Five years after a Nasdaq IPO, Chinese video site Bilibili faces mounting pressure to reach profitability. Despite 315 million monthly active users, the user-generated content site well-loved by China’s Gen Z and millennials has yet to find a way to sustain its growth. 

On June 1, Bilibili reported its first quarterly earnings of 2023, showing continued flat growth in revenue but far reduced net losses. It made RMB 5.1 billion ($738.2 million) in revenue, representing 0.3% yearly growth and a 16.39% decrease from the last quarter. The company reported a net loss of RMB 629.6 million, narrowing 72% from the same period in 2022, and 58% less than the previous quarter’s RMB1.5 billion losses. 

Bilibili attributed narrowed losses to effective spending control, specifically a reduction of 8% in revenue-sharing, 16% in server and bandwidth, and 30% in sales and marketing compared to the same period in 2022. 

Despite continued improvements in cutting its losses, Bilibili is facing persistently slower revenue growth over the past several years. In 2022, Bilibili brought in RMB 21.9 billion (US$3.2 billion) in revenue, up 13% from the previous year. To compare, in 2020, revenue grew by 77% in a year, and in 2021, by 62%. 

Bilibili had RMB 19.56 billion left in cash at the end of 2022. Based on Bilibil’s current operating expenses, the cash will be enough to sustain it for another five to seven quarters, or until mid-to-late 2024, according to its earnings report. With a tighter investment sentiment and an increasingly competitive online content space, Bilibili needs to achieve profitability soon, or at least show investors that it is on the right path. 

Bilibili’s plan for commercialization

Compared to other mainstream long-video platforms in China, Bilibili has a competitive advantage: decent quality content generated by users. This makes its video content and style completely different from long-video competitors such as iQiyi, Mango TV, Tencent Video, and Youku, which focuses on professional content like TV dramas, variety shows, and movies. 

Bilibili understands its strength and sees the engagement of users within the community as the foundation of its business. It has taken strong measures to protect that community feeling, such as when founder Xu Yi promised users in 2014 that the platform would never do bumper ads on newly imported anime series. 

But as Bilibili faces a more competitive market and an urgency to make money, integrated marketing and performance-based ads have become greater focus areas. 

Bilibili plans to utilize its creators’ influence and the platform’s community atmosphere to expand customized and in-stream ads, according to the two most recent quarterly earnings calls. 

Li Ni, vice chairman and COO of Bilibili, said in the first quarter earnings call that in order to expand ad revenue, the platform selected six specific industries last year and developed precise advertising models tailored to each industry. These include gaming, online shopping, consumer electronics, fast-moving consumer goods, and automobiles.

Li emphasized Bilibili’s advantages in gaming and e-commerce in particular. For example, Bilibili integrated its internal units to convert more gaming-interested users to spend more on game-related items on the platform, after seeing that more than 40% of mobile users on Bilibili watched gaming content daily. Li said the platform also saw 110% yearly growth in ad revenue growth in the online shopping segment after sharing data and ads with Alibaba, Pinduoduo, and JD. 

Bilibili currently uses Huahuo, an advertising platform established in late 2020, to connect advertisers directly to its content creators. In the past, the platform relied more on highly customized and creative ads (such as known creators making customized scripts and video ads). It may now create more general ads for creators to embed in their videos, speeding up ad execution. 

E-commerce is another place Bilibili is seeing growth, viewed by the platform as “an opportunity for increased advertising and revenue streams for content creators,” according to its first-quarter earnings call. In the first quarter, the platform saw more than 10 million users watch shopping suggestions and other e-commerce-related content on Bilibili daily, surpassing expectations. 

Competing for Chinese users’ viewing time

Two factors have contributed to Bilibili’s revenue slowdown in the past years. The first is short-term: Covid-related hits on ads and e-commerce revenues. The second is more long-term and structural: Bilibili faces increased competition from other rising content platforms — short video platforms like Douyin (the Chinese version of TikTok), Kuaishou, social e-commerce platforms like Xiaohongshu, and others. 

In 2022, like many other businesses, Bilibili was hit by uncertain macroeconomics, as advertisers and consumers scaled back spending during Covid resurgences. The video site saw sharp quarterly declines of 34.42% and 13.33% in advertising in the first quarters of 2022 and 2023, and a recovery in the second to fourth quarters of 2022. As China’s economy continues to recover in the second half of 2023, the company is likely to overcome these setbacks. 

Yet Bilibili faces a more entrenched threat: the rise of short video platforms and social content platforms that increase competition in the content sector, making it harder for Bilibili to grow profits. 

Short video platforms like Douyin and Kuaishou are expanding much faster in the past five years, in terms of market size, than video platforms like Bilibili. 

China’s online video sector has a market size of RMB 600.9 billion ($92.5 billion) and a 32% annual growth rate in 2020, according to China Netcasting Services Association (CNSA). Short video platforms benefited from the widespread success of Douyin and Kuaishou, with astonishing annual growth rates of 179%, 731%, and 172% in 2017, 2018, and 2019. Although the growth rate of short videos has slowed down to 42% in 2021, it still far exceeds the average annual growth rate of around 20% for other long-form video platforms over the past five years. In 2020, short videos accounted for more than a third of the online video industry, exceeding the 20% market size of long-form videos.

Moreover, Xiaohongshu, a content platform known for product reviews and lifestyle blog posts targeting mobile users, is also expanding its own commercialization potential. The private company saw about 200 million monthly active users on its platform in 2022, according to Qian-gua data. 

As Bilibili faces increasing revenue pressures, the company is compelled to explore aggressive advertising strategies. The platform has already suffered public backlashes. In April, some creators complained that the site’s updated incentive system has reduced their income, with some experiencing a significant drop in income. To reach its own goal of becoming break-even in 2024, Bilibili needs to prove to advertisers and marketers it has value and competitive advantage over other content platforms while maintaining its healthy user and creator ecosystem. 

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

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

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

BYD: Song L concept, Chaser 07, and Seagull

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

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

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

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

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

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

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

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

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

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

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

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

Nio: 2023 ES6 crossover and ET7 sedan

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

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

Xpeng: G6 crossover

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

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

Li Auto: details of first all-electric model

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

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

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.

China had a rough ride in 2022. 

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

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

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

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

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

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

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

EVs drive automaker growth, BYD claims dominance

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

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

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

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

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

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

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

Pinduoduo wins in China, competition heats up in overseas markets 

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

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

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

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

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

A somber year for China’s semiconductor industry

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

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

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

Content platforms see ad revenue winter 

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

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

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

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

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

Related reporting from TechNode

Auto 

• BYD makes expansion moves in Southeast Asia and Europe

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

E-commerce

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

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

Semiconductors

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

• Chinese semiconductor firms bear heavy fallout of US chip sanction

Content

• China resumes issuing new gaming licenses after 8-month freeze

• Tencent’s overseas gaming revenue helps lead Q3 recovery

Chinese online grocery company MissFresh (Meiri Youxian) has stopped offering on-demand grocery deliveries, a signature business offering, and has begun to lay off the majority of its staff, according to multiple reports from Chinese media. 

The company told Chinese media outlet Caixin that its decision to “temporarily suspend” its on-demand grocery delivery service is to “ensure the maximization of profitability.” The company will continue to offer second-day delivery services, “intelligent fresh market business” (the digitizing of local wet markets), and retail cloud services. MissFresh also told Caixin some of its staff are facing “adjustments” due to “business adjustments.”

Why it matters: MissFresh’s significant downsize shows the difficulty of continuing to raise funds to support its loss-making business and may pose more questions for other grocers operating on a similar cash-burning model. 

• MissFresh went public on the Nasdaq in June 2021, becoming the first Chinese online grocer to do so. The company’s core grocery delivery business relies on the “distributed mini warehouses” (DMW) model, in which products are picked from warehouses close to people’s neighborhoods, ensuring fast delivery. But the model also requires heavy upfront investment in warehouses and inventories. The model has long been viewed by skeptics as a challenging one to achieve profitability with. MissFresh’s rivals Dingdong Maicai and Meituan Maicai also use the model. 

Cutting on-demand services: On Thursday, MissFresh closed its on-demand grocery delivery business, a core offering that promises fast delivery as quickly as 30 minutes. MissFresh’s app now only supports second-day delivery or even longer for most of the items. 

• Founded in 2014, MissFresh began to test the DMW model in 2015 and remained the leader in such offerings until 2020, when rival Dingdong Maicai surpassed it. 

Massive layoff: Chinese media outlet Jiemian reported on Thursday that MissFresh had begun a massive round of layoffs. The company’s human resources department told employees that it was the last day of their employment via online meetings, according to audio recordings shared with Jiemian. The company’s HR managers cited difficulty with financing as the main reason for the layoff. 

• Caixin’s Thursday report confirmed Jiemian’s, saying that the company organized a meeting and told employees that most of them would be suspended without pay. The company will only keep a small amount of staff to complete follow-up work, such as administration, finance, and HR tasks. 
• MissFresh first began rounds of layoffs last August, with each round affecting more staff than the previous round. This year, the company cut a third of the workforce from 1,500 to about 900 and moved its offices to the outskirts of Beijing to save money, Caixin reported. 
• Some of MissFresh’s staff haven’t received any pay since June, Jiemian reported. The outlet’s reporters visited MissFresh’s office in Beijing on Thursday afternoon and found some employees were packing to leave, and a few suppliers were there hoping to collect overdue payments. 
• According to a July 14 filing to the Securities and Exchange Commission (SEC), MissFresh is set to receive RMB 200 million ($29.63 million) in equity investment from Shanxi Donghui, a Chinese multi-conglomerate in the metal and energy sector. But the company’s HR officer said the company has yet to receive the investment and is facing financial difficulties, according to the Jiemian report. 

Context: On June 25, 2021, MissFresh raised $273 million in a Nasdaq IPO after pricing its shares at $13. The company’s shares dropped 26% on the first day and closed at $9.6. On July 29, the company’s stock price was below $0.14, losing more than 98% of its value.

• In the third quarter of 2021, the company reported $329.3 million in revenue, a 47.2% yearly increase, while its net loss widened 58% to $151.1 million. The company has yet to release its fourth-quarter and yearly earnings for 2021. 
• Before it went public, MissFresh had 12 rounds of funding and raised a total of $1.7 billion. It was funded by 24 investors, including well-known firms such as Tencent, Tiger Global Management, and ICBC International. 
• Chinese internet companies, especially those in the content, e-commerce, and retail sector, have embarked on multiple rounds of layoffs since late last year, thanks to the ongoing economic downturn, weak consumption, and the country’s long-term goal of pursuing more hard tech. 

China’s e-commerce platforms brought in RMB 695.9 billion ($104 billion) in sales during this year’s 618 shopping festival, an increase of 20.3% over last year’s number, the slowest growth rate since 2020, according to data compiled from the Chinese market analytics firm Syntun. 

Why it matters: China’s consumer confidence is at a new low as major cities emerge from harsh lockdowns implemented to prevent the spread of Covid-19, with some Chinese cities still facing the unpredictability of on-and-off partial lockdowns. Against this backdrop, the country’s e-commerce platforms used the shopping festival to help retailers recover some of their lost sales over the past few months. 

Details: JD reported RMB 379.3 billion in sales, which is a yearly increase of 10.3%, but significantly lower than the yearly growth rate of 27.7% in 2021. However, the e-commerce major’s on-demand retail platform JD Daojia hit some critical milestones, recording a 77% growth in sales revenue and with the number of users growing four-fold. Overall, this year’s 618 deals are simpler and heftier than previous years, in the hopes of luring more customers during the nationwide economic downturn. 

• JD’s on-demand retail platform JD Daojia and JD Shop Now saw significant growth. On June 18, the last day of the shopping event, total sales on the platforms grew by 77% from last year, bringing in RMB 600 million in single-day transaction volume. Sales of home appliances saw a ten-fold growth on the platforms, while sales of cosmetic goods and sports goods grew three-fold. 
• The growth of JD’s on-demand services is due to its partnership with offline retailers. JD’s Shop Now service worked with more than 150,000 offline stores across China. Those platforms also accepted shopping coupons released by local governments in Changsha, Yantai, Yibin, Zhongshan, Taiyuan, and Zhengzhou. Such pairings helped people get better deals, and helped governments stimulate an economy hurt by the pandemic resurgence. 
• ByteDance’s short video platform Douyin, a robust e-commerce platform, said in its 618 report that consumers in Shanghai showed the strongest buying power during the period, while people in Chongqing, Beijing, Chengdu, and Guangzhou trailed. Gen-Z has become the primary buying group, with their purchases increasing by 164% from last year. 
• Chinese smartphone maker Xiaomi reported that it brought in RMB 18.7 billion in sales during the shopping festival. The brand was also the top-selling Android system smartphones across most major Chinese online retailers during 618. 

Context: Launched in 2010, 618 is China’s second-most important shopping event after Alibaba’s Single’s Day shopping event on November 11. In the past decade, the event has evolved from a rival event created by JD to a key mid-year shopping promotion for all e-commerce majors. 

READ MORE: Will China’s 618 shopping event lose its appeal?

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. 

Ant Group, the company behind China’s popular mobile payment service Alipay, is seeing an accelerated adoption rate for its payment services outside of China, less than two years after launching a pilot cross-border payment project. 

Why it matters: The company has pushed to expand in Asia and Europe as countries begin to reopen and offline shopping activities recover. 

• Ant’s businesses in China have faced increased regulatory scrutiny since halting its massive IPO in late 2020. At the same time, China’s consumption has entered a slow period due to recurring pandemic outbreaks and external geopolitical pressure.

Details: On Monday, Singapore-based payment platform 2C2P and Ant entered a strategic partnership, with Ant becoming the platform’s majority shareholder. During the first week of April, Ant saw more than 70,000 merchants outside of China sign up for a business-to-business mobile payment service called Alipay+. The service, launched in September 2020, allows people and merchants from different countries to transact using their local digital wallets. 

• With Alipay+, Ant provides the technology backend and related financial service for digital wallet operators and merchants worldwide, connecting shops with various digital wallet users. For example, the service allows people with a supported Malaysian payment app to shop and pay with their local app in some shops in South Korea. 
• The service supports various digital wallets worldwide, including Malaysia’s Touch ‘n Go eWallet, South Korea’s Kakao Pay, the Philippines’ GCash, Thailand’s TrueMoney, Indonesia’s Dana, and Europe’s Klarna.
• In early April, German drugstore chain Müller, South Korean chain store GS25, and Malaysian company Razer Fintech announced their integration with Ant’s service, allowing their merchants the ability to transact using overseas digital wallets. 
• In March, Ant Group appointed Jia Hang as the new regional head in Southeast Asia. Jia is expected to expand Ant’s ongoing plan to attract more small merchants in the region to use its services. 
• Ant has already integrated more than 1 million offline merchants in Asia and Europe, covering industries including food and beverages, tourism, hospitality, and retail, according to a Monday company statement shared with TechNode. 

Context: Ant Group has quietly pushed to expand its businesses outside of its home country as China intensifies regulatory pressure in the fintech sector.  

• In November 2020, Ant Group suspended what would have been a record-setting $34.5 billion IPO offering in Hong Kong and Shanghai.
• Alibaba, which has a 33% stake in Ant, was fined RMB 18.2 billion ($2.8 billion) for antitrust violations last April. 
• While China adheres to a strict dynamic-zero Covid-19 policy to control local outbreaks, many other Asian countries have begun moving to a full reopening since the beginning of April. South Korea and Singapore reopened to fully vaccinated visitors on April 1, and Indonesia has lifted all quarantine rules for international travelers.

Livestreaming fraud, forced app downloads, intrusive ads, and privacy violations were among the malicious online practices exposed during this year’s “3.15 Gala” national TV broadcast.

Unlike previous March 15 shows, yesterday’s Consumers Rights Day celebration didn’t single out Apple, Alibaba, Baidu, or any other high-profile companies or brands for reprimands. The offenders this year were little-known small fry. 

This gala’s subdued tone reflects Beijing’s desire to stimulate consumer spending and economic growth, even as the country struggles with a rising wave of COVID-19 outbreaks and geopolitical pressures. 

China’s 2021 GDP growth took a notable hit in the latter half of the year. Averaging out at 8.1%, growth tumbled from 18% in the first quarter to 4% in the fourth quarter. In between, regulators began a broad crackdown that eliminated or crippled internet industries, including crypto mining, private education, and online games.   

READ MORE: INSIGHTS | Making sense of China’s big tech crackdown

Undercover in livestreaming e-commerce 

In its 31st annual outing, the two-hour program spotlighted some obscure companies engaging in a dark side of e-commerce livestreaming, a sector that’s under intensified scrutiny by the state.

One segment showed how undercover CCTV reporters discovered a Guangdong livestreamer’s false claims of owning jade and emerald factories with the aim of grossly inflating prices and selling counterfeit jewelry and Buddha images. The Guangdong agency, Yongdexiang, was shown selling jade Buddha images for RMB 198 ($31) while telling customers the items had been purchased for double that amount. In fact, Yongdexiang had bought them for RMB 88 each. Livestreamers’ selling price could sometimes be as high as five to ten times their original purchase price.

A livestreaming agency in Yunnan province called Shilipai set up a dramatic price bargaining scene between livestreamers and fake jade ornament manufacturers. The purpose was to convince viewers they were being offered the best deal. Other scenes featured artificial backdrops in the livestream that resembled a Myanmar gemstone showroom. Customers thought they were buying jade directly from the Southeast Asian country famed for its high-quality jade. In fact, the livestreams were being staged from studios in office buildings in Kunming.

Smartwatch and smartphone snoops

The gala also showed companies grossly misusing people’s personal information. A Zhengzhou-based company called Lvqian was exposed for building a business around stealing users’ phone numbers and selling them to call centers. The company was able to steal the phone numbers by getting a device’s media access control address, a common network address also known as the MAC number. MAC numbers’ unique identifications are assigned to devices for internet access. 

Some smartwatches made for kids were also revealed to have little privacy protection because they use outdated Android operating systems (OS). As a result, they enable hackers to collect detailed user information without permission. Without timely security patches, an outdated OS can even enable eavesdroppers to surveil users. Devices with an outdated Android OS are common in China since Google services were blocked in China in 2010.  

Malware and Wi-Fi trickery

A few software companies that trick users into downloading malicious software to mobile and desktop devices were also exposed in the TV consumers gala. Malware that displays low-quality ads in forced pop-ups may be a mere annoyance, but some types can steal users’ privacy information or trick users into downloading even more harmful programs. This year’s “3.15 Gala” finally shone light on abuses consumers have been complaining about for the better part of a decade. 

An app called “Free Wi-Fi Unlocker” tricks users looking for ways to access password-protected Wi-Fi systems. Once they download the app, it forcibly installs ads on their devices. Baizhu, a small software company founded in 2012, was exposed for building the so-called speed downloader options on various sites and app stores, tricking people into downloading malicious apps and intrusive ads. 

After the TV exposé, Free Wi-Fi Unlocker is now inaccessible across all app stores. Baizhu emptied its social accounts after the gala and local authorities are reportedly looking into the company. 

Following Consumers Day, China’s Ministry of Industry and Information Technology said in a March 16 statement that the agency will finally start thorough investigations of companies involved in leaking personal information or forcing malicious software onto users’ devices, citing the Personal Information Protection Law, Cybersecurity Law, Telecommunication Regulations, among other regulations. 

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.

Editor’s note: 
China is on holiday for the Lunar New Year, or Spring Festival, for the week of Jan. 31-Feb. 6. TechNode selected past reports on the struggle of Chinese edtech companies following the sweeping crackdown six months ago on for-profit education companies.

As China celebrates the 2022 Lunar New Year, one industry is feeling particularly less festive. In late July, regulators ordered almost all private education companies to either stop making money on their most profitable offerings (classes in core curriculum subjects for K-9 students) or to shut them down completely. The rules intend to ease the financial burden of Chinese parents, who often spend tens of thousands of dollars annually on after-school classes in the hopes of getting their kids ahead in the competitive formal education system. 

The impact was far-reaching: Hundreds of billions of dollars in Chinese edtech stock value was wiped out virtually overnight. Hundreds of thousands of education workers have since been laid off. To survive, education companies have embarked on some last-resort pivots: selling farmers’ goods on livesteams, investing in down-jacket companies, and teaching arts and sports.

The Background 

July 26
Chinese edtech upended by sweeping regulations
Beijing unveiled new rules governing the country’s private education sector on July 24, barring after-school tutoring companies, including edtech companies, from earning profits, raising capital, or going public and imposing new limits on extracurricular study.

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

August 31
Edtech will survive China’s crackdown, but it won’t be the same
On July 24, Beijing’s State Council dropped a hammer on the industry with a 15-page collection of regulations known as “The Double Reduction Opinion” (in Chinese). With stated goals of lightening students’ homework load and saving parents money, the new guidelines require tutoring schools to stop teaching core curriculum subjects or spin off such activities into nonprofit units. Foreign ownership and public listings of such companies are banned. So is providing any classes at all on weekends and holidays—thereby slashing marketable hours by 80%. For-profit education companies will be limited to extracurriculars like art and sports.

The directive triggered massive stock sell-offs in the US and Hong Kong. Three of the US-listed stars—TAL Education, Gaotu Techedu, and New Oriental Education—collectively lost $100 billion in market cap from their peaks earlier this year. It’s expected most of the $23 billion of venture capital invested in the sector in the past five years, an estimate by HolonIQ, will be vaporized.

The Fallout

August 5
ByteDance cuts edtech headcount amid private tutoring crackdown: report
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 Aug. 3. 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.

October 21
Tutoring unicorn Yuanfudao invests in down jackets company after tutor crackdown
Yuanfudao has invested in a down jackets subsidiary as the Tencent-backed online tutor tries to diversify its businesses after the country launched a sweeping crackdown on private education in July. The company has hired five people for an outdoor down jacket brand, local media Late Post reported on Tuesday. A Yuanfudao-affiliated firm acquired a clothing retailer in late September. Yuanfudao responded to local media on Wednesday that education remains their core business.

October 26
New Oriental’s Koolearn Tech to stop tutoring services up to K-9
Koolearn Tech, the Hong Kong-listed online tutoring arm of New Oriental, announced Monday that it will stop providing a significant part of its after-school tutoring services in China by the end of November. The move applies to curriculum courses offered to grades K-9 in the mainland Chinese market. The company attributed the move to China’s new regulations on private education. The company said the move will adversely impact its revenue since K-9 business represents 58% to 73% of its core K-12 business.

November 8
Founder of Chinese private education giant New Oriental to lead new e-commerce project
Yu Minhong, founder and president of China’s leading private education company, New Oriental, said during a Nov. 7 livestream that the company plans to set up a new e-commerce platform to sell farmers’ goods. Yu will lead hundreds of teachers to help farmers sell goods through livestreaming e-commerce. Yu said the goal is to help revitalize rural areas, a central goal of the Chinese government, and to improve farmers’ professional skills.

November 15
Edtech firm TAL to stop tutoring services up to K-9 by end 2021
Chinese online education firm TAL Group announced on Nov. 12 that it will stop offering curriculum tutoring services to students from kindergarten to grade nine, or K-9, in the mainland Chinese market by the end of 2021. The service accounts for a “substantial majority” of the company’s revenue, according to the company’s Nov. 12 statement. The statement said that the decision will have a “substantial adverse impact” on its financial performance. TAL’s move followed similar announcements made by rival Koolearn Tech and the online tutoring arm of New Oriental. These companies were responding to China’s crackdown on private tutoring services in late July.

November 16
Edtech giant Gaotu to terminate curriculum tutoring services up to K-9
Gaotu Techedu, a China-based edtech company, previously known as GSX, announced on Nov. 15 that it will cease offering curriculum tutoring services up to grade nine, or K-9, in the mainland Chinese market by the end of this year. The company said it will shift its business focus towards developing courses for professional education and explore opportunities in digital products and vocational education. Gaotu joined rivals TAL Group and New Oriental-backed Koolearn Tech in making business updates in response to China’s July crackdown on private tutoring.

November 25
ByteDance begins another round of edtech layoffs: source
ByteDance had laid off more than 1,000 staff from its edtech businesses following the deep cuts it made in the sector in August. The newer round 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 is the latest Chinese tech giant to retreat from online tutoring services targeting students up to grade nine, or K-9. All are responding to China’s crackdown on private tutoring services in late July.

December 14
Chinese regulator suspends homework answer search apps
China’s Ministry of Education on Dec. 13 suspended the filing and review process for homework search apps that allow students to upload pictures of exam questions and search for related answers. The education ministry said in a statement (in Chinese) that it will suspend the filing and review process for all homework apps targeting primary and middle school curriculum courses, pausing approvals for related edtech apps. Those apps already listed on its filing platform must be taken down.

December 30
New Oriental founder makes sales of RMB 4.6 million in livestream debut
Yu Minhong, founder and president of China’s leading private education company, New Oriental, achieved sales of RMB 4.6 million ($722,000) in his e-commerce livestream debut on Dec. 28. Yu’s livestream session was broadcast on short video app Douyin and mainly focused on selling farmers’ goods such as apples and beef steaks. The US-listed firm is betting on livestreaming to generate revenue after the private education sector in China was rocked by a sweeping state crackdown in late July. The company has been forced to suspend K-9 curriculum courses, which represented from 58% to 73% of its core business.

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.

Chinese tech unicorn ByteDance is internally testing a new social app as well as three other new products and services, Chinese media Tech Planet first reported on Thursday. The three other offerings are a search app, a gaming community platform, and a near-distance automated delivery service.

Why it matters: Called Paiduidao in Chinese, meaning “party island”, the social app marks a new attempt from ByteDance to build its own rival to Tencent’s ubiquitous WeChat. Frustrated with competitors’ link blocking behavior, the short video giant has been trying to develop its own communication platform since 2019 but failed several times. 

Details: ByteDance is testing Paiduidao internally at a small scale, and users can only try it with an invitation, a company spokesperson confirmed with TechNode on Thursday. The company is also testing several other products: a search app called Wukong Sousuo (meaning “Wukong search”; Wukong is the name of beloved mythical figure the Monkey King); a gaming community and ranking service called Lingxuan (meaning “soul choices”); and a robotic delivery service for short-distance orders. 

• It’s currently unclear what ByteDance’s new social app has to offer. Tech Planet tested the offering and called it “a metaverse social app,” saying it allows users to create customized avatars and enjoy immersive experiences such as having virtual musical parties and chatting with other users. A ByteDance spokesperson contested Tech Planet’s definition, saying the app “has nothing to do with the metaverse.” 
• The search app will allow users to search videos and novels, among other things. ByteDance has robust offerings in the two categories. 
• The gaming service aims to build a gaming community where users can download games, share social posts about games, and see the latest releases’ rankings, among other features. 
• ByteDance is also testing a robotic delivery service that completes orders within a short distance. Tech Planet said the service will open shortly after China’s upcoming Lunar New Year holiday (Jan. 31 to Feb. 6). 

Context: ByteDance has previously launched social apps Duoshan and Feiliao in an attempt to build its own messaging platform to counteract Tencent blocking users from directly sharing ByteDance’s short video content over the WeChat messaging app. Both ByteDance apps have failed to gather momentum. 

• ByteDance launched Doushan, a Snapchat-like video chat app, in January 2019. The app didn’t find lasting success. In May that year, the company launched a chat app called Feiliao (Flipchat in the global market). The app and the team behind it was disbanded in December.
• In June, ByteDance accused Tencent of blocking links to its short-form video apps Douyin, Huoshan, and Xigua, for three years. Since late last year, Chinese authorities have asked tech majors to stop blocking links from competitors and to open up the walls around each’s ecosystems.

Ant Group promotes more NFT-like digital collectibles ahead of the traditional Chinese New Year. BSN launches an NFT infrastructure platform. Hangzhou to expand the use of digital yuan during the upcoming Asian Games. JD supports digital yuan payments through hardware wallets. 

NFTs for the Chinese market

• Ant Group’s blockchain and tech arm AntChain launched an NFT-powered campaign ahead of the Chinese New Year (which starts on Feb. 1 this year according to the lunar calendar). The subsidiary worked with 24 museums in China to create digital versions of famous Chinese animal antiques, representing the twelve creatures of the Chinese zodiac. Users can buy these digital artifacts through the mini-program Topnod on Alipay, Ant’s popular payment app. Unlike NFT platforms elsewhere, most Chinese platforms don’t allow buyers to resell or trade their purchases due to government regulations aimed at minimizing speculation. (AntChain)

• China’s state-backed Blockchain-Based Service Network (BSN) launched an NFT infrastructure platform in the country on Tuesday. The BSN-Distributed Digital Certificate (BSN-DDC) is an infrastructure platform for individuals and companies to build portals or manage NFTs that are compliant with Chinese regulations, which prohibit trading, mining, and speculation of crypto assets. The platform integrated and localized 10 popular public chains, including Ethereum and Corda. (Coindesk)

Digital yuan promotion

• In a five-year plan from a local financial administration in the eastern province of Zhejiang, the government signalled an expansion of pilot zones for China’s digital yuan. The report laid out plans to encourage qualified regions to apply to China’s central bank for the right to host pilot zones, and popularize the use of the national digital currency during the 2022 Asian Games, due to be held in Zhejiang’s capital city of Hangzhou in September. (Huanqiu, in Chinese)
  
  
• China’s e-commerce major JD now supports digital yuan hardware wallets, making it the first online retailer to support this payment method. Users with a digital yuan hard wallet can pay through JD’s app, as long as their phone supports Near Field Communication (NFC), a technology that allows data transfers between devices that are placed close to each other. JD’s fintech arm JD Technology is also a technical service provider for the digital RMB pilot projects. (TechWeb, in Chinese)

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).

Taobao updates a buying advice service into a digital artwork platform. China’s digital yuan wallet app sees increased adoption. Beijing court plans to move more of its judicial process online and uses blockchain technology in the process. State-backed Blockchain Services Network plans to build an infrastructure that allows people to build and manage NFT apps and transact in Chinese yuan. 

More NFTs with Chinese characteristics

• Taobao announced on Jan. 16 that it will update its purchase recommendation service HeyBox to turn it into HeyDesign, a blockchain-powered platform for digital artworks. Launched in 2017, HeyBox recommends items to buyers and sellers on Taobao using artificial intelligence and Alibaba’s big data. HeyDesign, or Youyin in Chinese, plans to attract more than 100 artists or businesses to publish design pieces on the platform. (ChinaZ.com, in Chinese)

• China’s state-backed Blockchain Services Network (BSN) plans to build an infrastructure to help businesses and individuals create and manage non-fungible tokens (NFTs). The infrastructure will allow users to develop their own portals or apps to manage NFTs and transact with only the Chinese yuan, differentiating it from crypto-transacted NFTs outside of China. The infrastructure is named the BSN-Distributed Digital Certificate (BSN-DDC). It’s an open, permissioned blockchain that allows a governing body and integrates 10 chains, including the adapted versions of Ethereum and Corda, plus domestic chains such as Fisco Bcos, initiated by Tencent-backed fintech firm WeBank. (SCMP)

Digital yuan wallet app on the rise

China’s digital yuan wallet app has been downloaded more than 20 million times, doubling its user base in just 10 days following its official launch. China’s life services giant Meituan has also seen growth in digital yuan wallet adoption. In the first week of the wallet’s launch on Jan. 4, the average daily number of digital yuan transactions on the Meituan super app increased by about 43% and users adding digital yuan wallets to Meituan increased by 20%. The wallet app is developed by the Digital Currency Research Institute of the People’s Bank of China. (Cailian Press, in Chinese)

Blockchain-powered judicial process

The Beijing court system reported that 67.4% of trials were held online last year, a higher proportion than anywhere else in the country. The court has developed the “Beijing Mobile Court” and “Beijing Cloud Court” (our translations) using blockchain, cloud storage, facial recognition, and other technologies to facilitate the digital transformation. Liu Shuangyu, vice president of Beijing Higher People’s Court, said Beijing will continue to digitize its judicial process, including expanding the use of digital dossiers and case files. (People’s Daily, in Chinese)

China lists crypto mining as an industry to retire and eliminate. The Chinese government plans to use blockchain technology in public services. A Jay Chou-supported NFT has topped the transaction volume list on OpenSea. 

Crypto mining to be “retired”

• China’s National Development and Reform Commission (NDRC) has listed crypto mining as an industry to retire in an amended industrial catalog (Catalogue for Guiding Industry Restructuring 2019 version). The catalog said sectors that ought to be retired tend to be energy-intensive, polluting, and use outdated technology and equipment. Since March, officials across China have launched a widespread campaign to shut down mining operations. Inner Mongolia was the first region to crack down on miners, while Xinjiang and Qinghai, plus Sichuan, Yunnan, Jiangsu, Zhejiang, Fujian, and Jiangxi provinces soon followed. (NDRC, in Chinese) 

• Crypto mining conflicts with China’s carbon neutrality goal according to a monthly work report issued by the Central Commission for Discipline Inspection (CCDI), China’s top inspection unit for Party officials. The report applauded officials in Zhejiang and Jiangxi for their crackdown on crypto mining operations using public resources as well as related operations in the government-funded development zone. (CCDI, in Chinese)

Blockchain in public service

The Chinese government vowed to explore the use of blockchain technology in public services, alongside other technologies such as big data, cloud computing, artificial intelligence, and the internet of things, in its newly released five-year plan for public services. The plan aims to see “significant improvements” in public services by 2025 and “equal access” to public services by 2035. The National Development and Reform Commission (NDRC) led the drafting and worked with 20 other government agencies. (NDRC, in Chinese)

NFT fever

Phantabear, an NFT supported by Jay Chou and Edison Chen, celebrities popular in China and across Asia, has topped OpenSea’s ranking chart on transaction volume since Jan. 9. OpenSea, the NFT-trading platform, also experienced a site outage on the day Phantabear topped due to “a sustained surge in API traffic” that overloaded its systems. The platform vowed to “rearchitect core parts of our architecture” to meet future demand. (OpenSea)

The People’s Bank of China releases a digital yuan wallet app. China’s state grid completes the country’s first digital yuan smart contract payment in the solar power industry. The eastern city of Ningbo embraces blockchain technology. Taiwanese pop star Jay Chou shows support for friend’s NFT project. 

Digital yuan progression

China’s central bank, The People’s Bank of China (PBOC), released a digital yuan wallet app on various app stores on Jan. 4. PBOC’s Digital Currency Institute, the developer of the national digital currency, also developed the app. The app is a consumer-facing payment app, helping the central bank to carry out trials of digital wallets, exchanges, and circulation services using the digital currency. (China Star Market, in Chinese)

China’s state grid in the northern province of Hebei collaborated with several companies and the local branch of the Industrial and Commercial Bank of China to facilitate the country’s first digital yuan smart contract settlement case in the solar power industry. The grid company first calculated the revenue for a centralized solar power provider, then used the digital yuan’s smart contract feature to pay an equipment rental company, leaving the remaining income for farmers who installed solar panels and shared the power. The grid claimed such a payment set-up helped all parties recover funds faster. (STCN, in Chinese)

Ningbo embraces blockchain 

China’s eastern city of Ningbo released a blockchain tech white paper on Dec. 30. The white paper laid out a plan for Ningbo to develop its blockchain sector. By 2023, Ningbo wants to develop one to two top blockchain companies with global influence, set up one national blockchain laboratory, and have one to two blockchain-focused industrial parks. The white paper said Ningbo has over 90 blockchain projects under construction, with a total investment of more than RMB 600 million. (China Star Market, in Chinese)

Jay Chou shows love for NFTs

Taiwanese pop star Jay Chou’s fashion brand Phantaci and an NFT company Ezek jointly released a new digital avatar series called “Phanta Bears” on New Year’s Day and sold 10,000 copies. Ezek was co-founded by Chou’s friend Will Liu. The digital bears traded at 0.4 ETH on Monday, up from the insurance price of 0.26 ETH, or about $1,000. Chou has changed his Instagram profile picture to the digital bear to show support, but on Monday, his record label JVR Music released a statement clarifying that Chou himself has no business ties with Phanta Bears and is merely happy for his friend’s success. (JVR Music, in Chinese)

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)

On Tuesday, China’s search giant Baidu opened internal testing of a major update for Xirang, the company’s virtual reality app. The app will host the company’s AI developer conference next week, kick-starting Baidu’s effort to become an infrastructure platform in the metaverse. 

Why it matters: Baidu hopes the upgraded app and the conference will showcase the company’s AI capabilities and draw in developers to create content and help build a virtual world. 

• In the past decade, Baidu has been transitioning from a search company to an AI company. The tech giant sees the metaverse as an opportunity to further commercialize its AI capabilities, such as cloud computing, voice and visual intelligence, natural language processing, and knowledge graphs. 

Details: The Xirang upgrade will allow the app to host a three-dimensional virtual conference that can accommodate 100,000 concurrent online attendees. Initially, the pandemic pushed the company to develop the app as a virtual alternative to hosting large in-person tech conferences, but Baidu has further developed the app amid the rise of the metaverse this year. 

• Baidu started working on Xirang in December 2020. It released the first version at the hackers’ conference Def Con in March 2021, and an upgrade at Baidu’s World Conference in August. 
• Baidu plans to roll out at least one major upgrade every year, Baidu’s Vice President and manager of Xirang Ma Jie told a Beijing press conference on Tuesday. Baidu is calling the about-to-be-released version a “-6.0”, saying the app needs at least six more years to be fully ready, but it wants to work to that point openly. 
• Ma added that Baidu “doesn’t plan to do everything ourselves… We have left many unsolved issues in this version and want to invite everyone to help us fill in the imperfections.”
• Baidu will release the upgrade on Dec. 27. It will also host a conference and a developer contest at the same time. Winners will get to display their work in one of the app’s spaces. 

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

Context: Baidu is on track to become the first major Chinese tech company to release a metaverse-focused application. Tencent, Alibaba, and ByteDance have also expanded and invested in the metaverse this year. 

• Xirang is named after a concept in the Chinese mythical story collection called Classic of Mountains and Seas (Shan Hai Jing in Chinese), thought to have been first written some 2,400 years ago. In the book, xirang was a small piece of land used by the mother of a goddess (Nüwa in Chinese) to repair a pillar of heaven. The land could grow infinitely.

Leading Chinese e-commerce platform JD launches a portal for non-fungible tokens (NFTs), making it the third internet giant in the country to do so. Meituan refutes a fraudulent virtual currency project using the company’s branding. Inner Mongolia completes its crypto mining sweep. A Beijing court rules a crypto mining contract invalid in a business dispute. 

JD gets into NFTs

JD launched an NFT platform called Lingxi on Dec. 17. The platform is accessible through a mini-program on one of JD’s apps. The platform’s inaugural digital collectible is a digital rendering of Joy, the company’s mascot of a white cartoon dog, and is priced at RMB 9.9 ($1.55 apiece) and limited to 2,000 copies. The program is backed by JD Digits Blockchain, the company’s own consortium blockchain. Buyers aren’t allowed to resell or trade digital collectibles in line with China’s rules on preventing digital asset speculation. JD is the third major Chinese tech company to launch an NFT platform, following Tencent and Alibaba affiliate Ant Group. (Jiemian, in Chinese)

Meituan refutes fake virtual currency project

Life-services app Meituan said on Dec. 17 that it had found an unknown group fraudulently using the Meituan brand to sell virtual currencies named “MEITUAN.” The company clarified that it has no virtual currency projects. Meituan Security has acquired evidence of the fraudulent use and is actively working with the relevant authorities to investigate. (Meituan Security, in Chinese)

Mining woes

• Officials in China’s northern Inner Mongolia region announced that they have finished cracking down on all crypto mining projects in the region, Chinese media reported on Monday. The region shut 49 virtual currency mining projects and cleared 186 IP addresses involved in mining during the crackdown. Various Chinese regional governments have been sweeping and closing crypto mining projects in their jurisdictions since this fall, including Yunnan, Sichuan, and Zhejiang. (China Star Market, in Chinese)

• A Beijing district court voided a bitcoin mining contract in a business dispute on Dec. 15, setting a precedent for such caes in the region. In a 2019 contract, a Beijing-based company called Phonf (Fengfu Jiuxin in Chinese) commissioned a Tianjin-based blockchain company called Zhongyan Zhichuang (ZYZC) to mine bitcoin and share mining profits. Phonf is suing ZYZC for owed gains. In the initial trial, the court ruled the contract invalid and dismissed Phonf’s claims for unpaid bitcoin mining gains. (Xinhua News, 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)

Baidu announced on Dec. 10 that it will update its virtual reality app Xirang (meaning “land of hope” in Chinese) at the end of December and use it to host a virtual event that can accommodate more than 100,000 online attendees. 

Why it matters: China’s search giant has been looking for ways to leverage its AI capabilities in the burgeoning metaverse field. This update is a sign of Baidu’s ambitions in the three-dimensional online space. 

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

Details: The company called the app “the first Chinese-made metaverse product” in a Dec. 10 press release. Baidu said the upgrade will offer an immersive virtual planet with experiences such as touring China’s Shaolin Temple and the Sanxingdui Museum, an important archeological site in Sichuan. 

• Baidu will host its annual AI developer conference “Create 2021” on the Xirang app this year, the first time the conference will take place virtually since it launched four years ago. The company said the app will allow up to 100,000 attendees to experience immersive and interactive sound and visual effects simultaneously.
• In the press release, Ma Jie, Baidu’s Vice President and Xirang’s manager, said the metaverse industry is in its very early exploratory phase. “We need a community and a long time to build it,” he added.
• After the upgrade, people will be able to log in on Xirang via various devices, including computers, phones, and wearables, to attend virtual conferences, shop, meet new people, and tour exhibitions. 

Context: Baidu has been developing the Xirang app for months, even before the metaverse concept became popular in the Chinese market this summer. The popularity of the metaverse has partly motivated Baidu to upgrade the app. 

• In early November, Baidu’s Vice President Ma Jie said at a Baidu AI event (in Chinese) that the company plans to develop VR content platforms and VR interactive platforms for content creators in the metaverse. 
• Baidu is not the only Chinese tech giant making moves in the metaverse. ByteDance has invested in several metaverse-related companies, including VR headset maker Pico. Alibaba Cloud, a subsidiary of the e-commerce giant, announced a “metaverse” solution in November to provide cloud and other technical support for metaverse-related applications. 

Baecsense and Tencent Cloud win bid to build blockchain projects for the Beijing municipal government. City of Suzhou sets up the country’s first national blockchain development pilot zone. Nayuki Tea and Bakery releases a virtual idol and 300 NFTs. Qihoo 360 builds a system to monitor crypto mining activities. 

Chinese government’s blockchain push

• Baecsense, an edge computing chips and blockchain company, and Tencent Cloud jointly won a major project from Beijing’s blockchain computing platform, led by the Beijing municipal government’s Bureau of Economic and Information Technology. The project asks the two companies to provide cloud software for hash power platforms, servers and equipment, computer room and supporting network, and system development and integration. The bid amounts to RMB 238 million ($37.3 million). Tencent Cloud also owns 20% of Baecsense’s shares. (Beijing Government Procurement Center, in Chinese)

• China’s eastern city of Suzhou has won support from the Chinese government to set up the first national blockchain development pilot zone, according to a formal notice from The Ministry of Industry and Information Technology. The city has 160 blockchain companies and nearly 300 companies focusing on related technology, 30 of which have been selected for the key blockchain company database by Jiangsu province, where Suzhou is located. (China Star Market, in Chinese)

Tea and NFT

On Tuesday, Chinese beverage chain Nayuki Tea and Bakery released a virtual idol named “Nayuki” and 300 NFTs to celebrate its sixth anniversary. The Nayuki idol was tasked to sell store cards through a livestream and achieved sales of RMB 200 million in three days. The chain also released 300 digital artworks in seven different styles, priced at RMB 59 apiece, which cannot be traded after purchase. Chinese brands are increasingly using NFTs as a marketing strategy. (Lanjinger, in Chinese)

Mining monitor

Qihoo 360, a Chinese cybersecurity company, said that it had built a system to monitor crypto mining operations to assist the government’s crackdown on the industry in a Nov. 30 WeChat post. The company said it had found that on average, 109,000 mining IP addresses were active daily throughout November, mainly in the provinces of Guangdong, Jiangsu, Zhejiang, and Shandong. (Coindesk)

Shanghai issued new regulations to facilitate data sharing and develop other data-related high-tech areas such as blockchain. In Xiong’an New Area, a bank issued China’s first blockchain-powered loan. ChainNews shutters its operations.

Blockchain love

• Shanghai legislators announced on Monday a new set of data regulations, due to take effect in 2022. The regulations are the nation’s second regional set of rules to focus on data. Southern tech hub Shenzhen issued the first such regulations in late June. The regulations are aimed at protecting personal data, promoting “free and orderly data exchanges,” and aiding development in big data analytics, cloud computing, blockchain, AI, and other high-tech areas. Four days before the regulations were announced, Shanghai opened a new data exchange in the Pudong district to facilitate data trading. (Shanghai government, in Chinese)

• China’s Xiong’an New Area issued an RMB 6.4 million ($1 million) loan through blockchain, the country’s first such financing case. A local branch of Shanghai Pudong Development Bank (SPDB) issued the loan to three construction companies that built the new area. The blockchain loan service is a new financial product from the SPDB. The product has a 6% interest rate and offers loans of up to RMB 20 million per transaction. (People’s Daily, in Chinese)

• The tax bureau from a local region in the central province of Hunan has been studying blockchain technology to expedite the real estate transaction tax process. Tax workers from Loudi Economic and Development Zone have reportedly been using blockchain technology to refine the process and provide a more precise service. (China Star Market, in Chinese)

ChainNews no more

Chinese media reported on Nov. 26 that prominent crypto news outlet ChainNews had shuttered its operations. The outlet announced a suspension of service due to “site upgrades and maintenance” on Nov. 15. The outlet had remained active on Twitter until Nov. 25. (China Star Market, in Chinese)

Local officials in Shanghai warned about fake virtual currency cases. Chinese authorities reported the country’s first money laundering case involving digital yuan. Several authorities in local Chinese districts and provinces vow to continue the crackdown on crypto mining. 

Fake virtual money

Shanghai’s procuratorate in Songjiang District said on Wednesday that they have observed a rising trend of criminals using fake virtual currency compared to traditional currency, based on reports of fake money cases in 2021. The procuratorate warned that criminals tend to draw people into scams based on popular virtual and digital currencies. (China Start Market, in Chinese)

Digital yuan money laundering

China’s northern region of Inner Mongolia has reported the first digital Renminbi money laundering case, according to police in the city of Baotou. The case involved RMB 8 million ($1.25 million). A fraud group from outside of China asked a Chinese group to launder money for them in the form of digital yuan. China’s central bank, the issuer of the national digital currency, helped the Baotou police to investigate the case. (Baotou News, in Chinese)

Crypto news sites go offline

Chinese crypto news outlets ChainNews and Odaily have suspended their websites as China continues to crack down on trading and mining cryptocurrency. On Monday, ChainNews tweeted that it was suspending its service for 8-10 hours due to site upgrades and maintenance. The site remains down as of publication, but the outlet is still active on Twitter. Chinese blockchain industry site Odaily also stopped access to its site, but it remained active on Weibo and Twitter. (SCMP)

Crypto mining crackdown continues

Several local Chinese authorities have announced more actions aimed at crypto mining in their jurisdictions. Authorities in the southeastern city of Guiyang set up a new hotline for people to report on mining activity, while the Sichuan provincial government organized a video conference to plan further mining crackdowns. Authorities in Fujian and Beijing’s Haidian district also had similar discussions. (Guiyang and Sichuan, Fujian, Beijing, all in Chinese)

When explaining what “the metaverse” might look like, many Chinese investors and tech entrepreneurs refer to the Oasis — a fictional virtual world where people “can do anything, go anywhere” after donning a virtual reality headset: like, “surf a 50-foot monster wave in Hawaii, ski down the Pyramids, or climb Mount Everest with Batman,” as depicted by the protagonist Wade Watts in the 2018 science fiction movie “Ready Player One.”

A combination of “meta” (a prefix from Greek for “after” or “beyond”) and “universe,” the term metaverse was originated by US science fiction writer Neal Stephenson in 1992. It was a niche term favored by techies and gamers to illustrate the next iteration of the internet, an immersive, sensory 3D online experience. But in 2021, “metaverse” may have become the buzzword of the year, much thanks to tech companies like Roblox and Facebook (now Meta), as they paint a future in which people play games, shop, exercise, work, learn, and do other things in various virtual spaces. 

The concept caught on in China this year as well, with companies quick to invest in the metaverse. But the Chinese market has its own set of tech giants, internet culture, and regulatory norms. TechNode talked to several investors and tech companies in the metaverse-related fields, hoping to provide some clues on how China reacts to the popular concept.

A few takeaways: Chinese venture capitalists (VCs) have for years been investing in technologies central to the metaverse, making the country well-prepared for developing its own leaders in the space. The VCs agree that technologies that serve to build the infrastructure of the metaverse are probably the smartest investments since it’s too early to tell which app or companies will dominate. 

Moreover, China may become the first place in the world to have a full metaverse experience. The Chinese government is watching the phenomenon closely and talking to companies to learn more about the metaverse, Chinese tech executives told TechNode. 

How did the metaverse concept become popular in China?

In March, US gaming platform Roblox went public in New York, quickly hitting a $38 billion market cap. In its prospectus, Roblox said, “some refer to our category as the metaverse, a term often used to describe the concept of persistent, shared, 3D virtual spaces in a virtual universe.” 

Roblox’s successful IPO debut popularized the metaverse, and over the ensuing months, it became a buzzword in the US. At the same time, some communities in China started similar discussions but kept most within the investing, tech, and gaming circles.

Metaverse entered into the Chinese mainstream conversation in August when TikTok’s owner ByteDance acquired Chinese virtual reality (VR) gear maker Pico for a reported RMB 5 billion ($783.6 million) (in Chinese). Pico accounts for 33.6% of the market in the second quarter of 2021, according to IDC’s Augmented and Virtual Reality Headset Tracker.

In the first 10 days following the ByteDance acquisition news, searches and interest in the metaverse surged on the Chinese internet. On superapp WeChat, the popularity of “metaverse,” based on published articles and videos, rose 13-fold, according to WeChat’s trend index. Searches of the term rose 19 times on top search engine Baidu, Baidu Index showed. 

Aside from ByteDance, other Chinese tech giants like Tencent, Alibaba, and Baidu have shown interest in metaverse-related projects. 

“We felt that we have a lot of tech and capability building blocks that will allow us to approach the metaverse opportunity” through multiple pathways, Tencent Chairman and CEO Pony Ma said in the company’s third-quarter earnings call on Nov. 10. Specifically, metaverse can be an opportunity to add growth in gaming, social networking, and business applications, Ma said in the call.

Alibaba Cloud, a subsidiary of the e-commerce giant, announced a “metaverse” solution in November. An Alibaba spokesperson said the solution integrated many of the company’s proven technologies to provide support for metaverse-related applications. The solution includes services such as remote rendering, blockchain as a service, and data analytics.

Baidu Vice President Ma Jie said at a Nov. 2 Baidu AI event (in Chinese) that the company plans to lower the production cost for content creation in the metaverse by developing VR content platforms and VR interactive platforms, leveraging the company’s AI technologies. “Baidu would love to work with customers, developers, and users to create a multi-person interactive world of the metaverse and develop new applications,” Ma said.

What do Chinese investors and tech leaders think of the metaverse concept?

The following four interviews have been edited for clarity and brevity. Quotes from Feng Zheng of Shunwei Capital, Yang Ge of Sky Saga Capital, and the two co-founders of Reworld were translated from Chinese:

1. Chinese investors have invested in tech that would be useful to the metaverse for years

Feng Zheng, vice president of Shunwei Capital

Note: Shunwei Capital is a Beijing-based venture capital fund that focuses on the tech sector. It has been investing in technologies that would be useful in the metaverse for years. 

“Metaverse is a very distant concept,” Feng said. “I think it’s a vague conceptual term, leading many people to come up with different interpretations. Shunwei doesn’t have a metaverse-specific investment bracket. We have just been investing in things in the virtual direction because we were following the natural evolution of technologies.”

For example, in 2014, Shunwei invested in Agora, a company that allows other applications to embed real-time audio and video communications. The company provides tech backend for the live audio platform Clubhouse. In 2017, Shunwei led in pre-Series A of Style3D, a virtual apparel design platform, providing clothing companies with 3D clothing and virtual fashion concepts. In 2018, Shunwei invested in Kujiale, a 3D interior design platform, providing 3D design templates for home construction and renovation companies. Last year, Shunwei exclusively invested in the pre-Series A of Next Generation, a startup focusing on creating AI-generated virtual humans and virtual idols. 

Feng said Shunwei “has been seeing brand new opportunities and trends in the past couple of years, thanks to gradual tech advancements in AI, 3D rendering, video, audio, computing power, and the next-generation 5G network. The improvements are like new Lego bricks. With these new bricks, we can create and build things that weren’t possible just a few years ago. Internally, we call the space ‘the virtual world sector.’ We are investing in companies that provide 3D infrastructure, such as virtual humans, which we believe will be the core of communications in the virtual world. 

“I think virtual humans might be the apps in the virtual world. For example, a fitness app in the virtual world won’t be what it is today. We may have a cool-looking avatar guiding us and interacting with us. Most Chinese firms’ investment logic will be similar: starting from infrastructure and then looking for applications that can be implemented today. Shunwei might invest a bit more on the applications front, such as 2D, 3D applications. But we aren’t looking for an all-encompassing app that will dominate a large part of the virtual world. It’s too early for that kind of app, and no one can imagine what that will be like.”

2. ‘We prefer to invest in the infrastructure of the metaverse’

Yang Ge, co-founder of Sky Saga Capital (SSC)

Note: Yang said SSC, a Beijing-based venture capital firm focusing on smart manufacturing, internet tech, and AI, chose to invest in companies that provide the infrastructure to the metaverse, such as AI and virtual human-related companies. 

“We prefer to invest in companies that are building underlying tech infrastructure and the environment of the metaverse,” Yang said. For example, in 2018, SSC invested in the seed round of a company called Rct AI, which provides AI solutions and AI-generated content. In 2019 SSC invested in Xianyi Numa, a company that specializes in providing facial expressions to computer-generated virtual humans. It also helps design storylines for these virtual humans.

Yang said “the metaverse will require a large number of environments to be built and a large amount of content. So this year, a very important term is ‘AIGC,’ meaning content generated by artificial intelligence. The crucial thing in the metaverse is to use AI engines to create various types of content and form a communication environment, which serves as the base layer of the space. You can think of AIGC as the infrastructure of the metaverse.

“The next generation of internet giants will be different from the current ones. But most differences will lie on the surface level, on the presentations. The company structures and fundamentals will stay the same, such as their operational management, maintenance, and internal concept of the community. People’s needs will remain the same. They will still need to make friends, communicate and commerce online. But all those actions will look in a very different form than what we have now.”

3. China might be the first place where people get to have a full metaverse experience

Alvin Wang Graylin, China president of HTC. 

Note: Taiwanese electronics maker HTC runs a virtual reality (VR) brand called HTC Vive, offering mid to high-end VR headsets, VR hardware, and open app stores for VR games and applications. In the high-end VR headset market in China, HTC accounted for 70% of the market share in the third quarter, according to data shared by GfK, a market research firm based in Germany. A high-end VR headset usually costs more than RMB 5,000 ($784). 

“Metaverse is not something where you go from zero to one. I was on the internet yesterday. Tomorrow, I’m in the metaverse. No, it’s not going to happen like that. It’s going to develop over the next five to ten years. I think within the next few years, we will see pieces of this becoming more mature…It will for sure happen within 10 years, and a lot of it will happen within five years. 

“I don’t know if in China it makes sense to copy the Western models (i.e., Facebook, Roblox). Maybe when the internet started, that’s how we developed some of the initial internet applications or mobile applications. But I feel like in some ways, China may be ahead and may have different models to develop and progress the industry faster. One of the things that’s a little bit different in China versus the rest of the world is that in China, the government supports the virtualization and digitization of its economy and encourages various industries to adopt more advanced ways to utilize new technologies. Whereas you look at the rest of the world, private businesses are left on their own trying to create that.

“It’s difficult to get 1,000 companies and 200 countries to agree. But, if you get one country that is much more centrally managed, I think it’s easier for the government to say, okay, you will use the Chinese digital currency and they will work across all of these worlds, or you will use the resident identity card as your key ID system, but we will let you change your avatar, right? I mean, this is an example. It’s more so the fact that the country can say that and then all the companies in the country will have to follow. So, you may have the first full metaverse experience happen in China.”

4. The Chinese government is paying close attention to the metaverse 

Yao Guangshi, CEO and co-founder of Reworld, and Dong Yupeng, co-founder of Reworld. 

Note: Founded in 2018 in Beijing, Reworld offers a platform for users to play, and design their own 3D games and other content. Reworld experiences are often compared to those on the US gaming platform Roblox. In April, Reworld raised RMB 100 million ($15.7 million) in a strategic round from ByteDance. Before the ByteDance investment, Reworld had raised $56.8 million in two rounds from lead investor Joy Capital. To compare, Roblox had raised $856.7 million in 10 rounds from 2005 to this year, before it went public this March. 

“Games often have a clear structure and model. They would incentivize players to chase the goal and reward players once they achieve the goal…But metaverse requires a greater degree of openness. It’s more like a social space. It will provide you with all kinds of scenes, and you have the freedom to choose which to interact with. Gaming would be one of many scenes to choose from. 

“In the future, apps in the metaverse may borrow some features from games. For example, if I build a 3D supermarket with tens of thousands of square meters. I may build different sections for electronics, produce, and others. I may also build some gamification scenes to incentivize people to buy, like giving you more enhanced details of the things you want to buy. But you won’t call the supermarket a game. 

“We recently attended a metaverse-related forum discussion organized by a Beijing municipal government agency of economic and informatization. They were very enthusiastic about the trend and had a few projects that wanted companies to take part in. They also see this as a new competition area in the tech and internet industry around the world. I can sense that the Chinese government is very quick to react to new tech trends like the metaverse. It’s probably a good thing for China.” 

Update: The article was updated to include four paragraphs about Chinese tech giants’ metaverse-related moves in the second section.

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)

A major Chinese state bank is hiring 20 postdocs researching digital currency, quantum algorithms, cryptography, and more. Russia plans to launch a platform to test the digital ruble early next year. China’s central bank showcases a machine that converts 17 kinds of foreign currencies into digital yuan. A Chinese education company plans to mine bitcoin outside of China to make money after the country cracks down on private tutoring. 

Digital currency 

• The Industrial and Commercial Bank of China (ICBC)’s postdoctoral research station is hiring 20 postdocs. Researchers can choose one or two study areas from 39 provided topics, including digital currency, quantum algorithms, and cryptography. ICBC established the station in 2002 and has since educated 101 postdoctoral graduates. (Mypaypass, in Chinese)

• Russia plans to launch a platform to test the digital ruble next year. Elvira Nabiullina, governor of Russia’s central bank, said the platform prototype will be ready for early 2022. Russia plans to amend 13 pieces of legislation, including the Civil Code, Tax Code, Budgetary Code, Criminal Code, and Administrative Code, to establish the digital ruble. Anatoly Aksakov, head of the State Duma Committee on the Financial Market, said the law must differentiate digital currencies, stablecoins, and the digital ruble. Since late 2020, China has become the first major economy to test and release its own digital currency, the digital yuan. (Yahoo)

• China’s central bank unveiled a foreign exchange machine that converts foreign currencies into digital yuan at the China International Import Expo held in Shanghai. The machine only requires a foreign passport, with no bank account or registration needed. The machine supports 17 different currencies. (Coindesk)

From teaching English to mining bitcoin

Chinese English training firm Meten EdtechX is getting into the bitcoin mining space, another example of an education company pivoting as China cracks down on private tutoring businesses. In September, the Nasdaq-listed company said that it planned to get into cryptocurrency mining and raised nearly $60 million in a new round of equity issuance. The company plans to build its own mining farm outside of China. In July, China launched a sweeping crackdown on private education, resulting in many key players’ stocks nosediving and numerous companies announcing plans to pivot to other industries. (The Block)

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)

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)

New York-based blockchain startup Cypherium has announced a strategic partnership with Blockchain Services Network (BSN), a China-developed network infrastructure provider for blockchains, to lower costs for blockchain developers, according to a Thursday press release. 

Why it matters: The partnership is part of BSN’s ongoing push to expand its global footprint. 

• BSN is a network for blockchain applications, like an internet specifically for blockchains. The network pools cloud and development resources to provide affordable network infrastructures for companies who wish to use and build blockchain apps, which can often be expensive for small and medium-sized companies.

Details: Cypherium’s technology will be integrated into the BSN, reducing costs for BSN developers who wish to use Cypherium. Founded in 2018, Cypherium is a public blockchain framework focusing on central bank digital currency. 

• BSN has already integrated with many other well-known public blockchain frameworks, including Ethereum, ConsenSys Quorum, Hyperledger Fabric, and Tezos. Cypherium has previously partnered with global technology giants like Google, Microsoft, and Randstad. 
• The partnership between Cypherium and BSN will allow central banks to develop and manage national virtual currencies more efficiently, according to the press release.
• Yifan He, CEO of Red Date Technology, the architect of the BSN, and Executive Director of the BSN Development Association, said in the press release that the company is excited to “help support Cypherium’s mission of financial inclusion around the world.”

Context: BSN is one network but has separated governance of its Chinese business from its international business in July 2020. 

• In China, the network hosts mostly permissioned chains and is supported by Chinese government entities and state-owned enterprises, such as the State Information Center, China Mobile, and UnionPay. 
• Outside of China, the network embraces public chains and decentralized projects. BSN’s international operations will be governed by a nonprofit organization called BSN Foundation in Singapore, which is expected to be fully established in October.

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)

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)

Chinese smartphone maker Xiaomi on Wednesday announced that it had registered a car company called Xiaomi Qiche, or Xiaomi EV Company Limited. The electric vehicle (EV) business has a starting capital of RMB 10 billion ($1.5 billion), with Xiaomi’s co-founder and chairman, Lei Jun, as the CEO. 

Why it matters: Xiaomi is the world’s second-largest smartphone maker by market share; its entry into the growing EV market may bring new competition to existing upstarts like Nio, Xpeng, and Li Auto. 

5 facts about Xiaomi’s new electric car company:

• Xiaomi wholly owns Xiaomi EV. The new subsidiary is headquartered in Beijing’s southwestern economic-technological development area, known as the Yizhuang area.
• According to Chinese enterprise information database Tianyancha.com, the EV subsidiary will focus on making and developing alternative energy vehicles, and their parts and accessories. It is also allowed to make electric motors, electric machines, electric signal equipment, lithium batteries, and vehicle software. 
• In March, Xiaomi said it planned to invest $10 billion into the EV subsidiary over the next 10 years.
• Since Xiaomi announced plans to make EVs in March, the company has hired about 300 of 20,000 applicants for the EV subsidiary and is seeking more staff.  
• Lei Jun, chairman of Xiaomi and CEO of Xiaomi EV, showed a group photo of himself along with 16 core staff members when announcing the new company. They include Wang Xiang, partner and president of Xiaomi; Liu De, co-founder and vice president of Xiaomi; Zhang Feng, partner and Xiaomi group chief of staff; Xiaomi CFO Alain Lam; and Tianyuan Li, a former exterior designer of BMW’s electric vehicle iX. According to a report by Chinese media LatePost (in Chinese), the core member photo omitted some senior members of the EV team hired from other automotive companies.

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.

Renowned Chinese actress Xu Jinglei has invested in nearly 500 pieces of NFT artwork. Alipay updates its user agreement to prevent NFT speculation. Shanghai is using blockchain technology in governance, and Chengdu’s government wants to cultivate leading companies in blockchain technology. Honor releases a smartphone supporting a hard wallet for digital yuan. 

NFT in China

Famed Chinese actress and director Xu Jinglei updated her Instagram profile picture with a non-fungible token (NFT) artwork created by an NFT design team called Animetas. Xu bought the NFT for 0.88 Ethereum ($2,892) on Aug. 6. Her account on Opensea, an NFT marketplace, shows she has collected 497 pieces of NFT art. Many of her collections are from Animetas, a team creating digital avatars artworks on the Ethereum blockchain. (8BTCnews)

Alipay NFT policy changes 

Chinese mobile payment app Alipay updated its user service agreement, asking users to keep their NFTs for at least 180 days before sending them to others, signaling the platform’s attempt to curb NFT speculation. Alipay also requires NFT senders and receivers to be at least 14 years old, and to pass real-name verification checks. The mobile payment app issued two styles of NFT artwork in late June. Buyers can set the artwork as a background on the payment app. (AI Caijing, in Chinese)

Regional government and blockchain

• Chinese state media People’s Daily published an article praising Shanghai’s Pudong district as a model for digital governance. The piece, published Sunday, said Pudong district employed technology such as 5G, blockchain, big data, cloud computing, and the internet of things, to build applications for the government to get a holographic panorama of the district’s 1,200 square kilometers. (People’s Daily, in Chinese)

• The government of the southwestern city of Chengdu announced on Monday plans to cultivate leading companies in several cutting-edge tech sectors. The Chengdu New Economic Development Commission, a government agency, listed at least 24 new technological areas to explore. The list includes 6G, privacy-preserving computing, blockchain, quantum computing, and satellite Internet. (China Star Market, Chinese) 

Hard wallet for digital yuan

Chinese smartphone maker Honor launched a flagship smartphone called The Magic 3 that supports a digital yuan hardware wallet. The Magic 3 is powered by Qualcomm’s latest Snapdragon 888 chip to support the wallet, according to CEO George Zhao at the release event. Compared with digital wallets installed on software like apps, hardware wallets have higher security for storing digital assets, according to a white paper released by China’s central bank. Honor was Huawei’s budget subbrand until November 2020. (Coindesk)

Tencent Music to release “digital collections” built with non-fungible token (NFT) technology. The Chinese province of Guizhou reveals ambitious plans to turn freed-up crypto mining electricity into EV charging capacity. Tencent granted blockchain patent.

Tencent makes more NFT and blockchain moves

• Tencent Music announced on Monday that it plans to release “digital collections” on its music streaming service QQ Music starting this month. The company confirmed with Chinese media that the collection will incorporate NFT technology. The collection will include video, audio, digital vinyl, and celebrity merchandise. The announcement came a week after Tencent launched an NFT trading platform called Huanhe. (TechWeb, in Chinese)

• Chinese enterprise information database Tianyancha shows that Tencent has been granted a patent for “processing students’ identity information on blockchain networks.” The company applied for the patent in September 2019. The patent abstract shows that the technology can store users’ school identity information from different periods on a blockchain network and ensure the data is secure and can’t be tampered with. (China Star Market, in Chinese)

Crypto mining business disputes

China-based bitcoin miner manufacturer Ebang International said at a Monday press event that it is in the midst of an approximately RMB 400 million ($61.75 billion) business dispute with Huatie Emergency, a company listed in China. Chinese media previously reported that a Xinjiang-based subsidiary of Huatie had signed a contract to buy cloud computing servers worth roughly RMB 400 million from Ebang in 2018. (China Star Market, in Chinese)

Crypto ban accelerate EV adoption

China’s southwestern Guizhou province announced a recent plan to build 4,500 electric vehicle charging stations in 2021 and 10,000 more in the next two years. The province is using electricity freed up by China’s crackdown on bitcoin and crypto mining. Guizhou aims to install 38,000 EV charging stations by 2023, with at least one in each town. It will reserve 20% of car parking bays at shopping malls for EV charging points. (Cointelegraph)

Louis Hinnant contributed to the reporting.

Tencent launched a non-fungible token (NFT) trading platform. A local Chinese court is building a judicial blockchain to improve intellectual property litigation processes. China’s central bank said in a work meeting that they would continue to crack down on cryptocurrencies.

Tencent launches an NFT platform

Chinese tech giant Tencent launched an NFTs trading platform called Huanhe on Monday. The platform promoted the launch by issuing 300 NFTs style as vinyl records based on the popular Tencent-developed celebrity talk show “Shisanyao.” Each piece is priced at RMB 18 ($2.8). The platform is planning to sell NFTs in the forms of video, audio, photos, 3D models, and others, according to the platform’s introductory text. (Wu Blockchain)

Court builds judicial blockchain

A local court in the northeastern Chinese city of Hulunbuir, Inner Mongolia, said in an official WeChat post that it is building a judicial blockchain to improve litigation processes for intellectual property cases. The Hulunbuir Intermediate People’s Court said it wants people to submit evidence through the blockchain and use timestamp functions to preserve the evidence. The court is currently testing the blockchain. (Hulunbuir Intermediate People’s Court, in Chinese)

Central bank vows to continue crypto crackdowns

China’s central bank said it will continue its crackdown on virtual currencies in a work meeting for the rest of the year. A work report released Thursday listed regulating the growth of fintech platforms and punishing illegal virtual currency activities as priorities.

More digital yuan implementation

• More than 10 commercial banks in China have started to build teams to support digital yuan services, the 21st Century Business Herald reported. State-owned banks are currently the leading operators for digital yuan trials, which began in late 2019. The report found a number of smaller commercial banks, some privately-owned but not all, are working to support digital yuan. China Minsheng Bank recently posted hiring advertisements for digital yuan managers. Other banks include the Suzhou Rural Commercial Bank, the Bank of Shanghai, the Bank Of Changsha, and the Bank of Xi’an. (21st Century Business Herald, in Chinese)
• Beijing’s metro system expanded digital yuan support on Aug. 1 to include transport card machines and manned ticket booths. The subway system began a pilot program in late June that allows people to pay fares with digital yuan using the metro authority’s Ruubypay app, known as Yitongxing in Chinese. (MPayPass, in Chinese)

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

China’s central bank released the country’s first white paper on digital yuan on July 16. 

Why it matters: It’s the most detailed overview yet of the central bank’s progress for the digital currency.

Details: The white paper (in Chinese), issued by The People’s Bank of China (PBoC), describes the digital yuan’s definition, design principles, operation systems, digital wallets, the scope of existing trials, and the responsibilities of participants. 

• The document specifies that the central bank is the sole issuer of China’s digital yuan and that it is a centralized digital currency controlled by the PBoC. Only select commercial banks will be able to “exchange” and “circulate” the currency. 
• As of June 30, participants have spent 34.5 billion digital yuan ($5.3 billion) in trials. The currency has opened more than 1.32 million digital yuan trial sites since the end of 2019. Uses include paying utility, dining, transportation, shopping, and government services. 
• The central bank said the digital yuan is partly a reaction to Chinese people’s changing habits from cash to cashless and mobile payments. In 2019, mobile payments accounted for two-thirds of all numbers of transactions in China, the white paper said. 
• The white paper emphasizes that the primary purpose of the digital yuan is to offer individuals a central bank option for retail transitions, hoping to cut down costs and increase efficiency in payments. 
• Short-term foreign visitors will be able to open a digital yuan wallet for daily transactions without opening a bank account in China. 
• The 20-page page white paper spends only one page on future plans. It calls for quick passage of a law to make digital currency legal tender. It also calls for more pilot programs and more research, without detail.

Context: China is the first major economy to introduce a national digital currency. After launching the project in 2014, PBoC has spent seven years researching and developing the currency. 

• China has recently expanded crackdowns on crypto mining and crypto trading. China banned crypto trading and initial coin offering in 2017 but allowed over-the-counter trading (OTC). Since April, the country’s regulators have cracked down on crypto trading and mining, prompting miners and companies to move out of China.

Local service superapp Meituan is cutting back on mobile power bank rentals while bringing back a ride-hailing app, as ride-hailing market leader Didi faces a cybersecurity review. Tea drink chain store Heytea secures $500 million in Series D. Amazon expands a crackdown on Chinese sellers.

Meituan adjusts offerings

• Meituan plans to downsize its mobile power bank rental service, Chinese media reported on Wednesday. Donews reports that Meituan is selling its rental service in 33 Chinese cities to local operators. Most of these cities are second-tier ones such as Jinan, Baoding, and Changsha. Gao Cheng, head of the rental service division in Meituan, recently left the company. Many business development staff from the division have transferred to Meituan Youxuan, a community grocery division. [Donews, in Chinese]

• Meituan relaunched a standalone ride-hailing app on Friday, three years after removing Meituan Dache to cut expansion costs. The launch came as market leader Didi’s apps are banned from accepting new users during a cybersecurity review. Meituan’s ride-hailing service continued operating as a mini-program within the Meituan super app during the app’s hiatus. [SCMP]

Heytea raises half a billion

Modern tea drink chain store Heytea completed a $500 million Series D. Investors include Sequoia Capital China, Hillhouse Capital, Tencent Investment, and Temasek. Founded in 2012, Heytea popularized “cheese teas” and runs about 695 stores across China. The brand is popular among young, urban Chinese consumers. [Ebrun, in Chinese]

Amazon widens crackdown on Chinese sellers

Amazon closed 340 online stores operated by one of the largest Chinese retailers on the platform for allegedly violating Amazon’s rules without specification. Shenzhen Youkeshu Technology Co. sells a variety of products, including electronic gadgets, toys, and outdoor equipment. Amazon froze $20 million in payments due to the retailer. The ban may reduce Youkeshu’s first-half sales by 40% to 60%, according to a recent filing by the retailer’s Shenzhen-listed parent Tiza Information Industry Corp. Amazon banned in June three electronics brands under Shenzhen-based electronics company Sunvalley Group for soliciting positive reviews with gifts. [SCMP]

Suning chairman steps down after bailout

Zhang Jindong, the billionaire founder of Suning, resigned as chairman of the Chinese retail conglomerate this Monday. Zhang lost control of the company when the business sold a nearly 17% stake to a government-led consortium. On July 5, the troubled retailer secured a $1.36 billion bailout offer from a group of investors led by the state asset management committees of the Nanjing and Jiangsu governments. Alibaba also joined the funding consortium, alongside Chinese electronics makers Midea Group, Haier Group, Xiaomi, and TCL Technology Group. [Bloomberg]

Louis Hinnant contributed to the reporting. 

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)

Didi is everywhere in China. In the country’s major cities, you’re unlikely to find someone that hasn’t hailed a ride through its platform. The company’s popularity led the Uber-like taxi app to a much anticipated New York IPO on June 30. Didi raised a whopping $4.4 billion—the largest amount of any Chinese company going public in the US since 2014.

Then, Didi caught the attention of Chinese regulators.

For the first two days after going public, Didi’s stock performed well, rising more than 17% from its offering price. Then, the ride-hailer’s US debut took a jarring turn: China’s top internet regulator announced a cybersecurity investigation into the company.

Didi’s share plunged more than 20% on the news. Investors say that the move blindsided them. Apart from scrutiny at home, the company now also faces lawsuits from US investors for failing to disclose its regulatory risks. 

According to the government’s official announcement, Didi faces regulatory backlash over data security. The regulator did not provide any further details.

What kinds of data does the company hold that led to regulators souring on the company? This week, we combed Chinese media reports on the investigation into Didi, hoping to provide a clearer picture of what led the company to fall out of favor. All quotes have been edited for clarity.  

Didi’s big data analytics 

On July 2, the third day after Didi’s IPO, China’s internet watchdog launched a “cybersecurity review” of the ride-hailing company, citing national security concerns.

Then two days later, on a Sunday night, the same regulator—the Cyberspace Administration of China (CAC)—ordered app stores in China to remove Didi’s app. The CAC said the app “seriously violated Chinese laws and regulations on personal information collection and usage.”

Of all tech majors in China, Didi collects the most comprehensive data on personal travel. Its ability to do big data analysis on users’ activities and habits can carry security risks, said China’s nationalistic tabloid Global Times on July 4. 

The news of the investigation into Didi began trending on popular microblogging site Weibo over the weekend. The government’s inquiry won cheers from many Chinese internet users, who see the move as a means of protecting China’s national security and the data privacy of its citizens. 

Why China’s ban on Didi’s app is winning applause
Global Times, July 4

Didi Chuxing is a high-tech internet company that has greatly popularized online ride-hailing services in China. But the company undoubtedly collects the most detailed personal travel data out of all the major internet companies. It’s very worrying that, according to the Cyberspace Administration of China’s announcement, Didi may have violated laws in the way it collects and uses personal information. Didi appears to have the ability to perform big data analysis on users’ activities and habits, which could become a potential security risk to people. 

As a matter of principle, we hope that internet giants can minimize collection of users’ data instead of capturing as much information as possible.

Internet behemoths are used to calling the shots in their sectors, but the government cannot allow them to make the rules governing personal information. The government has to control the rules and standards, making sure that internet giants minimize their user data collection. Internet companies shouldn’t be allowed to have a super database of user information that is more detailed than that controlled by the Chinese government, let alone use the database however they please.

The government needs to be vigilant with a firm like Didi, which went public in the US and consists of top foreign stakeholders. This is not only a matter of protecting personal information but also a matter of national security. Regulating Didi doesn’t mean the country is stunting the growth of the company. It serves to eliminate risks so that the users will feel more comfortable, thus giving the company a bigger market. 

Maps and road traffic data

Experts told the Chinese business magazine 21st Century Business Review that Didi’s collection of road traffic data is at odds with China’s national security.

Didi’s investigation gives a stern signal
Cao Yanjun, Yang Song
21st Century Business Review, July 5

Cybersecurity investigations into internet companies will become the norm. 

Di Wei, an assistant professor of economic law at East China University of Political Science and Law, told 21st Century Business Review that Didi holds road traffic data including that which deals with surveying and mapping, traffic flow, and charging stations. This data is vital data, according to the third article in the “Provisions on the Management of Automobile Data Security (Draft for Comment Solicitation)” that was released on May 12. The provision defines vital data (to national security) collected by auto companies.

Data collected by automobile companies is closely connected to individual privacy and national security issues. For example, when a user follows a given route, companies can collect data on home addresses, work addresses, and surrounding geographic data.

“The potential risk lies in exposing personal information, and even data vital to the national interest, which in turn affects military safety,” Di Wei said.

Driving record data

Didi’s record of driving data and driver and passenger security information pose major security risks to China if leaked, according to Classification Evaluating Reviews, a WeChat account that promotes China’s multi-level protection scheme, a tiered system of national cybersecurity levels. 

China launches its first cybersecurity investigation! Didi gets investigated
Classification Evaluating Reviews, July 2

Cybersecurity investigations aren’t administrative interviews but preventative safety precautions. Didi has already become an essential part of China’s internet traffic infrastructure. Didi’s datasets of driving records, and driver and passenger security information pose a massive security risk. 

According to China’s multi-level protection scheme, we can infer that Didi’s network has been classified as vital information infrastructure, thus prompting the cybersecurity investigation.

It might take a few months for Chinese regulators to elaborate on what the Didi data in question includes. In the meantime, Chinese media reports show that Didi’s massive collection of mapping and traffic data, and its ability to provide big data analysis using its data, may have alerted the country’s regulators.

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.

Top market regulators in China announced on Wednesday night a large batch of antitrust punishment. Tech majors Didi, Alibaba, Tencent, Suning, and Meituan were fined the maximum penalty under current law for violating the Anti-Monopoly Law by not declaring deals to the regulators.

Why it matters: Wednesday’s punishment involves 22 investment deals (in Chinese). Although the fines of RMB 500,000 ($77,350) each are trivial to the tech giants, it’s the largest batch since Chinese regulators began to crack down on major tech companies late last year. 

Details: The State Administration for Market Regulation fined at least five tech companies over 22 investment deals for violating market concentration rules. The earliest deal dates to 2011, the most recent closed in September 2020. 

• Didi accounts for eight of the 22 fined deals, Alibaba six, Tencent five, Suning two, and Meituan one. Many of the deals are made through subsidiaries of these majors. 
• These deals span the past decade. The earliest deal goes back to 2011, involving Tencent acquiring parts of Cheetah Mobile, a Beijing-based software company. 
• The most recent deal closed is a 2020 deal of Tencent buying 32.4% equity of the classify site 58.com. 

Attorneys’ take: Despite having the power to enforce divestment, regulators are unlikely to push for companies to retract these deals, legal experts told TechNode. 

• Zhu Bao, a Beijing-based corporate compliance lawyer, told TechNode that these fines should alert internet companies to brace for a tightening regulatory environment. But it would be complicated for regulators to force a retract because some of the deals are compliant with existing regulations. 
• “I find some of the fines puzzling, such as Alibaba’s for acquiring 50% equity of Guangzhou Evergrande Football Club in 2014. We didn’t think these kinds of deals would require declaring since the two companies are in vastly different fields,” Zhu added. 
• Deng Jingyu, a Shanghai-based company and finance lawyer from Win Zone Law Firm, agreed. She said regulators rarely nullify closed deals. 

Context: The antitrust fines came within a week after the Chinese cyberspace watchdog launched a data security investigation on the ride-hailing giant Didi and several other Chinese internet companies listed overseas. 

• While the number of deals fined is the largest yet, more companies were affected in a March ruling that fined 12 companies over 10 deals.  

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

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.

Alibaba’s former executive chairman Jack Ma’s family fortune manager Blue Pool Capital invested in a gaming company specializing in nonfungible tokens (NFTs). Regional neighbors are looking into digital currency plans. Japanese officials said they are hoping to clarify whether to issue a central bank-backed digital yen by 2022. Vietnam Prime Minister asked the country’s central bank to research cryptocurrency. 

Jack Ma and Joe Tsai’s NFT investment

• Game developer and blockchain company Animoca Brands raised $50 million. Investors include Blue Pool Capital, Coinbase Ventures, Gobi Partners, and others. The Hong Kong company, founded in 2014 and valued at $1 billion, focuses on bringing digital property rights to video gamers using NFTs. Blue Pool Capital manages a portion of the $40 billion family fortune of Jack Ma, Alibaba’s former frontman, and $10 billion wealth of Joe Tsai, Alibaba’s executive vice-chairman. The private equity firm was best known for managing Joe Tsai’s purchase of NBA’s Brooklyn Nets. (Venture Beat)

Crypto exchange woes

• London-based bank Barclays notified clients on July 5 that they would stop all UK clients from transferring funds to crypto exchange Binance. The bank told the Financial Times that the decision was to keep the client’s money safe and followed a regulatory warning against the digital asset exchange issued by UK’s Financial Conduct Authority. Founded in China, Binance quickly moved out of the country after it banned crypto trading in 2017. (Financial Times)

• On July 1 Chinese bitcoin trading platform Huobi introduced a 24-hour delay to token withdrawal for all over-the-counter (OTC) trades. OTC trades are trades that happen directly between two parties without an intermediary such as a bank or exchange. The exchange’s decision aligns with China’s ongoing crackdown on OTC crypto trades. China banned crypto trading in 2017 while allowing OTC trading. According to Huobi, the new restriction on withdrawals will protect user assets and prevent losses caused by the inflow of risky funds. (CoinTelegraph) 

Japan’s digital yen plan, Vietnam studies crypto

• Officials from Japan said the country will get more clarity on what to expect from a digital yen by 2022. Hideki Murai, who heads the ruling Liberal Democratic Party’s panel on digital currencies, told Reuters that “while no immediate decision will be made on whether to issue a CBDC, more details on its design may spur debate on how CBDC issuance could affect financial institutions.” CBDC refers to central bank digital currency. (Reuters)

• Vietnam Prime Minister Phạm Minh Chính asked the country’s central bank to study and put through pilot projects on cryptocurrency in the next two years, local news reported on July 3. It is unclear whether the country plans to launch its own digital currency. Vietnam banned using bitcoin as payment in 2018. The central bank has not granted licenses for any cryptocurrency trading platforms. (Vietnam News)

Digital yuan trials

• The Beijing Subway began digital yuan trial on June 30, accepting the central bank-backed digital currency for payments throughout the whole rail transit system. Subway passengers can use the Industrial and Commercial Bank of China’s mobile app to pay their fares. A new subway line in the eastern city of Suzhou, Metro Line 5, also started accepting payments through digital yuan. Passengers can use a mobile app to scan designated QR codes to purchase tickets. (Beijing Subway, Sina Finance in Chinese)

• The Chengdu government announced on July 2 that it is issuing RMB 12 million ($1.85 million) digital yuan through a lottery as part of a trial to promote the digital currency. The free digital money recipients, 100,000 residents, can use it for low carbon transportation services, including buying subway and bus tickets and shared bike rides. (The Block)

It has been a rollercoaster week for Didi Global. Last Wednesday, Didi raised $4.4 billion in a behemoth US IPO. Two days later on Friday evening, China’s cybersecurity regulator announced an investigation into the company. Then on Sunday night, less than a week after Didi went public on the New York Stock Exchange, the regulator asked app stores in China to remove Didi’s app.

The probe of China’s dominant ride-hailer follows other large penalties for Chinese tech majors, such as the abrupt suspension of Ant Group’s giant $34 billion dual IPO listing in Shanghai and Hong Kong in November 2020 and a $2.8 billion antitrust fine for Alibaba in April. 

Authorities at the Cyberspace Administration of China (CAC), a cyberspace watchdog, said on July 2 that they launched a “cybersecurity review” of Didi to “guard against risks to national data security” and “protect the public interest.” Citing national security law and cybersecurity law, they also asked Didi to stop registering new users. Two days later, they ordered operators to pull Didi’s app from all app stores for issues concerning user data protection, saying the app “seriously violated Chinese laws and regulation on personal information collection and usage.”

The app store suspension, although dramatic, hasn’t stopped Didi from operating. Didi’s service is still widely available in China. The ban means new users cannot download Didi’s app and use its service. Yet new users, at the time of this writing, can still register for the service through Didi’s mini-program embedded in apps like WeChat, a popular Chinese messaging app, according to our observations. Also, existing users, which account for most Chinese ride-hailing customers as the company holds 90% of the market share, can still use the service, either through Didi’s app or its mini-program on WeChat. 

On Monday, the CAC expanded its probe, announcing that it also launched similar cybersecurity investigations into three other companies and asked them to stop registering new users. All these companies have recently debuted on US stock exchanges. Job recruitment platform Boss ZhiPin debuted on Nasdaq under Kanzhun, a Tencent-backed company, on June 11. Partner transport companies Huo Chebang and Yun Manman went public together on the New York Stock Exchange on June 22 as a single company called Full Truck Alliance. 

The actions are a notable step up for privacy regulation. But they come as part of a long-term effort to regulate data use during an ongoing crackdown on big tech, experts told TechNode.

Business may be… fine?

Didi said in a July 4 statement that it expects that the app takedown may have “an adverse impact on its revenue in China.” 

According to a 2020 regulation for the review process, a cybersecurity review should be completed within 45 days. However, it can be extended if “the situation is complicated.”

James Hull, analyst and portfolio manager at Hullx Capital, said a suspension of 45 days or longer isn’t “that bad for the company,” because most Chinese users already have the Didi app and could access Didi through WeChat mini-programs. The Chinese version of the app was downloaded about 900,000 times in June, according to SensorTower, or 30,000 times per day.

Michael Tan, a partner with international law firm Taylor Wessing Shanghai Office, told TechNode that he thinks the investigation could take six months. Didi’s stock price is likely to take a hit, but the company is unlikely to be delisted from the US, he added, because Chinese regulators will focus on data security more than the listing.

But Tu Le, founder and managing director of business intelligence firm Sino Auto Insights, told TechNode that he thinks US investors may demand more information. “If I were a US investor in Didi, I’d like to know what Cheng Wei, Jean Liu, and the rest of the management team ‘knew,’ if anything at all, and ‘when’ they knew it.”

“If there was prior knowledge that Cyberspace Administration of China would block new users due to security issues, then it should’ve been disclosed prior to the IPO,” Le added.

Didi shares on the New York Stock Exchange fell 5.3% on Friday, following the CAC announcement of a cybersecurity review of the company. The US market had not opened on Monday at the time of this publication. 

Both Le and Michael Tan say Didi’s probe could have broader implications for Chinese data companies planning to raise money in the US.

Le said the Didi probe “should really freak out any data company planning to IPO in the US.” Data companies need to make sure that their data management strategy is bulletproof if they decide to list in the US later this year, he said. “I’d say they’ll still do it, but this should give them pause, if only for a brief moment,” he added.

Why is Didi being investigated?

It’s not entirely clear what got Didi in trouble. The notices refer to national security and to “serious problems with illegal and irregular collection and use of personal data.” Timing suggests that the recent US IPO could also be a factor. All three firms that were penalized this past week have been listed on US markets since early June 11. 

The company says that all information related to Chinese users is stored in China, in response to speculation of Didi sharing sensitive data. Company Vice President Li Meng wrote on Weibo Saturday that the company was willing to sue over speculation that it had shared sensitive information during its IPO process.

Tan said that alleged data privacy abuse is the main reason for Didi’s investigation. Didi’s US IPO likely accelerated the probe but didn’t trigger it.

In 2015, Chinese state news agency Xinhua collaborated with Didi’s big data analytics department on a report focusing on commuting patterns of state staff working for different Chinese ministries. “Almost all ministries work overtime,” the report said, “The Ministry of Land and Resources is the busiest. There were 298 rides hailed between 6 p.m. to 2 a.m. in two days,” Xinhua said. China could deem data like this as sensitive.

The investigation targets Didi’s potential privacy breach activities in China, Tan said. “US IPO will result in disclosure of much business-related information to the US markets and other third parties in the US,” he said. “This will inevitably lead to some speculation, such as Didi being investigated due to national security concerns or providing access to sensitive data,” he added.

Legal background 

The investigations are based on a relatively new CAC power called a “cybersecurity review.” This review process was created by the 2016 Cybersecurity Law, but has never previously been implemented, according to the Beijing News. According to the law and 2020 implementation measures, the review system focuses on operators of “critical information infrastructure,” and their purchases of “network products and services that might impact national security.” The Cybersecurity Law, along with landmark laws on privacy and data security, is part of an ongoing effort to regulate the use of personal data by companies in China. Cross-border data transfers are a focus of these laws, but the laws also require companies to implement best practices for collecting and storing data.

“That could cover anything from Didi’s servers to cloud computing to basic network equipment,” said Tiffany Wong, a consultant at research-based consultancy Sinolytics.

Wong said that it’s also possible for companies to get in trouble under these laws due to how they store and process important data. “It could be that Didi hasn’t segmented their personal information to the CAC’s liking, or don’t have good data protection mechanisms in place as required, and the state wants Didi to have full compliance before collecting any more personal information,” Wong added. 

Moreover, Xie Maosong, a senior politics and governance researcher at the Chinese Academy of Sciences, told TechNode that he thinks Didi and other internet companies need to develop a better sense of social responsibility in China instead of focusing only on making money. Xie studies Chinese governmental policies and he gave lectures a few weeks ago to the Cybersecurity Administration in Hangzhou on regulating Chinese internet companies. 

“In the western society, capital takes priority,” said Xie, “but in China, politics always takes priority. Here, politics doesn’t refer to the Chinese government, and it refers to the interests of the nation, a collective interest, in contrast to the interests of a few capitalists,” he added.

Tech crackdowns in China

The investigation into Didi came as China widened an ongoing crackdown on tech companies. The crackdown started in November when authorities halted Chinese fintech giant Ant Group’s plans for a mega dual IPO, citing “changing regulatory environment.” Since then, regulators have abandoned their laissez-faire approach to tech firms and put them under the microscope.

In December, the State Administration for Market Regulation (SAMR) announced an anti-monopoly investigation into e-commerce behemoth Alibaba. The probe was closed in April as the market regulator imposed a record RMB 18.2 billion ($2.8 billion) fine on Alibaba. 

Anti-monopoly has been the most active area of the campaign, hitting tech titans like Tencent, Alibaba, Meituan, and Didi itself, according to TechNode’s Techlash Tracker database. But the campaign also involves privacy protection, data security, and financial de-risking. Over the past year, hundreds of companies have been hit with small fines over privacy and data security violations.

READ MORE: INSIGHTS | Making sense of China’s big tech crackdown

The Didi probe is the first major case in the privacy and data security section of the campaign. 

In the past, companies like Tencent, search engine Sogou, and smartphone maker Xiaomi were fined small amounts of money for collecting excessive or unnecessary data from their app users. Those enforcements usually cite China’s 2017 Cybersecurity Law and regulations on how apps should collect and store user data. 

The investigation into Didi, however, probably involves national security issues, according to the CAC. In addition to the Cybersecurity Law, the CAC also cited China’s National Security Law in announcing the Didi probe. The 2015 National Security Law has a clause (in Chinese) vowing to “safeguard the nation’s cyberspace sovereignty, security, and interests.”

“The state attaches great importance to cybersecurity and data security. The Cybersecurity Law passed in 2017, the Cybersecurity Review Measures issued in 2020, and the Data Security Law that is taking effect in September are all signs of the government’s determination to protect cybersecurity and data security,” said Qi Aimin, a professor at Chongqing University’s School of Law.

Recent cybersecurity reviews on tech firms, including probes into Boss Zhipin, Huo Chebang, and Yun Manman announced on Monday, proving that “large-scale cybersecurity and data security investigations of internet companies will become a trend,” said Qi.

A timeline of Didi’s regulatory woes

Dec. 24, 2020: Chinese transport minister Li Xiaopeng pledges to ramp up antitrust enforcement as one of the ministry’s priorities in 2021. The head of Chinese transport watchdog made the comment a month after the release of the draft anti-monopoly guidelines targeting the country’s big tech companies by the SAMR.

March 12, 2021: China’s top market watchdog SAMR fines (in Chinese) Didi Mobility Pte. Ltd., a subsidiary of the Chinese ride-hailing giant, RMB 500,000 ($77,400) for failing to seek antitrust clearance for the establishment of a joint venture with Softbank. In the current antitrust law framework, companies need to receive approval for mergers or acquisitions involving firms with annual revenues of RMB 10 billion and above globally or more than RMB 2 billion in China.

April 30, 2021: Didi is again ordered (in Chinese) to pay a penalty after insufficiently disclosing three acquisitions and investments for antitrust reviews, including a takeover of a Shenzhen-based car rental firm. Chinese gaming powerhouse Tencent and retail giant Suning were also punished for the same reasons, with each fined RMB 500,000, the highest amount stipulated by the law.

May 12, 2021: China’s cyberspace administration issues new draft rules on data collection applying to both carmakers and ride-hailing platforms, stipulating that companies need to gain regulatory approval before providing “important and private data” to foreign entities (our translation). Coming after growing concerns about vehicle cameras and where the car data is going, CAC writes in the announcement (in Chinese) that the rules have been drafted to safeguard national security and the public interest.

May 14, 2021: Chinese antitrust regulators order ride-hailing platform Didi and online services giant Meituan to rectify their ride-hailing practices, reports Bloomberg. The two companies were among 10 online on-demand services ordered to make changes to their operations, including increasing drivers’ commission fees.

June 17, 2021: Reuters reports that China’s market regulator is investigating whether Didi violated antitrust rules. Didi dismisses the report as “unsubstantiated speculation from unnamed sources.” However, the company acknowledged that it has just completed a one-month self-inspection to correct monopolistic practices, along with dozens of other companies, as required by regulators, in its IPO prospectus filed last month.  

Chinese ride-hailer Didi went public on Wednesday on the New York Stock Exchange in a much anticipated US IPO, raising $4.4 billion. 

Why it matters: Didi is the biggest Chinese IPO in the US since Alibaba’s $25 billion listing in 2014.

Details: The company priced its IPO at $14, the top of the expected range. It opened at $16.65 per share on Wednesday, and closed at $14.14, a modest 1% up from the initial offering price. 

• Two days before Didi’s debut, CNBC’s Jim Cramer recommended the stock on his show “Mad Money.” “If you want to speculate on a Chinese IPO, you’ve got my blessing to bet on Didi. I would try to get as many shares as you can,” Cramer said.
• David Trainer, founder of New Constructs, a US-based investment research company wrote that Didi is overvalued and worth “no more than $37 billion,” a little over half of its current valuation in a Wednesday analysis. He worries that Chinese regulatory risks and an “unprofitable” business model will hurt the company’s performance, despite Didi having a 90% market dominance in China. 
• Didi reported losses of $1.6 billion on $21.6 billion in revenue in 2020. The company turned a profit of $800 million on $6.4 billion in revenue in the first quarter of 2021, according to its IPO filing. 

Context: Didi performed better than its US counterparts on the first trading day. Uber fell below its initial offering price in its 2019 debut. 

• In May 2019, Uber opened below its initial offering price of $45 and dropped more than 7% on the first trading day. 
• Like many other leading tech companies in China, Didi faces increased regulatory scrutiny. Reuters reported in June that Didi is facing antitrust investigations from the country’s top market watchdog on whether the company had used unfair practices to squeeze out smaller competitors. 

READ MORE: The Chinese gaming startup outperforming Tencent overseas

With contributions from Jill Shen.

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)

Aihuishou IPO up 23% on its debut in New York. Huitongda, a supply chain company focusing on rural Chinese retailers, applied for an initial public offering in Hong Kong. China’s e-commerce platforms wrap up the biggest 618 shopping festival to date. Amazon blacklists three Chinese sellers for soliciting positive reviews with gifts.

Aihuishou debuts, Huitongda to come

• Used electronics reseller Aihuishou debuted on the New York Stock Exchange on June 18. The JD.com-backed company saw its shares jump about 23% on the first trading day. (Caixin Global)
• Huitongda, a company providing supply chain services and other services to rural retailers in China, filed an initial public offering to be listed in Hong Kong on June 18. Key investors include China International Capital Corporation, Citibank, and China Renaissance. Despite operating on a loss, the company’s revenue had grown from RMB 29.8 billion to RMB 49.6 billion ($4.6 billion to $7.7 billion) from 2018 to 2020. (Sina Finance, in Chinese)
• Chinese online used car dealer Uxin secured up to $315 million in new investment from Nio Capital and Joy Capital. More than 10 key investors have agreed to hold their investment for nine months. Meanwhile, the Nasdaq-listed company reached agreements with its holders of convertible notes (financial instruments that can convert into stocks), including 58.com, TPG and Warburg Pincus, to convert their notes into $69 million of Class A share of the company. (TechNode China, in Chinese)

618 shopping festival

• Chinese brands performed well during the 618 shopping festival. Local brands accounted for 73% of brands that did more than RMB 100 million in sales, according to Citic Securities. Citic did not calculate the share of sales represented by these brands. Chinese smartphone maker Realme saw its sales surge 30 times from last year, according to retail giant JD.com. Domestic cosmetic brands Perfect Diary and Florasis (Hua Xizi) topped the sales chart in the cosmetics and fragrance category. (Citic Securities, in Chinese)
• Some Chinese online retailers saw record-high sales numbers during the 618 festival. JD.com increased its total transaction volume by 28% to RMB 343.8 billion, while Suning.com’s sales volume was up 129% compared to last year, according to the companies. ByteDance’s Douyin launched its own version of 618 called the “Good Things Festival,” pairing brands with livestreamers in thousands of limited-time promotional events. (Pandaily)

Amazon bans three Chinese brands

• Amazon banned three Chinese merchants after they solicited positive reviews with gifts. The brands, RAVPower power banks, Taotronics earphones, and VAVA cameras, were found offering gift cards to customers in exchange for good reviews and were subsequently barred from selling on the platform on June 16. Shenzhen-based electronics company Sunvalley owns the three brands. (SCMP)

Chinese officials continue to crack down on crypto mining and trading. The government of Sichuan province shut down a slew of crypto mining centers, while the country’s central bank ordered major banks in China to cut off funding to crypto traders. During JD.com’s 618 shopping festival, 130,000 people spent RMB 21 million worth of digital yuan on the platform as the Chinese government continues to promote the national digital currency. 

Crypto mining and trading shutdowns

• On June 18, the government of Sichuan province ordered 26 cryptocurrency mining centers to shut down amid a review of electricity usage and financial risks posed by the cryto-mining industry. Officials ordered power providers to cut electricity to the mining centers. The move follows similar governments crackdowns in othe other popular mining hubs, including Inner Mongolia and Xinjiang. (Yicai, in Chinese)
• China’s central bank ordered the country’s major financial institutions and mobile payment providers to cut funding channels for off-the-counter cryptocurrency trading. The People’s Bank of China said in a Monday statement that it met with a group of major Chinese banks and asked them to prohibit peer-to-peer crypto trading. The banks include the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Construction Bank of China, Postal Savings Bank of China, the Industrial Bank, and mobile payments app Alipay. (The Block)

Crypto trading startup 

• Amber Group, a cryptocurrency trading startup based in Hong Kong, has closed its $100 million Series B. Coinbase Ventures, a previous investor, participated in the latest round, which also attracted new investors such as China Renaissance, Tiger Brokers, Tiger Global Management, and Arena Holdings. The startup initially targeted institutional investors by providing investment advisory services. It has since expanded its service to individual investors and launched a trading app in late 2020. (TechCrunch)

Blockchain data platforms

• The Chinese Association of Auto Manufacturers launched a data platform built on blockchain technology on June 18 at the China Auto Forum. The Vehicle Data Blockchain Platform will allow car companies to store, exchange, and trade data. Companies can also trade algorithms on the platform. (CAAM, in Chinese) 

Digital Yuan

• Chinese consumers spent RMB 21 million worth of digital yuan on JD.com during the 618 shopping festival. One hundred thirty thousand people placed 180,000 orders using the digital currency during an 18-day shopping period that began on June 1. The online retailer started accepting digital yuan in December 2020. Since then, more than 450,000 consumers have used the digital yuan to on the platform. JD.com said 70% of shoppers are in the 30 to 40 age group. (MPayPass, in Chinese)
• Two Chinese banks have begun allowing people to convert between cash and digital yuan at ATMs in their Beijing branches. The Industrial and Commercial Bank of China has enabled this function at 3,000 ATMs in Beijing, and the Agricultural Bank of China at 10 ATMs in Wangfujing, a central shopping area of Beijing. (Xinhua 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. 

Regional Chinese governments continue to crack down on crypto mining after a top government agency held high-level talks of mining crackdown in May. This week, local governments in Qinghai, Yunnan, and Xinjiang followed Inner Mongolia and Sichuan to issue new crackdown policies. Former Chinese central bank governor Zhou Xiaochuan sounded pessimistic about cryptocurrency’s future in payments. And more cities began to use digital yuan—including a first-ever digital yuan/blockchain tie-up. 

Crypto mining shutdown continues

• Officials in China’s Qinghai province began to crack down on crypto mining, following regional governments in Sichuan and Inner Mongolia. The province’s Industry and Information Technology Department announced on June 9 a series of regulations, including closing all current mining operations, stopping the issuance of permits to new operations, and cutting electricity and other support to mining companies. Mining activities in Qinghai are relatively small compared to other provinces. (Sina Finance, in Chinese)
• On June 9, regional officials in China’s far-western province of Xinjiang ordered all cryptocurrency mining companies in the Zhundong Economic Technological Development Park to shut down by 2:00 p.m. that day. The park is home to some of China’s largest bitcoin mining facilities, due to abundant fossil fuel energy. (The Block)
• Yunnan province will examine all cryptocurrency mining operations in the province by the end of June, hunting for violations including the use of unlicensed electricity, officials told local media. The region’s energy bureau confirmed a rumor to a local news outlet on June 12. Mining companies found using electricity without proper authorization will be ordered to shut down. (Science and Technology Innovation Express News, in Chinese)

Cryptocurrency future

Zhou Xiaochuan, the former governor of China’s central bank, said on June 11 that “some cryptocurrencies” might “lose their chance to get into the digital payments field due to low efficiency and emphasis on decentralization and deregulation.” Zhou commented at the 13th Lujiazui Forum, a financial forum organized by the Shanghai government, China’s central bank, and others. Zhou is also widely regarded as one of the key people behind China’s digital yuan project. Zhou added that if people leading in the cryptocurrency space are in it for a quick profit, it would only make cryptocurrency more like digital assets, and less like “useful applications to the economy.” (Cailian Press, in Chinese)

Funding in blockchain 

Red Date Technology, the architect of China’s state-backed blockchain initiative Blockchain Services Network (BSN), announced on June 10 that it had completed a $30 million Series A funding round with various global investors. (TechNode)

More digital yuan trials

• Local officials in China’s Xiong’an New Area said the region had begun trials of paying workers in digital yuan, using the Blockchain Fund Payment Platform, a blockchain-powered payment system run by the government. The trial received support from the Shijiazhuang branch of China’s central bank. The government said this was the first time they had run a digital yuan trial on a blockchain system. (CoinDesk)
• China’s smartphone and electronics maker Xiaomi announced on Saturday that it would start accepting digital yuan payments in more than a dozen selected stores in Beijing and Shanghai. The move is a reaction to the ongoing digital yuan trial in the two cities. (Xiaomi Zhijia, in Chinese)

Additional reporting by Julia Lu. 

Chinese regulators continue a crackdown on crypto-related activities and crypto mining. On June 2, regulators in Sichuan told cryptocurrency mining companies to move out of the province after the rainy season ends in September. Three days later, a slew of famous cryptocurrency accounts were blocked on microblogging site Weibo. Meanwhile, officials across China are handing out free money to promote the state-backed digital yuan, hoping to convince people to adopt the national digital currency. 

Crypto mining

• Local regulators told crypto miners in China’s Sichuan province on June 2  to make plans to move their operations elsewhere after September, sources told TechNode. Sichuan is the second major mining hub in the country to crack down on crypto mining, after Inner Mongolia. (TechNode)
• A Chinese company known as Zhongke Shenglong released a new Ethereum mining chip on Sunday. The machine has a hash rate of about 65 megahash/second (MH/s) and power consumption of 30 watts. Hash rate is a measure of computing power in the blockchain networks. The Beijing-based company was founded in 2009 and is a newcomer to crypto mining. According to the company’s website, the core members of its team have worked in China’s prestigious science institutes Chinese Academy of Sciences and Tsinghua University. (Wu Blockchain)

More crackdowns

• On June 5, at least 15 famous cryptocurrency influencers were blocked on China’s microblogging platform Weibo, a step some viewed as evidence of China’s crackdown on crypto-related activities. The platform said these accounts “violated laws and regulations,” without providing details. The takedown targeted accounts from different parts of the crypto industry: traders, media outlets, miners, and wallets. (Coindesk)
• A cybersecurity company founded by a group of former Chinese police officers predicted in a Friday WeChat post that the country might issue new laws in the next three months to define criminal actions involving cryptocurrencies. The law might include a specific section to regulate over-the-counter cryptocurrency trading, private, and off-exchange trading activities. (ChainAudit, in Chinese.)

Blockchain development

• On Tuesday, two top Chinese government agencies jointly issued a directive to increase support for blockchain technology and applications. The directive, issued by the Ministry of Industry and Information Technology and the Cyberspace Administration of China, said the government plans to set up an industry-wide consortium blockchain, a semi-private blockchain with a controlled user group, and incubate a series of “leading blockchain companies” and “top blockchain products.” (Ministry of Industry and Information Technology, in Chinese)
• Chinese blockchain company Nervos is building a cross-chain bridge to connect with Cardano, the world’s sixth-largest cryptocurrency. The bridge will let people use both chains’ native tokens interchangeably and could be a major boost for the Chinese company’s user numbers while giving Cardano developers access to Nervos development tools, which are oriented towards the growing field of decentralized finance. (TechNode)

Further digital yuan push

• City officials of Beijing and Shanghai handed out free digital yuan using lotteries on June 5. This is Shanghai’s first time trying out digital yuan. These giveaways are part of a nationwide promotion on digital yuan across Chinese cities. China’s capital city offered RMB 40 million ($6.2 million) to city residents, while Shanghai offered RMB 19.2 million. (Mpaypass, in Chinese)
• Bank of Communications, one of China’s top 10 commercial banks, paid salaries to its employees in the Hainan branch, in digital yuan, local media reported on June 4. Chinese top banks in the southern city of Shenzhen have been testing digital yuan among select employees since last August. (Nanguo Dushibao, in Chinese)
• Qingdao, a northeastern coastal city, hopes to become the first city to integrate digital yuan into the city’s public services. As one of the 11 cities selected by the government to test the digital yuan, the city promotes an app that allows people to use digital yuan for daily activities, such as commuting, shopping, and buying sightseeing tickets. (Chainnews, in Chinese)
• The southwestern metropolis Chengdu is teaching nursing home elders to use digital yuan. Taikang community, an old-age care facility run by top 10 insurance company Taikang Life Insurance, is one of the region’s first nursing homes to promote digital yuan. Chinese media visited the community on June 2 and reported elders paying for meals with digital yuan, the first such transactions in the community. (China.com.cn, in Chinese)