive education system, and boost birth rates by reducing living costs for families in the country’s major cities. 

Details: The layoffs affect employees of Dali Education, ByteDance’s standalone edtech brand that runs the short video giant’s education products, including Pre-K education platform Guagua Long and one-on-one English tutoring app GoGoKid, Late Post reported. 

• Guagua Long will suspend sales of all its online trial courses by mid-August and lay off  half of in-house tutors by the end of August, according to the report..  
• GoGoKid, the company’s English tutoring app targeting kids up to 12 years old, had been removed from app stores in China on, TechNode found on Thursday. ByteDance will shut down the platform completely, according to Late Post.
• TechNode was unable to independently verify the report. A ByteDance spokeswoman declined to comment on the matter when contacted by TechNode on Thursday.
• Discussions around ByteDance’s layoffs have also circulated this week on professional networking platform Maimai. Maimai user Kunlun Dizi, who identified himself as an employee of Dali Education, said he had been laid off.

Context: In an internal meeting held in June, Chen Lin, CEO of Dali Education, said that the company management is “very confident and patient” about its education business and will continue to invest without any layoffs, according to Chinese media outlet Pingwest.

• Chinese edtech giants including Zuoyebang and Yuanfudao are also rumored to be laying off staff, as Chinese officials tighten regulation governing the private tutoring market.
• In October 2020, ByteDance launched edtech brand Dali Education to host all its education businesses. The unit had 10,000 employees after launch.

Chinese social media and gaming giant Tencent vowed to further limit minors’ access to video games on Monday, the same day state media’s criticism of the industry spooked investors and caused Chinese game stocks to lose at least $57.6 billion.

Why it matters: Tencent’s announcement is a quick response to an article by state media that compared video games to drugs. 

• The Economic Information Daily, an affiliate of the state news agency Xinhua, called online video games “spiritual opium,” singling out Tencent’s top game “Honor of Kings” as “the most popular video game” among Chinese students. The article was published on Monday morning, pulled in the afternoon, and republished in the evening without those phrases.

Details: Tencent said (in Chinese) in a Monday announcement that it will set stricter limits on minors’ access to games, intensify its crackdown on minors using fake identification to circumvent restrictions, and promote industry-wide systems to prevent gaming addiction. The company also said it will start implementing the new measures in “Honor of Kings” and gradually extend them to other games. 

• On Wednesday, Tencent released new rules that limit underage players’ access to “Honor of Kings.” 
• The rules bar minors from playing the game from 10 p.m. to 8 a.m. Minors will also only be allowed to play one hour a day, and two hours on national holidays, down from previous limits of one and a half hours and three hours, respectively. 
• The new rules also prohibit children under 12 from making any in-game purchases.
• Tencent promised to re-verify suspicious accounts and crackdown on minors using fake identification to play games for longer periods. 
• Tencent also said it will encourage other gaming companies to build anti-addiction systems and discuss whether children under 12 should be completely banned from playing video games.

Context: The Economic Information Daily pulled the article on Monday afternoon after major game stocks in China and Hong Kong plunged more than 10%. The company later republished the article without the drug comparison on Monday night. Tencent and NetEase’s stock prices fell by 6% and 8%, respectively, and CMGE Technology, a mobile game publisher, lost 13%. 

• Chinese state media has consistently lashed out at video games over the past few years. In July 2017, multiple state-owned media companies, including People’s Daily, state broadcaster CCTV, and Xinhua News Agency, published op-eds criticizing video games and gaming companies for their bad influence on Chinese school children.
• Despite official pushback, the gaming industry has maintained growth in the past five years. The market reached RMB 136.6 billion ($ 21.1 billion) in 2020, according to CGIGC, a state-affiliated game publishing authority. In early 2018, Chinese officials started an almost year-long freeze on online game approval.

At 9 a.m. on a recent Thursday, Sheng Li got out of a Didi ride at his office in downtown Shanghai. The ride-hailing company has had a rough ride recently, but for users like Sheng, Didi is still the first choice when hailing a car.

The 28-year-old office worker says he’s been experimenting with other apps lately. He’s noticed longer wait times as Didi struggles amid a “cybersecurity investigation,” temporary removal from Chinese app stores, and lawsuits from angry US investors.

Sheng told TechNode he doesn’t worry about the privacy and security issues the regulators are investigating. “That’s a matter for the state, not us,” he said. For him, it all comes down to price, service, and wait times.

Still, a Shanghai taxi driver surnamed Wu told TechNode that he has shifted his driving time to other platforms including aggregator Amap (Gaode Ditu in China), as there are now “much fewer orders” from Didi (our translation). Some former Didi users even deleted the app from their phones in a show of patriotism, the Shanghai-based driver added.

Founded in 2012 as Didi Dache, Didi has long been dominant in China’s ride-hailing market. It fended off an early challenge from Uber, buying out the US company’s Chinese operations when it left the market in 2016. The most recent estimates put its share at 90% of the Chinese market.

Now, challengers are racing to take advantage of Didi’s troubles. Like Sheng, millions of Chinese users are trying out other ride-hailing platforms. The rivals have begun a price war, offering steep discounts and subsidies to win over users and drivers.

Default Didi

Didi remains the default for most users TechNode met during rush hour interviews in Shanghai. Although Didi apps are no longer available for download on Chinese app stores, those already on users’ smartphones still work.

Chris Sun, a Shanghai-based video producer did not hesitate when choosing Didi to hail a ride to the city’s railway station for a business trip last week. Speaking to TechNode on July 22, Sun said he had no plans to try other services, adding that he “has got used to” Didi, despite some technical flaws such as inaccurate pin locations from drivers (our translation).

Chen Jie, a recent graduate, is also sticking with Didi. The 23-year-old tried Alibaba-backed Amap last year, but immediately switched back to Didi, frustrated by long waits at peak times.

Springing into action

Shopping and delivery titan Meituan, a longtime rival of Didi, relaunched its standalone ride-hailing aggregator app Meituan Dache on July 13, followed by a WeChat mini-app with the same name last week.

Meituan has offered ride-hailing services since February 2017, but shut down its standalone app in 2019 to cut expansion costs. Since then, it’s been available only as a mini-program within Meituan’s main app.

The company has boosted its subsidies to attract users after the long absence. Using a RMB 10 ($1.54) coupon, TechNode paid RMB 23.4 for a nine-kilometer trip on Meituan Dache on July 16 in Shanghai. A ride on Didi for the same route cost RMB 35 on July 2.

Upstart T3, a joint venture of state-owned automakers FAW, Dongfeng, and Changan, is among the most ambitious contenders. From its base of 21 cities and 15 million users in 2020, the two-year-old ride hailer has set goals to enter 15 new cities and add an average daily order of 1 million rides by the end of July, Chinese media reported, citing a company memo. 

Daily downloads of the T3 app on iOS peaked at 60,000 million on July 2, later stabilizing to around 40,000. In June, T3’s app was downloaded just 10,000 times a day, according to data from app-tracking service Qimai. Chinese media report that T3 staff have been working long overtime hours as the Nanjing-based company rushes to expand.

Alibaba-owned aggregator and mapping service Amap, launched in 2018, is also offering massive subsidies to both riders and drivers, including RMB 100 coupons for rides and a one-week zero-commission period to new drivers. Amap downloads on iOS have more than doubled since July.

Meanwhile, Tencent and GAC-backed Ontime is offering 50% off coupons plus a RMB 25 incentive to those who invite a friend to use the platform and take their first trip. Not everyone is joining the price war.

Chinese media reported that management at Caocao Chuxing have decided not to drive down prices,, but the company has adopted the infamous 996 work schedule following Beijing’s investigation into Didi.

Future landscape

Didi could be back on app stores later this month. Regulations specify that cybersecurity reviews should take no more than 45 days, and 45 days after Didi’s review began will be Aug. 16. However, the same regulations authorize regulators to extend the review if they find that the matter is especially complex or serious.

Some observers believe that Didi could face significant threats from smaller ride-hailers that are expanding their presence in China’s growing inland cities.

“Didi is mature in tier-one cities but not in second or lower-tier cities. There is still an opportunity for online ride-hailing in China, and Didi will not have a 90% share in China forever,” Tu Le, founder and managing director of business intelligence firm Sino Auto Insights, said during an online interview on July 6.

Didi controlled more than 90% of China’s ride-hailing market share before the government’s investigation into the company. There might be “double-digit” market share redistribution if the subsidy war meaningfully deteriorates the Didi app or mini-program core experience, according to Michael Norris, head of research and strategy at AgencyChina.

The supply of drivers, who are sensitive to subsidy and platform policy changes, will be key to winning the battle. “Didi’s competitors need to poach drivers to the point Didi’s app becomes unreliable to hail a ride,” he said.

“The competitive landscape depends on how hard Meituan pushes. Recall that Meituan, with one eye on its balance sheet, backed away from self-operated ride-hailing in late 2018. Meituan’s foray into community group-buy, including associated financing activities, have primed investors for big moves.” Norris said.

Meituan declined to comment on the story.

Still, at least one ride-hailer has decided to advance at its own pace. Rather than spending lavish sums for a victory likely to be temporary, Shouqi, operated by the namesake automaker, has publicly stated its goal is high-quality development, focusing on passenger and driver safety along with data security. With a footprint in over 170 Chinese cities, the state-backed company is now the country’s sixth biggest ride-hailer but lags far behind Didi in monthly active users, according to figures published by app tracking firm Aurora Mobile in May.

“China’s ride-hailing market has always been strictly regulated. Looking ahead, compliant, healthy, and sustainable development will be the major path for all the players,” a Shouqi spokesperson told TechNode on July 20 (our translation).

Read more: How did Didi get in trouble with data regulators?

If you care about China tech, it’s time to get to know the country’s main tech regulators. 2021 started with the country tightening antitrust regulations on big technology players, shaving billions of dollars off their market caps. 

The crackdown reached a new high this month when the Cyberspace Administration of China (CAC) launched a security probe into ride-hailing platform Didi Global just days after its New York listing, sending shock waves among investors around the world.

These crackdowns aren’t new—for the past few years, regulators have been subjecting tech firms to stricter data and privacy rules. Understanding who they are and what they do is becoming more important than ever for investors in and watchers of China tech. Below are the top three Chinese tech regulators you should know.

Bottom line: Dozens of agencies regulate China tech, but the current crackdown is driven by three key regulators: the Cyberspace Administration of China (CAC) polices content, privacy, and cybersecurity. The State Administration for Market Regulation (SAMR) is in charge of markets and consumer protection, and has led the recent anti-monopoly campaign. The People’s Bank of China (PBoC), China’s central bank, is the key organization for financial regulation, and has been the most important player in writing new rules on lending, payments, and the “rectification” of Ant Group.

Cyberspace Administration of China (CAC)

The CAC was created in 2011 as part of the State Council Information Office but its powers have mushroomed over the past few years. The agency is in charge of areas like online content, privacy, and data security.

When it was created, the agency was only an online content moderator: The CAC’s duties included online content moderation, online news regulation, and “online propaganda work,” state newspaper Guangming Daily (in Chinese) reported in 2011 when the agency was founded.

A reshuffle made it a regulator: In 2014, the CAC joined the Office of the Central Cyberspace Affairs Commission, a body of the ruling Chinese Communist Party. 

• The two bodies share the same staff and offices under a special arrangement called “one institution with two names.” The party body is under the Central Leading Group for Cybersecurity and Informatization, which reports directly to Chinese President Xi Jinping.
• The 2014 reshuffle officially gave the CAC the authority to regulate content on China’s internet. In a document (in Chinese) published in August 2014, the State Council authorized the CAC to “take responsibility for nationwide internet information content management and for the supervision and management of law enforcement.”
• The 2014 document was the only legal basis of the CAC’s law enforcement power before the 2017 Cybersecurity Law, Liu Jinxin, an editor at a website managed by the CAC, wrote (in Chinese) in 2016 when the law was passed by China’s legislature.

Now, it’s about more than just content: Over the course of the last ten years, the CAC has expanded its reach beyond content moderation, taking on responsibility for privacy regulation and cybersecurity, among several others areas. 

• Subsequent laws since the CAC was created have given it the power to “coordinate” the regulation of online privacy and data, said Carly Ramsey, a Shanghai-based director at consultancy Control Risks.
• China’s Cybersecurity Law says the CAC is responsible for “coordinating” the nation’s cybersecurity regulations. 
• The country’s Data Security Law, which was passed in June and will take effect in September, charges the CAC with “coordinating” network data security and regulation.
• According to the cybersecurity and data security laws, said Ramsey, “the CAC always has a coordination and supervision role when it comes to the development and implementation of cybersecurity-related laws and regulations.”

It may also have a say in who can go public: Earlier this month, the CAC proposed an overhaul of China’s cybersecurity review process, requiring companies holding data on more than 1 million users to seek permission from regulators before filing for initial public offerings (IPOs) overseas.

• One key purpose for overseas IPO reviews is to control the risk of companies exporting “core” and “important” data or being “influenced, controlled, or abused” by foreign governments during the listing process, the regulator said in the draft provisions.

Related regulators: The CAC works with government agencies like the Ministry of Industry and Information Technology (MIIT) and the Ministry of Public Security (MPS) to regulate privacy and data issues.

State Administration for Market Regulation (SAMR)

SAMR is China’s top market regulator. It is the main regulator in China’s antitrust campaign against tech companies.

Until 2020, dealing with the CAC was often the top priority for Chinese tech companies’ government relations departments. But ever since the Chinese government launched an antitrust crackdown on the sector in November, SAMR has become another major regulator that has left government relations staff scratching their heads. 

China’s antitrust regulators have largely left tech companies alone. The situation changed dramatically in November, when SAMR proposed guidelines targeting anticompetitive behavior, specifically including internet companies. The new rules widen the reach of antitrust, which previously only applied to the physical economy.

Next, SAMR took direct aim at big tech players like Alibaba and Tencent, punishing them for minor violations of China’s Anti-Monopoly Law, such as unreported merger and acquisition deals from years before. In December, the agency launched an anti-monopoly investigation targeting Alibaba. The probe ended in April when SAMR issued Alibaba an RMB 18.2 billion ($2.8 billion) fine for antitrust practices including “forced exclusivity.”

Most recently, SAMR blocked a merger deal between Tencent-backed game streaming platforms Huya and Douyu.

New broom: SAMR was established in March 2018 during a structural reshuffle of the State Council, China’s cabinet. It absorbed three ministry-level government agencies and inherited antitrust authority from three other central government bodies, under a government reorganization plan (in Chinese).

• In the structural reshuffle, the State Council eliminated the State Administration for Industry and Commerce, the General Administration of Quality Supervision, Inspection and Quarantine, and the China Food and Drug Administration. All three agencies’ enforcement authorities were transferred to SAMR.
• The mega-regulator also assumed powers to enforce antitrust laws that had belonged to the National Development and Reform Commission, the Commerce Ministry, and the State Council.

Top trustbuster: China’s 2008 Anti-Monopoly Law identified an antitrust commission under the State Council as being responsible for the coordination and supervision of China’s anti-monopoly regulation. The commission, like the others, was also merged into SAMR in the 2018 reshuffle.

• SAMR also has the authority to formulate antitrust regulations and guidelines, according to the Anti-Monopoly Law.

Price regulation: Inheriting powers from the State Administration for Industry and Commerce, SAMR regulates companies’ pricing strategies, per the nation’s 1997 Price Law (in Chinese).

• As a result, online marketplaces like Taobao and Ctrip fall under SAMR’s purview.
• SAMR earlier this month proposed (in Chinese) regulations on consumer pricing practices, banning e-commerce platforms from using big data and algorithms to charge customers different prices for the same product or service by analyzing their purchasing history.

People’s Bank of China (PBoC)

The PBoC, the country’s central bank, is the major regulator for fintech. The financial regulator oversees China’s online payment sector, supervising companies like Alipay and Tencent’s WeChat Pay, which combined have more than 1 billion users.

The bank has been involved in high-profile moves against China’s tech sector, leading the investigation into fintech giant Ant Group after China halted the company’s plans for a mega IPO in November. 

Ruling online payments: The PBoC became a fintech regulator in 2015 after it issued regulations (in Chinese) governing the online payment sector, requiring companies that provide digital payment services to be subject to its oversight. Ant Group’s Alipay is China’s largest mobile payment service, followed by Tencent’s WeChat Pay.

It doesn’t like cryptocurrencies: The bank and online payment regulator is also use its power to crack down on cryptocurrencies. In June, the central bank summoned several commercial banks and Alipay, asking them not to provide financial services to cryptocurrency traders, according to state news agency Xinhua (in Chinese).

See also: Finance is also governed by two specialist regulators. The China Banking and Insurance Regulatory Commission (CBIRC) is also responsible for online banking and insurance products. 

And if you like IPOs: The China Securities Regulatory Commission (CSRC) regulates stocks, and appears to be taking an increasingly important role in approving the listings of all Chinese companies.

Beijing unveiled new rules on Saturday on the country’s private education sector, barring after-school tutoring companies, including edtech companies, from earning profits, raising capital, or going public and imposing new limits on extracurricular study.

Why it matters: The new rules will end IPO hopes for online education startups like Yuanfudao and Zuoyebang, and limit fundraising for the already listed. Companies that cannot comply with new rules could be forced out of business.

Details: Top-level party and government bodies released on Saturday a directive (in Chinese) to “reduce the burden of students enrolled in compulsory education.” The directive requires private tutoring companies to re-register as non-profit organizations, bars local authorities from approving any new companies, and orders local authorities to re-examine previously registered online education companies. 

• The directive was jointly issued by the General Office of the Central Committee, the administrative branch for the party’s top leading groups, and the General Office of the State Council, the Chinese cabinet.
• Shares of US-listed tutoring companies TAL Education, Gaotu Techedu, and New Oriental Education lost at least half of their value Friday as the document began to be widely shared.
• The new rules forbids after-school tutoring companies teaching school subjects to pursue IPOs or accept foreign investment. Listed education companies will not be allowed to issue new equities and raise money in stock markets.
• The new rule bans companies from teaching school subjects on weekends and holidays. 
• The rules also forbid companies to provide online courses to children three to six years old. Chinese children typically start primary school at the age of seven.
• Chinese authorities will also re-evaluate existing online education companies and cancel business licenses for companies that fail to meet the new requirements. 
• China’s after-school education industry has been “severely hijacked by capital,” said a Monday op-ed (in Chinese) from the state-owned newspaper China Education Daily, republished by the Ministry of Education. 

‘Worst case’ for investors: Rumors of a crackdown on after-school education had been around for months, said Ted Mo Chen, a Shanghai-based edtech entrepreneur and TechNode contributor. But the new policy is “the worst-case scenario expected by the market,” he told TechNode.

• Investors who haven’t cashed out from recently listed or would-be public edtech companies “will not get a fruitful exit,” Chen said.
• Chen advised companies to take out classes focusing on school subjects. “If they can, switch to professional or skills training, or non-test subject education such as arts, sports, and character-building,” he added.

Relief for parents? Ding Zhe, a father of a five-year-old in Shanghai, said he expects the new rule to ease financial pressures for parents. Ding pays a combined RMB 40,000 ($6,175) per year after-school courses for his daughter, including English, math, and painting. Ding said he will continue to pay for some after-school courses, but he will worry less because other children won’t be studying extracurricular programs.

Context: Investors have rushed into the online education sector since 2016, and many doubled down last year as the sector boomed during the Covid-19 outbreak. 

• In 2020, Chinese edtech companies raised a combined RMB 53.93 billion, equivalent to the total funding received over the past four years, a report from data intelligence service 100EC shows.
• Tencent-backed Spark Education, which provides online education for K-12 students, filed for a Nasdaq IPO in June. Yuanfudao and Zuoyebang, two of the country’s most valuable edtech startups, were also rumored to be planning for IPO after receiving a combined $5.9 billion funding in 2020.
• The new regulation comes two months after Beijing imposed the maximum penalty on Zuoyebang and Yuanfudao for unfair competition.

READ MORE: The Chinese gaming startup outperforming Tencent overseas

On Saturday, China’s top market regulator ordered Tencent to end exclusive music licensing deals within 30 days from Saturday, writing that the action was “the first case” of “necessary measures to restore market competition” in a Saturday statement (in Chinese).

Why it matters: The punishment may create openings for other music streamers in China. And the government says it is only the first.

Details: The State Administration for Market Regulation (SAMR) fined Tencent RMB 500,000 ($77,100) for violating market concentration rules with a 2016 acquisition of China Music Corporation. The regulator said that Tencent “illegally concentrated a market,” citing China’s Anti-Monopoly Law. 

SAMR said the deal gave Tencent control of more than 80% exclusive music libraries in “related market share,” allowing the company to “eliminate and restrict competition.” 

Tencent wrote in an online statement the same day that it will “comply with the regulator’s decision” and “contribute to healthy competition in the market.”

READ MORE: The Chinese gaming startup outperforming Tencent overseas

As deadly floods hit central Henan province, Chinese tech majors are jumping in to provide donations and aid to the disaster-hit area, collectively donating more than RMB 1 billion ($154.5 million) as of Thursday. 

Since Saturday, the area has been rocked by torrential rain and flooding, which has killed at least 33 people and displaced 3 million. Henan officials told state broadcaster CCTV on Thursday that the economic losses from the floods are expected to reach at least RMB 1.22 billion. 

Why it matters: Chinese tech companies are part of a larger, nationwide operation to provide relief to Henan.

• Top Chinese companies are expected to provide relief in major crises. During the height of the COVID-19 outbreak in China, the tech industry led the drive, collectively donating RMB 3.42 billion, followed by the financial sector with RMB 1.93 billion, according to National Business Daily. 

Details: Tech majors Alibaba, ByteDance, Didi, Meituan, Pinduoduo, Tencent, Baidu, Kuaishou, and others have announced that they will donate funds to tackle the flooding in Henan. Alibaba and Ant Group donated the most, providing RMB 250 million. 

• The Jack Ma Foundation contributed RMB 50 million, one-fifth of Alibaba and Ant’s RMB 250 million donation, according to an announcement on microblogging platform Weibo on Wednesday. 
• ByteDance, Didi, Meituan, Pinduoduo, and Tencent each donated RMB 100 million. 
• Meanwhile, Baidu donated RMB 90 million. Xiaomi, Kuaishou, and Vivo each provided RMB 50 million. Internet security company Qihoo 360 donated RMB 40 million. Electric carmakers XPeng and Li Auto donated RMB 15 million and RMB 10 million, respectively. 
• Apart from funds, some tech firms also converted their service centers in flood-stricken areas to temporary food banks or shelters. Life services platform Meituan told Chinese media that the company had donated 630,000 essential items, including bottled water, rice, noodle, and other staples. Alibaba’s grocery unit Hema has delivered 17,000 servings of fresh food to front-line rescue workers. 
• Since Tuesday, ride-hailing giant Didi temporarily suspended all local services in Zhengzhou, Henan’s capital, to protect drivers’ and passengers’ safety. The company said on Weibo that it had organized a fleet to deliver supplies and help rescue operations, evacuations, and transport health workers. 

Life-saving online doc: On Tuesday night, a university student from Henan nicknamed manto created an online spreadsheet to help people trapped in flood-hit areas broadcast rescue information. 

• The document, created on Google Docs-like Tencent Docs, was visited 2.5 million times and edited more than 20,000 times within a day of being created. 
• A Tencent spokesperson told TechNode that the company expanded the platform’s limits on Wednesday morning to allow more than 200 people to edit the document simultaneously. 

Context: Chinese tech majors are hoping to improve their company images. Major tech firms have faced much social criticism for their extremely long working hours and weekend work schedule. Regulators also began late last year to crack down on major tech firms over anti-competition business practices and data security concerns.

READ MORE: The Chinese gaming startup outperforming Tencent overseas

First it was one Tencent gaming studio. Then it was Kuaishou. Then ByteDance and Meituan’s groceries division in one week. In the last month, we’ve seen three major Chinese tech firms abolish weekend work after years of popular criticism of “996 culture.” (None of these companies had been on the actual 996 schedule of 9 a.m.-9 p.m., six days a week).

The change comes amid a fad for a dropout style known as tangping—“lying down.” At least some young people are looking for alternatives to the corporate rat race.

The last time this column wrote about overwork, our headline was “Why 996 just won’t go away.” Are things turning around? Is it time to imagine that you can work at a Chinese tech major and—just maybe—have a life?

Bottom line: Could be. More Chinese people are dissatisfied with overtime schedules and voting against “996” with their feet. Bytedance and Kuaishou could start a wave of reforms. 

However, many are still willing to work these intense schedules. Tech workers may want to put off that down payment on a timeshare in Sanya—there’s going to be pressure for hard work even if you don’t have to clock in on Sundays.

Some tech majors are moving to make jobs better. In the last month, three tech giants have abolished weekend work. All three previously used the big week/small week schedule, which requires working on alternate Sundays.

• A gaming studio at Tencent appears to have moved first, with a policy ending weekend work and requiring employees to leave the office at 6 p.m. on Wednesday, announced in early June.
• Short video company Kuaishou first eliminated weekend work across the company on July 1. Kuaishou was relatively late to adopt weekend work, adding working Sundays in January during the runup to the company’s IPO.
• ByteDance will follow suit Aug. 1.
• Local services giant Meituan currently requires weekend work only in one division, grocery delivery. It announced plans to end working Sunday this week.
• JD.com promised this week to double bonuses for office staff by 2024, an effective 14% boost to take-home pay. The company also promised to improve pay for some delivery workers.

Plus a signal of state action? Jiemian reported this week that Siemens was given a symbolic fine of about $2,000 for excessive overtime in Shanghai. With a fast-moving crackdown on unpopular parts of big tech, it could be a harbinger of labor law enforcement.

Check out TechNode’s Techlash Tracker for an overview of the crackdown.

How overwork works

Not every extreme schedule is “996”: Overtime work takes different forms in different companies.

• The “996” schedule is the most famous: 9 a.m. to 9 p.m., six days a week.
• Also popular with Chinese internet companies is the “big and small week” schedule, working alternate Sundays.

Butts in seats: 996 means more than a 72-hour work week. Some employers go to Foucaultian extremes to control workers’ time.

• Companies on the schedule often require employees to check in with a GPS-enabled app from the office by 9 a.m., and schedule meetings late into the evening to make sure staff are still on site. 

• Chinese magazine Renwu alleged in November that tech majors limit bathrooms and time trips to them to keep workers at their desks.
• Nikkei Asia reported last month that major firms are using software called “Third Eye” to keep employees from visiting non-work sites during long workdays.

Case study—ByteDance: ByteDance employees describe long hours on the big week/small week system, but relative flexibility and substantial overtime pay. ByteDance will end working Sundays at the start of August, according to a July 7 internal memo.

• Unlike other Chinese companies though, Bytedance does not monitor employees with a “check-in, check-out” system, and allows flexible start and stop times.
• Peter, a former employee, told TechNode that employees were allowed to ask for time off on a working Sunday without spending vacation days, but it was rare in practice. 
• ByteDance paid double time for Sunday—making two Sundays of work a month an approximate 20% boost to base pay.
• So far, the company has not announced plans to raise salaries to compensate employees for lost overtime.
• Former employees say that there are not enough toilets, but no timers.

It’s not just big tech: Overtime is common across the Chinese economy. Official data suggests that the average “information technology and software” worker actually works fewer hours than the average overworked Chinese employee.

• Overtime culture is rooted in the extreme competition faced by skilled labour: if employees are not willing to work overtime, someone else will be. As conservatives say online: “Better 996 than 007.”
• Most Chinese companies do not compensate for overtime.
• Average Chinese working hours are high on a global scale, at 46.8 hours per week, compared to 38.7 in the US.
• According to the China Labour Statistical Yearbook, workers in “information technology and software” do an average of 44.2 hours per week.
• About 15% of workers in the sector report doing more than 48 hours per week.

Are people turning on overtime?

Tune in, turn on, lie down: Former factory worker Luo Huazhong became a celebrity after quitting his job to “chill out.” He wrote a viral blog post about cutting back on consumption to escape work, what he called tangping—“lying down.”

• The principle behind tangping is to get by living frugally and working a minimum amount, rejecting ambition and consumerism. 
• In 2019, the term went mainstream, alongside a Github-based protest against “996” schedules called “996.ICU.” Of course, it was rapidly commercialized by T-shirt manufacturers and other slogan-peddlers.
• Many believe that only those who have rich parents can afford to “lay flat.” A source told TechNode: “they quit their jobs, and go lie in their parents’ Beijing apartments.”
• State broadcaster CCTV published an article attacking the trend (in Chinese). Since then, all products using the slogan have been taken down from e-commerce platforms.
• But other state media have lined up against overwork. People’s Daily-owned glossy magazine Renwu (literally, People Magazine) has been on a tech crusade for much of last year. In addition to the toilet article, other critical coverage included a viral investigation into the pressures on delivery drivers.

More people want jobs—just better ones: While few people have walked away from the workforce entirely, more seem to be looking for work/life balance.

• Eric Tarchoune, founder and CEO of Dragonfly Group, an HR recruiting agency for MNCs in China, says candidates are turning to multinationals because they are tired of “996.” The trend is strongest among workers in their 30s, he says.
• Yet, MNCs competing in the tech industry with Chinese champions, such as Tencent and Alibaba, still struggle: they cannot offer the pay and bonuses, shares, or even the national pride of working for a Chinese champion. Instead, they offer more training and a work-life balance.
• Priscilla Zi, CEO and HR Manager of Chengdu-based education gaming startup Bosijie, has been increasing her team size recently. After noticing increased efficiency when her team rested on the weekend, the startup has a strict “weekends off” policy. Most of her recent interviewees cited leaving the “996” work schedule as a reason for changing jobs.

Some workers agree:

• A young worker surnamed Huang, for example, said he chose an offer from French company Haulotte, rather than a Chinese tech firm, primarily because of the work-life balance offered by the former. 
• Many of Huang’s colleagues across different seniority levels also chose Haulotte for the same reason: in this company even if you frequently work overtime, you are paid for the extra hours.

There’s evidence overtime doesn’t work: A Harvard Business Review article by Sarah Green Carmichael outlines evidence that extreme overtime is counter-productive for companies.

• Output is not necessarily higher—a study by John Pencavel demonstrates that the productivity of work hours beyond 50 hours per week is significantly reduced.
• Stress-induced health problems boost insurance costs. This may be less relevant in China, where there is a social insurance package
• Pressure negatively affects interpersonal communication, making judgements, and keeping sight of the bigger picture.
• The unsustainability of the “996” model is shown by the short time employees spend at these internet companies. At Bytedance, the average tenure is one year, while at Alibaba or Tencent, it is only slightly longer at two to three years. 

Don’t count 996 out yet

Plenty of young people are still applying for jobs at the majors. They still offer workers powerful incentives: prestige, advancement, and high pay.

• Typical entry level salaries of Chinese internet companies range from 300k to 400k a year, with the equivalent of 3-month-salary as a bonus (in Chinese).
• This compares to an average yearly salary of just over 200k for graduates at elite Tsinghua University, the university with the highest average in China (in Chinese). 
• An internal survey conducted by ByteDance showed that a third of employees preferred to keep working Sundays in return for higher pay, according to Chinese media reports.

Abolishing big/small weeks won’t reduce pressure to produce. There are broadly two types of overtime: the first, due to large amounts of work; the second, requirements to be in the office on standby, either for show or in case your boss may need you. Eliminating Sunday attendance rules may reduce the latter type, but not the former.

• For many jobs in China—particularly at entry level, overtime work is a given. At least the internet giants admit, compensate, and recognise it.
• Some also view “996” as a necessary stepping stone in their careers: work hard for some time at a big name, before moving on to a more relaxed job. 

READ MORE: Insights | Why ‘996’ just won’t go away · TechNode

And bosses love 996: Alibaba founder Jack Ma, JD’s Richard Liu, and Pinduoduo’s Colin Huang have all endorsed the intense work schedules, and big China tech companies show a track record of being willing to ignore public pressure. 

It may take state pressure to change: Public pressure or not, tech bosses respect their regulators. This could be coming: the wave of working hour reforms has fed rumors that Chinese regulators have decided to take action on overwork, and Siemens’ fine in Shanghai could be a leading indicator. 

In the past year, Chinese regulators have been on a roll of populist crackdowns on big tech, over issues ranging from privacy, to e-commerce monopolies, to high-interest loans. An effort to win workers’ more balanced lives would fit right in.

A photo essay documents Chinese crypto miners bidding farewell to mining farms after a regulatory shutdown. Smartphone maker Meitu lost $17.3 million in bitcoin investment but gained $14.7 in ethereum investment. Hainan’s government hopes to build a supply chain for the blockchain industry. 

Crypto miners lament the end of an era 

• Chinese crypto miners have bid emotional farewells to mining farms after authorities ordered mining companies to shut some farms and cut electricity to others. In a recent Caixin photo essay, a miner in his 30s said at a farewell dinner in June that the recent moves marked the “end of an era,” and lamented the loss of his job. In May, as a Tibetan woman in China southeastern Sichuan province unloaded mining machines shipped from Xinjiang, a major mining hub that was ordered to shut down, a Chinese photographer from Caixin documented the moment, saying that “the cords collected in her hands looked like a bouquet.” (Caixin, in Chinese)

• Crypto miners in China are selling used graphic processing units (GPUs) on resale markets following China’s bitcoin mining crackdown. The GPU can be used to mine Ethereum. Although Chinese authorities focused mainly on bitcoin miners, the crackdown was broad and affected miners of other cryptocurrencies. (The Block)

Meitu loses money on bitcoin bet

Smartphone and app maker Meitu said it had lost $17.3 million in bitcoin investment due to recent price slump. On the other hand, Meitu gained $14.7 million in ethereum investment. Before the price drop, the firm’s cryptocurrency assets (bitcoin and ethereum) were worth a total of $97.4 million. Meitu invested in crypto to reduce risk from holding cash and embrace technological innovation, according to the company. (Cointelegraph)

Chinese central bank official on stablecoins

Vice President of the Chinese central bank Fan Yifei said bitcoin and stablecoins have become a tool for speculation. “They pose a threat to financial security and social stability,” Fan said at a regular press meeting of the State Council, China’s cabinet. (China news, in Chinese)

Using blockchain technology

• Blockchain company Ok Group said it will work with police authorities in the eastern Chinese city of Nanjing to research using blockchain in anti-money laundering operations. The initiative will set up a research and development lab for on-chain data analysis, risk control, and talent training. (Coindesk)

• The government of the island province of Hainan aims to build a supply chain for the blockchain industry, according to the its five-year development plan on new technology released on July 7. The blockchain supply chain will be part of the larger governmental goal to bring RMB 400 billion ($61.8 billion) in revenue to its digital economy by 2025. (Hainan government, in Chinese)

Chinese game streaming platforms Huya and Douyu announced on Monday that they would terminate a merger agreement after antitrust regulators blocked the deal on Saturday. The decision dealt a new blow to Tencent, leader of the merger.

Why it matters: This is the first time Chinese regulators have blocked a merger in the tech sector for antitrust reasons. In other recent cases, Chinese regulators have fined companies retroactively up to RMB 500,000 (around $77,318) over unreported merger and acquisition deals. However, companies have been able to keep these closed deals. 

Details: Huya and Douyu announced Monday they would terminate the merger agreement. Both companies said they “fully respect” and would “abide by” the decision made by the Chinese State Administration of Market Regulation (SAMR). 

• SAMR said the Huya-Douyu merger would “further strengthen Tencent’s dominance in the game streaming market” and empower the company to “restrict and exclude competition,” in a Saturday statement (in Chinese). 
• Tencent, a social media giant and the largest video game company in China, owns a 37% stake in Huya and 38% in Douyu.
• Huya and Douyu account for the majority of China’s game streaming market. Huya has 40% market share and Douyu 30%, said the SAMR statement. “If Huya and Douyu merge, Tencent will solely control the merged entity,” it added.
• SAMR rejected a Tencent proposal to add restrictive conditions to the merger deal, saying the plan “cannot effectively address the competition concerns mentioned above.”
• Tencent said in a Sunday statement that it would “abide by the decision, comply with regulatory requirements, and fulfill its social responsibilities.”

Context: Tencent, Huya, and Douyu announced the merger plans in August 2020, and filed for antitrust review in November.

• Chinese antitrust regulators started to tighten the scrutiny on tech companies’ merger and acquisition deals last November. It fined a batch of companies, including Tencent and Alibaba, RMB 500,000 for failing to report M&A deals. 
• Anti-Monopoly Law in China requires companies to report investment or merger and acquisition deals that could create a single company that holds more than half of its relevant market.

READ MORE: The Chinese gaming startup outperforming Tencent overseas

Proposed revisions to China’s cybersecurity review process would require companies that control data of more than 1 million users to seek permission from regulators before filing for IPOs overseas. China’s cyberspace authority proposed a series of revisions to the cybersecurity review rules Saturday.

Why it matters: The proposal came a week after regulators launched a cybersecurity review on ride-hailing giant Didi. The changes proposed align with a recent decision from senior Party and government bodies to increase scrutiny on companies seeking overseas listing. 

• The revision “would make it very difficult or even impossible for Chinese internet firms to get listed in foreign exchanges,” Henry Gao, a law professor at Singapore Management University, told TechNode. “Many of them would probably choose Hong Kong or domestic listing due to the tedious regulatory approval process,” he added.

Details: The CAC proposed to revise the Measures for Cybersecurity Review, a regulation that came into effect in June 2020, adding a new article on overseas IPOs. One key purpose for overseas IPO reviews is to control the risk of companies exporting “core” and “important” data, or being “influenced, controlled, or abused” by foreign governments during the listing process, according to the draft provision (in Chinese). 

• The revision added China Securities Regulatory Commission, the securities industry regulator, to a list of 14 government agencies tasked to set up the cybersecurity review mechanism.
• The revision also extended the period for special security review from 45 working days to three months or longer. 
• The proposed mandatory overseas IPO reviews do not apply to IPOs in Hong Kong. Hong Kong is a popular destination for Chinese tech companies to raise funds, alongside the US. 
• Henry Gao said under these new regulatory changes, tech companies should prioritize “potential cyber security risks, especially those relating to the cross-border transfer of data, and make sure that there are regulatory approvals well in advance of major decisions.”
• The CAC is seeking public comments on the draft revision until July 25.

Context: The proposal came four days after the Chinese Communist Party and government officials issued a guiding opinion (in Chinese) asking regulators to heighten scrutiny on Chinese companies listing overseas.

• Most, if not all, Chinese tech companies seeking overseas IPOs reach the 1 million user threshold. Recently listed Didi has about 156 million monthly active users, while Daojia, a lesser-known home service platform that filed for a US IPO in July, has more than 16 million (in Chinese) registered users. At the end of 2020, China had 989 million internet users, according to the government body China Internet Network Information Center (in Chinese).
• Former US President Donald Trump in December signed into law the Holding Foreign Companies Accountable Act, banning companies from trading on US exchanges if they don’t allow US accounting regulators to review and audit documents for three consecutive years.

The Shenzhen government issued the most detailed data regulation on data in China yet. The regulation laid the groundwork for future national and regional data legislation, experts said. 

Passed on June 29 by top legislators in Shenzhen, the regulation bans several common data practices seen as invasive or unfair, and will push the government to make public data available for free. The regulation also addresses ownership of data, an important gap in Chinese law. 

“It affects every possible interested party about data, from data user, to data processor, to market operator, government, court, and so on,” said Devin Song, a partner at Fieldfisher law firm in Beijing.

Since the 1980s, the Shenzhen special economic zone has served as a testbed for national policies—starting with allowing private enterprise. “Shenzhen is being used as a trial are for experimental regulation, which makes sense because Shenzhen is a hotbed of innovation and is China’s silicon valley,” said Kendra Schaefer, head of tech policy research at strategic advisory Trivium China.

Why it matters: China is writing a rulebook for data that will shape the tech industry and could be a model for governments worldwide. Shenzhen’s regulation is likely to set a pattern for other regions and national rules, experts said. 

China is passing a series of laws on data and privacy, including the Data Security Law passed in June and a forthcoming Personal Information Protection Law. Shenzhen’s regulation offers specific details about how these laws will be implemented for the first time.

Details: The Standing Committee of the Shenzhen Municipal People’s Congress published the Data Regulation of Shenzhen Special Economic Zone on Tuesday. They will be effective in the city from Jan. 1, 2022. 

Limit data collection: The rules ban apps from requiring users to sign data agreements to access “core services,” and from requiring face recognition or other biometric data. Devin Song pointed out the regulation also prohibits apps from profiling users under the age of 14 in order to serve them targeted ads.

Most apps will need to rewrite privacy policies, and many will need to be redesigned to offer less invasive options, said Calvin Peng, a senior partner at Jincheng Tongda & Neal law firm. 

Chinese apps frequently make broad demands for personal information, and in China’s ultra-connected cities, it can be hard to say no. Many restaurants require users to provide name and contact information before using WeChat mini-apps to order food. One TechNode reporter was recently asked for his “name, telephone number, and gender information” in order to use a tap to wash sand off his feet at a beach. (He consented.)

The age limit “challenges the business models of many popular applications, including short-video app Douyin,” wrote Carolyn Law, China analyst at Control Risks, in an analysis of the regulation. But “it’s unclear what the practical impact is on these companies as this is only a local-level regulation,” she added.

Opening ‘public data’: The regulation also addresses data collected by the state, requiring the government to make its data available to the public for free by default. The regulation defines a category of “public data,” and states that this data will be “shared by default, with non-sharing as an exception,” describing a system in which data from different government platforms is compiled in a single public database. The regulation also prohibits the government from charging fees to access data.

Schaefer told TechNode that data openness has been encouraged by national policy documents, but this may be the first example of a regulation spelling out requirements.

Data ownership: Another “massive deal,” Schaefer said, is the creation of a new category of “public data,” owned by the state. Since a decision last year to recognize data as a “new factor of production,” the Chinese government has sought to develop markets around it. But these have been hampered by confusion over what it means to own data. 

In an interpretation attached to the regulation, the legal committee of Shenzhen’s legislature wrote that “It is difficult to clearly create a new type of ownership rights through local regulations,” but “There is a general consensus that data products and services enjoy property rights. The regulation took the lead in exploring the scope and types of data rights.”

The regulation defines this new category of public data as “data generated by public agencies when providing public services.”

READ MORE: The loophole in China’s privacy regime: anonymization

What’s next? Shenzhen’s approach to regulating data will likely shape the national environment, as other regional governments and Beijing write their own rules. Peng told TechNode that Shanghai will likely be next to publish a data regulation, and that Guizhou province and Anhui province could follow.

Chinese firms, especially those dealing with data, may have to submit every overseas IPO to regulators for a data security review, experts told TechNode. 

China’s top leaders called for increased supervision of data during international IPOs on Tuesday, days after ride-hailing giant Didi Chuxing and two other recently US-listed firms were banned from registering new users during a “cybersecurity review.”

Senior party and government officials issued a directive (in Chinese) on Tuesday night, calling for an increased crackdown on “illegal securities activities.” The directive was jointly issued by the General Office of the Central Committee, the administrative branch for the party’s top leading groups, and the General Office of the State Council, the Chinese cabinet. 

The document appears to confirm that Beijing is worried about data security during the overseas IPOs process. Taken together with the Data Security Law passed on June 10, these new documents provide clues that data may be a key factor in the decision to launch an investigation on Didi. 

Three newly US-listed firms have been blocked from registering new users since Friday by China’s data watchdog, the Cyberspace Administration of China. The CAC has cited concerns about data and national security and the collection and handling of personal private information, but has not published specific reasons.

READ MORE: How did Didi get in trouble with data regulators?

One of the document’s sections focus on overseas listings. Article 19 directs regulators to “improve relevant laws and regulations on data security, cross-border data flow, and confidential information management.” Article 20 asks regulators to increase scrutiny on Chinese companies listing overseas, which refers to China concepts stocks, and “clarify regulatory responsibilities in China and strengthen cross-department cooperation.”

‘Data practices that used to be legal might become illegal’

Zhu Bao, a Beijing-based attorney specializing in corporate compliance, said the directive’s focus on tightening data management is new and signals a shift in priorities. 

“I don’t think this prohibits all Chinese companies from going public overseas. It signals that internet companies, especially those dealing with data and seeking an overseas listing, will face much stricter regulation and approval processes,” Zhu said. 

“Certain data practices that used to be legal might become illegal now,” Zhu added. He said companies that collect users’ information should consider seeking legal advice and review their data servers to make sure they are compliant with the directive. 

Yang Zhaoquan, director of Beijing Vlaw Law Firm, told TechNode that “data could be leaked during the review and auditing procedures in a IPO process.” 

“In the age of big data, internet companies can collect massive amounts of sensitive data, including citizen’s personal information, state agency data, and operation data of other companies,” Yang added. 

More than Didi

Chen Long, a partner at Plenum, an independent research firm on Chinese politics and economy, told TechNode that the documents clearly relate to Didi’s investigation, but reflect concerns broader than this case. 

Apart from data security issues, the directive also asks to increase punishment for accounting fraud cases like Luckin Coffee’s 2020 fraud scandal, Chen said. “The directive is a culmination of the past year’s events and providing clarity on regulatory responsibility,” he added. 

The directive didn’t specify a government body to take charge of the data review. Chen said China needs to clarify which government body should be responsible for reviewing Chinese companies filing for overseas IPO. Currently, it’s a gray area, he added. 

Chen expects the Chinese government will task the China Securities Regulatory Commission (CSRC) and the Cyberspace Administration of China (CAC) to review the data of companies seeking overseas IPOs. 

Bloomberg reported in May that China is considering rules that would require firms to seek formal approval before listing in overseas markets. 

Zhu said he expects the CSRC will work with the Ministry of Public Security in the future to review these cases. He added it will probably take about six months for the government to finalize all the details and responsibilities. Still, tech and data companies seeking to list overseas should brace for a stricter review process from now on. 

Translation of directive excerpts

Article 19: Strengthen cross-border supervision cooperation. Improve relevant laws and regulations on data security, cross-border data flow, and confidential information management. Regulation needs to be revised to strengthen the confidentiality and file management related to the issuance and listing of securities overseas, and consolidate the main responsibility of information security of overseas listed companies. Strengthen the standardized management of cross-border information provision mechanisms and procedures. Adhere to the principle of law and reciprocity, and further deepen cross-border audit supervision cooperation. Explore effective ways and methods to strengthen international securities law enforcement cooperation, actively participate in global financial governance, and promote the establishment of law enforcement alliances to combat cross-border securities violations and crimes.

Article 20: Strengthen the supervision of China’s concept stocks. Effective measures will be taken to deal with risks and emergencies of Chinese concept stock companies, and push to set up relevant regulatory systems. Amend State Council’s special regulation on companies raising funds and listing overseasing. Clarify which domestic industry supervisors will be responsible and strengthen cross-departmental supervisory coordination.

Crypto miners are leaving China in the wake of government crackdowns on mining activities. Other countries might find it easier and more profitable to mine crypto as Chinese miners adjust in the transition period. Crypto exchange Binance was barred from operating in the UK and the company ceased its operation in Ontario, Canada. Founded in China, Binance quickly moved out of the country after China banned crypto trading in 2017.

Crypto miners migrate 

• Chinese crypto mining firm Canaan has moved some of its operations to Kazakhstan as the Chinese government asks crypto miners to close. The miner provider has started mining Bitcoin in Kazakhstan with its latest Avalon Miner units after setting up a service center in the country earlier this month. (Cointelegraph)
• As more miners close their operations in China due to an ongoing crackdown, crypto mining is becoming easier and more profitable for people outside of China. Bitcoin mining difficulty, a measure of how hard it is to mine bitcoin, could drop 20% in the next adjustment period. Mining difficulty adjusts every two weeks. Previously, difficulty fell by 16% and 5% on May 30 and June 14, respectively. (The Block)

Crypto exchanges woes 

• Crypto exchange Binance has been banned from operating in the UK by the country’s market regulators. The world’s biggest crypto trading platform had planned to launch a dedicated digital asset marketplace for the UK but failed to meet the country’s anti-money laundering standards. Binance was founded in China in 2017 but quickly moved out of the country after the government banned domestic crypto trading in September that year. (CNBC)
• Binance has ceased operation in the Canadian province of Ontario after it declined to register as a trading platform in the region. The company advised its Ontario customers to close their accounts by the end of this year as the region became a “restricted jurisdiction” for the company. Lori Stein, a partner with Bay Street law firm Osler, Hoskin & Harcourt LLP, told The Globe and Mail that Binance might have concluded the cost of compliance in Ontario wasn’t worth pursuing. (The Globe and Mail)
• On June 24, Chinese exchange OKCoin announced plans to close its Beijing company in response to China’s crackdown on over-the-counter crypto trading. The company’s founder, Star Xu, will take charge of the dissolution. The exchange moved its main operations overseas after the Chinese government first banned crypto trading in September 2017. (China Star Market, in Chinese)
• BTCChina, one of China’s first cryptocurrency exchanges, said on Thursday that it had “completely exited from bitcoin-related businesses” in response to China’s ongoing crackdown on crypto trading and mining. The company, founded in 2011, had already signaled an intent to move away from cryptocurrency trading in 2017 when China first banned crypto trading on domestic exchanges. Bitcoin miners in Xinjiang, Sichuan, and Inner Mongolia regions were ordered to cease operations earlier this month, despite previous agreements with local governments. (South China Morning Post)

NFTs from Alipay

Alibaba’s mobile payment app Alipay issued two styles of NFT (non-fungible token) artwork on June 23. Buyers can set the artwork as a background on the payment app. The artworks were inspired by ancient murals in Dunhuang, a site in Gansu province known for exquisite Buddhist paintings on cave walls. Alibaba’s blockchain branch AntChain issued the artworks through the Alipay app, each style limited to 8,000 pieces and priced at 10 Alipay points and RMB 10 apiece. Both sold out. Resale isn’t allowed, according to Alipay’s NFT rights disclosure page. (Sina Finance, in Chinese)

Chinese ride-hailing company Shouqi apologized on Monday for a safety incident in which a woman exited a moving car in an alleged attempt to escape her driver. Police found the driver violated the official regulation governing the taxi sector in the region, but his actions did not amount to a criminal offense, according to a Monday statement. 

Why it matters: The incident became the talk of the Chinese internet over the weekend, prompting a widespread backlash against the state-backed ride-hailer and spurring a discussion on women’s safety in China. 

• Ahead of the police report, Shouqi Limousine & Chauffeur (Shouqi Yueche) and the woman surnamed Gao released contradictory statements regarding the incident. Shouqi said the incident was caused by “miscommunication,” while the woman said she felt threatened by the driver. 

Details: Police in Hangzhou’s Fuyang district said the driver violated driver’s regulation in Hangzhou but he did not commit a criminal offense. The transportation department will determine the punishment for the driver and Shouqi. 

• Police said the driver violated regulations by changing routes twice without getting Gao’s permission. The police said both the driver and Gao called the police after the incident. 
• Police interviewed the driver and Gao, watched surveillance footage, and listened to recordings from the drive. Chinese ride-hailing companies regularly record rides for safety reasons. 
• Police said the driver and Gao had several short exchanges and the two parties disagreed about route changes. 
• Fuyang government officials set up a dedicated investigation team to look into the incident. The team includes members of the police and the transportation department, according to the police statement. 
• Shouqi promised to offer more communication training to drivers in a Monday statement (in Chinese), released hours after the police statement. 
• At the time of the publication, Gao has not made any new public statements. 
• The incident happened on June 12. The public first heard of it over the weekend. 

Context: Shouqi is the latest ride-hailing company to become embroiled in controversy over safety issues. Despite efforts made by ride-hailers and lawmakers, such as mandating ride recordings and adding call-police functions into their apps, the public is still sensitive to the issue. 

• In 2018, two women were murdered by their drivers during separate rides on China’s dominant ride-hailing platform Didi, forcing the company and other ride-hailers to suspend their carpooling services. When Didi resumed the service in November 2019, the company initially barred women from booking carpool rides after 8:00 p.m. for safety reasons. Didi quickly backtracked the decision and made carpool rides past 8:00 p.m. unavailable to all people after public outrage. 

Chinese ride-hailing company Shouqi is under fire for safety issues after a woman in Hangzhou claimed she injured herself by falling out of a moving car while attempting to escape a dangerous situation.

On June 12, a passenger surnamed Gao jumped or fell out of a moving taxi during a ride provided by Shouqi Limousine & Chauffeur (Shouqi Yueche) in the eastern city of Hangzhou.

Gao said she attempted to escape because she was afraid her driver was going to attack her. She suffered a bone fracture and multiple scrapes from the incident, according to her statement.

Gao and Shouqi have since released contradictory statements online regarding the incident, prompting wide debate online over what happened during the ride. 

Why it matters: The incident raises questions about the state-backed luxury ride-hailing company’s ability to provide a safe, premium ride. 

• Shouqi has presented itself as a safer, upmarket alternative to competitors like Didi, making its name by providing rides to high-level officials, such as employees of the State Secrets Protection Administration in Beijing. 

Shouqi’s statement: The ride-hailing company released a Weibo statement on Saturday (in Chinese), saying the incident was due to a “miscommunication.” 

• Shouqi apologized for the incident and said Gao jumped out due to misunderstanding with the driver, promising to cover Gao’s medical expenses. Shouqi said the driver called the police after Gao jumped out. 
• According to Shouqi’s account, police told the company that the incident was caused by poor communication between Gao and the driver, which led to Gao getting out of the car. The police have not issued a public statement.
• Shouqi added that the recording of the ride showed no arguments and minimal interaction between Gao and the driver.
• A Shouqi staff who asked not to be named told TechNode that the company is in the process of addressing the situation. 

Gao’s statement: A day later, Gao described the company’s statement as a “fabrication,” publishing her own account of the incident (in Chinese). Gao added that she didn’t have access to the recording, and Shouqi refused to share it with her. 

• Gao said the driver began “checking her out and trying to start a conversation with her” as soon as she entered the car. After the driver changed the routes twice without asking her for permission, she started to “panic,” she said. She then resorted to opening the door to force the driver to stop the car, according to her statment.
• As the driver continued to drive, Gao “fell out of the open car and rolled a couple of times on the ground … crying out for help hysterically,” said the statement. 
• Gao wrote that passersby, rather than the driver, called the police.
• She also wrote that she had not heard from the company about medical expenses.
• Gao did not reply to TechNode’s requests for comment. 

Context: Ride-hailing companies in China have long faced scrutiny over safety concerns, forcing market leader Didi to suspend a popular service in 2018 and introduce new safety features in a bid to regain trust.

• Founded in 2015, Shouqi is a premium ride-hailing company focused on affluent clients in government and large companies. Unlike Didi, which still operates at a loss, Shouqi said in a 2020 press release that it had turned a profit in July 2019 in Shenzhen and Shanghai. In April 2020, the company has reached profitability nationwide. 
• In 2018, ride-hailing giant Didi faced public outrage after two women were murdered by their drivers on separate occasions. One of the drivers was sentenced to death, while the other committed suicide after the crime. Following the incidents, Didi fired senior executives and suspended its carpooling service. 

The crypto mining world remains in suspense about the future of Sichuan-based crypto mines after a regulators’ meeting on June 2. Two sources who know meeting attendees and asked not to be named told TechNode that Sichuan regulators have asked crypto mining companies to make plans to exit the province after September.

Following talk of a crackdown on bitcoin mining from top-level government officials, Sichuan officials met to discuss the effect of crypto mining on electricity consumption. 

Regulators told crypto mining companies to make plans to move their operations elsewhere and not to add any more new rigs during this transition, two sources who know someone in the meeting told TechNode.

Industry insider Molly Mo first reported that the Sichuan meeting was positive towards the industry.

Local authorities don’t want any sudden shocks to the local economy, so they will allow miners to stay through the end of the rainy season, which usually lasts until the end of September, one source said. 

At the time of the publication, no official statements or regulations have come out of the meeting, which took place on June 2.  

Why it matters: The southwestern province is a major crypto mining hub, due to its abundance of cheap electricity from hydropower plants during the rainy season. A crackdown there would significantly disrupt global crypto mining operations. 

• Another major crypto mining hub, Inner Mongolia, proposed a set of eight measures on May 25 that will likely kill the province’s mining industry.

READ MORE: Crypto miners start move to North America as China vows crackdown

Details: No policies have been officially released since the meeting. It was “inconclusive,” reported Chinese blockchain news outlet PANews (in Chinese).

• Sichuan energy regulators called the meeting to gather information about how the region’s crypto mining industry affects electricity consumption and what would happen if they shut down the mining industry. The Block first reported the news on May 27.

Context: After the State Council’s Financial Stability committee discussed a crackdown on Bitcoin mining at a meeting on May 21, the global crypto community has been anxiously waiting for a decision from Sichuan provincial officials. The State Council is China’s cabinet of ministers. 

• Bitcoin mining’s high energy consumption has reportedly caught the attention of Chinese regulators as they are ramping up sustainability efforts. Beijing wants the country to be carbon neutral by 2060, according to the latest Five Year Plan.  
• Beijing authorities also see crypto trading as speculative investment that has become popular with mom-and-pop investors, bringing financial risk to the economy. 

READ MORE: INSIGHTS | A turning point for China crypto?

This story has been updated with more information.

In 1965, American engineer Gordon Moore predicted that the number of transistors on a microchip doubles approximately every two years. This rule of thumb has largely held, and defined the state of the art of computer technology for decades. But as increasingly microscopic transistors run into fundamental physical difficulties and increasing costs, people have started to talk about a “post-Moore” industry.

For the semiconductor world, this is a huge challenge. But senior Chinese officials see opportunities. 

Moore’s law has been a sore spot for China’s semiconductor industry. The country has plenty of good chip design and “packaging” companies. But as chips grow smaller, Chinese-owned chip fabrication plants are a consistent generation or two behind the cutting edge. 

Over the past month, the concept of the post-Moore era has been a major talking point, permeating the highest levels of China’s government and the chip industry.

“In the post-Moore era, we have a great room for innovation and catching up,” Wu Hanming, academician of the Chinese Academy of Engineering and a former vice president of Semiconductors Manufacturing International Corporation, told an industrial forum on May 12.

On May 14, a Chinese State Council technology commission led by Vice Premier Liu He discussed what it called “potential disruptive technologies in integrated circuits (IC)” in a post-Moore world, according to a statement (in Chinese) published on China’s central government website.

Beijing has bet on a wide range of technologies that it hopes will make the country a leader in some of the cutting-edge areas of semiconductors. But experts say it is an open question whether Moore’s Law is really coming to an end soon, and whether China will have any advantages in a post-Moore world.

Is Moore’s Law really ending?

Quantum limits or no, components are still getting smaller. The size of transistors in microchips has dropped as the law predicts—the most advanced chips mass-produced by TSMC now have minimum feature sizes of 5 nanometers. On May 6, American tech company IBM said it is developing 2-nanometer chip technology which would fit “up to 50 billion transistors on a chip the size of a fingernail.”

However, the process of cramming more transistors into chips is facing physical roadblocks. One of the most critical problems is electrical leakage, which makes chips less energy-efficient and generates more heat as transistors get smaller than 10 nanometers.

There are also economic limits. New processor technologies often require new machinery, and the price increases as the transistors get smaller. 

The cost of setting up a 3-nm chip production line is around $31.4 billion, which is more than twice that of a 5-nm chip production line and four times of a 14-nm one, according to a report (in Chinese) by brokerage Kaiyuan Securities.

Moore’s Law “is coming to an end for industries that do not have the necessary volumes to be able to afford the skyrocketing costs of cutting-edge chip design and manufacturing,” Jan-Peter Kleinhans, a global semiconductor value chain expert at Berlin-based Stiftung Neue Verantwortung (SNV), told TechNode.

The cost of developing a cutting-edge 5-nm chipset is “only economically viable in markets with high volumes, such as consumer electronics,” he said. 

Kleinhans expects the trajectory of scaling the number of transistors may continue for another 10 years. “But most companies will not be able to afford it if they don’t have the necessary high volumes,” he added.

What’s beyond Moore?

In the post-Moore world, semiconductor industry experts have discussed three potential routes that industry insiders call “more Moore,”  “beyond silicon,” and “more than Moore.”

More Moore suggests that the shrinking predicted Moore’s Law will continue, just slower, with fab advances continuing to drive the industry.

“Beyond silicon” seeks breakthroughs to continue the Moore’s Law trend, looking at non-silicon materials such as gallium nitride (GaN) and silicon carbide (SiC). A shift from silicon might be crucial for the chip-making industry so it can build smaller devices, Intel’s former director of technology strategy, Paolo Gargini, said back in 2006.

“With innovations on the material level, these compound semiconductors can be significantly more performant and efficient than purely Silicon-based chips—especially for power and radio frequency semiconductors,” said Kleinhans.

Finally, the “more than Moore” approach focuses on increasing the computing power of microchips by improving chip design and the performance of software running on the system.

“Chip design is increasingly important to develop application-specific processors such as artificial intelligence accelerators that are significantly more power-efficient than general-purpose processors for machine learning tasks,” said Kleinhans.

Other possible breakthroughs in a post-Moore world include novel ways to make chips at current sizes, such as stacked ICs, which stack silicon wafers so that they behave as a single device to improve performance. 

What is China doing?

China’s showiest post-Moore plan is quantum computing technology, which seeks to harness the principles of quantum mechanics to supercharge processing power. Quantum computers are made of quantum circuits that run quantum bits, or qubits, which are similar to the bits in traditional silicon-based wafers.

In October 2020, China’s top leaders held a “study session” exploring quantum technology, during which Chinese President Xi Jinping said that “developing quantum science and technology is of great scientific and strategic significance.” China is about as close to widespread use of this technology as other major countries: not close.

The government is also supporting research into closer-range technologies, such as new materials and design techniques. On Jan. 28, the National Natural Science Foundation of China, an affiliate of the State Council, published a list (in Chinese) of technologies that it would fund in the “post-Moore Era.” They include new semiconductor materials, new design techniques and architectures, and high-density stacking IC packaging.

The funding project aims to “develop revolutionary basic devices, integration methods and computing architectures … and enhance China’s independent innovation capability and international status in the semiconductor field,” the foundation said.

Is post-Moore a ‘fresh start’?

Commentators regularly predict that China’s semiconductor industry will get a “fresh start” as Moore’s Law comes to an end. 

“The Post-Moore Era is a great opportunity for China to outdo the world’s cutting edge in semiconductors,” Kaiyuan Securities analyst Liu Xiang wrote in an investment note.

China can focus on what is beyond the current trajectory of semiconductor development, rather than play catch-up in current tracks of technology, Stewart Randall, Head of Electronics and Embedded Software at consultancy Intralink, told TechNode.

Randall agrees there will be a “fresh start” in a post-Moore world, and “everyone is starting from the same start line.”

But “I don’t think there is any specific area China has an advantage,” he said.

Peng Lianmao, an academician of the Chinese Academy of Science, told Chinese media in April that China could “overtake on a bend” by developing carbon-based semiconductor materials.

Peng said that China had “basically solved challenges faced by carbon-based integrated circuits” and commanded “a full set of carbon-based IC manufacturing technologies.”

Peng, who is also a director of Peking University’s Institute of Microelectronics, led a team studying carbon-based semiconductor materials, Chinese media reported in 2020. He said then that his team was developing a 90-nm carbon-based chipset that will have the equivalent capability of a 28-nm silicon-based chipset.

But Kleinhans of SNV doesn’t reckon that it would be easier for China to make more advanced chips, because “it needs even more collaboration across the three production steps: design, fabrication, and packaging.”

“It’s all about path-dependencies, so no one has a ‘fresh start,’” he said. “‘Post-Moore simply means that all other process steps besides fabrication have to step up their game to increase the performance and efficiency of chips. The slow-down of Moore’s Law is not a silver bullet to leap-frog to the top.”

Tencent-backed edtech company Yuanfudao attempted to withdraw or defer job offers to more than 2,000 new university graduates as regulators barred a key service. It is the latest Chinese online tutor to move to downsize operations in response to increased regulatory scrutiny.

Why it matters: Beijing is stepping up its scrutiny on the country’s online education sector, which boasts eight of the fifteen edtech unicorns as of early 2020.

• A new revision in China’s Minors Protection Law, which took effect on June 1, bans kindergarten and private tutoring institutions from teaching elementary-school courses to pre-school students. 
• The law affects most major Chinese edtech giants, such as Yuanfudao, Zuoyebang, GSX Techedu, Vipkid, and ByteDance, which also has a major presence in online education.
• Investment sentiment, both from venture capitalists and individual investors, could turn cold on the sector due to uncertainties brought by regulation, putting an end to capital enthusiasm triggered by online tutoring after the pandemic.

Details: Yuanfudao, the Chinese unicorn valued at $15.5 billion, withdrew or delayed job offers to new hires, most of them were fresh graduates, in pre-school tutoring, local media Phoenix Weekly’s business section reported on Monday.

• Zhang Yun (pseudonym), a university graduate, told Phoenix Weekly’s business section that Yuanfudao asked her to choose to either defer the offer till September or lose it right away. She had given up other options to accept the offer. Zhang said she had already rented a place in a new city to prepare for job. Other Chinese media outlets have reported similar cases. 
• A Yuanfudao spokesman told TechNode that the job offer change affected about 2,000 people, whose offers were either canceled or deferred. But the company has since set up a special unit to help graduates who face “real difficulties” in finances, such as those who have signed housing contracts or rejected other offers. He added that the company had also walked back some cancellations and allowed some new hires to start work as planned. 
• US-listed rival GSX Techedu reportedly trimmed a third of its headcount starting in late May as the company shut its pre-school education business for children aged between three to eight.

Context: Over the past few years, regulators have issued various rules on the online education sector to curb what they view as chaotic growth.

• Chinese regulators have imposed the maximum penalty on Zuoyebang and Yuanfudao in May, two of the country’s most valuable edtech startups, for unfair competition.
• Four major edtech platforms—TAL Education-backed Xueerxi, GSX Techedu, Koolearn Technology, and Gaosi Education—were fined for deceptive pricing practices in April.
• Since July 2019, Beijing has required all foreign teachers to hold valid teaching credentials and required companies to make public all related information, such as certificates and work experience details.

China’s crypto mining industry is facing the biggest regulatory threat of the last three years.

On May 21, China’s cabinet of ministers, the State Council, explicitly discussed cracking down on cryptocurrency mining. It was the first time the government body explicitly targeted the industry.

Just four days later, Inner Mongolia proposed a set of eight measures that will likely stifle crypto mining in the province.

The crypto world is waiting with bated breath for regional authorities in China’s other crypto mining hubs—Sichuan, Xinjiang, and Yunnan—to write rules.

Many crypto mining companies are already packing their bags, filling them with their most precious productive asset; mining rigs. Crypto exchanges and other crypto companies are holding out.

So is crypto in China over?

Bottom line: It’s too soon to say, but things are not going to be the same. Many crypto mining companies are already moving their rigs out of the country. Crypto exchanges and other crypto-linked companies are still holding out. But blockchain isn’t all crypto, and the wider ecosystem is still in good shape, perhaps the best shape it’s ever been in.

The status quo

A legal grey zone: Beijing has been suspicious of cryptocurrencies for a long time, but much crypto activity is tolerated. The Chinese government banned companies from issuing new tokens back in 2017. They also banned fiat to crypto conversion services, which led to the exchanges being kicked out of China, they stopped trading for Chinese mainland users, and moved their headquarters to other countries.

• This hasn’t stopped companies from issuing tokens, or exchanges from operating in China. At most, it has impeded China crypto people from shamelessly marketing tokens to Chinese consumers.
• It’s all about knowing how to navigate local laws and knowing the right people.
• But as many in the industry euphemistically say, “the trend is regulation.”

Vibrant community: China’s crypto industry may operate in a grey zone, but nobody is in hiding. Some parts of the industry are pretty swish, complete with fancy offices in central Beijing and lavish five-course dinners at private clubs. But the crypto industry is a lot more diverse than stereotypical tech.

• Some players are after a crypto-utopian dream, others are looking to line their pockets, some are simply ultra nerds, others old-school entrepreneurs. Of course, plenty of people are just there to earn a paycheck.
• The mining scene in particular is a great example of this. Many miners are (or were) down to earth people from the provinces, more comfortable in dialect than standard Mandarin.
• I’ve heard many in the industry describing Chongqing-born Wu Jihan, one of the founders of Bitmain, as a passionate genius who hates the spotlight. Wu reportedly hates interviews, and rarely speaks in public.
• This rag-to-riches spirit is true for other tech industries as well. But crypto is far newer—post-2008 and mostly post-2011—and a lot more centered around China, so the vibe is especially strong here.
• New hires in crypto companies increasingly herald from more affluent parts of China. Two internationally educated workers I know in their late 20s in Shanghai tell me they have a hard time understanding what their company is doing.
• Founders of many newer companies came from traditional finance. Former JP Morgan and Goldman Sachs traders, analysts, and executives, abound in crypto.

The crackdown

Change in tone: The China crypto scene has been facing increased regulatory pressure in the last year. By all accounts, there’s two motivations behind the talk at the highest levels of the Chinese government against mining: environmental and financial.

Why the crackdown? It’s one part green: In the last year, China has accelerated its move towards a greener future. In the 14th Five Year Plan, it pledged big reductions in carbon emissions.

• Unfortunately for China’s crypto industry, the type of mining Bitcoin network uses, known as proof-of-work, burns a lot of electricity. In regions like Inner Mongolia and Xinjiang, where electricity primarily comes from coal plants, mining is a big contributor to carbon emissions.
• It’s a little trickier to determine whether mining in other regions, like Sichuan and Yunnan, where electricity comes from hydropower plants, will suffer from the environmental guillotine.

One part financial stability: At the same time, finance authorities have their own beef with Bitcoin. The May 21 statement that got crypto peeps worried didn’t come from China’s environmental authorities. It came from the State Council’s Financial Stability Committee, which said that “it’s looking to control financial risk.”

• Regulators likely fear that Chinese retail investors,  en masse, are putting themselves at risk with bets on cryptocurrencies.
• If crypto markets were to crash, not only miners, but mom and pop investors would lose their money.
• Chinese regulators have a history of protecting retail investors with costly bailouts when things go wrong in the market.

Not everybody likes the bull market: State bodies and media have been bashing cryptocurrency “speculation” in the last few months, as the bull market was raging, even as some officials have recognized Bitcoin as an asset.

• Just on May 15, Xinhua republished the story of a certain “auntie Meng,” who lost her life’s savings (RMB 600,000, or about $94,000, according to the article), and a large bank loan she took out to invest in what turned out to be a Ponzi scheme. The article said that the “chaos” of the bull market is dangerous to ordinary investors.
• When a bull market sent Bitcoin soaring to $60,000, it attracted the interest of Chinese social media and retail investors. But in the last year, Chinese police have continued to uncover scams and heists related to crypto.

Crypto financial services: More than the miners, in the last year, we’ve seen crypto financial services providers have been targeted.

• Over-the-counter traders, which help people and especially miners quickly exchange fiat to crypto and vice versa, were the target of a crackdown starting in September 2020.
• Crypto exchanges also took some heat: Huobi COO Leon Li, disappeared in November 2020 as he was assisting police with an investigation.
• Such events and crackdowns are not unheard of in the crypto world. They are part of a cat and mouse game that has lasted for years.
• But it is entirely possible that such financial services providers will face increased pressure as the Financial Stability Committee tries to limit risks to auntie Meng.

Blockchain boom: Meanwhile, the non-crypto blockchain ecosystem has seen unprecedented support from the central and local governments. In 2019, the technology was endorsed by President Xi Jinping, and in 2021 the technology was mentioned by name in the national five year plan.

• The government-backed Blockchain Services Network is forging ahead with its plan to build a global “internet of blockchains.”
• Local governments started to throw money at blockchain in the last year. The city of Beijing announced plans to use blockchain in governance in July. In January 2021, Shanghai invested $5 million in Conflux, a blockchain startup.

What’s to come? Crypto mining firms will increasingly face pressure from authorities, following the State Council committee’s meeting. It is also likely that authorities will crack down on companies bringing crypto trading to Auntie Meng—piling onto their moves on crypto financial services from last year.

But the rest of China’s blockchain ecosystem will keep going. Authorities have shown tolerance and even support for companies working on fundamental blockchain technology, be it public or consortium chains. These same firms issue cryptocurrencies to keep their public chain protocols going. As long as they don’t encourage Auntie Meng to take on too much risk by investing in crypto, they will likely be fine.

I gave my youth to this city

Wang Haijia, male, 42 years old, from Hebei, delivery driver

I was delivering food on a rainy day. I was in such a rush that I rode through several red lights to make it on time. After the job, the app notified me I was tipped RMB 15 (around $2.30). On my way back, I felt warm despite the rain.

Before working as a delivery man, I did many different jobs. I dropped out of school to work at construction sites before I finished junior high. I was carrying bricks in the beginning, and worked as a bricklayer sometime later. It took me a few years to do more skilled work like installing supports for buildings.

Dangers await everywhere in this kind of job. I was removing supports when one of them suddenly fell off on my head. I was out cold. Hospitalized for over two months. The accident haunted me. I refused to work on construction sites ever again. My life outweighs the money I’d make.

I came to Beijing, first waiting tables. Then I worked as a safety guard. It was a boring job. I was standing for over 10 hours a day. Next was a Japanese noodle restaurant for a few years… I kept switching among different jobs until I returned home to get married years later.

After my son was born, I stayed home to be around my wife and kid. Back home, there’s little work outside the steel factory. And it’s hard work. I was on regular night shifts in a horrible work environment. The pay wasn’t even good.

I worked there for two years. Meanwhile, my brother-in-law was a delivery worker in Beijing. He suggested I join him. He said we can have flexible working hours and get paid better than the factory. That’s when I started my current job.

I leave my place around 8 or 9 a.m. every day, working until 10 p.m. I usually grab some quick food like jianbing from street vendors or eat at those food stands for take-out only. They usually give us a few kuai discount. I spend at least RMB 30 to 40 on food every day.

Our pay for each delivery depends on the distance. From what the customer and the restaurant pay for delivery, the platform takes a big cut. We might only get RMB 5 out of a RMB 15 job.

We also need to worry about fines. Arriving late is one of the most common fines. Sometimes we’re only a few hundred meters away from our destination, but it’s already the designated arrival time. If we confirm our arrival early out of desperation, the system’s GPS will know and trigger the fine. But if we don’t confirm, then we’re counted as being late, and we get fined anyway.

All sorts of things can deter us from completing a job on time. Sometimes the customer has given a wrong address or phone number, or the restaurant has relocated but the GPS navigated us to the old address. But no “excuse” is allowed, if we’re late, we get fined, even if we’re not to blame.

Also, when customers file a complaint against us via the platform, we get fines too. We could get fined RMB 50 for a serious complaint. A bad review on the platform costs us RMB 3, but if we get a five-star review, we get nothing as a reward. It’s cruel and unreasonable.

We’re sandwiched in the middle. The platform can take money from us and can fine us; the customers can be demanding and can file complaints against us; the restaurant can refuse an order and can be slow to provide food. We’re the ones with the least voice and the most restrictions.

Things were easier even just two years ago. There were more delivery service platforms. But now the industry is dominated by two major platforms who hold all the resources. No competition guarantees they can keep decreasing pay while shortening the time limits.

When things are good, I can get 40 or 50 jobs per day. But many days, I’m only able to get 20 or 30, which is less than RMB 200 for a day’s work.

When having a bad day, like when I get complaints from the customer, I feel so vexed and frustrated. I’ll ask myself why I’m still here doing this job. I’ll consider going back home.

But then a second thought would immediately wake me up: what could I do if I went back?

For people like me, our common dilemma is that where we call home, there are no jobs; but where there are jobs, it can never be home for us.

If we could choose, who would want to be far from family? It’s just we can find no way to earn a living back home.

My son is seven years old. He is about to attend primary school. I try to provide for him as best I can. I count every penny I spend here and only rent a place that costs me RMB 500 per month. That’s probably the cheapest place one can find in Beijing nowadays. There’s nothing but a bed in the room. I can only lie down when I walk in. I don’t have any luggage but several clothes that I keep in a bag and put under the bed. I take my bath at a nearby public bathhouse which costs me RMB 20 each time, and use the landlord’s hand-washing sink to brush my teeth every morning.

During the daytime, I’m too busy to think that much. But before going to sleep at night, all my life problems bubble up, unsettling my mind. I think about how I have parents to support and a son to raise. The family responsibilities on my shoulder are only getting heavier. I’m over 40 years old, but still good for nothing.

I came to Beijing in my early 20s. I devoted all my youth to this city. After so many years, the city has paid me next to nothing in return. There is nothing to my name. Except for the bed that I pay RMB 500 per month to secure, my hands are empty.

READ MORE: Food delivery: Drivers take the risks. Platforms reap the rewards.

Chinese regulators have imposed the maximum penalty on Zuoyebang and Yuanfudao, two of the country’s most valuable edtech startups, for unfair competition amid a broader crackdown on its biggest internet companies.

Why it matters: Beijing is expanding its scrutiny of tech firms to the online education sector following extensive fines on various segments from e-commerce to community group-buy platforms.

• The penalty comes on the heels of the fines levied on four major edtech platforms—TAL Education-backed Xueerxi, GSX Techedu, Koolearn Technology, and Gaosi Education—for deceptive pricing practices.

Details: The State Administration for Market Regulation (SAMR) said in a statement (in Chinese) on Monday that it had imposed RMB 2.5 million ($389,000) fines each on Zuoyebang and Yuanfudao. The regulator also issued regulatory warnings to the startups, two of China’s most valuable (in Chinese) online tutoring platforms.

• The investigation showed Zuoyebang fabricated information about its teachers’ work experience, falsified user reviews, and gave misleading details about its services in order to boost orders.
• The Alibaba-backed company fraudulently claimed on its website to be a partner of the United Nations, according to the notice.
• SAMR pointed out that both of the two companies falsely advertised discounted prices to boost orders.
• A Zuoyebang promotional campaign on its own app and official stores on Tmall and JD markets offered a discount of around 21% off of online courses priced up to RMB 3,280 (around $510). Yuanfudao also lured customers with special deals, such as offering RMB 399 package courses for RMB 9. Investigations showed that no transactions at these prices had ever been recorded.
• Zuoyebang confirmed news of the penalty with TechNode, and pledged full compliance with the order and rectification of improper marketing behavior and misleading pricing.
• A Yuanfudao spokeswoman said that the company had already started inspecting various channels and had removed all the improper marketing banners.

Context: Investors have rushed into the online education sector, which has seen a boost during the coronavirus pandemic.

• Yuanfudao, focused on the K-12 age group, raised over $3.5 billion in 2020 from investors including Tencent, DST Global, and Jack Ma-backed Yunfeng Capital.
• Rival Zuoyebang received a combined $2.35 billion funding last year from investors including Alibaba, Tiger Global Management, SoftBank Vision Fund, and Sequoia Capital China.

Editor’s note: The ‘Techlash Tracker’ stopped updating from November as tech crackdowns became recurring in China. The topic is now part of TechNode’s daily news coverage. 

Starting this week, TechNode is launching a new open resource. The “Techlash Tracker” is a database of major regulatory moves involving big tech in China, an open-source project to help make sense of a major trend defining China tech this year. 

The tracker is a regularly and openly available updated set of spreadsheets, built in Airtable, recording events. Click here to view. 

We invite anyone interested in China tech to use this resource for analysis, and to contribute to it.

Something is happening here, but we don’t know what it is

In China tech, the word of the year is “antitrust.” Alibaba was fined a record-breaking $2.8 billion for “forced exclusivity” and other anti-competitive practices, while Meituan faces a probe by market regulators over the same practices. Tencent, Didi, and Baidu—to name only a few—have been fined lesser amounts for failing to submit M&A deals for review.

Or is it “de-risking”? The IPO of fintech pioneer Ant Group, slated to be the world’s largest, was abruptly axed late last year as regulators prepared a series of changes to its operations. JD Digits, a competitor, withdrew its IPO application voluntarily in the wake of the fiasco. This week, 11 other tech majors were summoned to Beijing to discuss changes to their fintech operations.

Some say it’s all about data. Beijing has moved in the past year to recognize the strategic importance of this resource, which it has called ”the new oil,” and hopes to prevent tech companies using walled gardens to monopolize access to it.

Related to data, the list continues: consumer rights, privacy, cybersecurity.

We can see the trend: Big tech is being regulated as never before. At TechNode, we’re seeing a big trend, and we’ve been wondering how to understand it—and what to call it.

It’s tempting to see it as the local vector of a so-called global “techlash” that embraces everything from the EU’s General Data Protection Regulation (GDPR) to US Senator Elizabeth Warren.

Or maybe it’s just “Jacklash”: both Alibaba and Ant were founded by Jack Ma, a flamboyant billionaire who annoyed regulators when he dismissed banking authorities as “old men” in a speech last year, and some commentators have interpreted many recent moves as personal attacks on him. But then, how to explain the broadening scope of the investigations?

Just make a list

When we don’t know where to start with a topic, we often approach it by just making a list. In our new “Techlash Tracker,” we aim to make a database of key events in big tech regulation. We plan to include enforcement actions, fines, and announcements of new laws and regulations. We will track private antitrust lawsuits in another sheet.

We’ve chosen an intentionally vague name, “techlash,” rather than “antitrust” or “crackdown,” to indicate uncertainty about an interpretation. 

The tracker is intended as a living document: we aim to update the list at least once a week with new events, if applicable. We’ll also continue to dig through our archives to add more previous events, and plan to create some visualizations to help understand the material as the list grows.

The material here is also a bit raw. Expect to see it in more digestible forms in our reporting in the coming months as well as, we hope, in the work of our friends and colleagues.

An open resource

The Techlash Tracker is an open resource. In addition to making it free to use, we invite other analysts to use the data we’ve collected (but please do credit us if so). We’re also counting on our readers to help us catch events. Click here to submit more events for the tracker if you see something we’ve missed.

Thanks for your support, and we hope you’ll find the tracker useful!

Your techno-friends,

The TechNode team

Tesla on late Thursday announced (in Chinese) that, earlier in the day, it had mailed to a customer surnamed Zhang the full data logs for the 30 minutes prior to the accident involving her Model 3 sedan. The company also released to the public data of the car for one minute prior to the crash.

In a statement sent to state-owned media China Market Regulation News, Tesla said the vehicle was traveling at 118.5 kilometers per hour (around 73.6 mph) when the driver, Zhang’s father, hit the brake for the final time before the crash. Then the car’s automatic emergency braking system reacted 2.7 seconds later and the crash occurred after another 1.8 seconds.

The US automaker insisted that the car’s brake functioned properly throughout with the car continuously slowing down to 48.5 kms per hour before the crash occurred. The company said that it is currently in negotiation with the owner to set up an inspection of the car by a third-party institution. Tesla pledged to fully cooperate with regulatory departments for more in-depth investigations and accept without reservation criticisms from the public.

Zhang in early March told Chinese media that her Model 3 crashed one late afternoon in February when her father was driving at a speed of around 60 kms per hour on a highway in Anyang, a city in central Henan province. Zhang insisted her father was driving under the speed limit, given that her mother and one-year-old daughter were also in the car and that the road was dense with traffic. She said that the brake failed to respond when her father pressed the pedal.

Tesla’s release comes two days after Chinese authorities asked Tesla to provide data for the crash investigation. On Monday, Zhang had climbed atop a car to protest at China’s premier annual auto exhibition.

Why it matters: For the first time China will officially investigate complaints about Tesla brake failures. Tesla owners in both the United States and China have complained about faulty brakes for years. So far, however, safety regulators have not found evidence for these claims. The company’s reputation in China has suffered in the past year as customers allege safety defects and shady sales practices.

READ MORE: Safety questions and shady sales tactics are chilling the China-Tesla love affair

Details: A branch of the State Administration for Market Regulation (SAMR), China’s top market regulator, in the central province of Henan, on Wednesday ordered Tesla to share “the full range of data” about a crash two months ago to aid its investigation. The owner of the Tesla Model 3 involved, a woman identified only by the surname Zhang, staged a widely publicized protest at Auto Shanghai on Monday. Regulators told Tesla to send the data to the owner “as soon as possible,” according to a Chinese media report (our translation).

Ge Weihua, a customer service manager at Tesla’s regional office in Zhengzhou, the capital of Henan province, told state television channel CCTV on Thursday that the company’s head office had prepared the relevant data and the local office would share it with Zhang by 6 p.m. Beijing time.

Zhang, accompanied by two other female Tesla owners, staged a protest Monday on the opening day of this year’s Shanghai Auto Show, alleging that the brakes on her sedan malfunctioned while her father was driving in Anyang, Henan, in February, causing a crash with another vehicle. The protest was widely reported in Chinese media, with many online commentators siding with the customer.

Tesla responded later that day that the accident was due to excessive speed. Grace Tao, Tesla’s vice president of external affairs in China, told local media that “there is no possibility Tesla will compromise,” Reuters reported.

On Tuesday, national market regulators publicly instructed local market watchdogs in Henan province and Shanghai, where Tesla’s production facility is located, to protect consumers’ legal rights. Later the same day, the company issued an apology (in Chinese) for being slow to respond to the complaint.

In an additional statement, published late Wednesday on the Chinese social media platform Weibo, the US automaker requested Zhengzhou authorities appoint an officially recognized testing agency for the investigation and pledged to “accept the result whatever it might be” (our translation).

Update: Details added April 23 about Tesla’s release of crash data.

Two weeks after a crackdown on imported console gaming products, it’s still easy to buy them in China. Games remain widely available in offline stores and online, and prices have returned to normal after a brief spike.

The tight supply led to an increase in prices across other online stores, but this was short lived, according to Daniel Ahmad, a senior analyst at Niko Partners, a firm that monitors China’s gaming market. 

Prices for imported consoles and individual games have returned to pre-crackdown levels, which are slightly above international ones, TechNode has found on Taobao. The analyst said that on other online retail platforms such as JD.com, there wasn’t much of an impact.

Physical stores that TechNode visited in Shanghai in the last week seemed unaffected by the crackdown on console gaming. They were still advertising imported consoles and titles banned in China—including a US version of Animal Crossing, which was removed from Taobao last year, reportedly because of its use by protesters in Hong Kong. 

Some particular games are still very hard to find on Taobao. These include Nintendo’s Animal Crossing, and The Last of Us, an intensely violent two-part series developed for PlayStation. Special edition Animal Crossing Switch consoles are still widely available throughout the online marketplace, but don’t come with the game. 

Grey imports

China’s Anti-Smuggling Bureau said on April 2 that authorities in Guangdong had arrested 54 importers and seized RMB 78 million ($12 million) worth of Nintendo, PlayStation, and Xbox gaming consoles.

While such events are “not unusual,” this was the largest anti-smuggling operation in recent memory, Ahmad said. 

“It’s not really part of a wider, larger crakdown, but of course the government always reserves the right to do that, given the grey area,” Ahmad said.

Chinese console gamers usually have to wait several months before international hits are released domestically, if ever, due to stringent censorship of imported gaming titles. Some famous titles never get released domestically due to graphic violence or sexual content. 

This has created a small but active market for consoles and cartridges imported from nearby Hong Kong or Japan.

READ MORE:  INSIGHTS | No country for console gamers

Taobao ghost town 

In response to the crackdown, several shops on Taobao removed listings for the imported console gaming products. Some told customers they would not be delivering for a while. One of the biggest Taobao stores, called TGBus, told customers that deliveries would be halted temporarily because a water leak had damaged some of the goods and had led to power outage in its warehouse, Chinese media reported. 

The hashtag on social media site Weibo about Nintendo Switch being targeted has been seen over 150 million times, peaking at 136 million on March 31. That was when local media reported that popular Taobao stores selling imported consoles were down.   

The shop that had claimed water leak damage remained offline as of April 12, but its affiliates are still live on the e-commerce app. Another popular shop based in Shanghai merely told customers it couldn’t deliver due to “exceptional circumstances.” The shop remains live on Taobao, but is empty of listings.

Some of the shops that removed their listings or disappeared altogether from Taobao said they were directly supplied by the importers who had their products seized. Others were exercising an “abundance of caution. They felt like they may be indirectly implicated in some way if they were to keep these products up,” Ahmad said.

Even in the immediate aftermath of the crackdown, most shops didn’t disappear from Taobao, and the impact on other e-commerce apps was minuscule. Two weeks on, business is back to normal.

The Monster Hunter effect

The Hong Kong release of a new entry in a popular series might have have triggered the crackdown.

The week leading up to the crackdown, the first entry for Nintendo Switch of the long-running series Monster Hunter was released in Hong Kong. Monster Hunter: Rise was developed by Capcom, the Japanese studio behind the Resident Evil series.

The series has met massive success throughout East Asia, as has the Switch console.

Prior to 2014, when sales of console gaming products were completely banned in China, authorities would clamp down on imported products when there was a surge in interest: “If you hit a certain threshold, that would trigger a reaction,” Ahmad said. 

It is likely that “there would be a high number of imports” of Monster Hunter: Rise, which could have triggered a reaction,  Ahmad said. 

Three hashtags related to the Capcom game, #MonsterHunter, #MonsterHunterRise, and #MonsterHunterWorld, have been viewed at least 470 million times on Weibo. The hashtag numbers peaked in the runup to March 26, when Monster Hunter: Rise was released in Hong Kong. 

The Switch has been a big hit in China, driving growth in the mostly niche console market. Nintendo has delivered 1 million units of the console in China since it launched in December 2019, according to Tencent, which has partnered with the Japanese game developer to sell the Switch in China.

This is roughly double what Sony’s PlayStation and Microsoft’s Xbox sold in the same time period, according to data from Niko Partners. 

Catching up 

All major consoles are now sold legally in China in local versions, but few games are available for these outside the grey market. Eager to get their hands on a wider variety of releases, gamers turn to imported goods.

“We are now at a point where every major console manufacturer has launched a product in China,” and once something is released overseas, it will get an official release in China, albeit with a delay, the Niko Partners analyst said. 

Sony has announced plans to launch the PlayStation 5 in China in the second quarter of 2021. The console’s global release was in November 2020. 

For games, “there is still a very strict regulatory environment,” which means the approval process is “long” and “cumbersome,” Ahmad said. Officially, it takes three months, but in reality, it can take a year to get a game approved by China’s National Press and Publication Administration. Rather than wait, online and offline shops respond to strong demand with smuggled products. 

Ahmad points out that despite a recent increase in the speed of the licensing process, a “soft cap” on how many games can get approved means that there is no “material difference” in the number of games Chinese console owners can get their hands on. 

Globally, more than 3,000 titles are available on the Nintendo Switch console. As popular as the Switch has been, gamers in China can only choose from fewer than 20 titles, Ahmad said.

This might sound like a small number, but it’s a massive improvement. During the first three months of the Switch’s launch in China in December 2019, only one game was approved: Super Mario Bros U Deluxe. 

New titles have been slowly added to the list of approved games, notably Ring Fit Adventure in September 2020.

“This is why there is a big smuggled games market in the first place,” Ahmad said.

Correction: A previous version of this article incorrectly described Niko Partners as “London-based.” 

China’s months-long investigation of Alibaba for anti-competitive practices concluded on Saturday as the e-commerce heavyweight was slapped with a record RMB 18.2 billion ($2.8 billion) fine for violating the Anti-Monopoly Law for a variety practices, most importantly “forced exclusivity.”

The State Administration for Market Regulation (SAMR), China’s top market regulator, defined Alibaba’s dominant market position in a 24-page decision released on April 10. Alibaba’s annual revenue from e-commerce services accounted for more than 70% of the combined revenue from China’s top 10 e-retail platforms, while its overall turnover represents more than 60% of China’s online retail sales during 2015 to 2019, according to SAMR.

The regulator determined that Alibaba had been “abusing” its market dominance by imposing “forced exclusivity” on merchants, a practice in which platforms force merchants to sell their wares on only one company’s platform or services.

“It’s like the platform is collecting taxes from the merchants. There are cases when merchants are recording hundreds of millions of RMB but still can’t make money from their business. That’s unimaginable in the traditional industry,” Song added.

What impact will the penalty and the ban on forced exclusivity have on Alibaba? And what is forced exclusivity—the main violation authorities cited in their decision—and why was forced exclusivity so important that Alibaba kept going despite multiple warning signs?

Record-breaking penalty

The fine Alibaba received is the largest in the history of Chinese antitrust law, breaking a record set by a fine imposed on US chipmaker Qualcomm. In February 2015, Qualcomm agreed to pay a fine of $975 million to settle a 14-month investigation into its anti-competitive practices led by the National Development and Reform Commission of China.

The Alibaba fine is also the second-largest antitrust penalty worldwide for a single company, according to a research note by the law firm Dentons China. The largest fine in history remains the European Union’s EUR 4.34 billion (around $5.2 billion) fine on Google in 2018 for using its Android mobile operating system to illegally “cement its dominant position” in search.

While the RMB 18.2 billion penalty, 4% of the group’s 2019 revenue, is China’s largest for antitrust violations, the sum is small compared to Alibaba’s more than RMB 312 billion in cash and cash equivalents as of 2020. The 4% penalty is also well short of the maximum 10% permitted in the antitrust law.

Alibaba shares in Hong Kong and US both jumped on news of the conclusion of the investigation—regarded as a major source of uncertainty for the e-commerce platform—despite the fact that the penalty was double the rumored sum of $1 billion.

“Determination of the penalty means Alibaba’s antitrust case has come to an end. A series of negative events has dragged Alibaba’s market cap near to a historic low. As long as it is slightly favorable, the stock price will usher in a rebound,” Wang Shan, an analyst at Tiger Brokers, told TechNode (our translation).

Michael Norris, research and strategy manager of Agency China, said that immediate market response to the fine reflects “a belief the regulatory overhang over Alibaba will conclude shortly.”

“It’s highly arguable the regulatory uncertainty over anti-trust investigations has done more damage to Alibaba’s share price than the fine for ‘forced exclusivity’,” he added.

The record-breaking fine against Alibaba is a direct sign that China has become a major antitrust regulator internationally, said Deng Zhisong, a partner at Dentons China.

While pledging full compliance with the administrative decision, the company played down its impact, saying that it expected no material impact on its business from the end of forced exclusivity, according to Chairman Danial Zhang during the Monday briefing. In addition, management said Alibaba will spend billions to lower merchant costs, responding to allegations that they’ve been overcharging merchants.

Forced exclusivity and timeline

Many Chinese tech giants have been accused of different forms of ‘forced exclusivity,” also known as “choose one of two.” Alibaba’s version forces merchants to sell exclusively on its marketplaces, such as Taobao and Tmall. Changing to a multi-platform format means its merchants can now sell on rival platforms like Pinduoduo and JD.com.

Vendors already operating on multiple platforms are prohibited to join rivals’ promotional events, such as the June shopping festival known as “618” and year-end shopping spree Singles Day. Merchants who don’t comply face punishment such as reduced marketing resources, decreased search result rankings, and even bans from Alibaba’s marketplaces.

• September 2010: Fights over forced exclusivity in China’s tech world date back more than a decade ago when Qihoo 360 sued Tencent for forcing hundreds of millions of users to choose between security software offered by Qihoo and Tencent’s QQ. Known as the 3Q war, this landmark case was China’s first first major tech antitrust case and helped to establish jurisdiction for similar cases.
• November 2012: Alibaba, which popularized the annual “Singles Day” sales promotion on Nov. 11, trademarked the shopping festival in an attempt to exclude rivals from holding promotions under the same theme. JD.com and other e-commerce companies launched Singles Day sales anyway, forcing merchants to take sides in a battle between platforms.
• July 2017: JD and flash sale retailer Vipshop released a joint statement, accusing Alibaba’s Tmall marketplace of monopolizing the market by forcing merchants to sign exclusive deals with Alibaba.
• June 2019: Home electronics manufacturer Galanz accused Alibaba’s Tmall of removing its products from search results after the electronics manufacturer refused to remove listings from rival platform Pinduoduo.
• October 2019: Alibaba PR head Wang Shuai dismissed concerns over the matter, stating that “so-called forced exclusivity is a non-issue.”
• November 2019: China’s market regulator during a forum in Hangzhou reminded more than 20 e-commerce players that forcing businesses into exclusive agreements with one marketplace is illegal.
• March 2019: China’s market regulator introduced a set of e-commerce rules, including terms prohibiting practices that facilitate forced exclusivity.
• December 2021: Chinese market regulators launch an anti-monopoly investigation targeting Alibaba.

Forced exclusivity practices exist in other platform industries too. Restaurant owners are also pressured to take sides with food delivery platforms like Meituan and Ele.me. Those willing to list exclusively on one of the food delivery platforms enjoy a lower commission fee. Similarly, drivers on ride-hailing platforms benefit from lower commission rates if they only work using one app.

Why forced exclusivity

Alibaba Chairman Zhang said eliminating forced exclusivity would have no material impact on Alibaba’s business. But if the practice didn’t matter, why did the company keep it so long in the face of lawsuits and pressure from regulators?

Alibaba, China’s top e-commerce platform for decades, had faced intensifying competition from rivals like Pinduoduo, JD, and more recently, mini programs on Tencent’s WeChat and short video apps including Douyin and Kuaishou. Forcing exclusivity on its merchants helped fend off rivals, making it harder for them to offer competitive selections of goods.

“It’s a crucial measure in the early development of online marketplaces, but not so important for a business as big as Alibaba (our translation),” said an analyst who asked to stay anonymous for sensitivity of the matter.

Despite forced exclusivity, the SAMR report showed that Alibaba’s market share has been gradually declining over the years. Its annual revenue accounted for 86.0% of earnings from China’s top 10 e-retail platforms in 2015. The figure has been dropping by single-digit percentages each year ever since to 71.2% in 2019. Its overall sales volume in proportion to China’s online retail sales declined to 61.8% in 2019 from 76.1% in 2015.

In March, Pinduoduo overtook Alibaba as China’s largest online selling platform in terms of number of users. Pinduoduo reported that it reached 788.4 million annual active buyers in 2020 compared with Alibaba’s 779 million annual active buyers during the same period.

Although Alibaba’s core e-commerce business still outperforms Pinduoduo in other key metrics, including revenue, gross merchandise volume, and per-order sales, Pinduoduo’s growth in user base is a warning sign for the tech giant that has dominated China’s e-commerce for decades.

Norris said forced exclusivity may also have been a means to keep Alibaba merchants’ digital marketing spend with Alimama, Alibaba’s digital marketing arm, rather than spread across multiple platforms.

Is it a monopoly?

Before accusing Alibaba of monopolizing the e-commerce market, regulators had to answer a question: Is there any such thing as an e-commerce market? E-commerce giants from Alibaba to Amazon have argued that e-commerce is just one among many forms of retail, and that its biggest companies should be seen as reasonably sized players in a retail market that includes malls and supermarkets.

SAMR rejected this argument on Saturday, finding that e-commerce is a separate market, and for the first time laying out a definition of an online services market and a method to measure the market share of a player in such a market.

While SAMR has been pushing to revise laws and regulations to keep up with its antitrust campaign in tech, it relied on established law dating to 2009 in its Alibaba decision, suggesting that the recent tech antitrust push was possible under the old law.

SAMR’s analysis used an approach familiar from traditional antitrust cases, known as “demand-side substitution analysis.” It said that the functions of online marketplaces, such as Alibaba’s Taobao and Tmall, are “non-interchangeable with offline marketplaces,” and that online marketplaces serve different merchants than offline marketplaces because the scope and costs of their services are different. 

China’s 2008 Anti-Monopoly Law defines a player with more than 50% of a “relevant market” as a “dominant player.” In defining Alibaba as a dominant player in the online marketplace, SAMR cited data about Alibaba’s service revenue from merchants; China’s e-commerce market’s Herfindahl-Hirschman Index, a standard measure of market concentration; analysis of Alibaba’s leverage in negotiations with merchants; as well as Alibaba’s “strong abundant finance resources and advanced technological abilities.

Regulators are working on changes to antitrust law that may make it easier to prove monopoly status in future internet cases. In January 2020, SAMR proposed an amendment to China’s Anti-Monopoly Law, which will take into consideration factors such as network effects—services that rise in value as their user bases grow—as well as company size and data assets when determining whether a company is a dominant player. SAMR also in March finalized a set of guidelines helping regulators define relevant market share in the internet sector.

Going forward

Alibaba clearly seeks to move on from the antitrust investigation. Vice Chairman Joe Tsai said on Monday during the conference call with investors, media, and partners that the company has “put this matter behind us.” Tsai added that he was not aware of any other investigations involving the company relating to the Anti-Monopoly Law, although the regulators continue to conduct a broad review of Chinese tech firms’ investment transactions.

Levying a sizable fine on one of China’s largest internet sites highlighted the state’s increased scrutiny of conglomerates, sending shivers down the spines of many Chinese tech peers. 

Just two days after Alibaba’s fine, regulators announced a $180,000 penalty on Sherpa’s, a Shanghai-based English-language food delivery app targeted toward foreigners.

In the wake of the penalty, regulators summoned on Tuesday 34 of the country’s largest technology companies from various segments, including ByteDance, Baidu, JD, Pinduoduo, Ctrip, Bilibili, and Qihoo 360. The regulator warned every major internet firm in China to heed the Alibaba example.

Beijing gave Chinese online platforms a one-month window to rectify practices that were unfair to competition, such as forced exclusivity, user data leaks, and price discrimination. SAMR said those that failed to comply with regulatory requirements in follow-up checks will be “severely” punished. 

Alibaba is already moving to respond to this pressure. For years, China’s tech giants strived to construct their self-sustained ecosystems in order to lock users in. But in a surprising move since mid-March, Alibaba took a step to open up its ecosystem by bringing Taobao Deal and re-commerce service Xianyu to Tencent’s WeChat. This may be a sign that the thick walls tech companies built against one another are beginning to crack.

Forced exclusivity on platforms

• The State Administration for Market Regulation (SAMR), China’s top antitrust regulator, fined e-commerce giant Alibaba RMB 18.2 billion ($2.8 billion) on Saturday for “forced exclusivity,” a practice in which platforms force merchants to use only one company’s platform or services. The penalty is equivalent to 4% of the group’s 2019 revenue. (TechNode)
• Alibaba chairman Daniel Zhang promised to end forced exclusivity practices in a Monday briefing. He also said that the company would spend billions to lower merchant costs, including investment in merchant training and the development of the merchant back end workstation. Shares in Hong Kong for Alibaba Group jumped 8% on Monday morning. (TechNode)   
• Regulators also announced on Monday a RMB 1.2 million penalty for Shanghai-based food delivery app Sherpa’s. The Shanghai Municipal Administration for Market Regulation (SMAMR) concluded that the company has dominated a separate, English-language food delivery market and does not compete against industry leaders Meituan and Ele.me. (TechNode)

Logistics missteps

• The Yiwu Post Management Bureau cracked down on delivery services Baishi Express and J&T Express for price-dumping, partially closing their distribution centers on Friday in the county-level city of Yiwu, an important coordination point for eastern Zhejiang province. The action followed an April 6 letter stating that the companies had received warnings on four separate occasions to halt artificially lowering prices beyond the industry standard of RMB 1.4 per order. The Bureau had asked Baishi Express and J&T Express to resolve the issue by Friday. (21st Century Business Herald, in Chinese)
• Pinduoduo issued a statement on Monday clarifying that the company does not have a special collaboration or investment relationship with J&T Express. In the process of securing new clients, J&T employees had told merchants that if they used J&T Express to fulfill their Pinduoduo orders, they would be exempt from fees related to faked orders created by “brushing,” Pinduoduo said. The e-commerce giant added that any previous collaboration with J&T Express during the Spring Festival period ended on Feb. 22. (Sina)
• Share prices for Chinese delivery and logistics giant SF Holding dropped by the Shenzhen exchange’s limit on Monday for a second day in a row, lopping a total of RMB 70 billion ($10.7 billion) from its market cap. SF Holding warned Thursday that it was expecting first quarter losses due to higher labor costs and new business development, a first since going public in 2017. Founder Wang Wei said that the company will not “blindly burn cash” to expand and has promised that there will be no losses in the current quarter. (Yicai Global)

Funding and IPOs

• Baidu-backed travel booking site Trip.com aims to raise $1.4 billion in its secondary listing in Hong Kong. The company began selling shares on Thursday at $42.95, an 11% premium to its closing price of $38.81 at its primary listing venue on the Nasdaq. The sale, which ended April 13, comes with the slow recovery of the leisure travel market. (South China Morning Post)
• Chinese grocery e-commerce platform MissFresh submitted its prospectus to the US Securities and Exchange Commission (SEC) earlier this week, targeting a valuation north of $500 million. Apart from operating its grocery delivery service in 16 major Chinese cities, MissFresh announced on March 26 that it will build a digital platform for community retail, which will support local supermarkets, vegetable markets, and small stores. (PanDaily)
• Suning Retail Cloud, a subsidiary of smart retail service provider Suning.com, announced Monday that it had completed its Series A financing. Concentrated in lower-tier cities and county-level markets, Suning Retail Cloud uses a franchise model to provide Suning.com’s logistics, warehouse, supply chain, and SaaS capabilities to small, medium, and micro businesses in rural areas. More than 3,200 retail cloud franchise stores opened in 2020, and 600 more have been added in 2021. (Suning Blog)
• Online real estate vertical Anjuke filed for a listing in Hong Kong on Thursday, with BofA Securities, Credit Suisse, and CICC serving as joint sponsors. The Tencent-backed company finished a $250 million financing round led by Country Garden’s affiliate Beam Merit Limited in March. (Deal Street Asia)

Xianyu summoned

The Beijing Municipal Commission of Housing and Urban-Rural Development said on Friday that it concluded an investigation into secondhand marketplace Xianyu. The Alibaba-owned e-commerce platform had been summoned for publishing illegal real estate listings and information, and for allowing unlicensed brokers to use its site. (National Business Daily, in Chinese)

Douyin e-commerce

• Douyin e-commerce president, Kang Zeyu, said during an event on Thursday that “interest e-commerce” is a valuable opportunity, with estimated GMV to exceed RMB 9.5 trillion by 2023, according to third-party calculations. The entertainment app’s shift into content-driven e-commerce follows a trend of using content to understand user interests and what they could potentially purchase. (Company statement)

In the wake of a record-breaking $2.8 billion fine on Alibaba for abusing a monopoly position in e-commerce, regulators have announced a fine on a somewhat smaller Chinese tech firm: the food delivery app Sherpa’s, or as it’s known to insiders, “Big English-Language, Shanghai-based Food Delivery.” Local market regulators announced a fine of about $180,000 Monday that went lightly viral for the depth of its antitrust reasoning.

What’s a market? Antitrust cases often hinge on defining a market—in fact, until Saturday it was an open question whether there was such a thing as the Chinese e-commerce market. Now we know that there is both a Chinese e-commerce market and an English-language Shanghai food delivery market.

• The State Administration for Market Regulation (SAMR), China’s top trustbuster, argued that e-commerce is “non-interchangeable with offline marketplaces” in order to define the market Alibaba was alleged to monopolize.

Geeking out: In the Sherpa case, local antitrust regulator Shanghai Municipal Administration for Market Regulation (SMAMR) cited polls of foreign residents, app design, and the interior decorating of restaurants to prove that delivering food to foreigners in Shanghai is a discrete market, in a statement of 15,727 Chinese characters and seven charts, and jam-packed with economic formulas.

• The regulator argued that the app does not compete with Chinese food delivery leaders Meituan and Ele.me because it exists in a separate English-language market.
• Sherpa’s grabbed 99.8% daily orders in the English-language food delivery market in the first ten months in 2019, according to the statement.
• Around 76% of foreigners living in China only use food delivery platforms that provide an English user interface because of language barriers, SMAMR cited a “relevant market research report” as saying.
• The app’s user interface, SMAMR argues, had “thoroughly taken into account western culture“ with design decisions including avoiding the color red, which is “considered to be festive by Chinese users but seen as a warning color in Western countries.”

Details: Sherpa’s was fined RMB 1.2 million (around $178,500), or 3% of the company’s revenue in 2018, SMAMR said in a statement (in Chinese) on Monday. The fine was issued in December 2020, it said.

• The regulator said Sherpa’s had “utilized its position of market dominance” to charge excessive delivery fees to users and commissions to restaurants.
• Sherpa’s could not immediately be reached for comment.

Context: China’s tech antitrust spree started in November as SAMR imposed antitrust-related fines on three acquisition deals involving Alibaba, Tencent, and parcel service SF Express, a move that legal experts described as the country’s first batch of antitrust enforcements against tech firms.

• SAMR said on Saturday it had issued a $2.8 billion fine on Alibaba for antitrust practices including “forced exclusivity.” The fine is the largest antitrust penalty ever issued in China.

On March 12, China’s top antitrust regulator said it had issued fines to 12 Chinese companies over 10 investment deals in the internet sector that were in violation of the Anti-Monopoly Law. The State Administration for Market Regulation (SAMR) disclosed the 20 companies that were involved in those deals. 

Nearly all of the companies mentioned were Chinese companies considered “big tech,” or their subsidiaries. They include Alibaba, Tencent, Didi Chuxing, Baidu, JD.com, ByteDance, Meituan, and Suning. Those firms were fined for failing to report merger and acquisition (M&A) deals in advance, which is considered a violation of China’s antitrust law.

Bottom line: The penalties—RMB 500,000 (around $76,095) each—were trivial for companies of such size. But the regulator’s move was a warning: China’s tech antitrust campaign, which began in November, has not ended and will only grow in scope and severity.

A brief timeline

• August 2016: Chinese regulators open an investigation into the merger deal between Chinese ride-hailing platform Didi Chuxing’s merger with US rival Uber. The investigation appeared to be unofficially suspended by the time Uber filed for a public listing in April 2019.
• January 2019: SAMR launches an antitrust probe into Tencent Music Entertainment’s dealings with the world’s three largest record labels. A year later, the regulator decided to suspend the investigation.
• January 2020: SAMR proposes an overhaul of China’s 2008 Anti-Monopoly Law and introduces a set of antitrust regulations tailored for the internet industry. The revision of the law is in the pipeline to be approved by China’s legislature.
• November 2020: The Shanghai technology bourse halts an initial public offering for Alibaba’s Ant Group, citing “changes in the regulatory environment.”
• November 2020: SAMR proposes new guidelines targeting anticompetitive behavior to include internet companies. The new rules widen the reach of certain antitrust terms that previously only applied to the physical economy.
• December 2020: SAMR imposes antitrust-related fines on three acquisition deals involving Alibaba, Tencent, and SF Express, a move that legal experts described as the country’s first batch of antitrust enforcements against tech firms.
• December 2020: SAMR announces an anti-monopoly investigation targeting Alibaba.
• February 2021: SAMR’s guidelines targeting internet companies come into effect.
• February 2021: SAMR imposes a RMB 3 million penalty on the operator of Chinese flash sale online retailer Vipshop.com for unfair competition.
• March 2021: Reuters reports that SAMR is looking into Tencent’s WeChat for monopolistic practices and how the popular messaging app had possibly squeezed smaller competitors.
• March 2021: SAMR issues fines to companies including Tencent, Didi Chuxing, and Baidu over 10 investment deals in the internet sector that were in violation of the Anti-Monopoly Law.

Most fines are about unreported deals: SAMR issued three rounds of fines to tech companies over anti-competitive practices. Except for the Vipshop case, the fines were all related to a clause in the 2008 Anti-Monopoly Law that requires companies to report investment or acquisition and merger deals that could create a “market dominant player,” or one that will hold more than 50% share of its relevant market. 

• In those cases, firms were fined the maximum amount allowed by the existing legal framework, or RMB 500,000 each.
• SAMR’s overhaul of the Anti-Monopoly Law will allow regulators to issue fines up to 10% of the offending company’s annual revenue.
• Most deals in question can be traced years back. For example, Baidu’s 2014 acquisition of smart home equipment maker Ainemo was fined in the March action.
• SAMR hasn’t, so far, asked any of the companies to reverse the deals in question. But lawyers we talked to said the companies may be asked to do so as SAMR steps up enforcement.

SAMR is waiting for the law to catch up: The regulator is pushing for an overhaul of China’s Anti-Monopoly Law and other regulations—its punitive concentration on unreported M&A deals is evidence that it may lack the essential legal vehicles to rein in internet companies. It also may explain why the regulator dropped investigations into the Didi-Uber merger deal and the Tencent Music Entertainment case.

• China on Feb. 7 formalized SAMR’s internet antitrust guidelines and, on Feb. 8, the regulator used it to fine Vipshop over unfair competition behaviors identified by the new guidelines.
• The guidelines, dubbed the Antitrust Guidelines for the Platform Economy, specifically targets internet companies. It forbids internet platforms from forcing merchants into exclusivity deals, offering different prices based on user data, and using algorithms to manipulate the market.
• Vipshop was fined based on clauses about exclusivity deals, according to SAMR.
• SAMR’s proposed amendment to China’s Anti-Monopoly Law also asks authorities to consider factors such as network effects—services that rise in value as their user bases grow—as well as company size and data assets when determining whether a company is a dominant player. But the amendment—different from SAMR’s guidelines which were active starting in February—is not effective yet. China’s legislature said in March that it would review and approve the revision “this year.”

What’s next? Growing quickly by buying smaller competitors is a common practice in China’s tech industry. Giants created by merger deals include Meituan, which merged with rival Dianping in 2015; and classified advertising site 58.com, which merged with rival Ganji in the same year. 

• Didi Chuxing, China’s largest ride-hailing platform, also established its dominance in the market through the 2016 deal with Uber.
• The problem is that companies are usually not aware that they may be obligated to report those deals for antitrust review. As China steps up anti-competitive regulations in tech, M&A deals will be more and more subject to market regulator review, potentially stopping tech companies from scaling in size by merging with rivals.

The worst is yet to come: While China’s antitrust regulators have been taking relatively mild measures against tech firms, signs show that more serious moves are on the horizon.

• In September, Tencent offered to take NYSE-listed search engine Sogou private in a $3.5 billion deal as its sole owner. In December, Reuters reported that SAMR wanted to “make an example” using the deal and is “planning a thorough review that could mean the deal may miss a July 2021 completion deadline.”

However, existing monopolies may not have to worry about being broken up. “There are no such provisions for breaking up monopolies in China’s antitrust law,” Deng Zhisong, an antitrust lawyer at Dentons law firm in Beijing, told TechNode in December. What the regulator can do is issue steep penalties and veto deals that don’t pass muster. 

E-commerce responds to Xinjiang cotton boycott

• H&M has been removed from China’s e-commerce platforms including Alibaba’s Taobao, JD.com, and Pinduoduo as well as service apps from ride-hailing platform Didi to map apps from Tencent and Baidu. The Swedish fashion brand is facing a backlash over its decision to stop sourcing materials from the Xinjiang Uyghur autonomous region, a major cotton producer and home to China’s Uyghur minority, against which the country’s government is accused of significant human rights violations. (The Wall Street Journal)
• NetEase Yanxuan, the private-label e-commerce brand of Chinese tech firm NetEase, voiced its support for Xinjiang cotton, pledging to continue its use, help farmers to develop more products, and source more raw materials from within the country. (Ebrun, in Chinese)
• A number of international brands such as Nike, Adidas, and Uniqlo are also losing steam in the country for expressing concern about alleged human rights violations in Xinjiang. (SCMP)

IPOs and funding

• Chinese grocery app Nice Tuan has raised a $750 million round led by Alibaba Group and DST Global to bolster its supply chain and fresh produce offerings. Other participating investors include D.E. Shaw & Co., Anatole Investment, Jeneration Capital, and Dragoneer.(Ebrun, in Chinese)
• Chinese social e-commerce platform Xiaohongshu has hired a former Citigroup executive to oversee its financial management amid reports that it is eyeing a public listing in the US, according to a report by The Information. (TechNode)
• Two Shanghai-based venture capitalists have accused Cai Guangyuan, chief executive of power bank rental company Energy Monster, of reneging on a deal to give them a joint 3% stake in the business. The dispute is poorly timed—the company recently filed a prospectus for a US listing. (Reuters)

Growth in logistics

• Alibaba’s Cainiao Smart Logistics Network announced Monday a partnership with Hong Kong Air Cargo, a subsidiary of Hong Kong Airline, to begin cargo flights to Southeast Asia. In the first phase of the cooperation, Hong Kong Air Cargo will operate flights to hubs Manila, Kuala Lumpur, and Bangkok on behalf of Alibaba’s logistics arm. (Ifeng, in Chinese)
• China’s same-city logistics service provider Shansong Express has received RMB 125 million in funding for a Series D2 from Shunwei Capital, N5 Capital, SIG China, Tiantu Capital, Oceanpine Capital, Alpha Square Group, Axiom Asia Private Capital, Qianshan Capital, and CF Capital. SIG China became the company’s largest institutional investor after the round. The Beijing-based firm had upwards of 100 million users as of 2019. (Tencent News, in Chinese)

Meituan losses

Meituan booked net losses of RMB 2.3 billion ($345 million) in fourth quarter of last year as the Chinese food delivery giant ramped up investment in the community-based grocery business. The company warned that investment in grocery services will continue to weigh on its profitability, although growth in its core food delivery and in-store business earned a better-than-expected RMB 37.9 billion in revenue for the reporting period. (Bloomberg)

China’s car industry has been among the hardest hit by a global semiconductor shortage, bringing a strong post-Covid recovery to a screeching halt. The shortage has seen Chinese automakers scale back production and adjust their sales targets, as the months-long auto chips drought shows little sign of abating.  

It couldn’t have come at a worse time. The world’s biggest car market had taken the lead in the global recovery, posting a mild single-digit decline in sales last year after business disruptions due to Covid-19. China’s auto sales rebounded 364% year-on-year to nearly 4 million vehicles during the first two months of this year, rising from a low base.

The boom didn’t last long. Vehicle production fell by 37% in February, the third decline in the same number of months, and far larger than January’s 16% drop. Global consultancy AlixPartners estimates up to 1.5 million fewer vehicles will be sold in China this year due to the supply crunch, accounting for 6% of last year’s total auto sales.

Automakers are now being forced to go head-to-head with smartphone companies in the search for chips, bringing more uncertainty to a market that has struggled with a slowdown in demand for years.

Bottom line: A worldwide semiconductor shortage has highlighted the fragility of China’s auto supply chain, as well as its heavy reliance on foreign-made critical technologies. 

• This, along with geopolitical tensions between China and the US, has prompted Beijing to ramp up development of an independent chipmaking industry. 
• Manufacturing of chips that are reliable for autos has long been a challenge for Chinese chipmakers. Analysts expect China to gain independence in less advanced processors over the next few years, while still facing pressure to access cutting-edge auto chips from global suppliers.

Nipped in the bud: Last April, China’s automotive industry recorded sales growth for the first time in two years. This was followed by months of double-digit rebounds. 

• In January, some of the country’s largest automakers, including SAIC, GAC, and Chang’an, halted production at their joint plants with partners including Volkswagen and Toyota. They then slashed output of some models for the first quarter of 2021, blaming the shortage. 
• EV maker Nio warns that its monthly capacity could shrink by a quarter until June. The company expects the shortage to ease in the second half of the year. 
• Although the global supply crunch has affected car sales around the world, analysts expect China to be hit the worst. During the first quarter, the country’s auto sales may have fallen by 250,000 vehicles, or 7%, year on year, market research firm IHS Markit reported. Official sales figures for the first three months of the year have not been published.

What is there a shortage of? Microcontroller units (MCUs), are in particularly short supply. These cheap but essential single-chip computers are used in a variety of car parts including powertrains, chassis, and self-driving systems. 

• On average, a single vehicle uses at least 20 MCUs, IHS Markit said in a February report. 
• Each MCU costs $1 or less, according to analysts, making it hard to compete for manufacturing space. Chipmakers prefer to focus on more advanced, higher-margin products such as powerful graphics processors (GPUs) and artificial intelligence (AI) chips.

Why is there a shortage? Analysts blame chip supply constraints on disruptions from the Covid-19 pandemic. Automakers pulled back production and cut their component orders amid falling vehicle demand. Meanwhile, a spike in demand for laptop computers and gaming consoles during lockdowns resulted in chip suppliers redeploying much of their capacity to consumer electronics. Auto chips became a low priority.

The chips used in cars are mostly built on 200-millimeter (8-inch) silicon wafers with old fabrication techniques. But chipmakers prefer to expand their capacity to produce more advanced semiconductors using newer technologies, UBS analyst Paul Gong told TechNode earlier this month.

When will it get better? 

• Most industry experts believe the shortage will ease in a matter of months, since most semiconductor foundries are running at full capacity and have pledged to invest in output growth.
• “We believe that most of the pent-up demand would be fulfilled in late 2021 or in 2022, assuming the chip shortage is resolved at least by late 2021,” Stephen Dyer, managing director of AlixPartners told TechNode.
• Others have more pessimistic views, forecasting that the Chinese auto industry’s shortage could extend well into 2022, and even persist for up to a decade due to a lack of core skills in China, as well as bilateral trade tensions. 

Can Beijing help? During the annual meeting of China’s legislature earlier this month, Chinese auto giants called on the government to invest more in chip development.

• Chen Hong, president of SAIC, China’s biggest automaker, called for a funding plan for chip development that lowers prices and increases market access of homegrown auto chips. The first step in Chen’s plan would push domestically-made lower-end auto chips, which Chen said could accelerate the build-up of “a reliable, controllable semiconductor supply chain for automobiles” (our translation).
• Yin Tongyue, chairman of Jaguar Land Rover’s manufacturing partner Chery said that a blueprint for developing homegrown car chips should include specific targets for domestic production. A full range of regulatory rules and technical standards for auto chipmaking are also needed, Yin added.
• Wang Fengying, president of Great Wall Motor wrote that Chinese companies should also step up overseas investments to build multinational entities that can secure key parts, including raw materials for batteries and in-car chips from a global supply chain. To achieve that goal, Wang called for more regulatory support and legal guidance for parts makers to expand their overseas presence.

Slow progress: The expanding list of US sanctions on Chinese companies has created a sense of urgency among lawmakers, officials, and businesses. Earlier this month, Beijing pledged to double down on efforts to develop an independent chip industry with incentive policies such as tax cuts, but remained silent on production targets, reported CNBC. 

• China is falling far short of its target to produce 70% of the semiconductors it uses at home by 2025. Less than 6% of integrated circuits were produced by mainland-headquartered companies last year, market research firm IC Insights said in a recent report.
• The situation is even worse in the auto sector. Seven overseas chip powerhouses, including Japan’s Renesas and Germany’s Infineon, make up 98% of the global market.
• Contract manufacturing is concentrated around Taiwan Semiconductor Manufacturing Company (TSMC), which produces around 70% of all shipments today, according to IHS Markit.
• Auto chips make up just 10% of business at the mainland’s leading contract manufacturer, SMIC.
• BYD, the country’s largest EV maker, is producing semiconductors for autos. In October, the company said it had shipped 5 million units of its first generation MCU in the two years since its launch. All were installed in its own cars, and made up less than 1% of the total market.

Emerging domestic supply: Some domestic chip design startups, which focus on design and buy manufacturing capacity as needed, have taken an interest in higher-performance processors for intelligent and connected vehicles. But few are capable of taking on established US chip powerhouses such as Nvidia and Intel’s Mobileye.

• Horizon Robotics might be an exception. In late 2019, it claimed to be the only Chinese supplier of semiconductors that meets automotive requirements. The company relies on TSMC for manufacturing. Chip design is a simpler and cheaper process than operating a chip foundry. 
• The main issue for fabless companies is being successful outside of China, said Stewart Randall, Head of Electronics and Embedded Software at business development consultancy Intralink Group. Randall said that it would be difficult for Chinese chip suppliers to break into global automakers’ supply chains, so they will have to be supported by the government and sustain heavy losses to gain market share.

READ MORE: SILICON | China’s hurdles in making automotive chips

What’s next? As demand for vehicles grows, experts expect Chinese companies to significantly ramp up production of mature semiconductors, including MCUs. 

• The worsening supply shortages could give Chinese companies access to the domestic auto market, Cui Dongshu, secretary general of the China Passenger Car Association, told journalists earlier this month, adding that several companies are securing chip-making equipment to expand their capacity.
• But getting the basics right won’t free Chinese automakers of dependence on global suppliers.
• “It will take much longer for China to catch up and attain self-sufficiency for cutting edge chip design and manufacturing. This is not an easy prospect and will require time, investment, and concerted effort,” Dyer said.

The digital yuan

• Bank of China in Beijing has started accepting applications for enterprise digital yuan accounts, while China Construction Bank in Suzhou is opening merchant accounts using China’s state-backed digital currency. Enterprise accounts will significantly widen the e-CNY’s use cases. (TechNode)
• The director of the central bank’s digital currency research institute, Mu Changchun, gave details about controllable anonymity in the e-CNY, a term officials have used to explain the digital currency’s privacy features. The digital yuan wallet will open an encrypted sub-wallet that will connect to e-commerce platforms when shopping online, such that the user’s bank card information and other personal data cannot be accessed by the platform. (STCN, in Chinese)

Filecoin accounting problem

Binance processed a $4.6 million double deposit of Filecoin, the token of the InterPlanetary File System (IPFS) decentralized file storage system. The initiator of the transaction tried to speed up a transaction by issuing a call for a replace-by-fee transaction, essentially asking a miner to confirm the transaction for a higher fee. The system would have normally ignored the first transaction, but it didn’t. This led to the initiators’ money doubling, from 61,000 Filecoin to 120,000. (CoinDesk)

Binance blamed a bug in Filecoin’s code. Filecoin said that the exchange was not using its API correctly. (Filecoin official blog)

Crypto crimes

• China’s Supreme Court and the People’s Bank of China jointly wrote about six examples of money laundering, including one that involved Bitcoin. Chen Moubo and his ex-wife Chen Mouzhi used the cryptocurrency in 2019 to launder RMB 900,000 ($138,233). Chen Mouzhi was jailed for two years and fined RMB 200,000. The government is reportedly working to update money laundering laws. (Southeast Network, in Chinese)
• Police in Turkey raided a crypto scam operation run by Chinese nationals who held 101 employees captive on the site. (TechNode)

The exchanges

• Huobi and Binance, two of China’s top exchanges, quietly increased transaction fees for a version of stablecoin Tether, one of China’s most popular cryptocurrencies, issued on the TRON network. (Wu Blockchain, in Chinese)
• Huobi reportedly consolidated all of its operations under the leadership of Du Jun, who was at the exchange’s helm while the CEO Leon Li was missing in action as he was cooperating with Chinese authorities in an investigation. Li only returned to work earlier in March. (Wu Blockchain)

A second Binance heist

Another decentralized finance project on Binance Smart Chain, the cryptocurrency exchange’s DeFi oriented blockchain, disappeared with an estimated 9,000 BNB coins ($2.34 million at the time of writing). The project, dubbed TurtleDex, claimed to be a decentralized file storage solution. (Binance Smart Chain announcement)

READ MORE: Holiday Bitcoin sell-off, $3 million Binance Smart Chain heists

Another Meitu crypto purchase

Meitu announced it will buy close to $50 million in Bitcoin and Ether, just weeks after it announced a $40 million purchase. (Meitu filing)

Some of these [Bitcoin’s] features potentially even render Bitcoin as a superior form to other alternative stores of value such as gold, precious stone and real estate.

—Meitu in its filing about its second cryptocurrency purchase

Blockchain labor

The number of posted jobs in China for blockchain developers decreased 45% year on year in November, an analysis of job postings by blockchain market research firm Zero One found. Average salaries in the country have dropped 1.5% to RMB 22,300 ($3,400) although they remain significantly higher than China’s average monthly pay. Small companies with staff numbering between 50 and 149 people made up the biggest slice of China’s blockchain companies, accounting for 35.3% of the sector, followed by giants with 500 to 4,999 employees, which made up 22.9%. (Zero One, in Chinese)

6nm chips

Cryptocurrency rig maker Ebang announced it completed the design of its first 6-nanometer ASIC chips for Bitcoin mining. Ebang stock rose 4.5% on the back of the announcement.(Ebang press release)

The NFTs

• Bart Baker, an American social media influencer with millions of fans on Douyin, will release a series of non-fungible tokens (NFT), a type of crypto collectible, on DefineArt, a new NFT exchange that is targeting Asian investors. (CoinTelegraph)

READ MORE: CHINA VOICES | What China thinks of NFTs

Like Roman dictators, consumer brands in China have good reason to beware the Ides of March. It’s the date of the national broadcaster’s consumer rights gala, a two-hour festival of exposés famous for undercover sting operations.

The annual broadcast, known as the “3.15 Gala” after its date, is appointment television, promising embarrassing revelations about well-known companies. It can drive consumer outrage and crackdowns from regulators, and it’s often followed by unwelcome attention from other media. 

This year, tech came under heavy fire. Out of nine segments in the broadcast, the first four focused on allegations about misuse of technology. Well-known brands like Qihoo 360 search, UC browser, and the job search sites Zhilian and Liepin came under fire for accusations related to false advertising and poor privacy protection. At least five companies saw their apps kicked off Chinese app stores in the days following the show.

Major state media have repeatedly focused on tech-themed investigations. Renwu Magazine, owned by the People’s Daily group, has been on the warpath over working conditions, with viral investigative work targeting both pressure on delivery drivers and extreme limits on toilet time for white-collar workers. The same magazine was also among outlets that highlighted concerns over invasive use of face recognition. 

CCTV investigates CCTV

The broadcast began by accusing retailers of misusing face recognition to monitor visitors to their stores.

CCTV reported that Kohler, an American bathroom fixture brand, installed closed-circuit cameras in many stores to capture customers’ facial information without user consent. The company installed cameras with face recognition capabilities in thousands of its stores, allowing the company to identify and track consumers across multiple visits to different showrooms without their consent.

In addition to Kohler, CCTV said that more than 20 brands have installed face recognition systems in their stores across the country, including well-known brands like BMW and Max Mara. A manager at a surveillance camera supplier told undercover reporters they have already installed millions in different stores. 

Officially implemented on Jan. 1, 2021, China’s new Civil Code bans processing personal information without consent. 

Resumes for sale

The program also accused three well-known online recruitment platforms for leaking job seekers’ resumes: Zhaopin, 51Job, and Liepin. All three have since been removed from a number of Chinese Android app stores.

Online recruitment platforms are the first choice for most people to seek jobs. However, they are doing a bad job protecting user’s personal information. CCTV’s reporter paid RMB 7 (about $1) to a buyer in a QQ group called “58 Zhilian Fans” for one resume from Zhaopin, including the applicant’s name, gender, age, photo, contact information, work, and education experience. 

It appears that the black market in resumes serves both actual recruiters as well as scammers interested in personal information. 36Kr, which examined the practice following CCTV, reported that for small businesses it can be cheaper to buy a resumes secondhand and contact possibly hires directly than to register an account.

Weak privacy protections make it easy for resume brokers to export resumes in bulk. On Zhaopin, anyone with a corporate account can download an unlimited number of resumes. The registration of corporate accounts is also loosely regulated on these platforms. CCTV found that applications with fake certificates could pass through the application process.

Snake oil

Ads for fake medicine have plagued search since 2016, when a college student named Wei Zexi died after receiving an unproved cancer treatment promoted by ads on Baidu which were not clearly distinguished from search results, prompting a widespread outcry. The case drew wide public attention, forcing the tech giant to change its advertising practices and Chinese regulators to tighten control. 

Three years on, CCTV accused the Alibaba-backed UC Browser and Qihoo’s 360 Search for displaying results that appear organic but are in fact advertisements. 

The broadcast also accused intermediaries of helping unlicensed firms promote medical products. Normally, a company needs authorization to advertise a medical product or treatment. But third-party ad agents for the two companies told undercover reporters that they could use idle accounts that were previously registered by authorized companies.

“No need to fear accounts being blocked after posting questionable information. We can always switch to another one, because we have hundreds of them,” said one agent for 360 Search.

Both of the apps were removed from all major Chinese Android app stores two days after the exposé.

Some of these fake ads are pretty dangerous: The Beijing News found that ads on “a search engine” recommended ineffective treatments for heart attacks.

After searching with the keyword of heart attack, the results display a list of medical advertisements. One of them says the disease could be cured by taking their traditional Chinese medicine without surgery. 

A contact from the recommended hospital told Beijing News over phone that the coronary stents treatment typically used in hospitals could only stretch the blood vessels, rather than dissolve the blood clot. And patients taking such surgery have to take western medicines their whole life. In contrast, their traditional Chinese medicine can dissolve blood clots, and patients don’t have to take medicines after being cured. The medicine will cost about RMB 3,000 ($460) a month depending on different cases.

When chatting with an agent from the hospital through WeChat, the app warned the reporter about the contact and warned to beware of fraud. Doctors at an authorized hospital said “Stents are a standard treatment for heart attack, because blood clots are difficult to remove.”

Malware targeting the elderly

Last in the tech block, the program criticized four malware cleaner apps—Tencent’s Mobile Phone Manager Pro, Memory Optimization Master, APUS’s Superior Cleaning Master, and Smart Cleaner for collecting user information and pushing scam advertisements, suggesting that these scams target the elderly.

The program said some of the cleaners were malware themselves, featuring a 70-year-old woman surnamed Li. Li said that her phone became very slow even though she often cleans viruses and memories in smartphone with cleaner apps. It turned out that these apps are doing the exact opposite of what they say.

A third-party test agency consulted by CCTV found that Mobile Phone Manager Pro read users’ app list more than 800 times, GPS location more than 50 times, smart device code 900 times, and SIM card code 1,300 times within less than 10 seconds. Using this data, CCTV reported, the apps helped target users with vulgar content and scams.

Where’s Elon?

Many Chinese consumers and media were surprised that Tesla was not named at the broadcast. The EV maker has been a popular target online and in Chinese media during the past year, with accusations ranging from sharp sales practices to safety issues. Huxiu commented on the absence, and warned that the company is likely to face more consumer and media pressure.

Skeptical public 

Most of the named companies, including Zhaopin.com, Liepin.com, 51job.com, UC Browser, and 360 search had issued apologies hours after the gala concluded, promising to address the mentioned issues. 

Given previous experience, the public remains skeptical about whether public embarrassment will actually lead companies to solve the issues. Chinese netizens voiced their concerns on Chinese microblogging platform Weibo.

Responding to the Weibo hashtag “Monitoring institutions help to save RMB 4,4 billion consumer costs,” a Weibo user with the handle Fuchenruyi wrote:

“The monitoring institutions could have done a better job. We watch 315 gala every year, yet each year has more shocking cases.” 

Another Weibo user, with an unprintable name, wrote, 

“315 International Consumer Rights Day might as well be renamed “315 Apology Day.” Afflicting customers who wait for 315 to solve their complaints only get perfunctory apologies…”

Rednet, a news outlet backed by Hunan provincial government, cautioned that:

In most cases, the exposure of product quality scandals only brings short-term attention, rather than solving the problems completely. After a short while, the same problems will revive and become even worse. Obviously, it’s impossible to eliminate all of the quality problems with one single show, which is held only once per year and could only cover a few cases.

China on March 9 rolled out its own “vaccine passport” amid global controversy around potential equality and privacy issues of the health document.

China’s vaccine passport, the International Travel Health Certificate (ITHC), serves as an international version of China’s year-old health code system that helped the country resume domestic travel after the initial outbreak early last year. It contains information such as the holder’s coronavirus test results, vaccination records, and antibody test results, according to China’s foreign ministry (in Chinese). 

To sign up, users enter their passport number in a foreign ministry-owned mini program on Tencent’s WeChat instant-messaging platform. Verify your identity using face recognition, and the certificate is instantly available. It is currently only available for Chinese nationals. China hasn’t revealed plans to issue the certificate to foreign nationals living inside or outside of the country.

The health code system began as a patchwork of different apps rolled out by local governments to track residents’ travel history and body temperatures, often with varying standards. It has since evolved into a nationwide database network of individuals’ health information. It appears that the newly launched vaccine passport also has access to the same data.

READ MORE: We read the technical standards for China’s ‘health code.’ Here’s what we learned.

Like the health code system, China’s vaccine passport may provide the world with a new option in the quest to resume normal international travel. China is promoting its standards for post-Covid travel documents. Experts have expressed concerns that the use of such certificates may exceed the scope of containing the coronavirus and empower governments to reinforce social control.

International health code 

China joins a host of countries experimenting with vaccine-certificate systems. The EU and the G7 are developing a regional system that will allow vaccinated travelers between participating countries to cross borders without quarantines. Thailand is issuing single-country certificates to enter—a vaccine visa, if you will. Israel and Bahrain have deployed digital certificates for domestic re-opening. China, with mostly closed borders and a largely re-opened domestic economy, is deploying a one-country system to vouch for outbound citizens

Beijing hopes to persuade other countries to accept its system as proof of vaccination. Wang Yi, China’s foreign minister, said at the announcement of the ITHC last Tuesday that the document “fulfills Chinese President Xi Jinping’s proposal to inter-recognize health codes internationally” (our translation).

Xi first made the comment about a “global mechanism” of the health code system to allow international travel at an online meeting at the G-20 summit in November. “We need to further harmonize policies and standards and establish ‘fast tracks’ to facilitate the orderly flow of people,” he said at the time.

A spokesman for China’s foreign ministry Zhao Lijian told reporters (in Chinese) on Thursday that the country had promoted and introduced the ITHC to “countries and relevant international organizations.” He added that some countries and international organizations had “expressed willingness” to cooperate with China, without naming them.

Nations are scrambling to set up standards for vaccine passports. The British government said last month that it would work with other countries through the World Health Organization (WHO) and the G-7 on “a clear international framework with standards that provide consistency for passengers and industry alike.” The European Commission said earlier this month that it would put forward legislation this month that will lay out the details on the format of a common EU vaccination certificate.

But unlike the EU and G7 nations, which are discussing regional vaccine passports that will allow people to travel freely, China seems to be unilaterally pushing for recognition of its vaccine passport for its citizens, said Nicole Hassoun, a professor at Binghamton University and the author of the book Health Impact: Extending Access on Essential Medicines for the Poor.

Hassoun suggested that China will need reciprocal arrangements. “They hope that other countries will eventually recognize their citizens’ certificates and allow them to skip quarantine, but right now China does not have a plan to let visitors skip quarantine,” she told TechNode. 

Will it work?

It’s too early to say if China’s vaccine passport will be a success, but it used a similar health code system to tackle the virus and resume domestic travel. The effectiveness of the system and other key measures—including its strict mandatory lockdown in early 2020—is difficult to deny, as life within China nears normalcy while many other countries struggle to contain the virus a year later. 

The eastern city of Hangzhou was the first city in China to roll out the health code system in January 2020.

The QR code-based system allowed people to travel inside China with greater freedom. A green code usually meant that the holder was a low risk for carrying the coronavirus and could thus be freed from quarantine after traveling. Accordingly, a yellow code meant medium risk and a red code, high. 

In the early stages of the system, code colors were given based on individuals’ self-declaration of Covid-related symptoms, travel history, and body temperatures. Now, the system has become a nationwide network of databases that contains information like Covid test results and vaccination history.

For the past year, China’s domestic public transportation system, which was one of the busiest in the world, has relied on those codes to manage and track travelers.

What are the concerns?

Experts have warned that vaccine passports could deepen inequality as residents of countries with access to vaccines can now do things that others cannot, including traveling.

Michael Ryan, executive director of the World Health Organization’s Health Emergencies Programme, said on March 8 that “vaccine passports” for Covid-19 should not be used for international travel because of ethical considerations that coronavirus vaccines are not easily available globally.

“Immunity passports inherit all the inequity in vaccine distribution,” said Hassoun of Binghamton University. “Most people are not eligible because most people cannot access the vaccines.”

China’s vaccine passport also inherits the health code system’s privacy concerns. While the health code system is widely used to track the spread of the virus, it also captures data about people’s whereabouts on a vast scale. 

In Beijing, people are now required to scan and register using health code mini-apps embedded in the WeChat and Alipay smartphone apps every time they enter a shopping mall or take a taxi. But in most Chinese cities, people are only required to show their health code at checkpoints, and their location information is not logged. 

Nonetheless, governments around the world are introducing or considering such systems. Their attraction is that they “may provide validated clinical information to facilitate expanded social engagement including travel,” John Nosta, president of healthcare think tank NostaLab and a member of the WHO’s Digital Health Roster of Experts, wrote in an email. “The danger is that some assessments go beyond Covid-19 and reveal other clinical realities that the individual may not wish to reveal.” He also warned that countries may limit the entry of people with other conditions such as mental health issues.

A city in eastern China had sought to make the health code system the norm even beyond the pandemic, but was met with backlash from netizens. In May, Hangzhou revealed plans to “normalize” (in Chinese) the city’s health code, monitoring people’s medical records, physical examination results, and lifestyle. 

Behaviors such as consuming alcohol would degrade the holder’s “health score,” while physical exertion such as long-distance walking would increase the score, according to local media reports about plans for the system. The plan was widely criticized on social media and has not been mentioned ever since.

“I’m fearful that once the toothpaste of a vaccine passport is out of the tube, there’s no putting it back,” Nosta said. “Other diseases and conditions may be flagged and establish new restrictions—from mental health to other infectious diseases—that can excessively empower governments for a new level of social engineering.”

Curbing community group-buy

China’s top market regulator levied fines totaling RMB 6.5 million (around $1 million) on five community group-buy platforms for price dumping, reinforcing Beijing’s efforts to regulate the red hot industry.

The companies subject to the penalty are Didi’s Chengxin Youxuan, Pinduoduo’s Duoduo Maicai, Meituan’s Meituan Youxuan, Alibaba-backed Nicetuan, and Wuhan-based Shixianghui. (TechNode)

Female consumers power growth

• Chinese female shoppers make household purchasing decisions in 75% of homes, according to a report released by online retailer JD.com, and are spending increasingly more on themselves as a proportion to the household. The report was released on International Women’s Day, which falls on March 8. Women are driving growth in a diverse range of categories such as cosmetics, baby products, luxury goods, alcohol, cars, and mobile gaming, the report said citing Meha Verghese, executive at agency MediaCom. (JD)
• A Pinduoduo consumption report identified the same trend, saying that the female users are spending more on products and services to “please themselves.” The sale of lipstick, skincare products, and apparel top the sales growth chart, according to the report. (Tencent Tech, in Chinese)
• A total of 2.72 million female drivers work for Didi across Asia, Latin America, Russia, and Australia, according to a report from the ride-hailing giant. China accounts for 2.37 million of the total. Many women, who are often also caregivers and homemakers, turned to gig economy apps due to economic uncertainty caused by the pandemic, the report said. (Ifeng, in Chinese)

Earnings season

• Chinese online grocer JD Daojia reported RMB 2.02 billion ($308.62 million) in revenue during the fourth quarter, an increase of 69.9% year on year. The revenue missed the $309.18 million average estimate compiled by Yahoo Finance. The company’s full-year net revenues in 2020 amounted to RMB 5.74 billion, a year-over-year increase of 85.2%. Total gross merchandise volume for the year of RMB 25.3 billion more than doubled compared with 2019. (Ebrun, in Chinese)
• Fourth quarter revenue for China’s online travel platform Trip.com dropped 40% year on year to RMB 5 billion, which the company attributed to the pandemic. The decline in revenue slowed compared with 48% year-on-year drop in Q3 and 64% in Q2, signaling a gradual recovery of domestic travel market. (KrAsia)

This week in funding

• Ymatou, the Chinese cross-border e-commerce site backed by microblogging platform Weibo, has closed a Series D Plus worth hundreds of millions of RMB from Prosperity Investment, local media reported. (36kr, in Chinese)
• Chinese beverage chain Manner Coffee received investment from investors including Singapore sovereign wealth fund Temasek Holdings at a valuation of $1.3 billion. The Luckin rival operates more than 100 stores across the country, mostly located in Shanghai. (Ebrun, in Chinese) 

Blockchain name check

Blockchain and the digital yuan were directly mentioned in a draft of the 14th Five-Year Plan for the first time in history, signaling a turning point in the government’s support for the technologies. The draft plan is unlikely to change substantially, analysts said. (TechNode)

Meitu purchase

Meitu, the company behind one of China’s most popular photo editing apps, bought $22.1 million worth of Ether and $17.9 million of Bitcoin. The company is China’s first major non-cryptocurrency firm to invest in virtual money. Meitu shares rose 14% immediately after the announcement. (Meitu filing)

Digital yuan

• A Beijing government-backed hardware and software enterprise blockchain, Chang’an Chain, will integrate the digital RMB. It is the first known domestic application of blockchain on the digital yuan. (TechNode)
• The head of the People’s Bank of China in Guangzhou, Bai Hexiang, called for cross-border payments using China’s central bank-backed digital currency in the Greater Bay Area in order to accelerate the region’s financial development. China’s Greater Bay Area includes Guangdong province, Hong Kong, and Macau. (Mobile Payment Network, in Chinese)

The exchanges

• Huobi secured a coveted license to manage digital asset portfolios from the Hong Kong Securities and Futures Commission, giving hope to other Chinese cryptocurrency companies which have applied for similar license in Hong Kong. (TechNode)
• In 2020, Coinbase CEO Brian Armstrong surpassed Zhao Changpeng, CEO and founder of Binance, as the world’s richest blockchain entrepreneur. (Hurun List)

China blockchain paranoia

The founder and president of Chamber of Digital Commerce, Perianne Boring, told Fox Business that China is “years ahead” of the US in blockchain technology and that it will be used to monitor US citizens. “I cannot stress enough how much is at stake for the US right now,” Boring said. (Fox Business)

China’s ambition to become a world leader in electric vehicles was barely mentioned in this year’s annual government work report, presented Friday—a good sign, experts said, that the market is maturing.

After strong policy support over the past several years, the market is now evolving into a demand-driven model amid waning government stimulus, Cui Dongshu, secretary general of the China Passenger Car Association, wrote in a post published Saturday. “We expect auto consumption to grow robustly beginning this year,” (our translation) Cui added.

Growing the adoption of new energy vehicles (NEVs), a catchall term referring to all-electric, plug-in hybrid, and hydrogen cars in China, has been a major agenda item for the country’s annual parliament meetings since 2015. The government had set a sales target of 5 million NEVs in its 13^th Five-Year Plan (FYP) ending in 2020 which propelled China to the top spot as the world’s biggest EV market by sales volume in 2015.

Beijing’s next goal is even loftier. It aims for NEV sales to account for 20% of overall new car sales in China by 2025 from the 2020 level of around 5%, according to a policy paper released November as part of the 14^th FYP ending in 2025. In the report delivered by Chinese Premier Li Keqiang on Friday, policymakers plan to offer more targeted measures to remove barriers and allow for massive EV adoption in the next five years. Here are the key points.

Investment

Li said Friday during the annual meetings of the National People’s Congress (NPC) that Beijing will create a comprehensive regulatory structure for market access of industrial products such as automobiles, including enhanced after-deal scrutiny and cross-functional supervision. The path to reducing red tape is such regulation, Li said, which would benefit market competition.

The main purpose of such regulation is to cool investment in the EV sector and prevent the current supply glut from worsening, Fu Bingfeng, executive vice-chairman of the China Association of Automobile Manufacturers (CAAM) told Chinese media on Saturday. Fu called for “rational development” rather than the stoking of production capacity through investment plans from certain local governments and private investors.

China in April lowered the barrier for entry into the EV market after the Covid-19 pandemic took hold, removing requirements such as design and development capabilities for new entrants, reported China Daily.

EV infrastructure

China will also continue to help boost consumption via stimulus measures, including growing the number of public charging piles and swapping stations, according to Li. It was the first mention of EV battery swapping facilities in the annual government work report.

Fu expects the initiative will spur demand by providing charging facilities for those who do not have private parking spaces with home chargers, a major pain point that has deterred EV adoption. Prior to that, the central government had announced a RMB 10 billion ($1.5 billion) investment to expand the country’s charging network by 50% to more than 1.8 million public and private charging piles by 2020.

China’s power network for electric vehicles exceeded 1.67 million charging points and 555 swap stations as of December, according to figures from the China Electric Vehicle Charging Infrastructure Promotion Association.

EV battery recycling

EV battery second-life usage was also a key topic during this year’s meeting. Li noted that China will accelerate plans for a comprehensive recycling and reuse policy for electric vehicle batteries. Policymakers in the 14^th five-year-plan pledged to “promote the use of second-life energy resources in less-demanding applications” (our translation).

China began its NEV initiatives in 2009 and most EV batteries are designed to have around a decade of use during the first life phase. Officials from the Ministry of Ecology and Environment had estimated in September that more than 200,000 tons of EV batteries would reach the end of the first life phase by 2020 and that number will more than triple in 2025, according to a Caixin report (in Chinese).

The central government in 2018 had made battery manufacturers responsible for addressing battery end-of-life issues, but the market is largely unregulated, lacking mandatory technical standards to ensure safety during the recycling process. This has also overburdened battery manufacturers, which have struggled to recoup the costs for repurposing batteries.

Blockchain and fintech are to be mentioned by name in a draft of China’s 14th Five-Year Plan, marking increased focus on these technologies.

Why it matters: The Five-Year Plan is China’s most senior economic planning document. This is the first time for either technology to earn a mention by name.

• But the draft plan also calls for more regulatory scrutiny of fintech.

READ MORE: INSIGHTS | Tech in the Five-Year plan

Details: China’s National Legislature opened its annual meeting in Beijing today. It is expected to approve the draft plan during the week-long session.

• “Drafts are often tweaked during the Lianghui (Two Sessions), but are rarely substantively changed,” Kendra Schaefer, head of tech policy research at Beijing-based strategic advisory firm Trivium told TechNode.

All aboard the China chain: The plan declares blockchain a key technology, along with cloud computing, the Internet of Things, big data, AI, and virtual reality.

• Specifically, the draft plan calls for work on smart contracts, multiple consensus algorithms, asymmetric encryption, and distributed fault tolerance mechanisms.
• Distributed ledger technology is to be applied in fintech, supply chain management, and e-governance, the draft plan said.
• Blockchain emerged as a priority in late 2019, when President Xi Jinping publicly endorsed the technology.
• Just yesterday, a Beijing-based hardware and software solution announced that it will integrate the digital RMB, China’s central bank-backed digital currency. This is the first known domestic application of blockchain to the digital yuan project.

READ MORE: Enterprise blockchain to integrate China’s digital yuan

Fintech: The phrase “fintech” (jinrong keji) got three direct mentions; under blockchain development, in a section on regulating tech, and financial reforms. This is the first time a reference by name to fintech has made it in the plan.

• The 13th Five-Year plan made one reference to “internet finance,” and several to fintech-related themes such as “microfinance” and “inclusive finance,” as well as, once, as “internet finance.” Similar language is present in the new draft plan.
• The plan also called for continued R&D in the digital RMB and China’s participation in the creation of global standards for digital currencies.

READ MORE: DCEP class is in session, with Zhou Xiaochuan

More rules: The draft plan calls for enhanced antitrust rules and licensing regimes for tech platforms, and the establishment of new regulatory frameworks for fintech, telemedicine, autonomous driving, and smart logistics.

• The plan also called for increased oversight of financial holding companies, a type of corporate structure that is likely (in Chinese) to come to dominate the fintech industry. After months of negotiations with authorities, Ant Group will reportedly reorganize itself as a financial holding company.
• It also calls for strengthening the use of regtech and risk assessments on financial innovation products, including potentially suspending some products.
• Today, China’s legislators also called on commercial banks to increase lending to individuals and small and medium enterprises by 30% in the rest of the year. This will potentially substitute for fintech companies. Facilitating small loans is Ant’s single largest revenue stream.

As China’s legislature prepares to meet tomorrow, we’re bringing you a special edition of our Insights column: a preview of tech in the 14th Five-Year Plan. We’ve looked through the last plan, and the documents describing priorities for the new one, to give you our baseline expectations for key tech areas in the new plan.

Greetings from Beijing, where the weather is just turning to spring, the air this week feels like taking a bath in an ashtray, and, across town, about 3,000 people are getting together Friday to kick off the annual meeting of China’s national legislature.

This is one of the big meetings: This year, the National People’s Congress will approve China’s 14th Five-Year Plan, which will set out the government’s economic priorities for the next half-decade. The meeting lasts from March 5 to March 11, and in previous years the plan has come toward the end of the session.

Technology and innovation are sure to play a leading role. “Innovation-driven development” was one of the first topics addressed in the 13th Five-Year Plan, issued in 2016, and the phrase is equally prominent in previews of the new plan.

What is (likely) new is emphasis on another key phrase: “self-sufficiency.” As the US has used its control of key technologies as a weapon, China’s efforts to produce its own have a new urgency.

For people with tech projects, the start of a new plan period means opportunity. The “money spigot” for homegrown tech and innovation is likely to get even more generous, said Uny Cao, vice president at the Zhejiang University Intellectual Property Exchange Center and friend of TechNode.

What are we looking for when the new plan is published next week? What’s likely to get the most attention—and which will get less? Below, you’ll find TechNode’s roundup of key mentions of technologies we expect to see highlighted in the 14th Five-Year Plan.

Data

A new approach to data management will reverberate across tech industries. The next stage of China’s tech policy will shift from an emphasis on developing cybersecurity and big data, to building up the data economy.

Mentions in the 13th Five-Year Plan: The last five-year development plan focused on building up cybersecurity and control over data. But it also set goals to get government offices to share data with each other and industry.

• The 13th plan promised crackdowns on black markets for personal data, and strengthened privacy protection for big datasets, including government credit information systems. The government also aimed at opening up government big data to the public through a digital platform.
• The 2017 Cybersecurity Law was the first big step for reform of China’s information security. Implementation of the Multi-Level Protection Scheme, a key part of the CSL, picked up in the summer of 2020, Carly Ramsey, who leads regulatory and political risk consulting at Control Risks in Shanghai, told TechNode. 

READ MORE: Dust has yet to settle two years after China’s landmark cybersecurity law

Expectations in the 14th Five-Year Plan: In the Fifth Plenum guidelines, data has joined an impressive new crowd: “[We will] advance the marketization and reform of the economic factors of land, labor, capital, technology, and data.” When a Communist Party puts you on the same level as labor and capital, you know you’ve made it big.

The Fifth Plenum guidelines call for the development of a rules-based data economy. Or as they put it: Establish basic systems and standards for data property rights, transactions and circulation, cross-border transmission, and security protection to promote the development and utilization of data resources.

“Ensuring the fluid circulation of data is now an economic imperative,” said Kendra Schaefer, head of tech policy research at Beijing-based strategic advisory firm Trivium. “In practical terms, that means that the overarching theme of China’s data policy over the next five years will focus on allowing data to be shared, transferred, bought, sold, and utilized,” Schaefer said. The plenum’s recommendations called for “systems and standards” in data property rights, market mechanisms for data, as well as cross-border data transfers.

READ MORE: China sets the rules for its new data economy

So what? “The 14th Five-Year Plan will mark the beginning of a new era in China’s approach to data policy,” Schaefer said. China is stepping up from the securitization of data resources to developing a system in which data can be exploited as a resource. In the upcoming plan period, we can expect more support for trade in data alongside a continued crackdown on bad cybersecurity practices and insufficient privacy protections.

Environment

One of the biggest components of the 14th five-year plan deals with action to combat the environmental damage that followed years of rapid industrialization and economic growth. In the wake of a vow to set China on a path to carbon neutrality by 2060, economic planners will be under pressure to come up with big changes. China’s tech sector stands to benefit: To reach the country’s emissions goals, investment in clean technology could reach $16 trillion in the next 40 years.

In the 13th Five-Year Plan: The 2016 plan laid out targets to reduce carbon emissions by cutting the country’s carbon intensity—the amount of carbon dioxide produced for every unit of GDP. Through subsidies, state planners pushed prices in the solar industry so low that it effectively went from being a high-tech sector to a commodity business.

• The document laid out action plans to combat air, water, and soil pollution. By last year, Chinese cities were expected to meet “good” air quality standards for more than 80% of the year. 
• The plan sought to reduce the country’s reliance on coal-fired power plants, and promote environmentally friendly construction and mining. 
• Also included were “improvements in supportive policies” for renewable energy sources.

Expectations: The new plan will likely clarify how China will reach peak carbon emissions by 2030 and carbon net zero by 2060, goals laid out to the UN General Assembly by President Xi Jinping in September.

• The thrust of Xi’s speech has been factored into energy and environmental planning in the new five-year plan.
• The new plan will likely outline ambitious capacity and consumption targets for wind and solar energy production, while placing further caps on coal-fired power plants. 
• Energy storage is also expected to play an important role in the new plan, as China seeks to improve grid and power security. 
• It is unlikely that there will be a move away from carbon intensity caps to hard carbon caps, as the country attempts to balance economic growth and cutting emissions, analysts said. 
• While the last five-year plan placed emphasis on reducing emissions from energy production, the new plan will place increased focus on minimizing pollution from industry, including steel and transportation. 
• Further integration between China tech and energy industries is expected, a goal laid out in the 13th five-year plan. 

So what? The world is waiting to see how China plans to reach its emissions targets by 2060. We expect the plan to create more targets and pressure on local governments to improve carbon emissions, but details on how these will be implemented—and how cleantech investment will be affected—will likely be spelled out in lower-level plans.

Autos

A pillar of China’s economic growth, the automotive sector has long been dominated by well-established foreign brands, which hold more than 60% of the market share, while domestic automakers are concentrated in the low-end segment. But that is changing as China’s strength in electric vehicles is boosting its position on the global industry value chain, thanks to strong policy support over the past five years.

In the 13th Five-Year Plan: When China’s cabinet in 2010 initiated a development plan (in Chinese) for seven strategic emerging industries, new energy vehicles (NEVs) was one of them. In 2016, Beijing set an ambitious target of 5 million sales of NEVs in the coming five years, a number which would mark the beginning of mass adoption. This initiative became part of Beijing’s larger goal of becoming the world’s next innovation powerhouse.

• The central government carried out a series of stimuli to foster a new source of economic growth—by offering subsidies for NEV purchases, especially for all-electrics and plug-in hybrids—in both public and private transport sectors.
• China’s top policymakers also vowed to achieve major breakthroughs in battery technologies, such as a higher energy-density level, which enables a longer driving range as well as better resistance to extreme temperatures.

Expectations: NEVs were briefly mentioned as one of the strategic emerging industries in the fifth plenum guidelines, but with no detail about the growth outlook.

• However, according to a policy paper released by the State Council in November, NEV sales were projected to account for 20% of total new car sales by 2025, up from the 2020 level of just 5.4%.
• Beijing also expected “significant improvement in the competitiveness” of its homegrown players in the fields of battery safety and in-car operating systems, among others, while promoting highly autonomous vehicles for commercial use cases in pilot programs. 

So what? China’s electric vehicle market staged a strong rebound after disruptions caused by the Covid-19 pandemic last year and has remained the world’s biggest market since 2014. However, there have been bumps on the road, including electric car fires and the ongoing auto chip shortages.

China also lags the US in the vehicle autonomy competition, raising calls for more effort put toward core technology advancement. Pledging for quality growth amid rising superpower tensions in the next five years, Beijing would have to stay the course in boosting the sector, while realizing little near-term profit.

Semiconductors

Chinese leaders have long vowed to achieve “self-reliance” in strategic technologies, and semiconductors are one of the priorities. The sector is expected to get major attention as China issues its development blueprint for the next five years.

In the 13th Five-Year Plan: The five-year plan ending in 2020 saw semiconductors, along with other high-tech sectors like robotics, smart transportation, and virtual reality, as “new areas of growth” for the nation’s economy, but didn’t make production of semiconductors a strategic priority.

• Priorities certainly have changed over the past five years as Chinese leaders realized how troublesome it is to rely on foreign imports of semiconductors. Huawei is a brutal example.

Expectations: In 2015, China set a goal to make 70% of the chips it uses by 2025 as part of its “Made in China 2025” initiative. Now the question is how China will achieve that goal. The country only produced 6% of the semiconductors it consumed in 2020.

• The fifth plenum vowed to implement a series of “foresightful and strategic” technology research projects including integrated circuits, quantum information, AI, and neural science.
• Despite the industry’s importance, the National Development and Reform Commission didn’t include semiconductors on a list published last September of “strategic emerging industries.” Electric vehicles and artificial intelligence were on the list.
• The central government will increase investment in the domestic semiconductors industry through vehicles like the National Integrated Circuit Industry Investment Fund.
• More favorable policies towards domestic chip companies are likely such as tax breaks and heavier tariffs on imported electronic components.
• Bloomberg cited sources as saying that Beijing has added in a draft of the 14th five-year plan “a suite of measures to bolster research, education, and financing” for the semiconductors industry. 

E-commerce

E-commerce falls under the broader concept of the digital economy, a major theme in the plan that also covers 5G, artificial intelligence, and big data. E-commerce is expected to play a greater role in driving China’s economic growth in the next plan period.

In the 13th Five-Year Plan: The development plan that ended in 2020 set out to expand the e-commerce sector by facilitating its deep integration with traditional industries and prioritizing its governance. China sought to integrate e-commerce into various areas including education, healthcare, culture, and tourism to drive innovation.

• The 13th five-year plan set out expectations for China’s e-commerce transactions to exceed RMB 40 trillion ($6.19 trillion) in 2020, the last year of the plan—double the transaction value in 2015. The figure includes RMB 10 trillion from online retail businesses. The sector was projected to employ more than 50 million people by the end of 2020.
• The period of the 13th plan showed mixed results for e-commerce. The country missed the plan’s goal of RMB 37.21 trillion in e-commerce transactions in 2020. Online retail sales hit their target, however, totaling RMB 11.76 trillion in 2020, data from the National Bureau of Statistics showed.

Expectations: China expects online commerce to continue supporting its macro strategies, notably poverty alleviation and the One Belt One Road initiative. E-commerce has become an important means for China’s rural dwellers to sell their agricultural products. With more free trade zones on the horizon, China looks to expand its cross-border e-commerce market in the next five years.

• As a booster for both domestic and international commerce, the industry plays a central role in goals set for the “dual circulation” concept, which refers to spurring domestic as well as global demand, creating circumstances where the two boost each other’s growth. The idea featured predominantly in recent policy statements, although the term has been a policy meme for several years.
• Chinese regulators are stepping up monitoring for unfair competition and monopolistic practices.
• Consulting agency Jiuhou Zongheng has forecast that China’s e-commerce transactions will reach RMB 50 trillion by 2024.

Blockchain

Blockchain could be a new item in the 14th plan. It’s had plenty of attention at top levels in the past year.

In the 13th Five-Year Plan: Zilch. Blockchain was not on top policymakers’ agenda back in 2016.

Push from the top: The technology had its breakout moment in Chinese policy in October 2019, when President Xi Jinping praised the technology at a Politburo study session.

• Since then, local governments have embraced blockchain governance projects and tried to spur innovation in the field.
• The National Development and Reform Commission is supporting the development of the Blockchain Services Network, an “internet of blockchains.”

No crypto: Chinese regulators are not big fans of one of the technology’s most popular applications: cryptocurrencies. The past year’s clampdown on unregulated cryptocurrencies “is meant to clear a path to regulated forms of digital assets, starting first with DCEP [the central bank’s R&D project that includes the digital RMB],” said Michael Sung, co-director of the Fintech Research Center at the Fanhai International School of Finance at Fudan University, told TechNode.

Expectations: The technology was not mentioned in the 14th plan guidelines issued after the Fifth Plenum.

• The cryptocurrency mining industry might be negatively affected by financial de-risking campaigns and sustainability goals. The industry consumes vast amounts of electricity and is dependent on volatile crypto assets. 

READ MORE: Inner Mongolia may ban crypto mining: Blockheads

So what? China is already very interested in blockchain, but has not given the technology the same level of support as, say, electric vehicles. A name-check in the 14th plan would seal its status as a key technology and could pave the way for a national blockchain roadmap.

Antitrust

China has recently tightened antitrust regulations on tech companies. Regulators started at the end of last year to look at tech giants’ market dominance and to use anti-monopoly tools to limit them. The country also changed antitrust laws and rules to better rein in big tech. As top leaders of China repeatedly vow to “strengthen anti-monopoly” and “rein in disorderly capital expansion,” what has affected tech companies so far seems to be just the start of severer crackdowns.

In the 13th Five-Year Plan: The 13th development plan mentioned breaking industry monopolies and rooting out market barriers. It also intended to establish an “efficient antitrust law enforcement system,” deepen international antitrust law enforcement cooperation, and check administrative monopolies.

• In 2018, China created the State Administration for Market Regulation (SAMR), a  trustbuster that centralized antitrust power previously dispersed among  four market regulators.

Expectations: China is already on the move to rein in big tech with anti-monopoly tools. If the new plan pushes government agencies to impose stricter antitrust regulations and break monopolies, tech giants like Tencent, Alibaba, and Bytedance may feel a lot more pain.

• China’s antitrust regulator drafted an amendment to the Anti-Monopoly Law in January 2020; China may push to finalize the law during the period of the 14th five-year plan.
• The fifth plenum also called for the establishment of an “efficient antitrust law enforcement system” and to “break industry monopoly.”
• SAMR has said tightening antitrust regulations leads the 2021 agenda for the agency.
• While companies like Tencent and Alibaba are already under the spotlight, SAMR may launch more antitrust investigations into big tech companies. 
• A few antitrust lawsuits between tech companies are set for court hearings this year. Among them are the Douyin vs. WeChat, and JD.com vs. Alibaba cases. The results of cases will provide precedents for how the antitrust rules that took effect in February will be interpreted by the courts.

Rural areas and agriculture

Agriculture, the foundation for feeding China’s 1.4 billion population, is facing a new round of restructuring and modernization. The countryside is a growing focus for tech companies because it is home to a group of maturing consumers as well as being a lower-cost manufacturing hub. That makes aligning with rural developments a big goal for these internet firms.

In the 13th Five-Year Plan: The last plan placed a high priority on continuous modernization of rural areas and the agricultural sector. The plan promoted integration of agriculture and e-commerce and encouraged the application of big data and internet of things tech in agriculture.

• President Xi Jinping announced China’s “complete victory” in eliminating “absolute poverty” at a grand gathering held February 25 in Beijing. In the past eight years, nearly 100 million rural residents were lifted from poverty, Xi says.
• Tech giants including Alibaba, Pinduoduo, and Didi Chuxing were rewarded for contributions in the poverty alleviation initiative.

Expectations: China is expected to continue to focus on improving the quality, safety, and profitability of the sector, goals that require technological assistance.

• The focus of China’s agricultural development will shift from increasing production to improving quality, according to The China Agriculture Outlook (2020-2019) released this past April.

Policymakers are counting on tech in a plan to improve both farmers’ output and their incomes, said Even Pay, an associate director at Trivium:

“Policymakers are preparing for a future where there are fewer farmers. Some of them may be older, and in need of equipment to make their jobs easier. They also hope to attract some young people back into farming by making the work easier and more interesting—like operating ag machinery or flying drones.”

“Another big reason the government is supporting agtech is the “dual circulation strategy”—which looks to make domestic consumption the main driver of China’s macroeconomic growth. Right now China’s rural areas have the greatest growth potential of anywhere in the country—provided farmers’ incomes go up.”

Fintech + digital yuan

Fintech and the digital yuan might get a direct mention in the 14th plan.

In the 13th Five-Year Plan: Fintech was directly mentioned only once in the last plan. That plan called for a risk monitoring and crisis management system for all financial activity, including “internet finance.”

• “Microfinance,” “inclusive finance,” and “green finance” were included in the plan, but these categories also refer to traditional financial tools, said Jonas Short, head of the Beijing office at Everbright Sun Hung Kai.
• The plan called for microfinance to be made more “transparent” and regulated, while “Internet+inclusive finance” was to be promoted, and a green finance system was to be set up.
• The 13th plan also mentioned the development of “multilayered” and “non-cash” “payment systems,” although it didn’t mention digital payments specifically.

Fintech development: Since the release of the 2016-2020 plan, the use of fintech has skyrocketed, and an overwhelming majority of Chinese citizens now make use of some sort of digital finance, whether that’s for lending, investment, or insurance.

• The Ministry of Commerce released a fintech development plan in 2017, focused on cybersecurity, digital payments, and risk prevention.  
• As big tech came to play an increasingly important role in China’s finance, especially with regards to consumers and SMEs, authorities started laying down the rules: In 2020, Chinese regulators ramped up their efforts to regulate fintech companies, especially after Ant Group’s IPO was suspended in November 2020. Rules for microlending, antitrust, and digital payments have been released since.

Digital yuan: China’s central bank has been working on a digital form of cash, the digital yuan, since 2014. If implemented, it will be the first state-backed digital currency by a major economy. The central bank appears to have accelerated the development of the currency in 2019 after Facebook announced its Libra project. Trials for the e-CNY started in late 2020 in four Chinese cities: Chengdu, Shenzhen, Suzhou, and Xiong’an.

Expectations: The guidelines directly called for the improvement of “the level of financial technology.” They also included language similar to the previous plan’s regarding inclusive and green finance, as well as on financial risk prevention and monitoring.

• The guidelines called for continuing R&D on digital currency.

So what? China’s fintech industry will continue to grow, especially given a lift in the 14th plan. But incumbents will face more competition as a result of antitrust regulations and the opening up of payments systems that DCEP will bring. Tech companies dabbling in finance will also be increasingly brought under the fold of financial regulation.

A recently published speech by Zhou Xiaochuan, who spearheaded China’s foray into digital currencies when he was chairman of the People’s Bank of China (PBOC), has shaken some basic assumptions about the digital yuan, or e-CNY.

China has been working on a digital currency for years, much anticipated by fans of virtual payments and opponents of leather wallets. It’s likely to be the first major economy to adopt a digital currency. Details were scarce until April 2020, when a series of four pilot programs gave us our first look at e-CNY payments. 

Just in time for the annual meeting of China’s legislature, its most famous monetary policy authority has released the text of a talk on the central bank’s digital currency plans. Zhou said that these plans are a lot broader than the launch of a new form of currency.

We recommend reading the whole Chinese Caixin text, even if it means using Google Translate—it’s a lot easier to follow than the translation. We’re relying on Caixin’s English where available, and our own translation where not.

DCEP vs. digital yuan

First off, Zhou’s first point: “DCEP”—short for “digital currency/electronic payments” is not the same as the digital RMB. Many writers—us very much included—have understood them to be near identical.

According to Zhou, this is a misunderstanding. The currency is called the digital yuan, or e-CNY. DCEP is the central bank’s broader research project into digital currencies and electronic payments. 

I’d like to make it clear that DCEP is a two-tier research and development (R&D) and pilot program, rather than a payment product. In other words, the DCEP program may involve several payment products that can be trialed and rolled out.

Our translation

The central bank’s job is to provide underlying infrastructure and oversight, not build payments products, he wrote. 

The bank shouldn’t pick one technology roadmap at all, Zhou wrote.

It’s best if the central bank doesn’t pre-determine, or endorse, a certain technological route, because technology is constantly evolving, and it is not easy to judge which technology is better or worse when the technology is advancing very fast.

Our trans.

Two tiers

Zhou’s next key theme is the “two-tier” approach to managing DCEP.

On the first tier sits the PBOC. The central bank’s job, Zhou said, is providing infrastructure and oversight.

The second tier is where you’ll find digital currency and payments. It comprises everyone else; commercial banks, telecom operators, and third-party payment platforms like Alipay and WeChat Pay. 

According to Zhou, tier-two institutions will be tasked with developing payments products, which includes e-CNY.  This means, Zhou wrote, that the digital yuan isn’t a mainstream central bank digital currency (CBDC).

Zhou likened the two-tier approach to Hong Kong’s semi-private banknotes. Most money in Hong Kong is printed by private banks, backed by deposits of American dollars with the city’s equivalent of a central bank.

To some extent, this design draws lessons from Hong Kong’s three note-issuing banks. The three banks need to give $1 [ed: US dollar] to the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, as a reserve for every HK$7.80 they issue. The HKMA then hand outs certificates of indebtedness to the issuing banks. On the banks’ balance sheets, the notes they issue are entered as liabilities. And for the HKMA, the certificates of indebtedness are its liabilities. In this sense, DCEP is different from the typical CBDC, which is owned and indebted by a central bank.

Caixin translation

On the Hong Kong model, banks would have to deposit one yuan RMB at the central bank to issue a digital RMB. But Zhou doesn’t seem to say that DCEP will adopt this exact approach.

Secondly, the PBOC can ensure the stability of the digital yuan’s value through multiple approaches, including requiring banks to set aside money as reserves and then issuing them certificates of indebtedness or letters of comfort. Therefore, the composition of the two-tier system of DCEP can be different.

Caixin trans.

“I believe that he is suggesting that DCEP can be either in CBDC form (direct claims on PBOC) or in narrow bank form. The latter is a claim on a bank which is based on segregated claims on PBOC. He is a little unclear on that, going one way in part of the essay and the other way in a different part. ” Darrell Duffie, Professor of Finance at the Stanford Graduate School of Business, told TechNode.

But at one point, Zhou seems to have it both ways on whether the PBOC should get involved in designing the system:

Theoretically speaking, under the two-tier system, the central bank’s own R&D focus may not be on the digital currency product itself (of course, it has the foundation, so there are also many people inside who are enthusiastic to do research in this area, which is not unreasonable), the central bank should focus more on building reliable settlement and clearing infrastructure…

Our trans.

So what? 

Zhou wrote that China is not really working on a CBDC—at least, not a “mainstream” one.

He advised the reader to focus on a long-term R&D program, rather than current digital yuan experiments, which he seems to see as one model among many.

Pilots for the e-CNY launched in 2020 in four cities: Chengdu, Shenzhen, Suzhou, and Xiong’an. Six public trials have taken place in the four cities in the form of lotteries, starting in Shenzhen in October 2020. It appears that these have all tested the same system—all use the same app.

There are some differences between banks visible in this app. The e-CNY displayed on the pilot digital wallets currently tested in Suzhou comes in different colors, depending on the bank card connected to the account. Users were also able to spend the money in different places depending on which bank card they connected, suggesting that the major Chinese banks may in fact be implementing the system at least somewhat independently.

READ MORE: UPDATED: We got some digital yuan!

During the latest Chengdu lottery, winners could also use the JD.com app as an e-wallet.

Other products built by second-tier institutions under DCEP could include “smart contracts, like programmed payments, delayed payments, contingent payments, and so on. This could also mean API service provision, super Apps for cross applications, and so on,” Duffie said. 

Zhou also commented on a few other key issues:

No disintermediation 

The PBOC should be careful to avoid cutting banks out of the equation, Zhou wrote—something known as “disintermediation.” Many early digital currencies have encouraged users to do without bank accounts, often advertising it as a feature.

Chinese DCEP architects want to keep traditional financial institutions in the loop. “Commercial banks serve a critical function in implementing monetary policy. So, in considering digital currencies strategies, central banks specifically focus on implementations that would not disintermediate these banks,” Michael Sung, founding co-director of the Fudan Fanhai Fintech Research Center and chairman of CarbonBlue Innovations.  

All about Ant?

Some observers have seen DCEP as a rebuke to Alipay and WeChat Pay, the privately-developed electronics payments platforms that dominate transactions in contemporary China. 

Zhou seems to say that DCEP will not replace Alipay and WeChat Pay, but it will bring more competitors. Zhou describeed the two companies behind China’s most popular payment solutions as fundamental to the project, including them in a list of eight major two tier institutions.

Tier-two institutions are already quite motivated to come up with payment solutions, to acquire more users, Zhou wrote. But they will shirk responsibility without oversight, he writes.

In the digital yuan system, the second tier institutions will “own” the digital yuan, and thus will be forced to have enough reserves to back it up, but will also be responsible for know-your-customer requirements and protecting privacy, Zhou said. 

For that matter, Zhou thinks that QR codes may be replaced: 

QR codes are not very high-tech, so some people say that they might disappear sooner or later, and it may not be so long.

Our trans.

Zhou lists near-field communication and subway-style prepaid cards as other possible ways  to make payments happen. Both of these QR code alternatives are being tested in digital yuan trials. 

Blockchain

The former central banker said blockchain is not ready to be part of DCEP, but he didn’t shut the door completely. 

In the field of payment, due to the huge transaction throughput, distributed ledger technology is not yet able to play a core role in the retail payment system, but it can wait for the development of technology.

Our trans.

Zhou highlighted the difficulty of unwinding transactions made in error as a downside to blockchain.

RMB internationalization

Several observers have taken DCEP as a challenge to  the US dollar’s global status. But Zhou played down the international side of digital currency.

Just this week, the PBOC joined a project called “m-CBDC bridge,” to test cross-border transactions using digital currencies with Thailand, the United Arab Emirates, and Hong Kong. 

But Zhou argues that new technology won’t fundamentally change cross-border transactions. The real issues, he says, are financial obstacles like exchange rates.

The difficulties linked to cross-border payments don’t really involve technical systems, but risks related to currency exchange and management of capital inflow and outflow. For example, if Mexican migrants in the US want to transfer money back home using Libra, they have to exchange it for pesos if Libra is not widely accepted in Mexico. Therefore, it’s necessary to focus more on the retail application rather than on cross-border money transfer.

Caixin trans.

However, Zhou does see opportunities for digitalization to help with some retail transactions, naming e-commerce, remittances, and tourism, which will “fit with” RMB internationalization. 

He cautioned against getting a reputation for “dollarization,” referring to countries in which the dollar has partly or wholly replaced local currency.

China and other East Asian countries, can steadily advance cross-border payments using new payment solutions. This requires countries to build on the solid development of domestic retail payment systems, and then focus on solving current account payments such as cross-border travel, while respecting the needs of some countries to prevent dollarization. Of course, this process may be accompanied by the internationalization of the RMB, but this should not be forced. It is more important to avoid being accused of promoting “yuanization.”

Our trans.

In Zhangjiagang, in eastern Jiangsu province, an often unsung profession is in high demand this Lunar New Year season; delivery drivers.

The city, home to one of the many ports along the Yangtze river, emerged from the pandemic’s first year mostly unscathed with few reported COVID-19 cases. 

But like the rest of China, following a resurgence of infections in January in several parts of the country, the city’s 1.2 million residents have been subject to economic and transport controls leading up to the year’s biggest holiday, designed to discourage travel.

While many residents, determined to reunite with family, have skipped town early in order to avoid being snared by transport restrictions, a large portion of China’s population has chosen to refrain from going home for the week-long holiday, which begins Feb. 11.

In a normal year, the holiday is a peak time for brick and mortar stores, as consumers rush to snag gifts after returning home. But this year, much of that demand is shifting online. E-commerce and logistics are left scrambling to retain a labor force.

What sounds like a golden opportunity for delivery workers who stayed on the job, however, may be playing out differently in practice.

New year’s surprise

It was 8:15 p.m. in Shanghai. Kuang was sitting on his electric scooter outside the Grand Gateway in Xujiahui, a commercial district in the city. He looked down at his phone. There was only one order in his Ele.me food delivery app. 

Compared with January, he said, orders have plummeted. 

For delivery drivers who did not go home, the volume of work has been a far cry from what they were promised by delivery platforms. With drivers paid per delivery, slow days mean little pay. 

In nearby Zhangjiagang, Wang, a manager of the downtown area of rival delivery platform Meituan, told TechNode that he expected a shortage of drivers during this Chinese New Year. Many had already gone home, he said, and wouldn’t be returning until after the week-long holiday, which falls between Feb. 11 and 17 this year.

After a resurgence of COVID-19 infections in parts of China in January, central and local authorities have called for people to “spend the holidays where you are.” People who travel home, especially to rural areas, face a variety of barriers ranging from mandatory quarantine to regular testing. Meanwhile, some urban companies are offering workers bonuses to stay on through the holiday.

The Spring Festival is China’s most important holiday, and in a normal year almost everyone would spend it with family. Transport authorities project the number of trips to be made during this period to drop from 3 billion in 2019 to 1.7 billion. 

Delivery drivers won’t stop during CNY

With many people choosing to spend their holidays away from their hometowns, Spring Festival shopping has posed a new challenge to delivery and logistics, which have become a part of China’s economic backbone. 

During the first wave of lockdowns in 2020, logistics companies were caught with only a holiday-period skeleton crew, struggling to get staff back to work while focusing on relief deliveries to the then-epicenter of Hubei province. 

Online retailers have witnessed an explosion in purchases during what is normally a slack season. Data from shopping platform JD.com shows a whopping 55% year-on-year increase in orders destined for other cities during the last 13 days prior to the Lunar New Year, while for its grocery spinoff JD Daojia, the volume was twice that of the comparable period last year. 

Even China’s own State Post Bureau marked a growth in online purchases in the period leading up to the festival, in contrast with previous years when orders experience a steep drop in the week prior to the holiday. Its numbers indicate the amount of parcels being sent nationwide increased 28.94% year-on-year between Jan. 20 and Feb. 3, although lockdowns had swept China by this time in 2020, creating what could be a low base for comparison.

Deliveries during the holiday season are normally handled by JD Logistics, SF Express, and the state-backed China Post, the few companies that accept orders in this period. Much of the industry, which employs fleets of delivery workers and machines outside the national holiday, cease operations during what is normally a seven-day break.

Nearly all delivery platforms announced they will continue to operate during the Spring Festival. 

“Last year the pandemic didn’t really break out until the holiday [was underway] and the stores were all closed already.” Wang said. “This year is different. As per state policy, many stores will stay open during the holiday so there will be more orders.” 

The government’s call to “spend the holidays where you are” will fuel growth in the delivery market during the Lunar New Year, said Zhao Guojun, director of the Post Development and Research Center of Beijing University of Post and Telecommunications.

Bidding war or nice little gesture?

More than previous years, delivery companies have raised their financial incentives from previous years in an attempt to attract couriers to work for their platforms during the holiday.

• Cainiao, the logistics arm of e-commerce giant Alibaba,, is earmarking RMB 200 million ($31 million) in financial incentives for delivery staff who work during the holiday.
• JD Logistics will increase its budget for frontline employees, such as couriers and warehouse staff, doing holiday overtime to RMB 200 million, doubling the RMB 100 million first announced in January.
• SF Express plans to distribute a total of more than RMB 620 million in additional pay and incentives during the holiday.
• Delivery drivers who work between Feb. 4 to 26 on Meituan were offered up to RMB 2,610 in bonuses, with requirements such as signing into the order app on a regular basis and fulfilling a certain number of orders.

But while platforms are touting bonuses, several delivery drivers who spoke to TechNode said they were uncertain how much extra cash they would actually make. 

Li, an Ele.me driver in Zhangjiagang, expects the bonuses to be offset by slow business. In normal times, he says, he can make up to 90 deliveries on a good day, but when asked if this was likely during the new year holiday, he said he couldn’t be sure. His normal pay is RMB 3 to 5 per order, rising to RMB 15 each after 20 orders have been fulfilled. 

“The number of orders will change every day during the holiday,” he said. “I’m not expecting to get too much money from the platform.”

Yet for many workers, it’s travel restrictions, not cash incentives, that are keeping them away from family, especially given that some already forewent reunions in 2020 due to an escalating epidemic.

Tang, a Meituan driver, told TechNode that he would be quarantined for an entire month in total if he went back to his hometown in Sichuan province then came back to Shanghai, the city where he works. 

Still, the bonuses were better than nothing.

“Most of my non-Shanghainese colleagues won’t go back to their hometown,” he said, checking his phone for incoming orders. “The pay isn’t a lot, but it’s handsome enough given the circumstances. I will go back home after the holiday, when quarantine policies are removed.”

Ant Group has reportedly reached a deal with Chinese authorities to become a financial holding company, making it subject to bank-like capital requirements.

Why it matters: The restructuring is likely to ease regulatory pressure for the fintech giant, but could also drastically alter its operations and curb its rapid pace of growth.

Details: Ant Group will be putting all of its business into a financial holding company, including all of its non-financial technology operations, such as its blockchain platform AntChain, Bloomberg reported.

• Previous reports said that Ant initially tried to only relegate business units that fall under the purview of financial regulators to the holding company, including consumer and small- to medium-sized business lending, wealth and asset management, insurance, digital payments, and MYBank, its licensed bank.
• An official announcement could come before the Spring Festival holiday, which starts on Feb. 11.
• Regulators are still ironing out the exact requirements for financial holding companies, after announcing the corporate framework in September.
• An Ant Group representative declined to comment.
• Share prices in New York for its e-commerce affiliate Alibaba on Wednesday rose 3.5% on the news.

Context: Since the suspension of Ant Group’s highly anticipated blockbuster dual public listings, it has been facing intense regulatory headwinds as Chinese authorities move to rein in fintech giants.

• Just last week, Ant Group removed all bank deposit products from its platform to appease authorities which deemed them too risky.
• On Jan. 21, China’s central bank released new antitrust rules for third-party digital payments providers that will likely hit Ant, among other fintech companies.
• JD.com’s fintech arm JD Digits also restructured in January, but took a different approach: It joined the finance unit with its artificial intelligence and cloud businesses into a new company called JD Technology.

READ MORE: CHINA VOICES | The unsigned op-eds that foreshadowed Ant Group IPO suspension

Savvy Chinese netizens are looking to capitalize on the booming success of US-based Clubhouse by selling invitations to the invite-only live audio app, just a day after Tesla CEO Elon Musk broke audience records with an appearance on the platform.

Details: TechNode counted dozens of listings for Clubhouse invites on Idle Fish, Alibaba’s secondhand marketplace.

• Prices range from RMB 180 ($28) to RMB 500 per invitation. Sellers are from a number of different locations in China. On eBay, Clubhouse invites are selling for around $50 at the time of writing.
• The overwhelming majority of the Idle Fish listings were posted in the last 24 hours. TechNode has not been able to verify the authenticity of the listings.
• The homonymous hashtag had been viewed 6.65 million times on Weibo, China’s Twitter-like social media platform, in the 24 hours preceding Tuesday afternoon, Feb. 2. It peaked around 5 p.m. China Standard Time on Monday.
• “What is this? Am I out of touch with the times?” (our translation) one flabbergasted Weibo user wrote around 5 p.m., posting screenshots of chatter on the social media platform. The post had been liked 6,700 times.
• At 5:43 p.m., a Weibo user with 2 million followers noted that Clubhouse invites were sold on eBay for $97. The post attracted 4,000 likes.

Context: The Clubhouse app lets users join in rooms and listen to conversations between hosts and guests. It has been buzzing in Silicon Valley the last month or so, but reached new heights of popularity after tech superstar Elon Musk’s appearance on Monday.

• The Tesla executive debuted on the audio app, giving news writers around the world plentiful headlines: He broke the app’s audience limit, said he is a “supporter of Bitcoin,” and grilled the CEO of Robinhood about the app’s decision to stop investors from trading GameStop.

Pre-holiday sell-off

Bitcoin prices will continue to face selling pressure over the next two weeks as Chinese miners sell their tokens in the run up to the Spring Festival holiday, according to a report published Thursday from Singapore-based Stack Funds, a cryptocurrency investment management company.

In the last four years, Bitcoin prices have consistently fallen during China’s week-long holiday. In 2018, they fell by 50%. The weeklong holiday, which this year will falls on Feb. 11 to 17, calls for increased spending on gifts and traveling, which has the world’s largest cryptocurrency mining community selling their tokens for fiat currency, industry observers have said. (Cointelegraph)

Binance Smart Chain thefts

Several projects have reportedly raised money on Binance Smart Chain, the cryptocurrency exchange’s developer platform which focuses on decentralized finance (DeFi). Organizers behind some of these projects have raised funds from users wanting to participate in the project, and then disappeared, taking the funds with them.

Three of the five projects that have fled the Binance developer platform took BNB 59,000, the platforms’ native token, worth close to $3 million. (Wu Blockchain, in Chinese)

Interoperability news

• The Blockchain Services Network (BSN), an “internet of blockchains” spearheaded by the Chinese government, launched the Open Permissioned Project, an attempt to integrate public chains into the network while making them compliant with Chinese regulations. The development team behind IRISNet developed Bianjie, the first blockchain launched under the project. (BSN official Medium account)
• Poly Network launched interoperability between its member chains and Zilliqa, an enterprise-oriented chain developed by a team in Singapore. (Poly Network official Medium account)

Mining updates

• Canaan Creative signed a contract to sell 6,000 of its latest cryptocurrency mining machines to US-based Core Scientific, just weeks after it agreed to sell 6,400 of the same model, the Avalonminer 1246, to Canadian mine operator Hive Blockchain. Canaan’s losses in the third quarter of 2020 increased by a factor of four to $12 million, after it lowered its price for computing power by almost 70% year on year in a bid to boost sales. The effort appeared to have backfired—revenue during the quarter fell 76% compared with the same quarter a year ago, while computing power sales for the period dropped 21% year on year. (Canaan Creative website, in Chinese)
• Bitmain’s Wu Jihan started the handover to Zhan Ketuan on Jan. 26, ending a year-long battle for control between the two co-founders of the world’s largest cryptocurrency mining equipment manufacturer. The official WeChat account for Antminer, its flagship product, posted a notice saying product deliveries won’t be affected by the changes in management. (Antminer official WeChat)
• On Jan. 31, one of five directors at Bitmain quit for unknown reasons. (Wu Blockchain Twitter)
• Ebang’s executive director Wang Hongyong said at a roundtable meeting that he expects 500,000 to 800,000 total shipments of cryptocurrency mining machines in 2021. (Wu Blockchain Twitter)

The US take on DCEP

China’s digital yuan “poses serious risks to US national security interests,” according to a report by the Center for New American Security. The digital currency is an attempt to enhance and export Beijing’s “digital authoritarianism” through the collection of financial data and the application of AI and big data on these databases.

The digital yuan could also risk US citizens’ privacy and internationalize the renmimbi yuan at the US dollar’s expense, the report said.

(Center for New American Security)

READ MORE: INSIGHTS | China’s digital currency has a long way to go

Staff change

• 100x, the group behind Seychelles-based crypto derivatives exchange BitMEX appointed the former Bank of China chief credit officer, Wai Kin Chim, to its board of directors. (BitMEX press release)

Electric vehicle startup Faraday Future is close to finalizing a $310 million round of funding from a group of China’s state-owned enterprises and national funds, as the company is set to go public via special purpose acquisition company in the US.

Why it matters: The new investment will ease near-term cash flow pressure on the embattled EV maker and clear some roadblocks for the company resuming its expansion plan into the Chinese EV market, the world’s biggest of its kind.

Details: Faraday will receive around RMB 2 billion ($310 million) from a consortium of investors led by two Chinese state-owned enterprises, Zhuhai Gree Group and Zhuhai Huafa Group, TechNode has confirmed.

• The cash injection is under the direction of the municipal government of Zhuhai, a city in the southern Chinese province of Guangdong, a person close to the matter told TechNode on Wednesday, speaking on condition of anonymity.
• The state-owned Nanfang Media Group first reported the news (in Chinese). Faraday Future declined to comment when contacted by TechNode on Wednesday.
• The Los Angeles-headquartered EV startup has been in touch with the government since late last year. This was followed by the incorporation of a fully-owned subsidiary with registered capital of $250 million in the city in late December, according to Chinese business research platform Tianyancha.
• Zhuhai is among the regional governments aiming to play a major role in China’s leadership in electric vehicles, in September revealing plans to make new energy carmaking one of its five pillar industries by 2025. Chinese media reported that local authorities have been preparing plans to build a new vehicle assembly plant with Faraday.
• Gree Group is a former major shareholder of Gree Electric Appliances Inc, China’s biggest air conditioner maker, while Huafa, also fully owned by Zhuhai municipality, is the city’s biggest real estate developer. Gree and Huafa did not respond to TechNode’s request for comment.

Context: Faraday has struggled for years to secure funds to get its first car, a luxury EV model called FF91, into production, in part due to the debt issues of founder Jia Yueting. The company’s second chance comes as Chinese local governments are racing to back EV startups amidst a Wall Street craze for EV stocks.

• Zhuhai is not the first city to pay to bring an EV maker to town. Hefei provided a lifeline to EV maker Nio in February in return for establishing its Chinese headquarters in the central Chinese city.
• Faraday is expected to file for listing through a merger with Property Solutions Acquisition Corp, a special purpose acquisition company (SPAC) within the next two weeks, Chinese media reported. It has hired Credit Suisse as an underwriter, the person close to the matter told TechNode.
• The company is also looking to source manufacturing from Chinese private automaker Geely, with plans to build a plant with annual capacity of 100,000 vehicles, Reuters reported Monday.

Chengdu will distribute $7.7 million to winners of its first digital yuan lottery on Jan. 27, on the heels of similar trials for the currency in Shenzhen and Suzhou.

Why it matters: The lottery is the third digital currency trial open to the public, signaling that rollout is underway. It is also the biggest: Chengdu is giving out more than double the amount of funds distributed in each of the previous lotteries.

• China’s digital yuan is likely to be the first digital currency issued by the central bank of a major economy.

READ MORE: EXCLUSIVE: We got some digital yuan!

Details: The trial will start on Jan. 27 and will last until Feb. 26, Chinese media reported. Residents of Chengdu, the capital of southwestern Sichuan province, can enter the lucky draw via a local government application. The RMB 50 million ($7.7 million) in funds will be distributed in red envelopes.

• Unlike other lotteries, the Chengdu red envelopes will be earmarked for use online or offline. RMB 30 million can be used in offline stores, and the remaining RMB 20 million can be spent on e-commerce site JD.com.

Context: The lotteries distribute the digital currency and usually set a time limit for when it can be used so that the relevant authorities can gather and study data from the trial.

• Shenzhen has held two lotteries, one in October and the second in January, while another took place in Suzhou in December. Prior to the public lotteries, the digital currency was only available to whitelisted individuals who were selected to take part in the trials held in Chengdu, Suzhou, Shenzhen, and Xiong’an.
• In 2021, the digital currency started popping up in other places, including a cafe in Beijing and a hospital in Shanghai.
• Chinese authorities have said that the digital yuan, also known as the Digital Currency/Electronic Payments (DCEP) project, will be tested during the Beijing 2022 Winter Olympics.

READ MORE: INSIGHTS | China’s digital currency has a long way to go

Digital yuan progress

• Ant Group employees can use the Alipay app for digital yuan transactions in select locations, including the Lujiazui district in Shanghai. The fintech giant is working with the People’s Bank of China to develop infrastructure to support the digital currency. (Mobile Payment News, in Chinese)
• The Industrial and Commercial Bank of China, one of the country’s big four banks, is accepting applications from customers in Shenzhen who want to open digital yuan wallets. (China Banking News)

Chinese miners in Iran

Iranian authorities halted all cryptocurrency mining operations operated by Chinese people on Jan. 14. Chinese crypto entrepreneurs flocked to Iran during the Bitcoin surge to take advantage of its cheap electricity.

An Iranian tech entrepreneur, Nasim Tavakol, tweeted on Jan. 8, “The Chinese have built a 175 MW bitcoin mining farm in the Rafsanjan Special Economic Zone,” (translation via Twitter), and added the mine’s coordinates. (Wu Blockchain, in Chinese)

More interoperability

Binance and Poly Network are launching cross-chain interoperability. Binance Smart Chain, the cryptocurrency exchange’s decentralized finance-oriented public blockchain, and Poly, founded by Neo’s Da Hongfei, are the latest two blockchain projects to try cross-chain transactions and data exchange.

READ MORE: Binance, Poly Network to launch cross-chain interoperability

Conflux lands $5 million grant

Public blockchain startup Conflux landed a $5 million research grant from the local government in Shanghai’s Xuhui district. Conflux is one of few decentralized chains to work with Chinese authorities. It received funding from Shanghai authorities in 2019 for a research lab, and scored a contract to revamp government data architecture in Hunan province in August 2020. (CoinDesk)

READ MORE: Public blockchain Conflux lands second government deal

Dalian, China—“1411 hours. The station is back in crisis. Once again, we cannot use the printer.”

A railway depot in the northeastern city of Dalian held China’s technically savvy readers in suspense—or, perhaps, stitches—with a minute-by-minute bulletin of its 20-hour “battle” to revert a Flash update on Jan. 15, which achieved brief viral fame before being deleted. Screenshots are still available on programming forum Github.

Depot staff were confused when their computers lost access to the local dispatch system on the morning of Jan. 12, according to the bulletin. The reason: Adobe’s last update to its Flash Player included a kill-switch set to go off that day, when the company ended support for the notoriously virus-prone web standard. Flash was little missed—except in the Chinese government, where it remains in widespread use. 

“0816 hours: After calls and online searches, we confirmed the source of the issue is American company Adobe’s comprehensive ban of Flash content.” 

So began the “insurmountable challenge of updating Flash”—a process the depot chronicled on its WeChat public account in the style of a military thriller, written with all the self-awareness of Dwight from “The Office.” As journalist Tony Lin, who first flagged the post in English, wrote on Twitter, it was “the Y2K content the world owes us for 20 years.”

The post was later deleted after catching on with technically minded online wags, many of whom asked why the depot didn’t plan for the retirement of Flash despite three years’ advance warning. 

The staff divided into hardware and software task forces, and attempted to restore an older version of Flash from a backup “GHOST system,” an effort marked by triumphs and defeats. By 10 p.m., they had mostly restored computers to backup states—when, suddenly, automatic updates caused the systems to disable Flash again.

According to a brief statement which later replaced the viral post, the issue was limited to newer computers in the depot and no trains were affected.

After midnight, the team began to chalk up lasting victories:

“Jan. 13, 0113 hours: ‘Wan Jia Ling station is fixed! Ling Ma shouted…we all gathered and confirmed. The room burst with cheers and applause.”

Finally, after 20 hours, the team had Flash up and running again on all its computers. Flush with victory, the author of the bulletin reflected on what they’d learned:

“During more than 20 hours of fighting, no one complained and no one gave up. The slim hope motivated each and every one and turned into the fuel to push forward. In the solving of the Flash malfunction, the depot displayed true initiative, innovation, and brilliance.”

All translations are TechNode’s own. Featuring contributions from hardware and regulations reporter, Wei Sheng.

Traditional institutional investors once considered cryptocurrencies an investment for the bold or the stupid: a niche market with a bad reputation and high volatility. In 2017, J.P. Morgan CEO Jamie Dimon called Bitcoin a fraud. 

In 2020, J.P. Morgan started offering banking services for cryptocurrencies and its analysts predicted Bitcoin’s price could hit $146,000 in the long term. Bitcoin’s price surged to $20,000 last year, entering the mainstream. On Jan. 9, 2021, it briefly hit $41,000. As of the time of writing, one Bitcoin costs $36,500.

Over the last year, affluent Chinese have flocked to blockchain-based digital assets as an investment—and a safer place to stash their money—industry insiders told TechNode. There are no hard figures on how much Chinese investors are putting into the largely untraceable world of crypto, but multiple insiders TechNode spoke with agreed that the virtual assets have caught on.

Chinese investors have historically preferred parking their assets in US markets through investments in stocks, funds, real estate, and more. The US is a mature and liquid market, with relatively tight control over corporate structures and low taxes on capital gains, making it a popular destination for the world’s wealth.  

High income Chinese are now looking at cryptocurrencies as a safe haven for their assets, said Flex Yang, CEO and co-founder of Babel Finance, a Hong Kong-based Chinese cryptocurrency asset management company.

About $50 billion in cryptocurrencies was moved from East Asia to overseas accounts in the 12 months ending in June 2020, according to an August report by US-based crypto analysis firm Chainalysis.

“China is a large part of this activity in East Asia,” a spokesperson from Chainalysis told TechNode, though it has not yet analyzed country-level data.

Based on their own interviews with experts, Chainalysis said that at least some of this $50 billion represents capital flight.

Tech war ripples

Yang said that after March, he noticed increased demand for his firm’s services from wealthy Chinese investors. 

Lennix Lai, director of financial markets at OKEx, the world’s largest cryptocurrency exchange by trading volume, and El Lee, COO of Singapore-based crypto asset custodial firm Onchain Custodian, agreed that cryptocurrencies have garnered more interest in the last year from wealthy Chinese individuals as well as the country’s institutional investors than in the past. 

Politics is one of the reasons for the shift, Yang said. Investors appeared concerned about the political environment in the US, following rising tensions with China. 

“Before, they thought it’s impossible for their assets to be frozen in the US. Now, the chances have increased by 100%,” he said. 

The tech war has accentuated an existing trend away from traditional assets and towards cryptocurrency trading in China, said Lai.

Investors have come to question the centralization of financial industries, especially given the potential of a decoupling between the world’s two largest economies, he said.

Lai brought up the example of the SWIFT system that underlies cross-border transfers of money, which is based on the US dollar. “There are a lot of discussions and rumors in China right now that this [reliance on US currency] could jeopardize the Chinese money flow,” Lai said. 

Follow the lead

Concerns about the US dollar is “one reason, but is not a major reason” why Bitcoin prices are soaring, according to Lee. 

“If that was the case, we would see our clients switching 80% of their fiat [currencies] into Bitcoin,” he said. The new interest is primarily driven by investors who want to diversify their portfolio, and people who see an investment opportunity in cryptocurrencies, said Lee. 

Central banks and financial heavyweights around the world have started endorsing cryptocurrencies in the last year, which has given them more credibility among mainstream investors. 

China is plowing ahead with its ambitious digital yuan project. The International Monetary Fund, European Union, and even several governments have taken up the development of their own digital or crypto currencies.

These moves are part of a trend toward a more “robust decentralized system” according to Lai,  one that isn’t controlled by a few stakeholders.

In 2020, non-crypto companies invested in Bitcoin and other coins, receiving widespread attention from media. Around the world, many people reading the news about Bitcoin prices want in on Bitcoin, Lee said. 

Fintech giant Square, Nasdaq-listed business intelligence software provider Microstrategy, and Stone Ridge Asset Management announced they are investing millions in cryptocurrency. Microstrategy owns more than $766 million in cryptocurrencies, and plans to buy an additional $400 million. 

In December 2020, Massachusetts Mutual Life Insurance, a Fortune 500 pension fund, bought $100 million worth of Bitcoin for its general investment fund. J.P. Morgan analysts viewed this as an indication that Bitcoin is “spreading from family offices and wealthy investors to insurance firms and pension funds,” Bloomberg reported based on an investment note. 

Mining cash

Another significant source of cross-border cryptocurrency flows from East Asia, particularly China, are cryptocurrency miners. China is home to around 65% of the world’s mining activity as of April, research from the Cambridge University Center for Alternative Finance indicated.

Miners need to convert their freshly minted cryptocurrencies into fiat currency to pay for bills like electricity and payroll. They prefer to convert them into stablecoins before converting them into fiat currency like US dollars, according to Chainalysis. Stablecoins are easier to convert to traditional currency and more resistant to cryptocurrency market fluctuations.

While the trend for Chinese investors has been to shift away from US-based investments, Chainalysis found that Chinese investors have a strong preference for Tether over other cryptocurrencies, a stablecoin pegged to the US dollar. It analyzed Bitcoin conversion into the most popular fiat currencies stablecoins in the last 12 months. All bitcoin converted from China went to Tether purchases, whereas in Korea and Japan it was mostly converted directly into local national currencies. 

READ MORE: Is crypto mining really moving to North America?

It has been nearly two years since Chinese tech workers took to Github, a coding collaboration platform, to protest Chinese tech firms’ overtime work culture known as “996,” a work schedule of 9 a.m. to 9 p.m., six days a week. The virtual protest drew global press attention, but things have scarcely changed since then. Today, Chinese tech workers are still plagued by 996.

The problem came under public scrutiny again this month when it was reported that a 23-year-old employee of Chinese e-commerce firm Pinduoduo collapsed and died on her way home after finishing work at midnight on Dec. 29, 2020. The tragedy prompted Chinese authorities to start a probe into Pinduoduo’s working conditions, something the 2019 protest failed to achieve.

Meanwhile, poor working conditions for blue-collar workers for China’s tech companies continue to draw public ire, triggered by similar misfortunes, including the death of a courier at food delivery platform Ele.me at work earlier this month, and the self-immolation of another Ele.me deliveryman this week.

Bottom line: 996 is still a problem in China’s tech industry. It’s brutal to employees, but it is questionable whether overtime work pays off even for companies. Tech executives have implied that 996 is one of the key ingredients for China’s tech success, but economists argue that it is a symptom of low productivity.

A brief timeline

• It’s unclear when 996 was first introduced. Online sources say it can be traced back to the early 2000s.
• January 2019: Youzan, a Chinese e-commerce software provider, announces it will adopt the 996 work schedule. Employees take to social media to protest.
• April 2019: Chinese tech workers create a repository called 996.ICU on Github. The crowd-sourced database collects allegations about Chinese companies’ overtime work schedules. Among the companies named are some of the biggest names in China’s tech sector: social media giant Tencent, e-commerce behemoth Alibaba, and Bytedance, Tiktok’s Chinese owner. The project is “starred” 255,000 times on Github. 
• April 2019: Meanwhile, tech executives jump to the defense of long work hours. Alibaba’s Jack Ma famously calls 996 “a huge blessing.” Richard Liu, CEO of e-commerce platform JD.com says people who slack at work “are not brothers of mine.” (Both links in Chinese)
• The topic soon died down without major changes made by companies. Despite condemnation from state-affiliated media, the government didn’t launch investigations into alleged violations of the labor law.
• H1 2020: Tech company workers complain that the 996 schedule followed them home as employees work from home during the pandemic.
• Jan 2020: Death of the Pinduoduo employee renews public scrutiny of tech firms’ overtime culture. In the same month, a second Pinduoduo employee dies after jumping from the 27th floor of an apartment building in Changsha, the capital of central Hunan province.
• Jan 2020: A Pinduoduo employee is fired after posting a photo of a co-worker being taken away by an ambulance from the company’s Shanghai headquarters. Pinduoduo says in a statement that he was fired for posting “radical” messages “in violation of the company’s employee guide.”

Changing demography: Shao Yu, chief economist at brokerage Orient Securities, wrote in a 2019 essay  (in Chinese) that anti-996 sentiment reflects China’s demographic shift from labor surplus to labor shortage in the past decades. 

• China reached a key demographic turning point in around 2010, wrote Shao, when the country’s unskilled labor market moved from surplus to shortage. Known as the “Lewis turning point,” this is a situation in economic development where surplus rural labor is fully absorbed into the manufacturing sector.

“Once the Lewis turning point is crossed, we enter the neoclassical development stage,  in which labor supply shifts from surplus to shortage, and economic development no longer relies on the crude input of labor force, but on the improvement of production efficiency.”

“One result of the shift is that people start to pursue a quality life instead of basic needs.” 

— Shao Yu, chief economist at Orient Securities

However, China still has surplus skilled labor, including tech workers, curbing skilled workers’ “bargaining power,” Eli Friedman, associate professor at the Cornell University School of Industrial and Labor Relations, told TechNode in an email.

“China’s higher education has expanded dramatically in recent years, creating a huge number of graduates competing for jobs, particularly in the prestigious big companies. In essence, the companies can get away with it because workers don’t have a lot of bargaining power in the marketplace. Companies of all kinds would like to extend their employees’ working hours, and the tech firms have been in a position to get away with it.”

— Eli Friedman, associate professor at the Cornell University School of Industrial and Labor Relations

How do they get people into 996? It’s not as simple as telling people to stay late at work. Tech companies try to “create consent” when forcing employees into overtime work, He Xuesong, professor at East China University of Science and Technology, wrote in a 2020 paper (in Chinese).

• He wrote that tech firms have widely adopted a project-driven work system. As a result, wrote He, “tech workers have to work overtime to catch up with the speed of projects.”
• He also mentioned that tech firms tend to create an “overtime culture” in which anyone taking time off is seen as not pulling their weight.

“The overtime culture makes it impossible for employees to choose whether to work overtime or not according to their own will. They are forced to choose to work overtime together with their supervisors and colleagues in the atmosphere of overtime.”

— He Xuesong, professor at East China University of Science and Technology

• Not every tech office in China has such a culture.  In August, employees of Microsoft China, a company whose workers usually go home at 5 p.m., called out colleagues who had formerly worked at Huawei and Alibaba to “stop the 996 work schedule,” saying that they were disturbing the company’s work culture.

Is it legal? On the front page of the 996.ICU project’s official website, organizers printed clauses found on China’s Labor Law that prohibit unpaid overtime work imposed on employees. In April 2019, online protestors called on people enraged by Jack Ma’s endorsement of 996 to send an official copy of China’s labor law to Alibaba’s headquarters.

However, China’s courts have held that forcing salaried employees to work overtime does not run afoul of China’s existing laws, according to a lecturer at Nanjing Audit University.

• Tech workers are usually paid fixed monthly wages, rather than hourly rates, writes labor law expert Li Gen. The law provides that hourly workers receive overtime pay for hours worked over 44 in a week or on weekends. However, provisions about whether salaried workers should be paid for their overtime work are “ambiguous and chaotic,” Li wrote in a 2020 paper.
• China’s Wage Payment Provisional Regulations, first released by the Ministry of Commerce in 1994, said its provisions about overtime pay “don’t apply to workers with irregular working hours.” This means that the provisions on overtime don’t apply to workers who are paid fixed monthly wages, wrote Li:
• “This provision has become the main basis for both the judiciary and scholars to hold the view that ‘workers working irregular hours are not required to be paid overtime wages’.” 

Wrong metrics: Tech firms had to adopt the 996 work schedule to make up for low productivity, but longer working hours doesn’t necessarily mean better outcomes, Zhang Yilai, an economic professor at the Business School of China University of Political Science and Law, wrote in a 2019 paper (in Chinese).

• China has a low GDP per hour worked, according to Zhang’s paper, meaning low productivity: China’s GDP per hour worked was $13.5 in 2017, while that of the United States was $72 and Germany was $69.8 in the same year.
• GDP per hour worked measures how efficiently labor input is used in the production process. Data from the Organisation for Economic Cooperation and Development (OECD) shows that efficient work is associated with more time off—countries with better per-hour productivity tend to work less hours overall.
• Zhang wrote that Chinese companies don’t tend to think in terms of output per hour worked. Instead, they tend to use the concept of “output per person,” which simply divides total output by the number of employees, neglecting hours worked. Thus, he wrote, “it’s no wonder that enterprises utilize overtime work schedules like 996 to increase their ‘output per person.’”

But it just doesn’t work: Increasing labor inputs, including increasing working hours, may lead to a rise in output, Zhang wrote, but it “follows the law of diminishing marginal returns,” a theory that predicts adding an additional factor of production will result in smaller increases in output.

“Chinese enterprises still tend to use ‘output per person’ as an indicator of management, which prompted the rampant 996 phenomena. We should switch to the management idea of how to improve ‘GDP per hour worked’ in order to maximize the innovation potential of enterprises and the society. ”

— Zhang Yilai, economics professor at the Business School of China University of Political Science and Law

Friedman of Cornell University said it’s unclear if 996 is good business, but he reckons that it’s an “ethical problem.”

“Why should people be forced to devote the overwhelming majority of their waking hours to work, even as these companies amass billions of dollars of wealth? Companies like Alibaba and Tencent can absolutely afford to have employees work the legally-mandated number of hours and still turn a profit.”

— Eli Friedman

Using your smartphone at restaurants has become the standard, and sometimes the only, way to order food at eateries in China. Customers scan the QR code displayed on their table and can place an order on their smartphones right away without assistance from waitstaff. 

To access the ordering page and digital menu, customers are often required to follow the restaurant’s social media page. Oftentimes physical menus are not in sight; some restaurants won’t provide them at all. 

While some customers view mobile phone ordering as an efficient innovation, many still prefer browsing a physical menu and in-person ordering. Aside from feeling impersonal and intrusive, requiring food orders via phone also places the elderly and the digitally unskilled at a disadvantage.

In response, Nanjing Consumer Association said last week that consumers have the right to say no to mandatory phone ordering, and restaurants should offer services that all customers can access. As a government-backed organization, consumer associations in China handle consumer complaints and work with regulators and law enforcement to protect their rights.

“Services without options encroach on consumer rights,” (our translation) Wei Cao, deputy secretary general of the Nanjing Consumer Association said in an interview (in Chinese) with China National Radio.

In late November, China’s State Council introduced a set of measures aimed at bridging the technology gap for seniors. Specifically, the guidelines require the technology used in existing services including transportation, consumption, and healthcare be evaluated to guarantee accessibility for the elderly. The guidelines also encourage the development of tech innovations aimed at seniors.

Boon for business, bad for user privacy

For restaurants, the smartphone ordering system is more cost efficient—it’s cheaper than making physical menus and saves on manpower. It also helps speed up the ordering process, thus allowing more customers to dine during busy hours. 

Having customers place their orders via smartphone can save restaurants about 30% of their labor costs, Yu Xuerong, president of the Jiangsu Catering Industry Association, said in the report.

It has also proven a boon for business marketing. In order to access a menu, diners are frequently required to “follow” restaurants on social media and subscribe to promotions, driving down marketing expenses while boosting user engagement. 

Those cost savings can come at the expense of user privacy. Customers are often required to fill out personal information such as names and phone numbers, and agree to share their locations, which helps businesses collect user data, analyze what dishes are more popular, and raise prices accordingly.

Felix Lee, a frequent restaurant-goer in Beijing, doesn’t like ordering on his phone at restaurants, even as a digitally savvy millennial. 

“It deprives my freedom to subscribe to pages at my own will and I am annoyed by their occasional pop-up ads,” he said. 

Lee normally unfollows the restaurant pages to unsubscribe from the promotions as soon as he completes his order. 

But for the elderly and the digitally unskilled, requiring food orders via smartphone is more than a nuisance and unpleasant privacy invasion. 

According to a report by the China Internet Network Information Center, there were 463 million Chinese not on the internet as of June. They are nearly evenly divided by location: 43.8% live in urban areas and rural residents account for 56.2%. 

Increasingly widespread mobile adoption has marginalized this segment of China’s population. Some businesses have even transitioned to mobile-only ordering, and refuse to take cash. 

In November, an elderly woman was denied the ability to pay in cash for her medical insurance. She was told to either pay on her phone or have a relative help her, according to a video posted to Chinese microblogging site Weibo. The video attracted more than 23 million views and 20,000 reposts, spurring netizen backlash against the bank. 

The same month, a video of a 94-year-old woman being propped up by family members in order to activate face recognition for her social security card at a bank in Hubei province went viral on Weibo. It sparked discussions about the burden forced upon the elderly by increasingly digitized services and the technology gap.

Restaurants need to develop and advance digitally to cater to customers using more efficient methods, while maintaining service channels for those accustomed to traditional ways, Yu of the Jiangsu Catering Association said.

Covid-19 widens technology gap

The Covid-19 pandemic has further compounded the technology gap. Essential information and services such as opening hours for public places and reservation systems at hospitals require using the internet, while digital health codes are required to enter public spaces. Digital reservation and registration is often required at tourist sites as well. 

An elderly man over the summer in the northeastern Chinese city of Harbin, and another senior citizen in Fushun in nearby Liaoning province earlier this month were barred from boarding buses because neither had a smartphone to scan the health code required for entry, according to Chinese news reports.

Seniors are often forced out of such digital checkpoints, and vital tasks such as hospital visits and Covid-19 tests commonly require online reservations during the pandemic. Chunhui Wang, professor and economist with Zhejiang University said in an interview (in Chinese) that senior citizens need to receive digital education while guidance and assistance should also be provided to those in need for mobile payments, health code scans, and digital reservations.  

Correction: an earlier version of this story incorrectly stated that Yu Xuerong of the Jiangsu Catering Industry Association said restaurants could save 30% of labor costs through marketing and promotions, rather than through the practice of placing food orders via customer smartphones.

Digital yuan trials

• A hospital in Shanghai started trialing the first “hard wallet” designed for the digital yuan, state media reported on Jan. 7. Employees of Tongren Hospital can use a smart card, as opposed to a smartphone, to pay with the digital currency at the hospital’s staff canteen. (The Paper on YouTube, in Chinese)

“The Shanghai DCEP pilot uses an ink screen similar to Amazon Kindle, which means that DCEP can be used without an Internet connection or mobile phone.”

—Colin Wu on Twitter

• China’s third lottery to distribute China’s digital currency took place last week in Shenzhen, the second to take place in the city. The lottery is part of the central bank’s ongoing trials. RMB 20 million ($3 million) were distributed in this trial. (China Banking News)
• Local media in Shenzhen reported that the Agricultural Bank of China is testing the use of ATMs for digital yuan deposits and withdrawals. (Shenzhen News)

The scramble for mining rigs

• As Bitcoin prices soared in the last month, demand for China-made cryptocurrency mining rigs surged alongside. The world’s top cryptocurrency exceeded $40,000 last week.
• Prices of new mining rigs have doubled in the last two months, and Bitmain’s inventory have been sold out for months. (CoinDesk)
• The bull market has even brought back old models that were on shelves. Previous rig models are also being sold for higher prices in second-hand markets, data from crypto intelligence portal Hash Rate Index showed. (8BTC.com)
• The topic was trending on Chinese social media platform Weibo, with more than 8.9 million views on Jan. 9.
• 500.com, a US-listed Chinese sports lottery company, plans to buy $14.4 million worth of Bitmain and MicroBT crypto mining equipment. The lottery operator will issue 11.9 million Class A ordinary shares priced at $1.21 to raise funds for the purchase. (500.com statement)

State media on Bitcoin

• The China Economic Daily said that Bitcoin trading is still in a legal gray area, and that the cryptocurrency will become worthless when governments ban it. The newspaper said it expects regulatory crackdowns on Bitcoin to intensify. (8BTC.com)
• State-owned People’s Daily discouraged readers from leveraged Bitcoin trading amid the coin’s bull run in a lengthy op-ed on Jan. 5. (People’s Daily)
• Mentions of blockchain in People’s Daily multiplied 700% from 2017 to 2020, research from policy analysis firm Macro Polo said. (Macro Polo)

Whose fault is a major data leak from Beijing’s “health code” digital quarantine system? Is it leaky digital platforms, or crazy fans? Commentators have blamed both.

With COVID-19 measures driving the collection of even more personal data, privacy leaks seem to become more frequent and worrying. Multiple leaks of coronavirus patients’ names, home addresses, jobs, phone numbers, and other personal information happened throughout 2020, triggering heated debate on Chinese internet.

In late December, Hongxing News, a digital subsidiary of Chengdu Economic Daily, reported that celebrities’ photos for Beijing’s health code, called Jiankangbao—usually casually-snapped selfies used for facial verification—and the methods to access the photos were being massively traded in WeChat groups. According to the article (in Chinese) and attached screenshots, the price of a bundle including more than 70 celebrities’ headshots is  RMB 2 ($0.30). TechNode has not been able to independently verify the screenshots.

The photos were reportedly obtained through a technical loophole in the health code system. Beijing health code includes a feature called “Check other’s health code,” intended to help those without smartphones, like children and the elderly, move easily in and out of public places. It only required a person’s name and ID number to access their health codes, nucleic acid test results, and registered face photos. Inevitably, people took advantage of the system, with photos uploaded by celebrities to the Health Code system winding up in online marketplaces.

The ID numbers of celebrities are not difficult to acquire: In the same WeChat group, a package of more than 1,000 celebrities’ ID numbers is sold for RMB 1 ($0.15).

On Dec. 29, Beijing authorities (in Chinese) said that the issue had been resolved. The app now requires a face scan of the person being checked to display health code information.

Hongxing Review blamed poorly designed systems for failing to secure user data:

Photos from celebrities’ health code leaked, but it’s not only them who are in danger

Hongxing Review
Dec. 29, 2020

Programs such as health code are designed to control the epidemic. Citizens cooperate with government measures and turn in personal information out of social responsibility and trust. This trust should be treated with kindness. Before every large scale collection of citizens’ personal information, a question should be seriously answered: Can we protect this information?

Doing a good job of adequate protection should be a prerequisite for data collection. In fact, it is not technically difficult—the problem can be solved by just adding a verification step when checking others’ codes. The key is to have this awareness.

On an online poll of 45,000 readers on Hongxing News’ Weibo, around 21,000 said it was the platforms’ responsibility to protect users, while 11,000 blamed the people who took the photos. Only 1,108 picked fan culture as the chief culprit.

Superfans gone wild

However, some WeChat comments argued that the leaks are not the platform’s fault, but that of those who exploited the loopholes:

The original thought behind the design of the software is to care for people, in this case it is normal not to take into account malicious users. We should not excessively blame the government and developer companies. We already have a cybersecurity law, and I hope that its judicial interpretations will be expanded, so that companies and individuals who use other people’s information for illegal purposes can be held accountable.

The leaked photos wound up in groups where celebrities’ photos and ID numbers are traded. They are called daipai—literally, “helping take photos for others.” The health code leak is only the tip of the iceberg.

According to Shenran, a business news outlet, daipai groups trade vast swathes of personal information; ID numbers, passport files, phone numbers, household registration information known as hukou, as well as various social media and gaming accounts. 

Reports also claim that some people use ID numbers to find celebrities’ flight itineraries, which they then sell on to fans eager to meet and take photos of their idols at the airport.

ID numbers are the source of enormous privacy leaks. Once you have this number, it is easy to check someone else’s health code information, flight and train schedules, or even their exam results, according to Shenran.

Fans with a keen interest in their idols’ personal information are called sasaeng fans (or sisheng fan in Chinese), a culture from South Korea, meaning obsessive fans who stalk, or engage in other behaviors constituting invasions of the privacy of celebrities. 

In the Shenran piece, a psychological counselor gave an academic explanation on sasaeng fan phenomenon and voiced his own opinion:

Our undercover investigation reveals the industry behind the sale of celebrities’ health code photos

Shenran
Jan. 3, 2021

Psychological counselor Zhu Xiaohui told Shenran that being a fan is a kind of psychological phenomenon called “para-social interaction.” “For the public, although being a fan is not really a social interaction, it can be a similar experience. However, for some fans, in order to really feel like a social  experience, extreme behaviors have developed.”

Today, when the cost of human connection is high and the pace of life is fast, he admits that “para-social interaction” gives fans some powerful support and comfort. “These fans are not all bad people, but once the boundaries are broken, their desires are endless. After their behavior crosses the line. It is like an addiction, people fall deeper and deeper into it.”

To this day, they haven’t grasped the price of their curiosity.

A legal analysis

Who, if anyone, broke the law? Yang Wenzhan, a partner of Beijing Zhongdun Law Firm told the 21st Century Business Herald that photo-brokers were most likely to be prosecuted, while ordinary fans have probably not broken any laws:

More than 50 celebrities’ Jiankangbao photos leaked—here comes an official response

21st Century Business Herald
Dec. 29, 2020

If an individual legally obtains the ID number and name of another person but does not have permission to check the health status on the other’s behalf, the individual is already suspected of infringing on the other’s privacy, but this does not constitute a crime. Generally speaking, there is no impact and this case will not be investigated. However, if they circulate or even package and resell the information without permission, they will be held accountable for privacy infringements, or even the crime of infringing on citizens’ personal information, which means criminal charges.

…

Yang Wenzhan said that the government is obliged to urge related companies to improve their systems and resolve potential safety hazards in response to the leaked health code photos. If someone’s rights are infringed upon, possibly leading to harm, due to a system’s problems, according to the letter of the law, in addition to the infringing party, the system developer may also be held accountable.

We spoke about the range of B2B and SaaS companies in China, key challenges facing Chinese SaaS companies, and its potential to converge with the trajectories of Western SaaS companies, among many other things. Some of the key takeaways include:

• The Chinese public sector dominates total spending on software, and its attitudes influence how much can be fully cloud-native and standardized.
• Chinese organizations often don’t conceptualize their issues as software problems, which leads to a lack of concrete inbound and outbound sales channels for SaaS sellers.
• Horizontal SaaS, or software that is universal rather than customized, is hard in the Chinese market, since there’s so much diversity among enterprise clients. Specialized products have a much higher chance of delighting customers.
• But Chinese companies are very willing to change and adopt new software if they see high ROI.

Lillian Li: I’m trying to figure out whether China’s B2B is in an earlier development stage relative to the West, or there are some Chinese-specific characteristics that we need to be mindful of. For example, Western companies also went through a phase of using private cloud, and then upgraded to SaaS once they realized the cost benefits and features upgrade that it provides. Will the same happen in China?

Joshua Wu: The Chinese-specific aspect is that the Chinese public sector dominates total spending on software, and that influences how much can be fully cloud-native and standardized. 

For the private sector, industries like tech, real estate, and retail are standardized in their processes. Their concerns are partly development stage-based but also partly Chinese specific. For example, their concern with public cloud and SaaS isn’t against the model itself, but whether it provides value. Either that’s because their data hasn’t been fully digitalized, or they are using labor to solve these pain points today. 

These companies’ need for organizational efficiency and collaboration also hasn’t reached a stage for software yet. These capabilities are not must-haves for them today; they don’t feel like everything should be collaboration first, digital, or on a platform. But I think this mindset will change soon.

The second barrier for the private sector’s adoption path is a price ceiling for SaaS. For an enterprise buyer, RMB 100,000 (around $15,000) per year is the upper price limit they are willing to consider. A typical white-collar worker’s annual salary is RMB 100,000 per year. It only makes sense to them if you’re pricing on a basis that’s lower than RMB 100,000 per year.

The third aspect is related to the customer’s trust in the privacy of public cloud, which is a matter of time. It’s not a significant matter for the private sector, so I’m not too worried about this. 

LL: Do you think B2B companies will develop and follow the same paths as Western companies?

JW: That’s a good question, and I don’t know the answer. A pure SaaS model (which uses public cloud and recurring revenue) will never dominate in China. Hybrid clouds are huge in China, partly enabled by the government. In the rest of the world, the public cloud is eating the world. In China, the cloud is eating the world. There’s a difference. 

LL: What are the differences between Chinese SaaS and Western SaaS companies?

JW: This starts with terminology. In China we talk about “enterprise services,” or “to business” (2B), which includes many sectors that are not included in SaaS in the West.

The first sub-category is B2B platforms, such as Manbang for logistics, Meicai for grocery supply chain, Baibu—in which I invested alongside GGV partner Eric Xu—for clothing supply logistics. These offerings could be called B2B marketplaces, but they also facilitate transactions on the platforms with tools. For example, an artificial intelligence (AI) image search which enables better matching for textiles. So it’s not quite SaaS, but the tools allow the seller to have more transactions. So this is a substantial sub-category in what we call enterprise services. 

Another sub-category is called the industrial internet, which is a vertical sector solution. They aren’t exactly SaaS, but they are B2B and they focus on servicing the needs of a sector with a variety of hands-on help if needed.

For pure SaaS models, there’s a fair amount of infrastructure tech and middleware technology. We invested in a company called PingCAP, which is an open source database. In the SaaS category, there are the typical horizontal SaaS offerings, such as customer relationship management (CRM), human capital management (HCM), and applicants tracking system (ATS) such as our investment in Moka HR. 

The last category is vertical SaaS, which is not completely standardized software. These companies try to charge recurring fees, and use their software as the wedge into an industry. The lack of standardization increases as the customer base moves from small and medium businesses (SMBs) to large enterprises.

These enterprise customers tend to be very particular. They prefer licenses over recurring payment. They also want hands-on support from on-premise implementation all the way to configuration. While these enterprises have large budgets, it’s difficult for startups to serve them economically. As a result, pure SaaS companies are scarce in China right now.

LL: What do you think are the biggest challenges facing B2B companies right now? 

JW: The biggest challenge is the lack of suitable sales channels for SaaS, as customers aren’t coming in through inbound marketing. If an organization is having issues tracking candidates from different channels in a recruitment process, they wouldn’t know to search for an Applicant Tracking System (ATS) on Baidu. They don’t think this is a software issue. Tech companies are the only customers who conceptualize problems this way, and they are a minority. There’s no concrete way to reach customers from a sales channel perspective. 

Most target customers don’t know the use of software products, and also have unrealistic expectations. When you’re deploying a product in a company, you’re also deploying a new management process. These new processes will solve the same issues but will do so with different approaches, they wouldn’t give the customer exactly what they want. 

Similar to B2C examples like Apple, if you ask consumers what they wanted, you wouldn’t be able to get a breakthrough product from their response. The same principle applies to B2B products: you can’t give the customer exactly what they want. Navigating this well is down to sales capabilities. The sales, solution, and customer success team needs to find a balance between current customer needs and the future. Bridging this gap is very difficult for most, but easier for vertical SaaS, which is why they’ve been successful. 

LL: Do you think Chinese companies are resistant to change?

JW: Chinese companies are happy to change if they see the value of changing. This is especially true for the pragmatic private sector. If they see high ROI, then they’ll do it. Even in public sector organizations, there’s a relatively quick turnover of the central decision-makers. They change about every two to three years. When a new decision-maker comes on board, it’s normal for them to adopt a new system. Reality is also forcing them, since the legacy tech in these organizations can’t fulfill their current needs.

The critical issue is the right value proposition. If you have a general product, the addressable market is more prominent. But this is going to be a shallower product which doesn’t solve the customers’ issues. If you make a specialized product, that’s a smaller target market but more likely to have an impact on the customer. 

LL: So it sounds like you prefer to invest in a software that solves a specialized problem as a general starting niche to tackle the enterprise?

JW: Yes, I think it’s a good zero-to-one process that’s suitable for today’s Chinese market. If you look at the customer relationship management market, Fengxiang and Xiaoshuoyi are not bad, per se, but they should be doing much better given that category. 

Horizontal SaaS is hard for the Chinese market, since there’s so much diversity among enterprise clients. It’s hard to make something that pleases everyone. Specialized products have a much higher chance of delighting customers.

LL: Do you think the Chinese SaaS founders realize this?

JW: Yes, there is a growing realization. It might not be explicit, but they are finding out through experimentation. They get a sense that they need to find their niche, find the right product-market fit, and then get investment from VCs like us. So it’s a space that’s influenced by both market needs and investors. 

Though everyone’s endowment is different, some people might have a background in serving big enterprises. If they came from Microsoft or IBM, they are naturally apt at this. We also have the example of Palantir in the US, whose customers are predominantly government. 

LL: Out of market, team, and product, which aspect do you give the most weight to when you invest?

JW: That would be the product, since that’s reflective of the capabilities of the team as a whole. They can pivot to find the market, but they have to have sound business logic behind it all. If a team is good at making a product, then I can assume that you have good organizational structure and collaboration style. These capabilities can be leveraged for any market and any product. 

LL: What area of investment interests you currently?

JW: Similar to [investors in] the US, I’m interested in next generation cloud native infrastructure. I think these will have a lot of room in China. Their architecture structure is very on par with the US, since these infrastructures tech is technology-neutral. Apart from that, I’m interested in industrial internet enabled by AI. 

LL: What’s your advice to Chinese SaaS entrepreneurs?

JW: I think this is a great time to start a business in this category. Focus on the product and deliver value. Look at what the US is doing and read up on SaaS metrics too. A lot of CEOs are good at making a product, but don’t have the best practice benchmarks for a company as it scales. They should study this aspect, and there’s a lot of public companies in the US for them to learn from. 

China’s 500,000 public schools are a big market for edtech companies. But companies offering AI-powered edtech have found it difficult to set up partnerships with them.  

Dhonam Pemba, who has founded several AI product development companies, said his first firm Kadho “didn’t do well in China because business-to-government (B2G) wasn’t profitable,” and he struggled to scale. Facing competition from companies like Chivox in Jiangsu, or iFlytek in Anhui with strong public relations offices, he said they had to “switch to a business-to-consumer (B2C) model” for his second company Kidx.

Most schools in China that have let AI into their classrooms use it to measure attendance and monitor the overall situation in the room, rather than to improve learning. High School No. 11 in Hangzhou, are piloting an AI system to analyze the teaching process, children’s emotions, and manage canteen meals, but the pilot’s results are not yet released. 

Work in progress

Elusive breakthroughs in emotional and cognitive computing make “the development of AI in the education sector slower than that in other fields like security, finance, or customer service,” said a spokesperson of i2, a leading English learning center in China.

i2 only began testing AI tools for assisted teaching in the academic year starting summer-fall 2020. Until now, the company coordinated on offline teaching with public schools in second- and third-tier cities, reaching 35,000 students. A company representative said that they provide courses “with native language speakers, so that Chinese students can better understand the culture of other countries. AI cannot do that.”

A hard sell 

Public schools’ reluctance to bring AI into classrooms is not only because the technology is still evolving. Cooperation is also hindered by budget constraints and risk perceptions. 

Schools are more likely to pay for edtech services if they can justify the cost to their superiors or parents. This usually means that services must offer unique advantages that are hard to replace through traditional education tools. 

The majority of the edtech services on the market that fulfill these criteria have nothing to do with AI.

The most popular form of computerized classes does not use AI, but is rather a simple web-based assignment. Despite concerns that gadgets may replace teachers, they only complement their work. Educators get access to an online library of exercises and get answers graded by the computer.

ALO7’s popular software connects students with native English speakers that supplement schools’ teaching of language skills like grammar. “The alternative is for schools to scout their own language teachers, and that’s resource-intensive, while we can offer easy access to qualified native English educators,” said Andrew Shewbart, a board member of ALO7.

Procurement headaches

All large procurement decisions for edtech are made at the district level. According to a report by impact investment firm Omidyar Network, schools’ buying power increases per level; primary schools have the least purchasing discretion, while “top-tier ones in major cities are completely autonomous.”

“Budgets in prosperous provinces or cities may further the rural-urban chasms if city schools use money to get services [that] less prosperous areas can’t,” said Andrew Shewbart. Individual schools may sometimes make smaller transactions. But given that the technology at its current stage of development is unlikely to bring any major benefits, they have little to no incentive to bend over backwards and adopt expensive AI tools. 

Making procurement more complicated, edtech companies have to pass through cumbersome regulatory hurdles before releasing online courses and use AI at schools. 

China’s regulators are weary of potential privacy abuses creeping in the public education system through edtech apps. The Ministry of Education alleges that several apps used by schools in 2018 contained inappropriate content, online gaming, and advertisements. In 2019, the Shenzhen government began investigating an app that required parents to pay for IQ test analysis, running pseudoscientific brain scans to determine a child’s IQ. 

Regulators want schools to collect data about the students as little as possible, which limits the scope of AI-assisted learning and makes schools hesitant. As Lei Chaozi, director of science and technology at the Ministry of Education, put it: “Personal data collection should follow the principle of minimization, and the large-scale collection of information should be subject to the collective decision-making consent of the school leadership team.”

What does the future hold?

Trust-building is a big challenge for edtech companies, as schools and parents are distrustful of the content, external teachers, and wary of splurging on expensive educational technologies.

“It’s hard to foresee how AI can transform the public education system in the longer term,” said He Zijia, a future product developer at Onion Academy. Embracing new technologies may take time, “especially for teachers who are less tech-savvy, even though most managed to take up new means of teaching during the lockdown,” He said. 

Real progress is underway, but, nationwide, schools’ adoption is still in the pilot phase.

The rush to online post-Covid-19 may accelerate AI adoption in public schools, but for now it remains limited.

READ MORE: Edtech and Covid-19: It’s complicated

In mid-November, a video of a man wearing a helmet while visiting a real estate sales center in Jinan went viral on social media. The man claimed that he was trying to prevent the sales center from collecting his face image. It turned out that the video was staged, but it struck a nerve: China is worrying about face recognition. 

Face recognition technology was first commercialized in China in 2018. It is now used in stores for pay-by-face, in hotels and public transportation for identification checks, and even in schools for monitoring in-class behavior. In some places, face recognition is even mandatory or is the only way to enter a building. 

After the pandemic, the launch of the health code system has drawn more people’s attention to the impact of face recognition technology on daily life. Increasingly, mandatory face recognition is facing challenges, both from individuals and major media.. 

China’s first face recognition lawsuit

A lawsuit challenging mandatory face recognition in a park in Hangzhou recently ended in a small victory. 

On Oct. 17, 2019, Guo Bing, an associate law professor at Zhejiang University of Science and Technology, was planned to visit Hangzhou Safari Park when he received a text message. The park told him that its entry system had been upgraded to face recognition, and that all guests would  have to activate the system to enter. 

When Guo went to the park and saw staff using phones to scan people’s faces, he wanted to opt out—but the park refused to let him in, or give him his money back. After failed negotiation, Guo decided to sue the park for invasion of privacy and violating consumer rights and interests. 

After a year, on Nov. 20, 2020, the court in Hangzhou ruled in favor of Guo, finding that the park shouldn’t collect face and fingerprint data without customers’ consent. Guo got his money back for the ticket, and his ride to the park—RMB 1,038 (about $160).  The court also ordered the park to delete Guo’s personal information, including fingerprint and face data. However, the court rejected Guo’s other claims, saying that the park’s use of fingerprint and face recognition didn’t violate regulations and laws. 

Guo, arguing that the park should not be allowed to require visitors to use face recognition, is still appealing. 

Guo’s case has been widely discussed on social media, with comments breaking one-sidedly in his favor. Many people raised concern about the abuse application of face recognition technology. In response to news about Guo’s lawsuit, one Weibo commentator wrote: “My residential area requires us to enter with face recognition. It looks fancy and high-tech, but who knows when the property company will collect our face data and where they sell them to?” 

The law professor who won

Renwu, a Chinese magazine that specializes in profiles recently published a story about a Beijing law professor’s battle with her residential compound over face recognition technology. Readers may remember Renwu as the same publication that sparked outrage in September with an exposé on algorithms forcing delivery drivers to drive dangerously.

Trapped by face recognition

Renwu

Dec. 15, 2020

In March of this year, Lao Dongyan discovered posters in the elevators of each unit in her residential compound requesting every resident to download an app and submit face data for entry system upgrade. Lao is a law professor at Tsinghua University. She has discovered that face recognition has been used in more and more scenarios-subway entrances for security checks, AI face-changing games on phones, and even the vending machines that sell coffee at her law school building require face payment. 

Lao knows the hidden threats of this technology. She did research and posted about them on a WeChat group of more than 200 people. A resident who was concerned about the matter invited her into another group chat of nearly 500 residents. There, what Lao posted gained more responses, and many residents joined her in expressing their concerns about the technology. Previously, the main dissatisfaction these residents had was: “Why do you want to collect information about my real estate certificate?”

On March 15, Lao wrote a detailed legal opinion, arguing that the compound’s behavior violated the current legal framework. She sent it to her property management department and neighborhood committee. 

One evening a few days later, the director of the neighborhood office called her and invited her to a discussion meeting together with staff from the property management department and neighborhood committee. Lao saw that they were mostly concerned about legal risks. When she told them that giving residents notice doesn’t mean they have consented, and acquiring data without consent is defined as illegal acquisition in criminal law, they asked how to avoid such risks.

Lao is most worried about data risk. She can’t imagine what motivation does the property management department have to maintain and protect the face data. She asked: “Who keeps the data and how to protect it?”

They gave Lao three options: store the data onat the local area network (LAN) of the property management company; hand it over to the convenience service center [ed: a local government office]; or give it to the police. At that time, many residents had already submitted their face data, and there was no conclusion as to how the data should be stored. The options they suggested also reflect the current status of domestic personal information protection: there is no real boundary between public and commercial organizations in the use and management of data. These aggravated Lao‘s concerns.

At the end of the discussion, the street office proposed three alternatives: residents who do not want to submit their face data can also use the key card, ID registration or mobile phone app to enter the compound.

When Lao shared her experience at a panel discussion about whether the residential compound should use the face recognition system, a guest praised her for fighting for her own rights. Lao said she just had to put up a fight.

Lao argued that the current capacity to manage risk is not up to the challenge of rapid technological iteration and commercialization. 

“The characteristic of the Internet era is that the problem will not appear in the place with the highest security level, but the place with the lowest level of security and the worst security capabilities,” Lao said.

More regulations issued

In response to the abuse of face recognition technology, many cities have issued policies to control it. In October, a draft amendment to Hangzhou’s property management regulations stipulates that property service providers should not force property owners to use shared facilities through biometric information such as fingerprints and face recognition. In late November, real estate sales centers in Nanjing were ordered to remove face recognition systems, in the first action of its kind in China. At the same time, some local governments began to protect face information with legislation. Tianjin announced regulations on Dec. 1, prohibiting local enterprises and public institutions, industry associations and chambers of commerce from collecting face, fingerprint, voice, and other biometric information starting Jan. 1, 2021. 

State media outlets have also issued warnings about the misuse of face recognition technologies. CCTV, China’s national tv broadcaster, has aired three shows related to personal information protection. And Party journal Banyuetan, also known as China Commentpublished an article criticizing the abuse of face recognition technology,

Face recognition is becoming rampant, and it’s time to rein it in 

Banyuetan

Nov. 27, 2020

The abuse of face recognition technology is causing a loss of control over personal information collection. Despite the weak public awareness of personal information protection, many organizations blindly pursue face recognition identity authentication regardless of whether they are legitimate or necessary is also an important reason. In addition, data companies continue to promote face collection technologies to expand their business and increase profitability, which also lays hidden dangers for face information security. 

The development and application of technologies needs to be synchronized with relevant laws. It is necessary for laws to set boundaries.

China has probably got more face recognition than anywhere else in the world—but its love affair with the technology is getting complicated.

When Zhang Zhengxin sued the internet giant Tencent for anti-competitive behavior in April 2019, it seemed like the action of a quixotic lawyer tilting at windmills.

Zhang had challenged the company’s practice of blocking links to Alibaba’s Taobao stores from its flagship WeChat messaging app. Tencent’s lawyers simply denied that there was an instant-messaging market to monopolize. The case resulted in a standoff on this basis—debating the existence of such a market and how to define Tencent’s share of it. In January, Zhang dropped the case for “lack of evidence.” He came away feeling that big tech was “immune” to antitrust law, he told TechNode at the time.

Barely a year later, powerful Chinese regulators are coming around to Zhang’s point of view. They’ve dusted off China’s 12-year-old Anti-Monopoly Law and are applying it to big tech companies for the first time. Meanwhile, revisions to the law are giving it more teeth to go after tech.

“If my case hit the courts again today, my odds to win could increase by a lot,” Zhang, a lawyer at Beijing-based Yingke Law Firm, told TechNode on Wednesday.

On Monday, the State Administration of Market Regulation (SAMR), China’s top antitrust regulator, issued fines to Alibaba and affiliates of Tencent and logistics giant SF Express over three separate acquisition deals, a move that legal experts described as the country’s first batch of antitrust enforcements against tech firms. The regulator in January and November began laying the groundwork via multiple proposal laws and rules to tackle infractions by internet companies. 

China is clearly looking to tighten its grip on some of its biggest tech companies. Its suspension of Alibaba subsidiary Ant Group’s mega public offering, expected to be the world’s largest public fundraise ever, was a clear shot across tech company bows. Regulators are also stepping up scrutiny of data security measures and online content moderation, signaling the end of the relatively lax regulatory environment tech firms once enjoyed.

Tolerant no more

The fines were issued for failing to flag merger and acquisition (M&A) deals as possible antitrust issues, a sign that regulators are gearing up to enforce the anti-monopoly law against big tech, experts said. The penalties cited the existing Anti-Monopoly Law framework, which stipulates that such behavior would be subject to a fine of up to RMB 500,000 (around $76,556) or a reversal of the deal.

Applying the law to punish internet companies is a distinct shift in attitude toward tech companies.

SAMR’s recent moves are a response to the state’s call for “strengthening scientific and effective regulations on internet platforms,” Deng Zhisong, an antitrust lawyer at Dentons law firm in Beijing, told TechNode. “[The state] has changed its previous ‘tolerant and cautious’ attitude towards internet companies,” he said.

In 2017, Chinese Premier Li Keqiang encouraged a “tolerant and cautious” approach to tech regulation in a speech (in Chinese).

Questionable acquisitions

The three deals in question are Alibaba’s 2017 acquisition of Intime, a retail firm; Tencent-backed China Literature’s acquisition of television series studio New Classics Media in 2018; and the acquisition of China Post Smart Logistics by SF Express-backed Hive Box in May. Each is being fined the maximum amount of RMB 500,000, though none of the deals are being reversed.

While investigations into tech company acquisition deals are not new, until now none have resulted in any punitive measures. When Chinese ride-hailing platform Didi Chuxing merged with US rival Uber’s China unit in 2016, regulators opened an investigation into the deal. The case appeared to be unofficially suspended when Uber filed for an IPO in April 2019, according to Bloomberg. SAMR launched in January 2019 an antitrust probe into Tencent Music Entertainment’s dealings with the world’s three largest record labels after rivals complained that Tencent paid excessive fees for the initial rights and then passed those costs along to competitors. A year later, the regulator decided to suspend the investigation.

“With this latest development, regulators are signaling that they will no longer tolerate internet giants’ [monopolistic actions],” said Zhang, the lawyer who sued Tencent. He added, “They used to be more indulgent than tolerant.”

Beijing’s shift in attitude toward tech giants coincides with a global antitrust storm in which US and EU regulators are restarting efforts to check tech giants including Google and Facebook. In the US, several states filed Wednesday a lawsuit against Google over the search firm’s alleged antitrust violations in the online advertising market. In Europe, regulators proposed this week to designate companies with EU user bases exceeding 45 million as “gatekeepers,” making them subject to stricter antitrust regulations.

Changes to the law

Prior to the fines issued Monday, SAMR had proposed an overhaul of the Anti-Monopoly Law in January and introduced a set of antitrust guidelines tailored for the internet industry in November.

While the fines are relatively trivial amounts for the three companies—the smallest of which generated RMB 1.6 billion in revenue in 2019—future offenders may pay a much higher price for similar violations, according to the draft revision of the Anti-Monopoly Law. Companies will be fined up to 10% of their annual revenue if they don’t report M&A deals that could create a monopoly, according to the draft revision.

The proposed amendment also asks authorities to consider factors such as network effects—services which rise in value as their user bases grow—as well as company size and data assets when determining whether a company is a dominant player.

The November guidelines further explain what is allowed and what is not. The draft, dubbed the Antitrust Guidelines for the Platform Economy, specifically targets tech firms that run online platforms connecting businesses and consumers such as Didi Chuxing and Taobao. 

With the new rules in place, Tencent may no longer be able to argue that it doesn’t hold a dominant position in the instant-messaging market or that such a market does not exist. A dominant player in a market under the existing Anti-Monopoly Law is a company with more than 50% of market share. According to the newly proposed guidelines, a market could be determined by how hard it is for users to switch platforms. The proposed rules also expanded the parameters for determining market share to include factors such as transaction volume, user base, and page views. 

The changes could pave the way for further probes into tech firms over possible violations such as abuse of dominance and reaching monopoly agreements.

Pruning for long-term benefit

In November, the draft antitrust regulations sent Chinese tech stocks crashing. Bloomberg estimated that the shares slump wiped out more than $200 billion of value from Chinese tech companies within two days.

Analysts, however, are optimistic about the prospects brought by tougher antitrust regulations. Liu Zejing, analyst at brokerage Huaxi Securities, wrote in an investment note (in Chinese) that the government is not aiming to clamp down on the internet industry, but rather is making the “inevitable move” to curb potential monopolistic behavior, contributing to the health of the sector.

Commenting on SAMR’s Monday fines on tech giants, Huachuang Securities analyst Jin Xiangyi wrote (in Chinese) that tech giants are bound to fall under the purview of China’s antitrust law and that it is beneficial for them to return to technological innovation, thus boosting the industry. 

Nevertheless, the merger and acquisition tactic that formed incumbents such as Didi Chuxing, online classifieds marketplace 58.com, and Meituan will meet with greater regulatory resistance, said Zhang. Tech giants may have to reverse merger deals that run afoul of the antitrust law, he said.

Cause for tech company concern

Both Zhang and Deng of Dentons agree that Chinese tech giants don’t have to worry about being broken up as they grow bigger. “There are no such provisions for breaking up monopolies in China’s antitrust law,” Deng said.

Monopolists may be forced to open up their platforms or share their data with rivals as a consequence for abusing dominance, but also as a method of remedy, according to Deng.

Antitrust lawsuits against or between tech giants will likely to see the impact of recent changes. In the past, similar lawsuits were usually mired in stalemates on technicalities like Zhang’s suit against Tencent, and court rulings were usually in favor of defendants. A suit between Tencent-backed e-commerce platform JD.com and Alibaba will enter a court hearing stage in Beijing, Chinese media reported in November, without mentioning a specific date. The case, in which JD.com alleges Alibaba abused its market-dominant position in forcing platform exclusivity, will likely provide a clearer picture of how the new rules and antitrust law amendment will be used in legal practices.

The digital yuan

• A second public trial for the digital yuan kicked off in Suzhou, a city in eastern China. A total of RMB 20 million ($3 million) was dispersed in red envelopes containing RMB 200 each to 100,000 lucky lottery winners.
• The digital yuan wallet can connect to one of five different bank cards. Each gives users the option to use the digital currency on different e-commerce platforms; e-commerce site JD.com, ride-hailing platform Didi, video-streaming site Bilibili, and services app Meituan.
• The wallet also has an option to pay Party membership fees.
• Lottery winners can use the money by Dec. 27.
• JD.com processed 20,000 orders using the digital yuan on Saturday, the day of its Dec. 12 “Double 12” shopping promotion. (South China Morning Post)

READ MORE: EXCLUSIVE: We got some digital yuan!

• China doesn’t aim to replace existing fiat currencies used in global trade with the digital yuan, Zhou Xiaochuan, the former governor of the People’s Bank of China and a towering figure in Chinese finance, said on Monday.
• Nonetheless, the digital currency might transform international trade because it can handle cross-border transactions simultaneously and in real time, he said. (South China Morning Post)

“Some countries are worried about the internationalization of the yuan. We can’t push them on sensitive issues and we can’t impose our will. We must avoid the perception of great power chauvinism.“

—Zhou Xiaochuan, former governor of the PBOC, as translated by the SCMP

The local governments

• The city of Xiong’an in northern Hebei province launched China’s first city-level blockchain operating system. It is a multi-layer chain that handles both the base architecture and applications built on top of it. (Xiong’an People’s Daily, in Chinese)
• Shenzhen in southern Guangdong province released a local standard for blockchain in finance. The Shenzhen Stock Exchange and Tencent’s WeBank were involved in drafting the standard. The new standard focuses on identity authentication, permissions management, and support for anti-money laundering, anti-fraud, and regulatory audits. (Fintech Micro Insights, in Chinese)

The bad Bitcoin news

• Sichuan authorities cut off electricity to cryptocurrency mines starting on Dec. 8. The southwestern province’s abundance of cheap power from its hydroelectric plants has made it home to many miners. But this electricity is scarce in winter, so authorities wanted to prioritize other industries. (Wu Blockchain Twitter)

READ MORE: INSIGHTS | Markets, not floods, will drown bitcoin miners

• A man in Dalian killed his daughter and together with his wife attempted suicide after losing RMB 20 million by trading in cryptocurrencies, some of which he had borrowed from his wife and parents. The man survived, but his wife and daughter did not. (Wu Blockchain)

Lucky winners of Suzhou’s digital yuan lottery can spend their digital currency on JD.com, Meituan, Bilibili, and Didi, depending on their bank card, a look at the wallet app reveals. TechNode has seen the app in action through screen recordings sent by a user in Suzhou.

TechNode is the first English language outlet to see the digital yuan wallet in action during the Suzhou trial.

The trials are still limited: The winners received only RMB 200—about $30, enough to buy 10 coffees at Luckin or five at Starbucks. There’s no way to load more money on the digital yuan wallet. Users only have access to a few online shopping platforms, with the exact options depending on which bank card they used to register with the app. They can also spend the currency in some offline stores in the city.

The digital yuan also knows a trick that cash doesn’t: It has to be used by Dec. 27 otherwise, it pulls a disappearing act. Poof. It’s gone.

Why it matters: This is the first time consumers can use the digital currency to pay directly on e-commerce apps in the digital yuan’s public trials.

• The Suzhou lottery is only the second time the digital currency has been made available to the public. Another lottery took place in Shenzhen in October.

Connected to bank cards: Users are asked to link their bank cards to the digital wallet to get the digital currency. Only cards from China’s big five banks are eligible: Bank of China (BOC), Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), China Construction Bank (CCB), and Postal Savings Bank.

• The local government said users don’t have to register a bank card to use the digital wallet. If they do register a bank card, it has to be one of the five.

Where to spend it: All bank cards can connect to e-commerce platform JD.com, where users can spend their money. ICBC cards also connect to ride-hailing platform Didi and lifestyle app Meituan. BOC cardholders can connect to streaming platform Bilibili, and users of CCB cards can use the digital yuan on own CCB’s e-commerce platform.

• The city said it will enable nearly 10,000 offline merchants to accept the digital yuan. A list can be queried through the city’s app.
• The app has a button to pay Communist Party dues. But when TechNode tried, the app said that it was not available for the user’s Party branch.

No withdrawals: The digital currency cannot be transferred to other users’ digital wallets. It also cannot be converted to ordinary RMB in the bank account of the owner. If users wind up returning goods they buy with the digital currency, the Suzhou government said, they will be refunded only for regular currency used in the purchase.

Context: In a lottery (in Chinese) announced on Dec. 4, Suzhou distributed RMB 200 million ($30.6 million) of the digital yuan to 100,000 people in digital red envelopes of RMB 200. Only residents of the city who have paid monthly social security at least once in the last three years are eligible to participate in the lottery.

• The results of the lottery were announced today, and winners can spend their winning from 8 p.m. on Dec. 11 to Dec. 27. They money will be taken back from the account if it is not spent within this time window. The Suzhou government said the unspent red envelopes will be “recycled,” but did not clarify how.
• Prior to the Suzhou and Shenzhen lotteries, only a few whitelisted individuals were taking part in the digital currency trials.

READ MORE: INSIGHTS | China’s digital currency has a long way to go

Spillover of technology companies into critical financial sectors such as micropayments require unified oversight of China’s fintech sector, the chairman of China’s Banking and Insurance Regulatory Commission said Tuesday at an event in Singapore.

Why it matters: The CBIRC chairman’s remarks about fintech giants were conciliatory, but he also called for more regulation of the industry on the national level.

• Delivered as the dust settles following Ant Group’s suspended public listing, the speech brings rare insight into Chinese regulator plans.
• Guo Shuqing did not mention Ant Group by name, but he appeared to refer to regulator criticism about the fintech giant.

READ MORE: CHINA VOICES | The unsigned op-eds that foreshadowed Ant Group IPO suspension

The challenges ahead: Echoing criticism of Ant Group from other regulators, Guo spoke about “too big to fail” risks during a speech at the Switch conference on Tuesday. This phrase featured prominently in three anonymous op-eds that appeared in the PBOC’s official journal.

• Some companies are dominant in digital payments, which make them “important financial infrastructure,” Guo said. The PBOC updated its mandate to include such institutions in late October.
• Fintech is a “winner takes all” industry, according to Guo. While traditional antitrust regulation focuses on “monopoly agreements, market abuses, and the concentration of operators,” fintech has created many new monopolistic phenomena which Guo said must be addressed.
• China released new antitrust regulations in early November.
• Fintech regulation should be unified across segments of the industry to preclude regulatory inconsistencies, leading to systemic risk, according to Guo. Some fintech platforms issue credit card overdrafts and loans to induce excessive consumption, often giving loans to people who can’t afford to pay them back. Laws should be unified to prevent such behavior.

The data road ahead: Guo emphasized the role of security and privacy laws, and said that regulators are working to build a framework for the protection of financial data. Three out of the five “problems to be studied and solved” Guo referred to in his speech were about data management.

• Network security is crucial to China’s banking system because 90% of transactions happen online.
• Data rights must be clarified so that the data economy in China can flourish. “The laws of various countries seem to have not accurately defined the ownership of data property rights, and large technology companies actually have control over the data,” Guo said.
• Countries should work together on cross-border data flows. China’s Global Data Security Initiative calls for “all countries to respect the sovereignty, jurisdiction, and security management rights of other countries.”

READ MORE: INSIGHTS | Data localization is going global

Pat on the back: He said the sector has promoted inclusive finance, particularly in the areas of credit and insurance.

• Loans to small and medium enterprises this year as of end-October were up 30% year on year, and loans to farmers rose 14.3% in the same time period, he said.
• Fintech firms have also contributed to poverty alleviation, according to Guo. Microfinance platforms had issued more than RMB 5 billion ($766 million) nationwide to support 12 million households year to date as of end-September.
• The chairman also praised the role of digital payments in epidemic prevention during Covid-19.

Cautionary tales: Guo said that regulators have taken a cautious approach in regulating China’s nascent fintech industry, “crossing the river by feeling the stones” (our translation). He cited two examples where authorities stepped in when companies were behaving as banks without following the relevant regulations.

• He pointed to peer-to-peer lending, an industry that fell as quickly as it rose once Chinese regulators started clamping down. P2P companies were poised to be “financial information intermediaries” but ended up underwriting loans and selling investment products, Guo said.
• As of November, there are no longer any P2P platforms in China.
• Another important lesson was the management of third party payment platforms’ investment functions. When digital payment platforms added investment and financial management functions to online shopping services, they started chipping away at bank deposits and taking over the asset management market without following regulations that banks have to abide by.
• Consumers preferred to keep their money on fintech apps because of higher interest yields, and the apps were able to invest these deposits. In 2018, China’s central bank told fintech apps that they must keep 100% of user deposits with the People’s Bank of China.

Apple has told developers worldwide it would remove any remaining paid games that are not approved by Chinese authorities after Dec. 31, ending a six-month-long purge of unlicensed games.

Why it matters: The move means it will be almost impossible for international mobile games makers to access the Chinese market if they don’t comply with the country’s strict content rules. Chinese Android app stores have long required game makers to obtain such licenses if their apps contain paid features.

Details: In an email to developers on Dec. 2, Apple said that games without a valid game license number will be removed by Dec. 31, according to a report shared with TechNode Wednesday by AppInChina, a mobile services company that helps foreign apps enter the country.

• “As you may know, Chinese law requires games to obtain an approval number from China’s National Press and Publication Administration,” Apple said in the email. “After Dec. 31, your game will no longer be available on the App Store in China mainland until an approval number is provided with your next submission.”
• Apple did not reply to TechNode’s request for comment on Wednesday.
• It is unknown how many titles will be affected. Apple has removed more than 90,000 games from the China App Store since July, according to AppInChina, though these may include removals for other reasons.

READ MORE: Apple purges 3,300 games from China App Store in 2 days

Context: The purge of unlicensed games kicked off in July when Apple started to act on a February warning to developers to submit a valid license number or face removal. The company removed some 1,571 and 1,805 games from its App Store in China on July 1 and July 2, respectively, versus an average of around 200 titles removed in June.

• Since 2016, Chinese regulators have required all paid games or games that offer in-app purchases to obtain a publication license before they can be uploaded to app stores.
• Foreign companies are not allowed to apply for the license. They have to partner with local companies to legally launch their paid games in China. So far, only 97 foreign games were issued game licenses this year, according to AppInChina.

Facing eviction from an apartment managed by “second landlord” platform Danke Apartment, a young graduate jumped out of his 18th story apartment after setting it on fire in Guangzhou Dec. 3. 

The tragedy was only the latest fallout from the troubled second landlord industry. Numerous tenants of Danke Apartment flocked to social media in recent weeks to share their experiences of being evicted by landlords from their apartments. Some said that the locks of their rooms were changed and they couldn’t go back home after coming back from a business trip. Some said their water, electricity and gas were cut off. 

The crisis at Danke, fueled by mismanagement of small loans and a race for growth, is further spurring a conversation about financial risks associated with major tech platforms—one that’s recently had serious consequences for Ant Group’s IPO.

Thousands of landlords claim they haven’t received the rent from the company for months, while tenants insist that they have been making payments. Many Danke tenants borrow money to pay the platform a year’s rent in advance in return for discounted rates.

It’s not just landlords and tenants. On Nov. 10, hundreds protested at the company’s Beijing headquarters, including suppliers and maintenance workers. Similar protests have happened at Danke offices in different cities across China.

Danke, which means “eggshell” in Chinese, is a second landlord platform in China. Similar to Wework, second landlord platforms rent whole apartments on a long-term lease, then divide them into smaller units and furnish each one before subletting them. The company was listed on the New York Stock Exchange in January this year, becoming the second Chinese long-term rental player to list in the US. However, since its founding in 2015, Danke is yet to make a profit.

The company has relied on rental loans to fuel its growth. Under this model, Danke gets one year’s rent upfront directly from a partner bank, while tenants make monthly loan payments in lieu of paying rent. Meanwhile, Danke pays landlords on a quarterly or monthly basis, creating free cash for rapid expansion. But the loans model meant that when a platform runs out of money to make rent payments, tenants can face eviction while still owing money to a bank.

READ MORE: ‘Second landlord’ platforms get tenants in debt to fund growth

By March this year, Danke reported operating over 415,000 apartments in 13 cities. According to Danke’s financial reports, it recorded a net loss of $174.3 million in the first quarter this year, 51% wider compared to the same time a year earlier. In 2019, its annual net loss stood at $493.7 million.

We don’t know the exact number of tenants affected, but Danke partner Webank said Dec. 2 that about 40,000 evicted tenants have registered with them. On Dec. 4, Webank began allowing evicted tenants to assign responsibility for the debt to Danke, in a measure widely assumed to be a response to the Guangzhou suicide. 

 Anger at Danke

The suicide of the fresh graduate fueled people’s mounting anger towards Danke, many expressed sorrow and anger online. In a typical post, a Weibo commentator wrote: 

When will the government deal with this case? Those cheated are mostly poor young people who have just stepped out of the ivory tower. Danke operates [around] 500,000 apartments and serves more than 1 millions tenants around major cities in China, it’s a big issue relating to people’s life. It’s now in a crisis, but no one deals with it—so disappointing.

Danke’s flawed business model has also been condemned by establishment voices:

More evilly, this business model transferred its potential risk from the apartment operator to the landlord and tenants. The company took the profits while leaving the risks for financial institutions or even the whole society.

— Caixin editor Zhang Hong, in a Dec. 2 podcast.

Who’s to blame?

But other voices argue that the model isn’t all bad. Business outlet Latepost argued that the second landlord model is a good idea brought down by risky finance:

An investigation into Danke crisis: in this game of chance, the whole society pays

Latepost
Nov. 27, 2020

The business of long-term apartment rental is not irrational: It has real demand. The “floating population” accounts for nearly 20% of the whole population of China. When renting a house, the quality of its decorations cannot be guaranteed, and disputes always happen when a tenant checks out. 

However, long-term apartment operators can change this situation. They improve living experience with standardized decoration and use technology to match supply and demand efficiently. Tenants can find their ideal apartments more easily, while property owners can rent out their houses more quickly. It’s a win-win strategy. 

 …

But when startups go with the flow of the internet industry and focus on unrestrained expansion, risks will build up quickly. As the industry deliberately pushes tenants to take out rental loans in order to take advantage of the time gap to fuel its expansion, the main risk bearers will no longer be the startups and venture capital investors. 

…

If the company fails, founders and investors take the risks of entrepreneurship; but property owners’ rent will also be delayed; tenants may be evicted while still having to pay the loans; suppliers bear the debts and workers cannot receive their wages. 

Now everything is in a mess.

…

No matter how this farce ends, one truth cannot be hidden: business growth relying merely on debt increase will inevitably accumulate risk. Leverage can multiply gains, but also intensify loss. They will not disappear into thin air. 

Webank, an online bank owned by Tencent, also found itself at the center of the crisis.  As Danke’s rental loan partner, Webank helped fund Danke’s wild expansion and allowed Danke to get away with loaning more than 30% of the rent to its tenants, which is the upper limit set by the government.

Several state media outlets blamed internet financial institutions like Webank for lax enforcement of lending rules—such as this article in the state-owned Economic Daily, later deleted.

Regulation of rental loans should be strengthened

Economic Daily
Dec. 2, 2020

The government has required companies to open a custodial account to manage rent and deposits. If related rules were implemented strictly, the money would not be appropriated. Of course, it’s difficult to to count on banks to enforce this rule, so the relevant authorities should take the lead to strengthen oversight of rental loans.

If the company is paying rent monthly, the article recommended, the bank should issue the loans month by month.

According to the rule, if tenants paid rent monthly, then Webank should not pay Danke the whole year’s rent at one time. Traditional banks would have to evaluate every month when they lend; the whole process is complicated. But online banks can innovate payment methods, simplifying operations and allowing rental loans to be granted and repaid on a monthly basis.

A broader moral?

Another piece from Guangming Wang, a state media website, drew a broader lesson from this crisis. 

The broken “eggshell” (Danke) shows the embarrassment of the regulatory environment

Guangming Wang
Dec. 2, 2020

The crisis, the article wrote, was the inevitable result of a new business model under an old regulatory system. It also tied this crisis to the failure of P2P lending—a disastrous case of under-regulation that’s remembered as the original sin of Chinese tech regulation—stating that “the improvement and innovation of related systems have reached a critical point.”

“To solve this kind of problems, we should seize the momentum, accelerate reform and innovation of related systems, enhance effectiveness in the operation of the systems, so as to boost the development of new business and new models,” the article read. 

Guangming Wang wasn’t alone in connecting the dots between high-profile failures of star Chinese tech companies.

An article from Digital People TMT, a website belonging to the People’s Daily group, compared Danke to three other failed Chinese companies—LeEco, Ofo, and Luckin Coffee—all of which relied on immense funding for “blitzscaling” growth before flaming out. But what the article has to say about small loans could be most relevant as regulators consider a new approach to fintech firms like Ant Group.

From LeEco to Ofo, from Luckin to Danke, it’s time for an era to end

Digital People TMT
Nov. 25, 2020

This is an era when the virtual economy has misled the real economy… 

If Danke really wants to protect young people like an eggshell, it should have a business model that respects its users, instead of trapping them into debts and leaving them homeless.

…

This is an era when financial tools and leverage prevail. Because the real economy is being bullied by the virtual economy, whether it is for survival or “exponential growth” businesses have to rely more on financial and leverage tools, which leads to “novel financial services” permeating these so-called “new economy” enterprises, fueling their growth while hollowing them out.

…

Chinese internet companies’ fascination with finance is increasingly a widespread syndrome– from top giants to unicorns, all want to get involved in making small cash loans… When the systematic financial risks caused by this twisted growth mentality penetrates every aspect of our life through so-called “innovative enterprises,” it’s everybody’s problem.

…

It’s time for this era to end.

The $4 billion bust

Authorities in Jiangsu province seized more than $4 billion in cryptocurrency in a crackdown on Plustoken, a Ponzi scheme.

According to a court filing dated Nov. 19 first and reported on Friday, authorities in Jiangsu seized 194,775 bitcoins; 833,083 Ether; 487 million Ripple; 79,581 Bitcoin Cash; 1.4 million Litecoin; 27.6 million EOS; 74,167 Dash; 6 billion Dogecoin; and 213,724 of the stablecoin Tether.

More than 2 million people were swindled out of RMB 50 billion ($7.59 billion) from the Plustoken scheme during its two years of operation.

A total of 15 people have been convicted so far in relation to the scheme, the court filing said, with fines ranging from $100,000 to $1 million and prison sentences from two to 15 years.

One of the members also laundered RMB 145 million, most of which was spent by the Plustoken team and their families on expensive cars, real estate, and insurance packages in Hong Kong, the filing said.

In total, 109 of Plustoken’s core members have been arrested, according to local media reports (in Chinese). Some had initially fled to the Pacific island nation of Vanuatu, where the scheme was allegedly active.

The latest court filing said the Ponzi scheme started in May 2018 by promoting a fake cryptocurrency trading platform. Investigations into its operators began in 2019.

The first ruling on the case came on Sept. 22 by a low-level district court in the city of Yancheng in Jiangsu. The latest ruling rejected appeals and is final. (The Block)

US crypto concerns

The Trump administration’s Director of National Intelligence, John Ratcliffe, sent a letter to the chairman of the US Securities and Exchange Commission, Jay Clayton, earlier this month, warning of China’s influence over digital currency technology, the Washington Examiner reported.

Ratcliffe said that China holds significant power over cryptocurrencies because it has the world’s biggest mining capacity, the computational process by which new cryptocurrencies are minted. He also warned that the US has been left behind in the race to a central bank digital currency as China is already piloting its own.

Ratcliffe proposed to have a team of “senior economic intelligence officials” brief Clayton, the report said.

Okex outflows

Cryptocurrency exchange Okex saw 24,631 Bitcoin ($482 million in Tuesday’s prices) leave its platform when it resumed withdrawals on Nov. 26 after pausing for nearly six weeks, Coindesk reported using data from crypto intelligence site Cryptoquant.

This is the largest outflow the exchange has seen since March, when Bitcoin markets were in free fall.

Okex halted withdrawals suddenly on Oct. 16 when one of the exchange’s key holders became “out of touch” because he were assisting with a government investigation.

The exchange’s founder was released by authorities on Nov. 20 after being held by authorities for weeks while he was cooperating with an investigation. It is unclear whether he was the key holder who was missing.

READ MORE: Okex founder is back, second digital yuan lottery: Blockheads

Canaan reports losses, again

Crypto mining rig maker Canaan’s losses widened by 400% to $12.7 million quarter on quarter in the three months ending September 30, 2020, its earnings report said. The disappointing results are made even more bleak by the fact that Bitcoin prices have risen by 30% in the same time period, and Canaan has reduced its product prices by almost 69%.

READ MORE: Rig maker Canaan misses Bitcoin surge, losses top $12 million

The TV blockchain

China’s National Television and Radio Authority released a white paper in collaboration with privacy-focused blockchain company Arpa to outline the potential applications of blockchain in media.

The white paper aims to”introduce the traceability, authenticity, and security of blockchain in radio, television, and other media,” Arpa said in an announcement. (Arpa on Medium)

The traceability project

Vechain, a Chinese blockchain company that works closely with government officials, released insights on its food traceability program with Walmart. It said that it expects the government to soon release a food traceability system to build trust after the Covid-19 pandemic.

The company rolled out a blockchain-based food traceability platform at Walmart China in June 2019. Consumers can scan QR codes on products to find out information about them. The data are compiled from different parts of the supply chain, and are stored on an enterprise blockchain.

The platform has been updated seven times, Vechain said, to connect with local government bureaus.

Videos to watch

• TechNode hosted an online panel to discuss the global expansion of the BSN with three experts from Shanghai, Singapore, and Hong Kong .
• An “old lady” talks about decentralized finance eloquently while she is promoting an allegedly fraudulent project.

China’s preference for its own 5G equipment vendors over European suppliers has created an unfair playing field in the country’s telecommunications market, according to the EU ambassador to China in a speech given during a major telecommunications event in Guangzhou on Thursday.

Nicolas Chapuis said Chinese telecommunication operators had “massively privileged their national suppliers” and complained about a market share “free fall” for European vendors in China’s telecom infrastructure sector during a pre-recorded speech at the opening ceremony of the World 5G Convention (W5GC) held in the capital city of southern Guangdong province.

Chapuis’s speech was not included in the detailed video recording of the opening ceremony published on the W5GC website. Instead, the 130-minute video recording of the opening ceremony includes around 40 minutes of a static image with music in the background. A representative of the Beijing-based nonprofit Future Mobile Communication Forum, which co-hosted the event along with provincial government bodies, said all speeches given by high-level politicians were not “live-streamed, published in video recording, nor included in the agenda of the event.”

“The bottom line is a free fall of European market share in the telecom infrastructure sector [of China], standing today at less than 11%, while their market share in other countries stands at more than 30%,” Chapuis said according to the text of the speech sent to TechNode. “This raises major questions on fair competition.”

The EU “is urging China to ensure openness, transparency, and equal opportunities for domestic and foreign suppliers,” he said, adding that the bloc will continue to press for “meaningful market access” for both 5G infrastructure and 5G-related services in China.

China has insisted that it is not biased in choosing 5G kit suppliers. “China always sticks to equal and fair principles when purchasing 5G telecom equipment. We never preset the market shares for domestic and foreign enterprises,” Miao Wei, minister of China’s top telecom regulator, said during a keynote speech at last year’s W5GC in Beijing.

China’s three state-owned carriers in April assigned more than 80% of their 5G base station buildout contracts this year to Chinese telecom equipment makers Huawei and ZTE. A small portion of their budget went to Swedish company Ericsson, while Finland-based Nokia was not awarded any contracts.

The Finnish firm, however, said in June that it had been selected by China Unicom, one of the state-owned carriers, to supply around 10% of its 5G core network.

Chapuis’s remarks are a rare direct complaint from the EU about its access to China’s telecommunications market, aligning with the bloc’s recent stance that calls for a Europe-China relationship based on “fairness.”

“We have a robust trading relationship with China… Trade can energize our economic recovery. But we want more fairness. We want a more balanced relationship. That also means reciprocity and a level playing field,” Charles Michel, president of the European Council, said in September.

China’s Huawei, the world’s largest supplier of telecom equipment, is facing a raft of challenges in Europe. Some member nations including the UK and Sweden have decided to exclude Huawei products from their 5G networks. Several other European countries, including France and Germany, have made moves to heavily restrict its participation in their 5G buildout. Experts have said the company could be completely excluded from the continent’s 5G core networks.

READ MORE: INSIGHTS | More European countries are turning their backs on Huawei

For more than a year, the US government has continued to pressure its allies to exclude Huawei equipment. Not doing so, it said, poses the potential risk of Beijing using vulnerabilities in the company’s gear to spy on foreign 5G networks, an allegation Huawei has repeatedly denied.

Without mentioning Huawei, Chapuis said during the speech that 5G gear suppliers are subject to the same security scrutiny in Europe.

“Suppliers, be they European as well as non European, have been required to prove their compliance with a set of rules, known as the EU 5G tool box,” he said. “Chinese companies have welcomed this framework, which is based on a solid, thorough, transparent, and objective assessment of risks and applies to all players.”

About a year after China launched its first public 5G networks, it held a major telecommunications event in the southern city of Guangzhou on Nov. 26-27. The second annual World 5G Convention (W5GC) attracted top executives from the country’s three state-owned carriers (China Mobile, China Telecom, and China Unicom) and high-level officials from telecom regulators to the event. 

Representatives of several overseas carriers including Spain’s Telefonica, Singapore’s Singtel, Deutsche Telekom, and America’s AT&T also attended by video link. But W5GC was more China than world: the agenda centered on China’s deployment and applications of next-generation 5G networks, while almost all foreign speakers were allocated to a “global forum.”

Not all information from the world-level conference was new, but the message delivered by officials is important: China is counting for future economic growth on a series of cutting-edge technologies enabled by ultra-fast 5G networks, which includes electric vehicles, artificial intelligence, and big data. In the short term, 5G is seen as a remedy for the country’s virus-hit economy.

Bottom line: 

• 5G cellular service is already widely available in China—if you live in a city, you should be able to use it. But networks are far from complete, and China expects to spend hundreds of billions on base stations in the coming year.
• But 5G still isn’t essential. We haven’t seen a “killer app.” Authorities still talk about it as a future technology rather than something paying off now.
• Compared to last year’s W5GC (held in Beijing), this year focused more on the domestic market, whereas last year China tried to export its approach to 5G to the world.

Widely available:

• Liu Liehong, deputy minister of China’s Ministry of Industry and Information Technology (MIIT), said China has built more than 700,000 base stations with more than 180 million 5G subscribers as of October.
• Dong Xin, chief executive officer of China Mobile, said the world’s largest telecom carrier by subscribers had built 385,000 base stations with more than 90 million 5G end users. He said the company had provided 5G service in all Chinese prefecture-level cities.
• Wang Xiaochu, president of China Unicom, said the company is now providing standalone 5G service in more than 300 cities, meaning that its 5G network does not rely on older 4G infrastructure.

Growth forecast:

• Feng Yi, director at China Unicom’s 5G Innovation Center, said China’s 5G users could grow by 20% in the next year.
• John Hoffman, CEO of GSMA, a telecoms industry body, predicted that around 20% of global telecom users will choose 5G services by 2025, with the penetration rate reaching 50% in countries like the US, Japan, and South Korea. “China will be the world’s biggest 5G market in terms of subscribers, though its penetration rate will only be 30% by 2025.”

Message from Europe: After a year in which Huawei has lost ground in Europe, Nicolas Chapuis, European ambassador to China, argued that the bloc assesses vendors neutrally: 

“In Europe, operators and suppliers are also ready to proceed, frequencies have been allocated, but governments and security agencies want to first make sure that the impact of this new technology on industry and services is well managed and regulated. Suppliers, be they European as well as non European, have been required to prove their compliance with a set of rules, known as the EU 5G tool box. Chinese companies have welcomed this framework, which is based on a solid, thorough, transparent and objective assessment of risks and applies to all players.”

Nicolas Chapuis, European ambassador to China

READ MORE: INSIGHTS | More European countries are turning their backs on Huawei

5G spending push to continue: In June 2019, China issued 5G licenses to its three major carriers and a broadcasting company, with commercial use of the service starting last November. Though China launched the service later than countries like the US and South Korea, the country is now—according to officials speaking at this week’s event—is “taking a lead” globally in the deployment of 5G networks.

• The buildout of the country’s 5G networks is largely backed by the state. China in April kicked off a “new infrastructure” initiative, promising to spend RMB 1 trillion (around $152 billion) on seven cutting-edge technologies including 5G, artificial intelligence, and electric vehicles in 2020 alone. China Sinolink Securities, a broker, expects total investment by local governments and telecom companies into base stations to reach RMB 300 billion this year.
• The Chinese government is calling for a quick rollout of the next-generation wireless network, which prompted China Telecom and China Unicom, the smaller rivals of China Mobile, to jointly build a next-generation network. On Thursday, Wang of China Unicom said the company saved RMB 60 billion “for the state” from the partnership with China Telecom.
• Most 5G base station buildout contracts have gone to China Tower, a state-owned telecommunications tower infrastructure service provider. Tong Jilu, chairman of China Tower, said Thursday that the company had constructed more than 700,000 5G base stations for local carriers. He said 97% of those stations were built on existing 4G stations. 

5G as stimulus: Speakers tied the protocol to hopes for growth from the “digital economy.” China’s economy could have taken a much deeper hit this year without the “digital economy,” according to a former government official.

• “2020 is a year of troubles. Under this circumstance, people all looked at the digital world for economic growth,” said Li Ming, executive director of the China Institute of Digital Economy Research. “5G will be a growth engine of the digital economy,” he said.
• Xu Xianchun, director at the Tsinghua University’s China Data Center, said China’s digital economy grew 13.2% year on year in the first quarter while the country’s gross domestic product (GDP) was down 6.8% in the same period because of the Covid-19 outbreak.
• Xu, who is also the former deputy director of the National Bureau of Statistics of China, said the country’s GDP could be down more than 8% in the first quarter if the digital economy shrank as well, highlighting the importance of the sector in China’s economy.

A subdued Huawei? You can’t talk about 5G in China without talking about Huawei. But Huawei was relatively inconspicuous at this year’s W5GC. Last year, one Huawei executive appealed (in Chinese) called for the digital “Berlin Wall” to come down, and the company’s then rotating chairman vowed to build “the world’s best 5G.” This year, attendees from the company focused on products and devices.

Internal circulation: Things have changed a lot between the two W5GCs. Last year’s conference featured a session (in Chinese) that aimed at promoting China’s participation in global 5G standards; this year’s “world” conference overwhelmingly focused on developments in China. Of course, closed borders and a pandemic make international events much harder, but the changes also reflect the change in economic strategy known as “dual circulation,” which calls for the country to rely less on international markets. If China was still hoping to shape the 5G conversation around the world when it launched the conference last year, this November’s event suggests a more modest focus on the home market.

UPDATE: The quote from EU Ambassador Nicolas Chapuis has been updated based on a text provided by the EU Delegation to China. An earlier version of this article relied on a translation printed in Chinese media reports.

It’s a rainy Sunday evening in London. I pull out my phone and look for regional Chinese cuisine on food delivery apps. Disappointment quickly hits.

Browsing London food delivery platforms like Just Eat, Uber Eats, and Deliveroo, I only find typical British-Chinese sweet and sour dishes, as well as dim sum. Not exactly the regional cuisine I’m looking for. 

Frustrated by the lack of better options, I open Hungry Panda, a Chinese food and grocery delivery app only available in Chinese. Founded in 2016 by Nottingham University graduate Liu Kelu, the service targets overseas Chinese students and communities. Its social media campaigns are aimed at young homesick Chinese.

I came across Hungry Panda at Seveni, a hotpot and charcoal BBQ eatery in South London popular among Chinese students. Restaurant staff were handing takeaways to young men in blue uniforms with a panda logo and “Hungry Panda” on their bags. The company quickly piqued my interest. 

I’m not a fluent Mandarin reader, so, with the help of Google Translate, I opt for a restaurant with food from China’s southwestern Sichuan province—famous for its delicious, spicy cuisine—and another specializing in hearty meals from Northeastern China. 

The regional combination is odd: Liaoning province in China’s northeast is more than 2,500 kilometers from Sichuan. It’s also going to take over 90 minutes to deliver my meal. Ordering isn’t easy for non-Chinese speakers, as it requires basic Mandarin. Only a handful of restaurants have added English translations to parts of their menus. The platform and most of its content is in Chinese. 

But I won’t complain if I’m able to have some real barbecue skewers (chuar), a spicy numbing stir fry pot (malaxiangguo) from Sichuan, and a tasty mix of stir fried potato, aubergine and peppers (disanxian) from northern China. 

Hungry Panda is tapping into a niche by promising to bring authentic ingredients and dishes to its users, but is the app trying too hard to bring the same user experience people are used to in China to overseas markets? 

Targeting the homesick

A quick search in the app pulls users into what feels like a hidden world of Chinese food that goes beyond dim sum and fried noodles. 

Hungry Panda’s menus feature classics like spicy pickled fish soup (suanlayu), spicy cumin barbecue skewers, and grilled pancakes with egg and chives (jiucaihezi). These are dishes that are usually found in small corners of larger menus and not included on menus on apps like Deliveroo and Uber Eats—restaurateurs just don’t believe their non-Chinese customers are interested.

Hungry Panda’s interface is a near-clone of Eleme, one of China’s biggest food delivery platforms. It’s so similar that I initially thought the Alibaba-owned food delivery giant had started operating in London.

Hungry Panda was actually founded in 2016. Headquartered in London, in February the startup raised $20 million from Felix Capital, a backer of Deliveroo and 83 North, a venture capital firm and early investor in JustEat. 

In less than four years, Hungry Panda has expanded its services to more than 30 cities across six countries, all while keeping the app in Mandarin. The size of its user base is not public, but the app has been downloaded more than 100,000 times from the Google Play Store. 

In 2019, the company’s direct-to-consumer brand Dada Chinese Supermarket started delivering Asian groceries to its users within two hours of ordering, meeting a demand that was long there. Then, at the beginning of lockdown, the platform started delivering Covid care packages that included health and safety products like N95 masks, hand sanitizer, and traditional Chinese medicine. 

“Hundreds and thousands of miles away from home, it’s brave to fight against loneliness” says the voiceover in a Hungry Panda video ad. The commercial shows a man in his 20s thinking about the life he temporarily left behind to study in the UK. “Life abroad, but the stomach belongs to home” continues the voiceover.

But to Xiao Xiao, a Guangzhou native studying engineering at Durham University, Hungry Panda is far from replacing food from home: “There are only a handful of Chinese restaurants that will deliver to where I live and the food is average, but I use it during Chinese festivities or when I’m alone watching Chinese shows,” she told me.

Users can’t access the same variety of restaurants they would at home because Hungry Panda’s focus on a niche market means less demand—and therefore less supply, which is required to create enough density for on-demand deliveries to become viable. 

Too ‘Chinese’?

Hungry Panda’s interface shares many similarities with delivery platforms in China.

Just like apps in China, users receive daily red packets, or hongbao, which can be used for discounts at restaurants that sell food through the app. Food is categorized by the region it comes from in China. The touch and feel of adding dishes to the app’s cart is so similar to Eleme. Memories of ordering Yang’s Dumplings, a popular Shanghai pan-fried soup dumpling chain that only operates in China, hit me when I use Hungry Panda.

Payment is also indistinguishable. Users can use popular Chinese apps Alipay and Wechat Pay to buy their meals. Those that don’t have access to the Chinese payment platforms can also opt for credit and debit card payments. 

Ads for special offers pop up when you open the app, along with banners for new restaurants and Chinese festivities. The app now even has a carousel that lands the user on a local Covid-19 stats page in Chinese. There is little space and a lot of content is crammed into the small screen, a design principle common to websites and apps in China.

For those who are not used to Chinese apps, however, Hungry Panda might feel like visual chaos. “It’s convenient for Asian groceries, but the app is confusing. There’s a lot going on—it’s like Taobao. I’m more used to a clean Western interface,” Michelle, a Taiwanese-born Londoner, told me.

There are 400,000 people of Chinese ethnicity in the UK, and many more that are discovering an appetite for authentic regional food and groceries from China. For Michelle, an Eleme or Meituan duplicate may meet that occasional demand, but will it be enough to retain users like her in the long run? Is Hungry Panda aiming for a user experience that is almost too “Chinese,” excluding other potential users?

Challenges ahead 

Xiao Xiao is planning to go back home once she completes her degree abroad. She’s not the only one—many have moved back home after classes moved online. 

As the Covid-19 pandemic wears on, travel restrictions could mean that a much smaller number of Chinese students can continue their studies abroad this year. As a result, Hungry Panda could find itself stuck in its niche, and there may not be enough homesick students to make the business viable.

“As soon as plane ticket prices went down a little, I packed up and flew back,” Aaron, a second year student at the University of Wisconsin-Madison, told me. He now continues his studies online at his home in Harbin, a city in Heilongjiang, China’s northernmost province.

There is, however, enough of an appetite for regional Chinese food for Hungry Panda to expand its current target market. Authenticity is a big selling point to those that are looking for something different, and as we move into a new tiered system with local lockdowns in the UK, perhaps it’s time for Hungry Panda to make its platform available in English.

China’s top economic planner has asked provincial governments to submit detailed reports about electrical vehicle firms’ investment and business activities in order to minimize financial risk, according to a notice seen by Chinese media.

Why it matters: The Chinese central government is addressing massive overcapacity in the EV industry in an attempt to head off financial crises in regional economies.

• Beijing is mulling further reductions in production capacity, concerned about an overheating EV sector. Tesla’s Shanghai factory is widely seen as an industry success story, reinvigorating the Chinese EV market and spurring local governments’ search for the country’s own Tesla.
• Poorly performing companies face higher default risk, compounded by significant overvaluation.

Details: National Development and Reform Commission (NDRC) had urged regional authorities in a notice issued Nov. 13 to provide updates on local EV manufacturing projects. Requested details include production progress and the implementation of investments over the past five years, Chinese financial media outlet Yicai reported on Wednesday.

• More notably, the country’s state planner in the notice asked local governments to report on EV projects from Chinese property developers Evergrande and Baoneng.
• Evergrande is known for its ambitious output goal of 5 million EVs per year over the next decade as well as a RMB 45 billion ($6.8 billion) investment project to build 10 manufacturing facilities around the globe by 2021.
• The would-be EV maker in August debuted six EV models which are scheduled for release in the second half of 2021. It began preparing a month later for a secondary listing on China’s Nasdaq-style STAR Market technology board.
• Concerns about Evergrande’s liquidity began to arise in September when the Guangzhou-based company reportedly resorted to asking a local government to approve a restructuring plan in order to repay as much as RMB 130 billion to strategic investors by January. The restructuring had been holding up a long-delayed backdoor listing on the Shenzhen stock exchange.
• The share price of China Evergrande New Energy Vehicle Group fell 5.2% to HKD 22.8 ($2.94) on Wednesday in Hong Kong. The property developer’s EV subsidiary still has a market capitalization of HKD 201 billion ($25.9 billion), close to that of Fiat Chrysler.
• Evergrande did not respond to a request for comment on Wednesday.

Context: China cracked down on EV overcapacity by suspending new plant approvals in mid-2017, when planned capacity reached 20 million EVs—more than 20 times total sales that year, according to state-owned China Securities Journal.

• This was followed by the enforcement of new rules in early 2019 that conditionally allowed new EV plant approvals. The new rules reopened the door to new plant approvals for EV makers and granted local governments with more discretion to oversee auto investments.
• Sales of new energy vehicles, mainly all-electrics and plug-in hybrids, declined 4% year-on-year to 1.2 million units last year in China, figures from the China Association of Automobile Manufacturers (CAAM) showed.

China’s market regulator on Tuesday proposed new rules targeting anticompetitive behavior to include internet companies, which have largely fallen outside of the scope of existing antitrust laws.

What’s changed: The new rules widened the reach of certain antitrust terms that previously only applied to the physical economy. One example was the definition of “relative market,” in which players may pose a “dominant position” if they control more than 50% of the market and thus fell under the jurisdiction of China’s Anti-monopoly Law. The law came into effect in 2008. 

• Legal experts have long criticized (in Chinese) the law because it was designed to regulate companies in traditional industries and in most cases did not apply to companies operating on the internet, an increasingly important segment of the country’s economy.
• The new rules expanded the parameters for determining market share to include factors such as transaction volume, user base, and page views.
• The rules will subject some of China’s biggest internet companies, such as e-commerce behemoth Alibaba, social media giant Tencent, food delivery platform Meituan, and ride-hailing app Didi Chuxing, to tougher regulations. China earlier this month halted an initial public offering for fintech giant Ant Group over regulatory concerns.
• The draft (in Chinese), which is under public review until the end of November, also requires the consideration of factors such as network effect as well as market players’ scale and ability to deal with data. A draft revision of the Anti-monopoly Law unveiled in January, announced by China’s State Administration for Market Regulation (SAMR), included similar provisions. The SAMR also drafted the rules announced on Tuesday.
• The draft guidelines say that companies which force merchants to “choose one of two” online marketplaces on which to sell their products are engaging in anti-competitive behavior.
• Platforms that price their products or services differently according to customer purchasing power, consumption history, or user preference is monopolistic behavior, according to the draft rules.

READ MORE: China’s antitrust law doesn’t seem to apply to internet giants

Tech shares tumble: Share prices for Chinese tech companies tumbled Tuesday and Wednesday on news of the guidelines. Companies including Alibaba, Tencent, and Meituan saw their share prices dive at least 8% over the two days. The Hang Seng Tech Index in Hong Kong, where many Chinese tech stocks list, fell by more than 5% on Tuesday.

• Bloomberg estimated that the shares slump wiped out more than $200 billion of value from Chinese tech companies.

Context: Before China’s top antitrust regulator proposed revisions to the antitrust law in January and the draft rules on Tuesday, the SAMR was already working to curb potential antitrust violations from internet companies.

• The agency launched in January 2019 what is known as China’s first “internet antitrust investigation” into Tencent Music Entertainment’s dealings with the world’s three largest record labels after rivals complained that Tencent paid excessive fees for the initial rights and then passed those costs along to competitors.
• However, the SAMR decided to suspend the probe in January, according to Bloomberg. The regulator didn’t disclose how far the investigation went and why it was terminated, but it came after Tencent Music reached a music licensing deal with Bytedance, a Beijing-based startup that runs Tiktok, in late 2019.

As fintech titan Ant Group prepared for a long-anticipated IPO, a struggle over the reach of regulation between founder and controlling stakeholder Jack Ma and financial regulators spilled into public view. 

In the days leading up to Nov. 5, when the fintech giant was set to go public and raise an estimated $34.5 billion, a series of pointed attacks on Ant Group were published in financial media including the central bank’s official newspaper. 

These articles called Ant Group “too big to fail” and a “systemic risk,” likening Ant Group to the sprawling financial institutions that brought about the 2008 crisis. One accuses it of tricking its customers in taking on extra debt. All argue that Ant Group should be required to follow the Basel Accords, the bank rules created in the wake of the 2008 crisis.

Some were rumored to be written by China’s top echelon of financial regulators. The people rumored to be behind the articles include Zhou Xiaochuan, the longest-serving governor of the People’s Bank of China—a figure who presided over China’s rise to a financial powerhouse and led the development of its modern financial system. 

These articles likely provide insight into regulators’ intentions for fintech. Ant Group’s lending practices have emerged as a key issue for regulators: On Nov. 2, the China Insurance and Banking Committee released a draft regulation that would limit the amount companies like Ant can lend out to micro-borrowers.

READ MORE:  UPDATED: Ant Group IPO delay and Jack Ma’s ill-timed speech

Ant Group: no need to regulate

In the last year, authorities have been making moves to raise the regulatory bar for Ant Group, among other fintech giants, and bring it closer to what banks have to comply with. 

In September, the State Council released new measures to introduce licensing requirements for  non-financial holding companies that are involved in financial services, and could potentially raise capital requirements for companies like Ant Group. 

“If you were previously unregulated, it feels like a clampdown,” Andrew Polk, co-founder of research firm Trivium, told TechNode. 

The People’s Bank of China (PBOC), which is chiefly responsible for “macro-prudential” policy to manage overall risk in the financial system, appeared particularly worried about Ant Group. In July, the PBOC asked banks to report lending data for H2 2018, the whole of 2019, and H1 of 2020. The central bank asked for separate reports on loans going through Ant Group’s platforms. 

As Ant prepared for a history-making IPO, regulators were asking the company to accept being regulated more like a bank. This posed a threat to the sky-high valuation that would justify raising more than any company had ever asked from the markets. 

But Ma believed that regulators misunderstood his business. Ant is more than a bank—as one of China’s two major online payments providers, it knows nearly everything about its customers—from rent payments to 3 a.m. e-commerce impulse purchases. Armed with this information, Ma believed, the company could assess risks with an accuracy banks could only dream of—making it safe for the company to operate at high leverage.

Ma thought the regulators were living in the analog past—and with weeks to go before the IPO, he decided to tell them in a very public setting.

On Oct. 24, Ma spoke at the Bund Summit, a Shanghai conference where some of the world’s top financiers discuss the state and future of the world economy, and China’s role in it. Speakers at this year’s conference included: China’s vice president Wang Qishan; the current and former governors of the PBOC, Yi Gang and Zhou Xiaochuan; the vice chairman of the China Securities Regulatory Commission, Fang Xinghai; high-level executives of China’s big four banks; former governor of the European Central Bank Jean-Claude Trichet; former UK Prime Minister Tony Blair; former US Treasury Secretary Robert Rubin; founder of US hedge fund Bridgewater Associates Ray Dalio; and former governor of the Bank of Japan Masaaki Shirakawa. 

In this setting, Ma said: “The Basel Accords are more like a club for the elderly”—irrelevant to the “young” field of online finance. The accords are a set of international standards created in the wake of the 2008 financial crisis to reign in the banks and improve the stability of the world’s financial sectors. 

The Basel Accords are about treating the diseases of the elderly with antiquated and overly complex systems. What we have to think about is: “What we should learn from the elderly?” The elderly and young people are not the same. The elderly care about whether there is a hospital, and the young people care about whether there is a school district.

The Alibaba founder said that tech companies are not afraid of regulation, but regulation using antiquated thinking: 

We are not afraid of supervision, we are afraid of monitoring using the way of yesterday. We cannot manage the airport the same way as the railway station, and we cannot manage the future with yesterday’s methods.

China’s financial sector suffers from a “pawnshop” mentality, Ma says, that must be replaced with big data.

The pawnshop idea of ​​mortgage cannot support the financial needs of world development in the next 30 years. We must use today’s technological capabilities to replace pawnshop thinking with a credit system based on big data.

The day after Ma’s speech, at the same event, Shang Fulin, director of the Economic Committee at the Chinese People’s Political Consultative Conference and the former governor of the China Banking Regulatory Commission, said that regulation must catch up with financial technology in order to reign in its excesses, making special notes of risks to the economy and privacy that big tech brings to the finance sector.   

As modern information technology is more deeply involved in financial transactions, risk decision-making, internal control compliance, intelligent analysis, and other activities, information technology risks are more likely to lead to chain reactions such as operational risk, credit risk, liquidity risk, and so on. It is necessary to guard against the risks that may be brought about by the digitization of traditional business, as well as the risk of using technology to innovate in finance.

The ‘old men’ reply 

A week after Ma’s now-infamous speech, he got a response: three prominent articles in state media laying out a case for stricter financial regulation on Big Tech, widely taken to represent the views of regulators. 

The first shot was a forum comment highlighted by the online edition of Guangming Daily, an influential state newspaper on Oct. 26. Ma was “arrogant,” and “the speech was not an idle talk over tea, but a targeted one in the context of Ant Group’s IPO.” “Without this kind of regulation [the Basel Accords], the size of the IPO will definitely be proportional to the sound of explosive thunder,” the commenter wrote, drawing on an image frequently used to describe industries as out of control.

A week after Ma’s speech, three strongly-worded editorials criticizing internet companies’ involvement in finance, all attributed to pseudonymous “senior scholars,” were widely reprinted on Chinese media. The latter two were printed in the official newspaper of the People’s Bank of China, Jinrong Shibao (literally, “the Financial Times”—no relation to the salmon-colored London paper).

On Oct. 31, a pseudonymous op-ed called for strict financial regulation on big tech. Market insiders believe that the author, credited as “senior scholar” Zhang Feiyu, was an insider from the regulatory authority, Reuters China reported. We are a little confused about the place of publication—we’ve found reprints citing both independent financial media Caixin and the PBOC-linked Jinrong Shibao as the original.

“There was no supervision of the development of fintech in its early stages,” Zhang wrote, reminding readers of the scams and losses associated with peer-to-peer lending platforms, which rose and fell 2007-2018.

Financial regulatory authorities must dare to say “no” when supervising big tech companies—otherwise they will be easily misled by their technology, held hostage by public opinion, and fail to conduct effective supervision, which will eventually distort the market and generate financial risks.

On Nov. 1, a second warning about unregulated fintech appeared in Jinrong Shibao under the name Zhou Jueshuo, emphasizing the systemic risks associated with fintech.

Rumours on social media identify the author as Zhou Xiaochuan, who served as the governor of the PBOC for 16 years. Using pseudonyms when writing publicly is common practice among government-affiliated public intellectuals, especially household names like Zhou Xiaochuan. 

The article did not single out a target, but attacked internet companies that participate in the financial sector. In the first two paragraphs of the main body, the author makes note of the benefits of internet companies’ involvement in finance, mentioning “Alibaba, Baidu, Tencent, and JD.com.” It credits Ant with bringing hundreds of millions of people into the financial system.

Other than these name drops at the top, the text only brings up Ant Group as an example of a big tech company that has become too big.

The article argues that big tech firms in the finance sector must be reigned in, and outlines a strategy for regulators. The article blames big tech for:

• Using data to gain unfair advantages, effectively creating monopolies that cannot be easily managed by traditional tools against unfair competition.
• Evading financial regulation by obfuscating the true nature of businesses and products, and pushing the limits of business licenses to provide financial services.
  • “If a large Internet company provides a large number of financial services but claims to be a technology company, it is evading regulatory oversight, will be more prone to disorderly expansion, which causes hidden risks, and is not conducive to fair competition or consumer protection.”
• Complexity of technology makes it harder to identify risks and determine responsible parties if something goes wrong. 
  • “It is difficult for regulators to understand high-tech ‘black boxes’ and their hidden risks.”
• Data collection practices that pose risks to consumers through data leaks and algorithmic discrimination.
• Posing serious systemic risks to the financial system—with the possibility of a domino effect if they fail. 

Large Internet companies are [said to be] “too big to fail.” Ant Group counts over 1 billion individual users, over 80 million institutional users, and 118 trillion digital payment transactions. Its listed market value may set a historical record. If it [Ant Group] faces financial difficulties, it will cause serious contagion risk.

The section concludes:

Due to the wide network coverage of large internet companies, the convergence of business models and algorithms, the contagion of financial risk will speed up and may evolve into systemic risk in a very short time.

To solve these problems, the author argues fintech giants must be regulated in the same class as banks, but grants that authorities must update their systems for a tech-driven era. He calls for rules to protect consumer rights and prevent systemic risk, requiring fintech companies to seek licenses and accept oversight like traditional financial firms. 

Finally, on Nov. 2, a third essay appeared in the PBOC newspaper, this time credited to “senior scholar” Shi Yu. The Nov. 2 essay singles out Ant, accusing it of exploiting retail borrowers.

The author starts by saying that the “‘so-called’ innovative Ant Group” is “the institution with the highest degree of cross-industry sprawl in the world.” Rebutting Ma, it continues to argue that “‘Yesterday’s regulation’ is not useless, and the Basel Accords are not outdated.”

The essay attacks the lending models of Ant Groups’ virtual credit card Huabei and its money market fund Yu’ebao, saying that what it calls “inclusive finance” is actually very costly to consumers: 

The annualized interest rate when borrowing from [Ant Group virtual credit card] Huabei was once close to 24%, and has dropped recently, but is now about 15%. At the same time, the Huabei borrowing mode on Alipay’s Yu’ebao feature… raises the interest that borrowers need to pay from the 5%-6% of a bank loan to 15%.

It also accuses Huabei of manipulating users’ consent and tricking them into taking on debt: 

At present, Huabei’s lending interest rates are disclosed in the form of daily interest rates, and are not converted into annualized rates, as required by regulations. Borrowing is often set as the default choice during periods such as Singles Day, and customers are easily deprived of other payment options.

Finally, the article urged regulators to examine Ant Group’s structure to require it to place financial services like Yu’ebao and Huabei under properly licensed online banks.

The moral

Probably the strangest state media response to Ma’s speech was the victory lap from official news agency Xinhua.

On Nov. 2, Ma and two other top Ant Group executives were called in for a talk with regulators, while regulators issued new rules about microlending.

That evening, Xinhua rendered a verdict on the Ma affair via the medium of roundabout bedtime podcast. Xinhua’s “Evening read”—a podcast offering “beautiful writing, every evening around 10 p.m.”—selected an essay titled “You can’t just say anything, you can’t just do anything; people can’t just do as they please.” 

Ma is not mentioned by name, but he appears by rebus in a painting accompanying the article, which shows a horse-shaped cloud floating over a leafless, dark forest. The billionaire’s name can be translated as “horse cloud.”

In a gentle voice accompanied by light piano and strumming guitar, host Wu Weiling tells listeners: “You can have different opinions, but you don’t have the right to throw stones.”

“Everything comes at a price,” Wu said in words highlighted in red in the accompanying transcript. “If you don’t have the capital, don’t do as you please.”

The Binance papers

An allegedly internal Binance document obtained by Forbes said that the cryptocurrency exchange banned from China in 2018 was trying to set up a complicated corporate structure to deceive US regulators and aid customers in evading US laws, the site said.

Binance denied the accusation. The founder and CEO of the company took to Twitter to question the document’s authenticity.

The document in question dates back to late 2018, when Binance was setting up a US subsidiary, according to Forbes. It speaks of a plan to set up a company, dubbed “Tai Chi Company” in the document, to distract US regulators while Binance was working on regulation workarounds.

Binance US, the exchange’s on-the-books subsidiary, would go along with US compliance requirements and would not allow highly leveraged derivatives trading, the document said. Trading crypto derivatives is highly regulated in the US.

Meanwhile, the “Tai Chi Company” would feign interest in compliance, while it was teaching investors on its platform how to evade geographical restrictions and trying to find technological workarounds. The company would return revenues to Binance as licensing fees.

Binance is the world’s largest cryptocurrency exchange, trading on average $10 billion per day. (Forbes)

Government blockchain moves

• Chinese regulators released the first industry standard for security in blockchain technology. The standard was implemented on Oct. 1 and includes 62 provisions and has been approved by the Ministry of Information Technology. (National Internet Emergency Response Center, in Chinese)
• The government of Chengdu in the southwestern province of Sichuan released a plan to integrate blockchain in government and become a blockchain development hub by 2022. The city plans to use blockchain for traffic control, hazardous waste management, supply chain traceability, cross-border trade, intelligent manufacturing, and agriculture, as well as develop a testing ground for the digital yuan. (Red Star News, in Chinese)
• China should be proactively participating in the setting of global digital currency and digital tax standards, President Xi Jinping said in a statement on Saturday. (Coindesk)

The digital yuan

• The governor of the People’s Bank of China, Yi Gang, said digital yuan pilots have processed RMB 2 billion ($299 million) in 4 million transactions so far. On Oct. 6, the central bank’s deputy governor said RMB 1.1 billion had been processed in 3 million transactions. (BNN Bloomberg)
• Huawei’s newest smartphone, the Mate 40, will come with a built-in digital yuan wallet, the company said in a Weibo post. The wallet will feature “hardware-level security, controllable anonymity protection, dual offline transactions,” Huawei said. (Huawei’s official Weibo)

New blockchain partnerships

• Bitmain closed a deal to sell 10,000 of its newest cryptocurrency mining rigs to Marathon Group, a US-based crypto investing company. Bitmain signed a contract for 10,500 Antminer S19s with Marathon Group in August, and another for 17,595 with Core Scientific in June. (Globe Newswire)
• Poly Enterprise, a permissioned cross-chain protocol, became available to developers on the Blockchain Services Network today. (Poly Network official Twitter)

READ MORE: EXCLUSIVE: China’s BSN to test cross-chain interoperability in October

“China is in the driver’s seat” of blockchain development as blockchain adopters look for solutions to connect different chains, Fudan University professor Michael Sung said at the TechNode Emerge 2020 conference held on Thursday.

Cross-chain integration, called “interoperability” in the blockchain world, is a key challenge for the emerging technology. Blockchain promises a decentralized, largely tamper-proof way to store and share data. But as different users adopt different chains, there is a rising need for good ways to exchange data between them.

Interoperability is “going to be driven by China, because China can mandate that everyone do the same thing,” said Sung, the co-director of the Fudan Fanhai Fintech Research Center and chairman of Carbon Blue Innovations.

China’s blockchain developers are riding a wave of state support since the technology was “anointed” by top leaders, following the pattern of artificial intelligence and 5G, Matthew Graham, CEO of blockchain-focused investment fund Sino Global Capital, said during the panel discussion. This support means “huge investment, probably overinvestment,” he said. “But out of that, innovative things will emerge.”

Crypto investors are also misallocating funds in exchanges, Graham said. He cited the decentralized file storage token Filecoin as an example of frothy funding from retail investors. 

“The last time there was a digital technology that was this transformational,” said Graham, “it was probably the internet. With blockchain, we’re not even at AOL—it’s 1993.”

China’s blockchain ecosystem has weaknesses, the panelists said, naming public blockchain and token-based business models as examples. The country restricts much cryptocurrency activity, and is known for favoring more controllable permissioned or consortium chains over decentralized chains. 

But this preference is not absolute, said Harriet Cao, co-founder of Bianjie, a Shanghai-based startup that has developed both public chains and enterprise-oriented consortium chains. “Public blockchain is highly supported” as long as companies are working on the technology and not banned activities like initial coin offerings, she said. Cao said she has been invited to universities around China to introduce public chains. 

Chinese regulators are also working with companies to experiment in blockchain-based  “digital assets,” Sung said. His lab is working on a project to create blockchain-based green bonds, he told TechNode, and he expects similar projects to take root soon. The key, he says, is finding a balance: “How can we create the proper hybrid frameworks as to have enough control, whether it’s a bank, a company. There is a balance point in taking a centralized system and slowly decentralizing it,” said Sung.

Soon, Sung predicted, a digital asset economy will emerge “like the flip of a switch.” With projects already in the works, he said, he expects this change “on a sub two-year time horizon.”

READ MORE: China’s BSN to test cross-chain interoperability in October

China’s Cyberspace Administration has cracked down on eight mobile browsers, ordering them to stamp out clickbait and misinformation.

Why it matters: By targeting the largest platforms, the authorities are sending out a signal to other smaller browsers that they may be next in line. Platforms that do not change their practices likely face suspensions or bans. 

Details: The order affects Alibaba-backed UC, Tencent’s QQ, Huawei, Qihoo’s 360, Tencent-backed Sogou, Xiaomi, Vivo, and OPPO.

• The announcement says (in Chinese) that browsers have spread “chaos” by amplifying unofficial media sources and disseminating news that violates regulations. 
• It criticizes browsers for editorializing articles to misrepresent policies that impact people’s livelihoods and spreading rumors.
• It also singles out problems like creating clickbait through exaggeration, sadfishing, or smearing. On QQ’s homepage on Oct. 27, for instance, one top post was “No hope! Western media: No saving Huawei.”
• Also under fire is information that is vulgar, graphic, or gossipy and against “socialist core values.”
• Browsers must submit plans on how they will rectify their practices and conduct self-scrutiny by Oct. 28. They will also have to submit reports on the results of these assessments and their content operation system specifications by Nov. 9.
• Huawei and QQ have already issued statements promising to clear up their browsers of questionable content. 

Context: Unlike the US where services are protected from liability for content published on their platforms, China holds companies accountable for content that appears on their home pages. Mobile web browsers wield distinct power: 872 million people in China access the internet through their mobile phones, and browser home pages have become key to their news-reading habits. 

Laying down the law

• On Sunday, the PBOC released a draft regulatory framework that updates the central bank’s mandate for the digital age. The regulation (in Chinese) is open for public comment until Nov. 23.
• The draft legalizes the digital yuan with a simple provision: China’s official currency, the renmimbi, comes in both physical and digital form, the law says.
• According to an article released by state-owned newspaper Global Times commenting on the new regulation, the digital yuan will not be rolled out nationally for another two to three years.
• The regulation states that the central bank’s jurisdiction include “important” financial “infrastructure” and “companies,” spelling out its authority over China’s sprawling digital sector. This language was absent in the previous iteration of the PBOC law, passed in 2003.
• The law makes special reference to “non-bank” digital payment providers, which include Alipay and Wechat Pay.

READ MORE: INSIGHTS | China’s digital currency has a long way to go

Global ambitions for Ebang

• Crypto mining rig manufacturer Ebang is looking to establish a digital asset management platform in Australia. The firm established a subsidiary in the country and has applied for licenses with the local regulator, according to a company statement.
• Ebang has been spreading its wings around the world. It set up a subsidiary in Singapore in August, looking to set up a cryptocurrency exchange.
• In pursuit of a global digital asset platform, it set up another subsidiary in Canada in September, and acquired a licensed New Zealand broker and wealth management firm in October.

Tether crackdown

• Last week, the Chinese central bank announced it cracked down on illegal activity tied to the cryptocurrency Tether. According to a statement posted on the PBOC’s Wechat account, 77 people were arrested and three sites were shut down, with the help of local authorities.
• The suspects laundered RMB 120 million ($17.95 million) of illicit gambling profits, using the stablecoin for some of the illegal activity. Tether is pegged to the US dollar at a one-to-one ratio.

Okex almost back to normal

• Crypto exchange Okex resumed some of its operations following a shutdown on Oct. 16 when one of its founders became involved in a police investigation.
• Fiat-to-cryptocurrency as well as peer-to-peer transactions were working again, the exchange said on Oct. 21. Withdrawals remain on pause.

READ MORE: Major disruptions at Okex, Filecoin strike: Blockheads

Government-backed blockchain

• A spokesperson for the China Securities and Exchange Commission said that blockchain technology will be used in the future for debt and equity registration. (Sina Finance, in Chinese)
• A blockchain-based health code registration system developed by FISCO BCOS allowed 17 million tourists to travel between Macau and Guangdong since May, it said on Oct. 21. (Cointelegraph)

Filecoin update

• Digital file storage token Filecoin got off to a bumpy start after its Oct. 15 launch. Chinese miners found that the late reward system made mining too capital-intensive, and unplugged their mining machines. Filecoin decided to allow for mining rewards to be released faster than the original six-month payoff window.
• The coin’s price started rising over the weekend and it hit a high of $40 on Monday. It is now trading at $35.

Back in the 1990s, people thought the internet would abolish borders. “Cyberspace does not lie within your [governments’] borders,” wrote author and internet activist John Perry Barlow in 1996. 

The idea of a borderless network has held on. “One of the great things about the internet is that it does not have national borders. When a company in Tokyo sends a digital file to a company in New York, the data does not have to clear customs,” wrote the New York Times in a 2015 op-ed. 

While that may hold for Japan and the US, files going from Beijing to Brussels now often do have to pass digital customs inspections. 

China’s model of data localization, and the associated 2017 Cybersecurity Law, has been the subject of criticism and confusion. But now it seems that Beijing was on the cutting edge of a trend.

Bottom line: China is continuing to develop a system that limits where companies keep data, and what they can send abroad. Many multinational companies—and Washington—don’t like it, but they’d better get used to it: this idea is catching on around the world. 

What is data localization? Data localization regulations require that data be stored and processed on computers in a particular place, usually within a country’s borders, as opposed to letting them flow freely through data centers around the world. 

• This might not mean all data and always. Laws often specify particular types or data that must be kept domestically, and leave room for regulators to grant exceptions. 

Why localize?

• Security: Data localization schemes often cite “security” or “privacy.” But experts say that localizing data alone doesn’t mean enhanced security or privacy. Whitehat hackers contacted by TechNode said that domestic adoption of security and privacy best practices is a bigger issue. 
• Jurisdiction: Data localization does help governments regulate data, and proponents often cite the risk that companies will move data to less-regulated environments.
• Protectionism: Data is a valuable resource—so countries hope keeping it in country will give homegrown tech companies a competitive edge.

Regional styles: There are three main approaches to regulating cross-border data flows, said Nigel Cory, who studies cross-border data flows as Associate Director of Trade Policy at the Information Technology and Innovation Foundation, a think tank based in Washington DC.

• The US has little to no regulation on data flows. It also advocates against data localization in other countries.
• EU regulates cross-border flows based on privacy and security assessments.
• Chinese law treats data both as a valuable resource and a national security priority. The Chinese model asks: “What does data localization give the government from an economic perspective, but also a social and political perspective?” Cory said.  
• Legal models vary widely around the world, from bans on cross-border flows of locally harvested data (Russia) to requiring domestic storage of backups (Indonesia). 

China’s approach: The landmark 2017 cybersecurity law set the scene for data localization in China, but elements of data localization date back to 2006, Cory said.

• Under the 2017 law, “critical information infrastructure” providers, such as telecoms, utilities, energy, e-government, finance, must get permission from public security officials before transferring data overseas. 
• Information on the military, finance, energy, transportation infrastructure, and medical services, are among the law deems “critical.”
• Personal data related to over 500,000 people must also be stored within China. 

Slow roll-out: Details on how the law will be implemented on different sectors are still being hammered out in accompanying laws and regulations. 

• The key term “critical information infrastructure” is not clearly defined in the law. 
• In the absence of clear guidance, many multinationals assume their data will be included.
• Figuring out the details takes time:, in 2018, University of Hong Kong and McGill law researchers found that cross-border transfers of genomic data were subject to ten different regulations and guidelines, enacted from 1998 to 2017. Another one has been rolled out since. 

READ MORE:  Dust has yet to settle two years after China’s landmark cybersecurity law

Opening up: China is experimenting with relaxed localization rules in new free trade zones, said Xiaomeng Lu, an internet policy analyst at political risk consultancy Eurasia Group. 

• “There’s always internal debate about how to regulate new technology. When the internet first came about there was discussion about ‘how do we maintain party control of the country whilst also leveraging this for GDP growth?’,” Lu said. Now, the government is trying to strike a similar balance with data.

• The plan (in Chinese) for an FTZ in Hainan, revealed in January, talks about making outbound flows of personal data “more convenient.”
• A Shanghai FTZ plan released in April spoke of experimenting with cross-border data flows and governance—including a mention of providing access to the “international internet.”
• One of the reasons why the central government is letting such experiments run is the digital yuan, Lu said.