Over a third of the world’s smartphone sales come from Chinese vendors Huawei, Xiaomi and Oppo. These manufacturers have thrived not only because they offer value-for-money handsets thanks to China’s supply chains, but they also enjoy a relatively open mobile ecosystem, in which consumers in most countries can freely access the likes of Google, Instagram and WhatsApp.
That openness is under attack as the great U.S.-China tech divide inches closer to reality, which can cause harm on both sides.
The Trump Administration’s five-pronged Clean Network initiative aims to strip away Chinese phone makers’ ability to pre-install and download U.S. apps. Under U.S. sanctions, Huawei already lost access to key Google services, which has dealt a blow to its overseas phone sales. Oppo, Vivo, Xiaomi, and other Chinese phone makers could suffer the same setback as Huawei, should the Clean Network applies to them.
For years, China has maintained a closed-up internet with the Great Firewall restricting a bevy of Western services, often without explicitly presenting the reasons for censorship. Now the U.S. has a plan that could potentially keep Chinese apps off the American internet.
The Clean Network program was first announced in April as part of the Trump Administration’s efforts in “guarding our citizens’ privacy and our companies’ most sensitive information from aggressive intrusions by malign actors, such as the Chinese Communist Party.”
Beijing said Thursday it’s firmly opposed to U.S. restrictions on Chinese tech firms and blasted that the U.S. uses such actions to preserve its technology hegemony.
Many on Chinese social media compare Trump’s Clean Network proposal to routine cyberspace crackdowns in China, which regulators say are to purge pornography, violence, gambling, and other ‘illegal’ activities. Others that espouse a free internet lament its looming demise.
(1/2) A long, long time ago
I can still remember how that internet used to make me smile
But August makes me shiver
With every app I’d have delivered
Bad news on state dot government
I couldn’t reach Pompeo’s statement
— 一天世界 (@yitianshijieipn) August 6, 2020
It’s unclear when the rules would be implemented and how they would be enforced. The program also aims to remove ‘untrusted’ Chinese apps from US app stores. A TikTok ban is looking less likely as Microsoft nears a buyout, but other Chinese apps also have a big presence in the U.S. Many, like WeChat and Weibo, target the diaspora community, while players like Likee and Zynn, owned by Chinese firms, are making waves among local users.
Chinese firms are already hedging. Some like TikTok have set up overseas data centers. Others register their entities abroad and maintain U.S. offices, while still resorting to China for cheaper engineering talents. It’s simply impractical to investigate — and hard to determine — every app’s Chinese origin.
Under the program, carriers like China Mobile are not allowed to connect with U.S. telecoms networks, which could prevent these services from offering U.S. roaming to Chinese travelers.
The initiative also tells U.S. companies not to store information on Chinese cloud services like Alibaba, Tencent, and Baidu. Chinese cloud providers don’t find many clients in the U.S., perhaps except when they are hosting data for their own services, such as Tencent games serving American users.
Lastly, the framework wants to ensure U.S. undersea cables connecting to the world “are not subverted for intelligence gathering by the PRC at hyper-scale.”
Such sweeping restrictions, if carried out, will almost certainly trigger retaliation from China. But what bargaining chips are left for Beijing? Apple and Tesla are the few American tech behemoths with significant business interest in China.
The permit will allow AutoX to test its autonomous vehicles without a human safety driver behind the wheel. This is the third company to receive a driverless testing permit. Waymo and Nuro also have driverless testing permits. Unlike the other two companies, AutoX’s permit is limited to one vehicle and restricted to surface streets within a designated part of San Jose near is headquarters, according to the California Department of Motor Vehicles, which regulates AV testing in the state. The vehicle is approved to operate in fair weather conditions and light precipitation on streets with a speed limit of no more than 45 mph, the agency said.
AutoX, which is developing a full self-driving stack, has had a permit to test autonomous vehicles with safety drivers since 2017. Currently, 62 companies have an active permit to test autonomous vehicles with a safety driver on California roads.
To qualify for a driverless testing permit, companies have to show proof of insurance or a bond equal to $5 million, verify the vehicles are capable of operating without a driver, meet federal Motor Vehicle Safety Standards or have an exemption from the National Highway Traffic Safety Administration.
While AutoX has been operating robotaxi pilots in California and China, the company has said its real aim is to license its technology to companies that want to operate robotaxi fleets of their own. It has been particularly active in China, although this driverless permit hints that the company might be ramping up its activity in the U.S. as well.
AutoX opened an 80,000-square-foot Shanghai Robotaxi Operations Center in April, following a 2019 agreement with municipal authorities to deploy 100 autonomous vehicles in the Jiading District. The vehicles in the fleet were assembled at a factory about 93 miles outside of Shanghai.
The company has been operating a fleet of robotaxis in Shenzhen through a pilot program launched in 2019 with BYD. In January, AutoX partnered with Fiat Chrysler to roll out a fleet of robotaxis for China and other countries in Asia.
The speculation that Alibaba’s fintech affiliate Ant Group will go public has been swirling around for years. New details came to light recently. Reuters reported last week that the fintech giant could float as soon as this year in an initial public offering that values it at $200 billion. As a private firm, details of the payments and financial services firm remain sparse, but a new filing by Alibaba, which holds a 33% stake in Ant, provides a rare glimpse into its performance.
Alipay, the brand of Ant’s consumer finance app, claims to earmark 1.3 billion annual active users as of March. The majority of its users came from China, while the rest were brought by its nine e-wallet partners in India, Thailand, South Korea, the Philippines, Bangladesh, Hong Kong, Malaysia, Indonesia, and Pakistan.
In recent years Ant has been striving to scale back its reliance on in-house financial products in response to Beijing’s tightening grip on China’s fledgling fintech industry. Tencent, Alibaba’s nemesis, is considered a lot more reserved in the financial space but its WeChat Pay app has been slowly eating away at Alipay’s share of the payments market.
In a symbolic move in May, the Alibaba affiliate changed its name from Ant Financial to Ant Group. Even prior to that, Ant had been actively publicizing itself as a “technology” company that offers payments gateways and sells digital infrastructure to banks, insurance groups, and other traditional financial institutions — rather than being a direct competitor to them. On the Alipay app, users can browse and access a raft of third-party financial services including wealth management, microloans, and insurance.
As of March, Ant’s wealth management unit facilitated 4 trillion yuan ($570 billion) of assets under management for its partners offering money market funds, fixed income products, and equity investment services. During the same period, total insurance premiums facilitated by Ant more than doubled from the year before.
In June, Ant’s new boss Hu Xiaoming set the goal for the firm to generate 80% of total revenues from technology service fees, up from about 50% in 2019. He anticipated the monetary contribution of Ant’s own proprietary financial services to shrink as a result.
Ant grew out of Alipay, the payments service launched by Alibaba as an escrow service to ensure trust between e-commerce buyers and sellers. In 2011, Alibaba spun off Ant, allegedly to comply with local regulations governing third-party payments services. Ant has since taken on several rounds of equity financing. Today, Alibaba founder Jack Ma still controls a majority of Ant’s voting interests.
For more than a decade, China has limited how foreign tech firms that operate inside its borders do business. The world’s largest internet market has used its Great Firewall to block Facebook, Twitter, Google and other services in the name of preserving its cyber sovereignty.
The walled-garden approach has helped homegrown giants like Tencent and Alibaba Group win the local market, while giving the Chinese government a better hold on what gets communicated on these platforms. China has even suggested that other nations deploy similar measures.
Be careful what you ask for: Last week, dozens of Chinese firms got a front-seat view to the challenges their global counterparts face in their territory. With a press release, India declared that the world’s second-largest internet market was shutting the door to dozens of Chinese firms for an indefinite period.
New Delhi is open to meeting these firms and hear their defenses, but for now, local telecom operators and other internet service providers have been ordered to block access to these services. Google and Apple have already complied with India’s order and delisted the apps from their app stores.
India’s order is already shifting the market in favor of local firms, several of which have rushed to cash in on the app ban. A crop of recently launched short-form video sharing services have amassed tens of millions of users just this week.
But depending on how long the ban remains in place, the move could also derail a big funding source for thousands of Indian startups. The vast majority of India’s unicorns count Chinese VCs as some of their biggest and longest-term backers. New Delhi’s order could also change how American giants, many of which are already bullish on India, review the market moving forward.
Today, we will explore various ways India and China’s situation could play out and impact various stakeholders. But first, some background on how tension escalated between the two nuclear-armed nations.
Two days after India blocked 59 apps developed by Chinese firms, Google and Apple have started to comply with New Delhi’s order and are preventing users in the world’s second largest internet market from accessing those apps.
UC Browser, Shareit, and Club Factory and other apps that India has blocked are no longer listed on Apple’s App Store and Google Play Store. In a statement, a Google spokesperson said that the company had “temporarily blocked access to the apps”on Google Play Store as it reviews New Delhi’s interim order.
Apple, which has taken a similar approach as Google in complying with New Delhi, did not respond to a request for comment.
On Thursday, Indian Prime Minister Narendra Modi also shut his Weibo account.
More to follow…
SoftBank and Alibaba seem to be pulling apart, Amazon launches a no-code app builder and a new congressional bill takes a different approach to online protections.
Here’s your Daily Crunch for June 25, 2020.
SoftBank Group founder Masayoshi Son said he’s leaving the board of Jack Ma’s Chinese e-commerce giant Alibaba Group, a month after Ma left the board of SoftBank.
Son said he sees the move as “graduating” from the board of his most successful investment to date. He then swiftly moved to defend the Japanese group’s investment strategy, which has become the subject of scrutiny and public mockery.
Honeycode is supposed to make it easy for anyone to build their own applications using a web-based, drag-and-drop builder.
The PACT Act is a new bipartisan effort to reform Section 230, the crucial liability shield that enables internet platforms to exist, approaching the law’s shortcomings “with a scalpel rather than a jackhammer,” said Senator Brian Schatz (D-HI). It’s being proposed as an alternative to the EARN IT Act and President Trump’s executive order attacking Section 230.
SevenRooms serves restaurants, hotels and other venues, although food service establishments account for about 95% of its business. Another new opportunity has emerged as shops and other in-person venues are looking at reservations to help with social distancing.
We last surveyed VCs about their advertising and marketing investment strategies back in January in a completely different world, before the coronavirus pandemic began to wreak havoc on the global economy. To find out how the landscape looks now, we’ve compiled updated answers from two investors who participated in the previous survey and brought in three new perspectives. (Extra Crunch membership required.)
The New York City Council is expected to vote on a bill that will require the New York Department of Transportation to create a pilot program for the operation of shared electric scooters in the city.
The competition seeks “innovative designs for fully capable, low-mass toilets that can be used both in space and on the Moon.” It’s not the first time that NASA has enlisted the power of the crowd, and HeroX’s crowdsourcing platform, to come up with innovative technology around human waste management.
The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 9am Pacific, you can subscribe here.
Son said he sees the move as “graduating” from Alibaba Group’s board, his most successful investment to date, as he swiftly moved to defend the Japanese group’s investment strategy, which has been the subject of scrutiny and public mockery in recent quarters.
Son said his conglomerate’s holding has recovered to the pre-coronavirus outbreak levels. The firm has benefited from the rising value of Alibaba Group and its stake in Sprint, following the telecom operator’s merger with T-Mobile. Son said his firm has seen an internet rate of return (or IRR, a popular metric used by VC funds to demonstrate their performance) of 25%.
In a shareholder meeting today, he said he was worried that many people think that SoftBank is “finished” and are calling it “SoftPunku,” a colloquial used in Japan which means a broken thing. All combined, SoftBank’s shareholder value now stands at $218 billion, he said.
Son insisted that he was leaving the board of Alibaba Group, a position he has held since 2005, on good terms and that there hadn’t been any disagreements between him and Ma.
Son’s move follows Jack Ma, who co-founded Alibaba Group, leaving the board of SoftBank last month after assuming the position for 13 years. Son famously invested $20 million in Alibaba 20 years ago. Early this year, SoftBank still owned shares worth $100 billion in Alibaba.
A range of SoftBank’s recent investments has spooked the investment world. The firm, known for writing big checks, has publicly stated that its investment in ride-hailing giant Uber, office space manager WeWork, and a range of other startups has not provided the return it had hoped.
Several of these firms, including Oyo, a budget-lodging Indian startup, has moreover been hit hard by the pandemic.
Son, who has raised $20 billion by selling T-Mobile stake, said after factoring in other of his recent deals SoftBank had accumulated $35 billion or 80% of the total planned unloading of investments.
A sprawling 645,000-square-meter data facility is going up on the top of the world to power data exchange between China and its neighboring countries in South Asia.
The cloud computing and data center, perched on the plateau city Lhasa, the capital of Tibet, and developed by private tech firm Ningsuan Technologies, has entered pilot operation as it announced the completion of the first construction phase, China’s state news agency Xinhua reported (in Chinese) on Sunday.
Northeast of the Himalayas, Tibet was incorporated as an autonomous region of China in 1950. Over the decades, the Chinese government has been grappling with demand from many Tibetans for more religious freedom and human rights in one of its most critical regions for national security.
The plateau is now a bridge for China to South Asia under the Belt and Road Initiative, Beijing’s ambitious global infrastructure project. Ningsuan, a Tibet-headquartered company with data control centers in Beijing and research teams in Nanjing, is betting on the increasing trade and investment activity between China and India, Nepal, Bangladesh and other countries that are part of the BRI.
This generates the need for robust IT infrastructure in the region to support data transmission, Hu Xiao, Ningsuan’s general manager, contended in a previous media interview.
While hot days and spotty power supply in certain South Asian regions incur higher costs for running data centers, Tibet, like the more established data hub in Guizhou province, is a natural data haven thanks to its temperate climate and low average temperature that are ideal for keeping servers cool.
Construction of the Lhasa data center began in 2017 and is scheduled for completion around 2025 or 2026, a grand investment that will total almost 12 billion yuan or $1.69 billion. The cloud facility is estimated to generate 10 billion yuan in revenue each year when it goes into full operation.
Alibaba has skin in the game as well. In 2018, the Chinese e-commerce giant, which has a growing cloud computing business, sealed an agreement (in Chinese) with Ningsuan to bring cloud services to industries in the Tibetan region that span electricity supply, finance, national security, government affairs, public security, to cyberspace.
Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. Last week, we had a barrage of news ranging from SoftBank’s latest bet on China’s autonomous driving sector to Chinese apps making waves in the U.S. (not TikTok).
TikTok isn’t the only app with a Chinese background that’s making waves in the U.S. A brand new short-video app called Zynn has been topping the iOS chart in America since May 26, just weeks after its debut. Zynn’s maker is no stranger to Chinese users: it was developed by short-video platform Kuaishou, the nemesis of Douyin, TikTok’s Chinese sister.
The killer feature behind Zynn’s rise is an incentive system that pays people small amounts of cash to sign up, watch videos or invite others to join, a common user acquisition tactic in the Chinese internet industry.
Paying people to use & recommend your app to others i.e. the classic Qutoutiao (趣头条 Fun Headlines) model popularized in China from around 2017 has now made it over to the States
Given how many unemployed people there are due to Covid-19. Never been a better time to test this https://t.co/nXXoCrlTvW
— Matthew Brennan (@mbrennanchina) May 27, 2020
The other app that’s been trending in the U.S. for a while is News Break, a hyper-local news app founded by China’s media veteran Jeff Zheng, with teams in China and the U.S. It announced a heavy-hitting move last week as it onboards Harry Shum, former boss of Microsoft AI and Research Group, as its board chairman.
Alibaba looks for overseas influencers
The Chinese e-commerce giant is searching for live-streaming hosts in Europe and other overseas countries to market its products on AliExpress, its marketplace for consumers outside China. Live-streaming dancing and singing is nothing new, but the model of selling through live videos, during which consumers can interact with a salesperson or session host, has gained major ground in China as shops remained shut for weeks during the coronavirus outbreak.
In Q1 2020, China recorded more than 4 million e-commerce live-streaming sessions across various platforms, including Alibaba. Now the Chinese giant wants to replicate its success abroad, pledging that the new business model can create up to 100,000 new jobs for content creators around the world.
Oppo in Germany
Oppo announced last week its new European headquarters in Düsseldorf, Germany, a sign that the Chinese smartphone maker has gotten more serious on the continent. The move came weeks after it signed a distribution deal with Vodafone to sell its phones in seven European countries. Oppo was also one of the first manufacturers to launch a 5G commercial phone in Europe.
Chinese tech stocks return
We speculated last week that Hong Kong might become an increasingly appealing destination for U.S.-listed Chinese tech companies, many of which will be feeling the heat of tightening accounting rules targeting foreign companies. Two firms have already taken action. JD.com and NetEase, two of China’s biggest internet firms, have won approvals to list in Hong Kong, Bloomberg reported, citing sources.
Massive losses in SoftBank’s first Vision Fund didn’t seem to deter the Japanese startup benefactor from placing bold bets. China’s ride-hailing giant Didi has completed an outsized investment of over $500 million in its new autonomous driving subsidiary. The financing led by SoftBank marked the single-largest fundraising round in China’s autonomous driving sector.
The capital will give Didi a huge boost in the race to win the autonomous driving race, where it is a relative latecomer. It’s competing with deep-pocketed players that are aggressively testing across the world, including the likes of Alibaba, Tencent and Baidu, and startups such as Momenta, NIO and Pony.ai.
Speaking of live-streaming e-commerce, two of China’s biggest internet companies have teamed up to exploit the new business model. JD, the online retailer that is Alibaba’s long-time archrival, has signed a strategic partnership with Kuaishou — yes, the maker of Zynn and TikTok’s rival in China.
The collaboration is part of a rising trend in the Chinese internet, where short video apps and e-commerce platforms pally up to explore new monetization avenues. The thinking goes that video platforms can leverage the trust that influencers instill in their audience to tout products.
Despite reporting an unprofitable first quarter, Meituan, a leader in China’s food delivery sector, saw its shares reach a record high last week to bring its valuation to over $100 billion.
Notion, the fast-growing work collaboration tool that recently hit a $2 billion valuation and has attracted a loyal following in China, was briefly banned in China last week. It’s still investigating the cause of the ban, but the timing noticeably coincided with China’s annual parliament meeting, which began last week after a two-month delay due to COVID-19. Internet regulation and censorship normally toughen around key political meetings in the country.
Link Commerce offers a white-label solution for doing digital-sales in emerging markets.
Retailers can plug into the company’s e-commerce platform to create a web-based storefront that manages payments and logistics.
With the investment one of the world’s largest delivery services looks to build a broader client-base globally using a business built in Africa.
Folayan originally founded MallforAfrica, which paved the way for Link Commerce. DHL’s investment in the company — the amount of which is undisclosed — has roots in collaboration with Folayan’s original startup.
MallforAfrica began a partnership with DHL in 2015 and launched DHL Africa eShop in 2019. The sales platform is powered by Link Commerce and has brought more than 200 U.S. and U.K. sellers — from Neiman Marcus to Carters — online to African consumers in 34 countries.
Image Credits: DHL
Similar to MallforAfrica’s model, Africa eShop allows users to purchase goods directly from the websites of any of the app’s partners.
For the global retailers selling on Africa eShop, the hurdles that held back distribution on the continent — payments, currency risk, logistics — are handled by the underlying Link Commerce operating platform.
“That’s what our service does. It takes care of that whole ecosystem to enable global e-commerce to exist, no matter what country you’re in,” Folayan told TechCrunch in 2019.
Link Commerce was built out of Folayan’s startup MallforAfrica.com, which he founded in 2011 after studying and working in the U.S.
A common practice among Africans — that of giving lists of goods to family members abroad to buy and bring home — highlighted a gap between supply and demand for the continent’s consumer markets.
With MallforAfrica Folayan aimed to close that gap by allowing people on the continent to purchase goods from global retailers directly online.
MallforAfrica and Link Commerce founder Chris Folayan, Image Credits: MallforAfrica
The e-commerce site went on to onboard over 250 global retailers and now employs 30 people at order processing facilities in Oregon and the UK.
MallforAfrica’s Africa eShop expansion put it on a footing to compete with Pan African e-commerce leader Jumia — which went public on the NYSE in 2019 — and China’s Alibaba, anticipated to enter online retail on the continent at some point.
The Link Commerce, DHL deal won’t change that, but Folayan has shifted the hirearchy of his businesses to make Link Commerce the lead operation and Africa one market of many.
Image Credits: Link Commerce
“We changed the structure. So now Link Commerce is above MallforAfrica and MallforAfrica is now powered by Link Commerce,” Folayan explained on a recent call.
“Right now the focus is on Africa…but we’re taking this global,” he added.
Folayan and DHL plan to extend the platform to emerging markets around the world, where other companies may look to grow by wrapping an online store, payments, and logistics solution around their core business.
That could include any large entity that wants to launch an international e-commerce site, according to Folayan.
“Link Commerce is focused on banks, mobile companies, shipping companies and partnering with them to expand globally,” he said.
That’s a big leap from Folayan’s original venture, MallforAfrica.com
What began as a startup to sell brand name jeans and sneakers online in Africa, has pivoted to a global e-commerce fulfillment business partially owned by logistics giant DHL.
Meituan’s shares hit a record high on Tuesday, bringing its valuation to over $100 billion.
The Hong Kong-listed giant, which focuses on food delivery with smaller segments in travel and transportation, is the third Chinese firm to reach the landmark valuation. Tencent and Alibaba respectively topped the number back in 2013 and 2014.
Tencent-backed Meituan saw shares rally to HK$138 ($17.8) on Tuesday after it earmarked a smaller-than-projected decrease in revenue during Q1 and a net loss of 1.58 billion yuan ($220 million) after three consecutive profitable quarters.
While nationwide lockdowns might have increased the need for food delivery, Chinese consumers have been tightening their belt amid a worsening economy triggered by COVID-19. Overall food delivery transactions slid as a result. Meituan also had to pay incentives to delivery riders who work during the pandemic and subsidies to merchants to keep their heads above the water.
There’s one silver lining: While Meituan’s daily average number of transactions dropped by 18.2% to 15.1 million, the average value per order jumped by 14.4% as delivered meals, which were conventionally seen as a habit for office workers, became normalized among families that stayed at home. In the first quarter, a large number of premium restaurants joined Meituan’s food delivery services, and they could continue to attract bigger ticket purchases in the post-pandemic era.
All in all, though, Meituan executives warned of the uncertainties brought by COVID-19. “Moving on to the remaining of 2020, we expect that factors including the ongoing pandemic precautions, consumers’ insufficient confidence in offline consumption activities and the risk of merchants’ closure would continue to have a potential impact on our business performance.”
Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. It’s been a tumultuous week for Chinese tech firms abroad: Huawei’s mounting pressure from the U.S., a big blow to U.S.-listed Chinese firms, and TikTok’s high-profile new boss.
Over the years, American investors have been pumping billions of dollars into Chinese firms listed in the U.S., from giants like Alibaba and Baidu to emerging players like Pinduoduo and Bilibili. That could change soon with the Holding Foreign Companies Accountable Act, a new bill passed this week with bipartisan support to tighten accounting standards on foreign companies, with the obvious target being China.
“For too long, Chinese companies have disregarded U.S. reporting standards, misleading our investors. Publicly listed companies should all be held to the same standards, and this bill makes commonsense changes to level the playing field and give investors the transparency they need to make informed decisions,” said Senator Chris Van Hollen who introduced the legislation.
Here’s what the legislation is about:
1) Foreign companies that are out of compliance with the Public Company Accounting Oversight Board for three years in a row will be delisted from U.S. stock exchanges.
PCAOB, which was set up in 2002 as a private-sector nonprofit corporation overseen by the SEC, is meant to inspect audits of foreign firms listed in the U.S. to prevent fraud and wrongdoing.
The rule has not sat well with foreign accounting firms and their local regulators, so over time PCAOB has negotiated multiple agreements with foreign counterparts that allowed it to perform audit inspections. China is one of the few countries that has not been cooperating with the PCAOB.
2) The bill will also require public companies in the U.S. to disclose whether they are owned or controlled by a foreign government, including China’s communist government.
The question now is whether we will see Chinese companies give in to the new rules or relocate to bourses outside the U.S.
The Chinese firms still have a three-year window to figure things out, but they are getting more scrutiny already. Most recently, Nasdaq announced to delist Luckin, the Chinese coffee challenger that admitted to fabricating $310 million in sales.
Those that do choose to leave the U.S. will probably find a warmer welcome in Hong Kong, attracting investors closer to home who are more acquainted with their businesses. Alibaba, for instance, already completed a secondary listing in Hong Kong last year as the city began letting investors buy dual-class shares, a condition that initially prompted many Chinese internet firms to go public in the U.S.
The long-awaited announcement is here: TikTok has picked its new chief executive, and taking the helm is Disney’s former head of video streaming, Kevin Mayer.
It’s understandable that TikTok would want a global face for its fast-growing global app, which has come under scrutiny from foreign governments over concerns of its data practices and Beijing’s possible influence.
Curiously, Mayer will also take on the role of the chief operating officer of parent company ByteDance . A closer look at the company announcement reveals nuances in the appointment: Kelly Zhang and Lidong Zhang will continue to lead ByteDance China as its chief executive officer and chairman respectively, reporting directly to ByteDance’s founder and global CEO Yiming Zhang, as industry analyst Matthew Brennan acutely pointed out. That means ByteDance’s China businesses Douyin and Today’s Headlines, the cash cows of the firm, will remain within the purview of the two Chinese executives, not Mayer.
Huawei is in limbo after the U.S. slapped more curbs on the Chinese telecoms equipment giant, restricting its ability to procure chips from foreign foundries that use American technologies. The company called the rule “arbitrary and pernicious,” while it admitted that the attack would impact its business.
As Huawei faces pressure abroad due to the Android ban, other Chinese phone makers have been steadily making headway across the world. One of them is Oppo, which just announced a partnership with Vodafone to bring its smartphones to the mobile carrier’s European markets.
The U.S. has extended sanctions to more Chinese tech firms to include CloudWalk, which focuses on developing facial recognition technology. This means all of the “four dragons of computer vision” in China, as the local tech circle collectively calls CloudWalk, SenseTime, Megvii and Yitu, have landed on the U.S. entity list.
China has a new master plan to invest $1.4 trillion in everything from AI to 5G in what it dubs the “new infrastructure” initiative.
The smartwatch maker is eyeing a transparent, self-disinfecting mask, becoming the latest Chinese tech firm to jump on the bandwagon to develop virus-fighting tech.
The TikTok parent bankrolled financial AI startup Lingxi with $6.2 million, marking one of its first investments for purely monetary returns rather than for an immediate strategic purpose.
The once-obscure video site for anime fans is now in the mainstream with a whopping 172 million monthly user base.
It’s part of the smartphone giant’s plan to conquer the world of smart home devices and wearables.
Like Amazon, Alibaba has a big ambition in the internet of things.
Xiaomi, the Chinese comapny famous for its budget smartphones and a bevy of value-for-money gadgets, said in a filing on Thursday that it has backed more than 300 companies as of March, totaling 32.3 billion yuan ($4.54 billion) in book value and 225.9 million yuan ($32 million million) in net gains on disposal of investments in just the first quarter.
The electronics giant has surely lived up to its ambition to construct an ecosystem of the internet of things, or IoT. Most of its investments aim to generate strategic synergies, whether it is to diversify its product offerings or build up a library of content and services to supplement the devices. The question is whether Xiaomi’s hardware universe is generating the type of services income it covets.
Back in 2013, Xiaomi founder Lei Jun vowed to invest in 100 hardware companies over a five-year period. The idea was to acquire scores of users through this vast network of competitively-priced devices, through which it could tout internet services like fintech products and video games.
That’s why Xiaomi has kept margins of its products razor-thin, sometimes to the dismay of its investees and suppliers. Its vision hasn’t quite materialized, as it continued to drive most of its income from smartphones and other hardware devices. Services comprised 12% of total revenue in the first quarter, although the segment did record a 38.6% increase from the year before.
Over time, the smartphone maker has evolved into a department store selling all sorts of everyday products, expanding beyond electronics to cover categories like stationaries, kitchenware, clothing and food — things one would find at Muji. It makes certain products in-house — like smartphones — and sources the others through a profit-sharing model with third parties, which it has financed or simply partners with under distribution agreements.
Many consumer product makers are on the fence about joining Xiaomi’s distribution universe. On the one hand, they can reach millions of consumers around the world through the giant’s vast network of e-commerce channels and physical stores. On the other, they worry about margin squeeze and overdependence on the Xiaomi brand.
As such, many companies that sell through Xiaomi have also carved out their own product lines. Nasdaq-listed Huami, which supplies Xiaomi’s Mi Band smartwatches, has its own Amazfit wearables that rival Fitbit. Roborock, an automatic vacuum maker trading on China’s Nasdaq equivalent, STAR Market, had been making Xiaomi’s Mi Home vacuums for a year before rolling out its own household brand.
With the looming economic downturn triggered by COVID-19, manufacturers might be increasingly turning to Xiaomi and other investors to cope with cash-flow liquidity challenges.
Along with its earnings, Xiaomi announced that it had bought an additional 27.44% stake in Zimi, the main supplier of its power banks, bringing its total stakes in the company to 49.91%. Xiaomi said the acquisition would boost Xiaomi’s competitiveness in “5G + AIoT,” a buzzword short for the next-gen mobile broadband technology and AI-powered IoT. For Zimi, the investment will likely alleviate some of the financial pressure it’s feeling under these difficult times.
Competition in the Chinese IoT industry is heating up as the country races to roll out 5G networks, which will enable wider adoption of connected devices. Just this week, Alibaba, which has its finger in many pies, announced pumping 10 billion yuan ($1.4 billion) into ramping up its Alexa-like smart voice assistant Genie, which will be further integrated into Alibaba’s e-commerce experience, online entertainment services and consumer hardware partners.
Bilibili, a Chinese video streaming website that was once regarded as a haven for youth subculture, has been steadily making its way into the mainstream as users age up and content diversifies. The NASDAQ-traded company recorded a 70% year-over-year growth to reach 172 million monthly active users by the first quarter, placing it in the same rank as video services operated by Tencent and Baidu’s iQiyi.
Daily time spent per user soared to a record of 87 minutes, which is likely linked to the extended stay-at-home order imposed on students during COVID-19.
Bilibili’s growth engine is fundamentally different from the two giants though. While Tencent Video and iQiyi bet on Netflix -style, professionally produced programs, Bilibili relies on a wide array of user-generated content in the style of Youtube. The number of monthly creators grew 146% to 1.8 million, who collectively submitted 4.9 million pieces per month.
The site also has an unconventional way of monetizing its audience. It doubles as a mobile gaming platform — to be expected given its young user base — and earned half of its revenue from video games in Q1. Other avenues of revenue generation come from virtual item sales during live broadcasting, advertising, and sales from content creators who operate online shops via Bilibili.
Despite healthy user growth, Bilibili widened net loss to 538.6 million yuan or US$76.1 million in the first quarter, a steep increase from 195.6 million yuan from the year before. It cites COVID-19 in causing delays in merchandise deliveries through its platform.
Nonetheless, the company bolstered its cash reserve to 8 billion yuan or $1.13 billion following Sony’s outsized $400 million investment to explore synergies in animation and games between the pair. The online entertainment upstart is among a small crop of companies that have attracted financing from both Alibaba and Tencent, which are long-time archrivals.
“Our cash flow in Q1 is positive and higher than our losses. In all, the company is in a healthy financial position,” its chief financial officer Fan Xin asserted during the company earnings call.
It would be one of the greatest startup investments of all time. Masayoshi Son, riding high in the klieg lights of the 1990s dot-com bubble, invested $20 million dollars into a fledgling Hong Kong-based startup called Alibaba. That $20 million investment into the Chinese e-commerce business would go on to be worth about $120 billion for SoftBank, which still retains more than a quarter ownership stake today.
That early check and the rise, fall, and rise of Son and Alibaba’s Jack Ma helped to cement an intricately connected partnership that has endured decades of ferocious change in the tech industry. Ma joined SoftBank’s board in 2007, and the two have been tech titans together ever since.
So it is notable and worth a minute of reflection that SoftBank announced overnight that Jack Ma would be leaving SoftBank’s board after almost 14 years.
Yet, one can’t help connect the various dots of news that hovers between the two companies and not realize that the partnership that has endured so much is now increasingly fraying, and due to forces far beyond the ken of the two dynamos.
On one hand, there is a pecuniary point: SoftBank has been rapidly selling Alibaba shares the past few years after decades of going long as it attempts to shore up its balance sheet amidst intense financial challenges. According to Bloomberg in March, SoftBank intended to sell $14 billion of its Alibaba shares, and that was after $11 billion in realized returns on Alibaba stock in 2019 from a deal consummated in 2016. It’s just a bit awkward for Ma to be sitting on a board that is actively selling his own legacy.
Yet, there is more here. Jack Ma has become a figure in the fight against COVID-19, and has burnished China’s image (and his own) of responding globally to the crisis. In the process, though, there has been blowback, as concerns about the quality of face masks and other goods have been raised by health authorities.
And of course, there is the deepening trade war, not just between the United States and China, but also between Japan and China. Japan’s government is increasingly looking for a way to find a “China exit” and become more self-sufficient in its own supply chains and less financially dependent on Chinese capitalism.
Meanwhile, the Trump administration has been seeking out avenues of decoupling the U.S. from China. Overnight, the largest chip fab in the world, TSMC, announced that it would no longer accept orders from China’s Huawei following new export controls put in place by the U.S. last week and its announcement of a new, $12 billion chip fab plant in Arizona.
SoftBank itself has gotten caught up in these challenges. As an international conglomerate, and with the Vision Fund itself officially incorporated in Jersey, it has confronted the tightening screws of U.S. regulation of foreign ownership of critical technology companies through mechanisms like CFIUS. Its acquisition of ARM Holdings a few years ago may not have been completed if it had tried today, given the environment in the United Kingdom or the U.S.
So it’s not just about an investor and his entrepreneur breaking some ties after two decades in business together. It’s about the fraying of the very globalization that powered the first wave of tech companies — that a Japanese conglomerate with major interests in the U.S. and Europe could invest in a Hong Kong / China startup and reap huge rewards. That tech world and the divide of the internet and the world’s markets continues unabated.
Apple outlines new safety measures as it reopens stores, Huawei responds to new U.S. chip curbs and Jack Ma departs SoftBank’s board of directors.
Here’s your Daily Crunch for May 18, 2020.
In mid-March, Apple closed all of its stores outside of China “until further notice.” In a statement issued today under the title, “To our Customers,” Retail SVP Deirdre O’Brien offered insight into the company’s plans to reopen locations.
Nearly 100 stores have already resumed services, according to O’Brien. Face covers will be required for both employees and customers alike. In addition, temperature checks are now conducted at the store’s entrance, coupled with posted health questions. Apple has also instituted deeper cleaning on all surfaces, including display products.
Following the U.S. government’s announcement that it would further thwart Huawei’s chip-making capability, the Chinese telecoms equipment giant condemned the new ruling for being “arbitrary and pernicious.” Adding to its woes, the Nikkei Asian Review reported that Taiwanese Semiconductor Manufacturing Co. has stopped taking new orders from the company. (Huawei declined to comment, while TSMC said the report was “purely market rumor.”)
The company did not give a reason for the resignation, but over the past year, Ma has been pulling back from business roles to focus on philanthropy. Last September, he resigned as Alibaba’s chairman, and is also expected to step down from its board at its annual general shareholder’s meeting this year.
Facebook-owned Oculus released a new sales figure as the company reaches the one-year anniversary of the release of the Quest headset. We didn’t get unit sales, but the company did share that it has sold $100 million worth of Quest content in the device’s first year — a number that indicates that although the platform is still nascent, a handful of developers are definitely making it work for them.
Devin Coldewey talks about what’s going to change with coffee shops and co-working spaces, Alex Wilhelm discusses the future of the home office setup and Danny Crichton talks about the revitalization of urban and semi-urban neighborhoods. (Extra Crunch membership required.)
In an internal email, which the Bangalore-headquartered food delivery startup published on its blog, Swiggy co-founder and chief executive Sriharsha Majety said the company’s core food business had been “severely impacted.”
The latest full episode of Equity looks at a funding round for pizza delivery company Slice and the possibility of Uber acquiring Grubhub, while the Monday news roundup takes a deeper look at the financials of the food delivery business. Meanwhile, Original Content is back on a weekly schedule, and we review the new Netflix series “Never Have I Ever.”