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China roundup: Beijing wants tech giants to shoulder more social responsibilities

By Rita Liao

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.

This week, the gaming industry again became a target of Beijing, which imposed arguably the world’s strictest limits on underage players. On the other hand, China’s tech titans are hastily answering Beijing’s call for them to take on more social responsibilities and take a break from unfettered expansion.

Gaming curfew

China dropped a bombshell on the country’s young gamers. As of September 1, users under the age of 18 are limited to only one hour of online gaming time: on Fridays, Saturdays and Sundays between 8-9 p.m.

The stringent rule adds to already tightening gaming policies for minors, as the government blames video games for causing myopia, as well as deteriorating mental and physical health. Remember China recently announced a suite of restrictions on after-school tutoring? The joke going around is that working parents will have an even harder time keeping their kids occupied.

A few aspects of the new regulation are worth unpacking. For one, the new rule was instituted by the National Press and Publication Administration (NPPA), the regulatory body that approves gaming titles in China and that in 2019 froze the approval process for nine months, which led to plunges in gaming stocks like Tencent.

It’s curious that the directive on playtime came from the NPPA, which reviews gaming content and issues publishing licenses. Like other industries in China, video games are subject to regulations by multiple authorities: NPPA; the Cyberspace Administration of China (CAC), the country’s top internet watchdog; and the Ministry of Industry and Information Technology, which oversees the country’s industrial standards and telecommunications infrastructure.

As analysts long observe, the mighty CAC, which sits under the Central Cyberspace Affairs Commission chaired by President Xi Jinping, has run into “bureaucratic struggles” with other ministries unwilling to relinquish power. This may well be the case for regulating the lucrative gaming industry.

For Tencent and other major gaming companies, the impact of the new rule on their balance sheet may be trifling. Following the news, several listed Chinese gaming firms, including NetEase and 37 Games, hurried to announce that underage players made up less than 1% of their gaming revenues.

Tencent saw the change coming and disclosed in its Q2 earnings that “under-16-year-olds accounted for only 2.6% of its China-based grossing receipts for games and under-12-year-olds accounted for just 0.3%.”

These numbers may not reflect the reality, as minors have long found ways around gaming restrictions, such as using an adult’s ID for user registration (just as the previous generation borrowed IDs from adult friends to sneak into internet cafes). Tencent and other gaming firms have vowed to clamp down on these workarounds, forcing kids to seek even more sophisticated tricks, including using VPNs to access foreign versions of gaming titles. The cat and mouse game continues. 

Prosper together

While China curtails the power of its tech behemoths, it has also pressured them to take on more social responsibilities, which include respecting the worker’s rights in the gig economy.

Last week, the Supreme People’s Court of China declared the “996” schedule, working 9 a.m. to 9 p.m. six days a week, illegal. The declaration followed years of worker resistance against the tech industry’s burnout culture, which has manifested in actions like a GitHub project listing companies practicing “996.”

Meanwhile, hardworking and compliant employees have often been cited as a competitive advantage of China’s tech industry. It’s in part why some Silicon Valley companies, especially those run by people familiar with China, often set up branches in the country to tap its pool of tech talent.

The days when overworking is glorified and tolerated seem to be drawing to an end. Both ByteDance and its short video rival Kuaishou recently scrapped their weekend overtime policies.

Similarly, Meituan announced that it will introduce compulsory break time for its food delivery riders. The on-demand services giant has been slammed for “inhumane” algorithms that force riders into brutal hours or dangerous driving.

In groundbreaking moves, ride-hailing giant Didi and Alibaba’s e-commerce rival JD.com have set up unions for their staff, though it’s still unclear what tangible impact the organizations will have on safeguarding employee rights.

Tencent and Alibaba have also acted. On August 17, President Xi Jinping delivered a speech calling for “common prosperity,” which caught widespread attention from the country’s ultra-rich.

“As China marches towards its second centenary goal, the focus of promoting people’s well-being should be put on boosting common prosperity to strengthen the foundation for the Party’s long-term governance.”

This week, both Tencent and Alibaba pledged to invest 100 billion yuan ($15.5 billion) in support of “common prosperity.” The purposes of their funds are similar and align neatly with Beijing’s national development goals, from growing the rural economy to improving the healthcare system.

Apple’s dangerous path

By Lucas Matney

Hello friends, and welcome back to Week in Review.

Last week, we dove into the truly bizarre machinations of the NFT market. This week, we’re talking about something that’s a little bit more impactful on the current state of the web — Apple’s NeuralHash kerfuffle.

If you’re reading this on the TechCrunch site, you can get this in your inbox from the newsletter page, and follow my tweets @lucasmtny


the big thing

In the past month, Apple did something it generally has done an exceptional job avoiding — the company made what seemed to be an entirely unforced error.

In early August — seemingly out of nowhere** — the company announced that by the end of the year they would be rolling out a technology called NeuralHash that actively scanned the libraries of all iCloud Photos users, seeking out image hashes that matched known images of child sexual abuse material (CSAM). For obvious reasons, the on-device scanning could not be opted out of.

This announcement was not coordinated with other major consumer tech giants, Apple pushed forward on the announcement alone.

Researchers and advocacy groups had almost unilaterally negative feedback for the effort, raising concerns that this could create new abuse channels for actors like governments to detect on-device information that they regarded as objectionable. As my colleague Zach noted in a recent story, “The Electronic Frontier Foundation said this week it had amassed more than 25,000 signatures from consumers. On top of that, close to 100 policy and rights groups, including the American Civil Liberties Union, also called on Apple to abandon plans to roll out the technology.”

(The announcement also reportedly generated some controversy inside of Apple.)

The issue — of course — wasn’t that Apple was looking at find ways that prevented the proliferation of CSAM while making as few device security concessions as possible. The issue was that Apple was unilaterally making a massive choice that would affect billions of customers (while likely pushing competitors towards similar solutions), and was doing so without external public input about possible ramifications or necessary safeguards.

A long story short, over the past month researchers discovered Apple’s NeuralHash wasn’t as air tight as hoped and the company announced Friday that it was delaying the rollout “to take additional time over the coming months to collect input and make improvements before releasing these critically important child safety features.”

Having spent several years in the tech media, I will say that the only reason to release news on a Friday morning ahead of a long weekend is to ensure that the announcement is read and seen by as few people as possible, and it’s clear why they’d want that. It’s a major embarrassment for Apple, and as with any delayed rollout like this, it’s a sign that their internal teams weren’t adequately prepared and lacked the ideological diversity to gauge the scope of the issue that they were tackling. This isn’t really a dig at Apple’s team building this so much as it’s a dig on Apple trying to solve a problem like this inside the Apple Park vacuum while adhering to its annual iOS release schedule.

illustration of key over cloud icon

Image Credits: Bryce Durbin / TechCrunch /

Apple is increasingly looking to make privacy a key selling point for the iOS ecosystem, and as a result of this productization, has pushed development of privacy-centric features towards the same secrecy its surface-level design changes command. In June, Apple announced iCloud+ and raised some eyebrows when they shared that certain new privacy-centric features would only be available to iPhone users who paid for additional subscription services.

You obviously can’t tap public opinion for every product update, but perhaps wide-ranging and trail-blazing security and privacy features should be treated a bit differently than the average product update. Apple’s lack of engagement with research and advocacy groups on NeuralHash was pretty egregious and certainly raises some questions about whether the company fully respects how the choices they make for iOS affect the broader internet.

Delaying the feature’s rollout is a good thing, but let’s all hope they take that time to reflect more broadly as well.

** Though the announcement was a surprise to many, Apple’s development of this feature wasn’t coming completely out of nowhere. Those at the top of Apple likely felt that the winds of global tech regulation might be shifting towards outright bans of some methods of encryption in some of its biggest markets.

Back in October of 2020, then United States AG Bill Barr joined representatives from the UK, New Zealand, Australia, Canada, India and Japan in signing a letter raising major concerns about how implementations of encryption tech posed “significant challenges to public safety, including to highly vulnerable members of our societies like sexually exploited children.” The letter effectively called on tech industry companies to get creative in how they tackled this problem.


other things

Here are the TechCrunch news stories that especially caught my eye this week:

LinkedIn kills Stories
You may be shocked to hear that LinkedIn even had a Stories-like product on their platform, but if you did already know that they were testing Stories, you likely won’t be so surprised to hear that the test didn’t pan out too well. The company announced this week that they’ll be suspending the feature at the end of the month. RIP.

FAA grounds Virgin Galactic over questions about Branson flight
While all appeared to go swimmingly for Richard Branson’s trip to space last month, the FAA has some questions regarding why the flight seemed to unexpectedly veer so far off the cleared route. The FAA is preventing the company from further launches until they find out what the deal is.

Apple buys a classical music streaming service
While Spotify makes news every month or two for spending a massive amount acquiring a popular podcast, Apple seems to have eyes on a different market for Apple Music, announcing this week that they’re bringing the classical music streaming service Primephonic onto the Apple Music team.

TikTok parent company buys a VR startup
It isn’t a huge secret that ByteDance and Facebook have been trying to copy each other’s success at times, but many probably weren’t expecting TikTok’s parent company to wander into the virtual reality game. The Chinese company bought the startup Pico which makes consumer VR headsets for China and enterprise VR products for North American customers.

Twitter tests an anti-abuse ‘Safety Mode’
The same features that make Twitter an incredibly cool product for some users can also make the experience awful for others, a realization that Twitter has seemingly been very slow to make. Their latest solution is more individual user controls, which Twitter is testing out with a new “safety mode” which pairs algorithmic intelligence with new user inputs.


extra things

Some of my favorite reads from our Extra Crunch subscription service this week:

Our favorite startups from YC’s Demo Day, Part 1 
“Y Combinator kicked off its fourth-ever virtual Demo Day today, revealing the first half of its nearly 400-company batch. The presentation, YC’s biggest yet, offers a snapshot into where innovation is heading, from not-so-simple seaweed to a Clearco for creators….”

…Part 2
“…Yesterday, the TechCrunch team covered the first half of this batch, as well as the startups with one-minute pitches that stood out to us. We even podcasted about it! Today, we’re doing it all over again. Here’s our full list of all startups that presented on the record today, and below, you’ll find our votes for the best Y Combinator pitches of Day Two. The ones that, as people who sift through a few hundred pitches a day, made us go ‘oh wait, what’s this?’

All the reasons why you should launch a credit card
“… if your company somehow hasn’t yet found its way to launch a debit or credit card, we have good news: It’s easier than ever to do so and there’s actual money to be made. Just know that if you do, you’ve got plenty of competition and that actual customer usage will probably depend on how sticky your service is and how valuable the rewards are that you offer to your most active users….”


Thanks for reading, and again, if you’re reading this on the TechCrunch site, you can get this in your inbox from the newsletter page, and follow my tweets @lucasmtny

Lucas Matney

TikTok adds educational resources for parents as part of its Family Pairing feature

By Sarah Perez

TikTok is expanding its in-app parental controls feature, Family Pairing, with educational resources designed to help parents better support their teenage users, the company announced morning. The pairing feature, which launched to global users last year, allows parents of teens aged 13 and older to connect their accounts with the child’s so the parent can set controls related to screen time use, who the teen can direct message, and more. But the company heard from teens that they also want their voices to be heard when it comes to parents’ involvement in their digital life.

To create the new educational content, TikTok partnered with the online safety nonprofit, Internet Matters. The organization developed a set of resources in collaboration with teens that aim to offer parents tips about navigating the TikTok landscape and teenage social media usage in general.

Teens said they want parents to understand the rules they’re setting when they use features like Family Pairing and they want them to be open to having discussions about the time teens spend online. And while teens don’t mind when parents set boundaries, they also want to feel they’ve earned some level of trust from the adults in their life.

The older teens get, the more autonomy they want to have on their own device and social networks, as well. They may even tell mom or dad that they don’t want them to follow them on a given platform.

This doesn’t necessarily mean the teen is up to no good, the new resources explain to parents. The teens just want to feel like they can hang out with their friends online without being so closely monitored. This has become an important part of the online experience today, in the pandemic era, where many younger people are spending more time at home instead of socializing with friends in real-life or participating in other in-person group activities.

Image Credits: TikTok

Teens said they also want to be able to come to parents when something goes wrong, without fearing that they’ll be harshly punished or that the parent will panic about the situation. The teens know they’ll be consequences if they break the rules, but they want parents to work through other tough situations with them and devise solutions together, not just react in anger.

All this sounds like straightforward, common sense advice, but parents on TikTok often have varying degrees of comfort with their teens’ digital life and use of social networks. Some basic guidelines that explain what teens want and feel makes sense to include. That said, the parents who are technically savvy enough to enable a parental control feature like Family Pairing may already be clued into best practices.

Image Credits: TikTok

In addition, this sort of teen-focused privacy and safety content is also designed to help TikTok better establish itself as a platform working to protect its younger users — an increasingly necessary stance in light of the potential regulation which big tech has been trying to ahead of, as of late. TikTok, for instance, announced in August it would roll out more privacy protections for younger teens aimed to make the app safer. Facebook, Google and YouTube also did the same.

TikTok says parents or guardians who have currently linked their account to a teen’s account via the Family Pairing feature will receive a notification that prompts them to find out more about the teens’ suggestions and how to approach those conversations about digital literacy and online safety. Parents who sign up and enable Family Pairing for the first time, will also be guided to the resources.

TikTok’s new Creator Marketplace API lets influencer marketing companies tap into first-party data

By Sarah Perez

TikTok is making it easier for brands and agencies to work with the influencers using its service. The company is rolling out a new “TikTok Creator Marketplace API,” which allows marketing companies to integrate more directly with TikTok’s Creator Marketplace, the video app’s in-house influencer marketing platform.

On the Creator Marketplace website, launched in late 2019, marketers have been able to discover top TikTok personalities for their brand campaigns, then create and manage those campaigns and track their performance.

The new API, meanwhile, allows partnered marketing companies to access TikTok’s first-party data about audience demographics, growth trends, best-performing videos and real-time campaign reporting (e.g. views, likes, shares, comments, engagement, etc.) for the first time.

They can then bring this data back into their own platforms, to augment the insights they’re already providing to their own customer base.

TikTok is not officially announcing the API until later in September, but it is allowing its alpha partners to discuss their early work.

One such partner is Captiv8, which tested the API with an NRF top 50 retailer on one of their first TikTok campaigns. The retailer wanted to discover a diverse and inclusive group of TikTok creators to partner with on a new collaboration and wanted help with launching its own TikTok channel. Captiv8 says the branded content received nearly 10 million views, and the campaign resulted in a “significant increase” in several key metrics, which performed above the Nielsen average. This included familiarity (+4% above average), affinity (+6%), purchase intent (+7%) and recommendation intent (+9%).

Image Credits: TikTok Creator Marketplace website

Capitv8 is now working with TikTok’s API to pull in audience demographics, to centralize influencer offers and activations, and to provide tools to boost branded content and monitor campaign performance. On that last front, the API allows the company to pull in real-time metrics from the TikTok Creator Marketplace API — which means Capitv8 is now one of only a handful of third-party companies with access to TikTok first-party data.

Another early alpha partner is Influential, which shared it’s also leveraging the API to access first-party insights on audience demographics, growth trends, best-performing videos and more, to help its customer base of Fortune 1000 brands to identify the right creators for both native and paid advertising campaigns.

One partner it worked with was DoorDash, which launched multiple campaigns on TikTok with Influential’s help. It’s also planning to work with McDonald’s USA on several new campaigns that will run this year, including those focused on the chain’s new Crispy Chicken Sandwich and the return of Spicy McNuggets.

Other early alpha partners include Whalar and INCA. The latter’s integration stems from the larger TikTok global partnership with WPP, announced in February. That deal provided WPP agencies with early access to new advertising products marketing API integrations, and new AR offerings, among other things.

Creator marketplaces are now common to social media platforms with large influencer communities as this has become a standard way to advertise to online consumers, particularly the younger generation. Facebook today offers its Brands Collabs Manager, for both Facebook and Instagram; YouTube has BrandConnect; while Snapchat recently announced a marketplace to connect brands with Lens creators. These type of in-house platforms make it easier for marketers to work with the wider influencer community by offering trusted data on metrics that matter to brands’ own ROI, rather than relying on self-reported data from influencers or on data they have to manually collect themselves. And as campaigns run, marketers can compare how well their partnered creators are able to drive results to inform their future collaborations.

TikTok isn’t making a formal announcement about its new API at this time, telling TechCrunch the technology is still in pilot testing phases for the time being.

“Creators are the lifeblood of our platform, and we’re constantly thinking of new ways to make it easy for them to connect and collaborate with brands. We’re thrilled to be integrating with an elite group of trusted partners to help brands discover and work with diverse creators who can share their message in an authentic way,” said Melissa Yang, TikTok’s head of Ecosystem Partnerships, in a statement provided to select marketing company partners.

Update, 8/31/21, 3:22 PM ET: INCA is currently using the API in the U.S. and U.K. An earlier version said it was U.K. only, based on information provided by TikTok. We’ve since corrected. 

China roundup: Beijing takes aim at algorithms, Xiaomi automates electric cars

By Rita Liao

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.

The biggest news of the week again comes from Beijing’s ongoing effort to dampen the influence of the country’s tech giants. Regulators are now going after the exploitative use of algorithm-powered user recommendations. We also saw a few major acquisitions this week. Xiaomi is acquiring an autonomous vehicle startup called Deepmotion, and ByteDance is said to be buying virtual reality hardware startup Pico.

Algorithmic regulation

Beijing has unveiled the draft of a sweeping regulation to rein in how tech companies operating in China utilize algorithms, the engine of virtually all lucrative tech businesses today from short videos and news aggregation to ride-hailing, food delivery and e-commerce. My colleague Manish Singh wrote an overview of the policy, and here’s a closer look at the 30-point document proposed by China’s top cyberspace watchdog.

Beijing is clearly wary of how purely machine-recommended content can stray away from values propagated by the Communist Party and even lead to the detriment of national interests. In its mind, algorithms should strictly align with the interest of the nation:

Algorithmic recommendations should uphold mainstream values… and should not be used for endangering national security (Point 6).

Regulators want more transparency on companies’ algorithmic black boxes and are making them accountable for the consequences of their programming codes. For example:

Service providers should be responsible for the security of algorithms, create a system for… the review of published information, algorithmic mechanisms, security oversight… enact and publish relevant rules for algorithmic recommendations (Point 7).

Service providers… should not create algorithmic models that entice users into addiction, high-value consumption, or other behavior that disrupts public orders (Point 8).

The government is also clamping down on discriminative algorithms and putting some autonomy back in the hands of consumers:

Service providers… should not use illegal or harmful information as user interests to recommend content or create sexist or biased user tags (Point 10).

Service providers should inform users of the logic, purpose, and mechanisms of the algorithms in use (Point 14).

Service providers… should allow users to turn off algorithmic features (Point 15).

The regulators don’t want internet giants to influence public thinking or opinions. Though not laid out in the document, censorship control will no doubt remain in the hands of the authorities.

Service providers should not… use algorithms to censor information, make excessive recommendations, manipulate rankings or search results that lead to preferential treatment and unfair competition, influence online opinions, or shun regulatory oversight (Point 13).

Like many other aspects of the tech business, certain algorithms are to obtain approval from the government. Tech firms must also hand over their algorithms to the police in case of investigations.

Service providers should file with the government if their recommendation algorithms can affect public opinions or mobilize civilians (Point 20).  

Service providers… should keep a record of their recommendation algorithms for at least six months and provide them to law enforcement departments for investigation purposes (Point 23).

If passed, the law will shake up the fundamental business logic of Chinese tech companies that rely on algorithms to make money. Programmers need to pore over these rules and be able to parse their codes for regulators. The proposed law seems to have even gone beyond the scope of the European Union’s data rules, but how the Chinese one will be enforced remains to be seen.

Lei Jun bets on autonomous cars

In Xiaomi’s latest earnings call, the smartphone maker said it will acquire DeepMotion, a Beijing-based autonomous driving startup, to aid its autonomous driving endeavor. The deal will cost Xiaomi about $77.3 million, and “a lot of that will be in terms of stock” and “a lot of these payments will be deferred until certain milestones are hit,” said Wang Xiang, Xiaomi president on the call.

Xiaomi’s founder Lei Jun earlier hinted at the firm’s plan to enter the crowded space. On July 28, Lei announced on Weibo, China’s Twitter equivalent, that the company is recruiting 500 autonomous driving experts across China.

Automation has become a selling point for China’s new generation of electric vehicle makers, often with companies conflating advanced driver-assistance systems (ADAS) with Level 4 autonomous driving. Such overstatements in marketing material mislead consumers and make one question the real technical capability of these nascent EV players.

Xiaomi has similarly unveiled plans to manufacture electric cars through a separate car-making subsidiary. The ADAS capabilities brought by DeepMotion are naturally a nice complement to Xiaomi’s future cars. As Wang explained:

We believe that there’s a lot of synergies with [DeepMotion’s ADAS] technology with our EV initiatives. So I think it tells you a couple of points. Number one is, we will roll out EV business. And I said in our prepared remarks, we’ve been very focused on hiring the right team for the EV business at this point in time, formulating our strategy, formulating our product strategy, et cetera, et cetera. But at the same time, we are not afraid to apply it and integrate other teams if we find that those will help us accelerate our plan right.

It’s noteworthy that DeepMotion, founded by Microsoft veterans, specializes in perception technologies and high-precision mapping, which puts it in the vision-driven autonomous driving camp. A number of major Chinese EV makers rely on consumer-grade lidar to automate their cars.

ByteDance goes virtual

ByteDance is said to be buying Beijing-based VR hardware maker Pico for 5 billion yuan ($770 million), according to Chinese VR news site Vrtuoluo. ByteDance could not be immediately reached for comment.

Advanced VR headsets are often expensive due to the cost of high-end processors. Experts observe that most VR hardware makers are yet to enter the mass consumer market. They are hemorrhaging cash and living off generous venture money and corporate deals.

ByteDance might be buying a money-losing business, but Pico, one of the major VR makers in China, provides a fast track for the TikTok parent to enter VR manufacturing. As the world’s largest short video distributor and an aggressive newcomer to video games, ByteDance has no shortage of creative talent. We will see how it works on producing virtual content if the Pico deal goes through.

China proposes strict control of algorithms

By Manish Singh

China is not done with curbing the influence local internet services have assumed in the world’s largest populous market. Following a widening series of regulatory crackdowns in recent months, the nation on Friday issued draft guidelines on regulating the algorithms firms run to make recommendations to users.

In a 30-point draft guidelines published on Friday, the Cyberspace Administration of China (CAC) proposed forbidding companies from deploying algorithms that “encourage addiction or high consumption” and endanger national security or disrupt the public order.

The services must abide by business ethics and principles of fairness and their algorithms must not be used to create fake user accounts or create other false impressions, said the guidelines from the internet watchdog, which reports to a central leadership group chaired by President Xi Jinping. The watchdog said it will be taking public feedback on the new guidelines for a month (until September 26).

The guidelines also propose that users should be provided with the ability to easily turn off algorithm recommendations. Algorithm providers who have the power to influence public opinion or mobilize the citizens need to get an approval from the CAC.

Friday’s proposal comes at a time when Beijing is increasingly targeting companies for the way they have handled consumer data and the monopolistic positions they have assumed in the nation.

Earlier this year, Beijing-backed China Consumers Association said local internet companies had been “bullying” users into purchases and promotions and undermining their privacy rights.

Beijing’s recent data-security crackdown and tightening regulations around tutor services have spooked investors and wiped hundreds of billions of dollars.

Friday’s guidelines appear to target ByteDance, Alibaba Group, Tencent, and Didi and other companies whose services are built on top of proprietary algorithms. Shares of Alibaba and Tencent fell slightly on the news.

In recent years, several governments including those in the U.S. and India have attempted — to little to no success — to get better clarity on how these big tech companies’ algorithms work and put checks in place to prevent misuse.

Equity Monday: Stocks up, cryptos up, regulation up

By Alex Wilhelm

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast where we unpack the numbers behind the headlines.

This is Equity Monday, our weekly kickoff that tracks the latest private market news, talks about the coming week, digs into some recent funding rounds and mulls over a larger theme or narrative from the private markets. You can follow the show on Twitter here. I also tweet.

Today’s show was good fun to put together. Here’s what we got to:

Woo! And that’s the start to the week. Hugs from here, and we’ll chat you on Wednesday!

Equity drops every Monday at 7:00 a.m. PST, Wednesday, and Friday at 6:00 a.m. PST, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts!

China roundup: Beijing takes stake in ByteDance, Amazon continues China crackdown

By Rita Liao

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.

This week, investors’ concerns mount as news came that the Chinese government has taken a stake ByteDance, TikTok’s parent and one of the world’s largest private internet firms. Meanwhile, Amazon’s crackdown on Chinese sellers continues and is forcing many traders in southern China out of business, and the government passed a sweeping data protection law that will take effect in November.

A state stake

The Chinese government’s grand plan to assert more control over the country’s internet behemoths continues. This week, The Information reported that a domestic entity of ByteDance sold a 1% stake to a government affiliate in April. The deal was also recorded on Tianyancha, a database of publicly available corporate information, as well as the official enterprise registration index.

The move didn’t come abruptly. Beijing was mulling over small shares in private tech firms as early as 2017. The Wall Street Journal reported at the time that internet regulators discussed taking 1% stakes in companies including WeChat operator Tencent, Twitter-like Weibo and YouTube-like Youku.

In April 2020, WangTouTongDa, a subsidiary of China Internet Investment Fund, which is in turn controlled by China’s top internet watchdog, acquired a 1% stake in Weibo for 10 million yuan, according to Weibo’s filing to the U.S. securities regulator. Weibo did not mention WangTouTongDa’s relationship with the state in its filing.

Similarly, ByteDance sold a 1% stake to three entities set up by top regulatory bodies: China Internet Investment Fund; China Media Group, controlled by the Communist Party’s propaganda department; and the Beijing municipal government’s investment arm.

In response to Beijing’s move on ByteDance, Republican senator Marco Rubio urged President Joe Biden this week to block TikTok in the U.S.

Exactly how much power Beijing gains over ByteDance from taking the small stake remains fuzzy, but Weibo’s disclosure to investors offers some clues.

It’s critical to note that the government holds stakes in the domestic operating entity of both Weibo and ByteDance. Internet companies in China often set up offshore entities that are entitled to the financial benefits of their mainland Chinese operations through contractual agreements. The framework is called a variable interest entity or VIE. While the structure allows Chinese firms to seek overseas funding due to China’s restrictions on foreign investments, it has come under increasing scrutiny by Beijing.

Weibo said in the filing that WangTouTongda, its state-owned investor, will be able to appoint a director to the three-member board of its Chinese entity and veto certain matters related to content and future financings.

ByteDance likely has a similar arrangement with its state investor. The government did not obtain a stake in TikTok, which is a subsidiary of a separate offshore entity incorporated in the Cayman Islands, The Information pointed out. This should provide some reassurance to U.S. regulators, though concerns about Beijing’s sway in Chinese companies abroad probably won’t go away.

Indeed, the Biden administration in June replaced the Trump-era orders to ban ByteDance and WeChat with a more measured policy requiring the Commerce Department to review apps with ties to “jurisdiction of foreign adversaries” that may pose national security risks.

TikTok has been fighting accusations that it hands over user data to Beijing. ByteDance is the fourth-largest lobbying spender in the U.S. so far this year, just after Amazon, Facebook and Alphabet. Beijing’s investment is going to cost it more campaign efforts.

Beleaguered Amazon sellers

In May, I reported that Amazon shuttered some of its largest sellers from China over violations of platform rules, including using fake reviews and incentives to solicit positive reviews from customers. The crackdown drove China’s online exporters into a panic, and as it turned out, it wasn’t a one-off ambush from Amazon but a prolonged war. While the exact number of Chinese stores affected is not disclosed, industry observers such as Marketplace Pulse said “hundreds of” top Chinese sellers had been suspended as of early July.

Punished accounts are suspended, with their goods withheld and deposits frozen by Amazon. Companies in Shenzhen, home to the majority of the world’s Amazon sellers, laid off thousands of staff in recent months. The owner of a sizable seller in Shenzhen recently died by suicide due to the debacle, according to an acquaintance of the owner.

To sellers that have survived the crackdown, the attack by Amazon “would have happened sooner or later.” Most of the exporters I talked to came to the same conclusion: The Seattle-based titan now wants quality and design over generic products that compete solely on price and manipulation of ranking.

The Chinese government has taken note of the incidents. An official from the Ministry of Commerce compared the wave of store closures as Chinese exporters being “fish out of water” during a press conference in July.

“Due to differences in laws, culture and business practices around the world, [Chinese] companies are facing risks and challenges as they go overseas,” said Li Xingqian, director of foreign trade at the Commerce Ministry.

“We will help companies improve their risk control and comply with international trade standards.” Meanwhile, the official called for “the platform/platforms to cherish the important contribution from various companies and fully respect different trade entities.”

Data protection

And finally, China passed a sweeping data protection law this week that will strictly limit how tech companies collect user information, but the rules won’t likely have an impact on state surveillance. The regulation, which was proposed last year, will take effect on November 1. Read more about the rules here:

China Roundup: What’s going on with China’s data security clampdown?

By Rita Liao

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.

A tectonic shift is underway in how Beijing regulates and accesses the troves of citizen data collected by its tech giants. More details of China’s new cybersecurity rules have recently come to light as Didi, the SoftBank-backed ride-sharing dominator in China, became the target of the Chinese government’s latest effort to heighten data protection. This week, we look at what this changing landscape means to Chinese tech firms wooing investors in the United States.

Data sovereignty

The new wave of discussion around China’s cybersecurity rules started with the bombshell dropped on Didi. Just two days after its $4 billion IPO in New York, the ride-hailing giant was hit with a probe by China’s Cybersecurity Review Office on July 2. Two days later, the same government agency ordered the Didi app, which has amassed nearly 500 million annual users, to be yanked because it was “illegally collecting user data.”

The Cybersecurity Review Office is an agency within the Cyberspace Administration of China, the country’s top internet regulator. It has existed for a few years but its roles were only made clear in April 2020 when China put forward its rules on internet security reviews.

Didi appears to be the first target of the department’s enforcement actions. A memo of an “expert meeting” shared among Didi’s investors, which TechCrunch reviewed, said the ride-hailing firm had failed to assure Beijing its data practices were secure before going public in New York. A major concern was that Didi’s data, if unguarded by Chinese laws, could be subject to scrutiny by U.S. regulators. But a Didi executive claimed that the firm stored all its China data locally and it is “absolutely not possible” that it passed data to the U.S.

Before long, the Cybersecurity Review Office was onto other players that could similarly compromise the data security of Chinese users. On July 5, it put SoftBank-backed truck-sharing platform Full Truck Alliance and recruiting site Boss Zhipin — both of which recently IPO’ed in the U.S. — under the same review process as it did with Didi.

The probes were just the beginning. On July 10, the Cybersecurity Review Office unveiled the draft of a revised version of the data security review rules passed last year. One of the major changes is that any business commanding over one million users is subject to security checks if it is seeking an overseas IPO.

Just as the U.S. government frets over Chinese companies commanding Americans’ data, as in the case of TikTok, China is now making sure that its citizen data stays onshore and protected from U.S. authorities. Foreign players operating in China have to comply, too. Giants like Apple and Tesla have pledged and moved to store their Chinese user data within the country.

The new data rule is no doubt a stumbling block for Chinese companies that want to list abroad. TikTok owner ByteDance indefinitely put on hold its plans of a U.S. listing after Chinese officials told it to address data security risks, according to a report by The Wall Street Journal. But how about incumbents like Alibaba that have traded their stocks on Wall Street for years? And do the revised rules apply to companies listing in Hong Kong, which is being increasingly integrated with mainland China?

Also in the news

  • Tencent and Alibaba may tear down their “walled gardens.” According to The Wall Street Journal, the archrivals are considering opening their services to each other. This means users may be able to pay via Alipay on the WeChat app, which currently excludes Alibaba-affiliated Alipay. China has recently been working to rein in its tech darlings and already slapped anticompetition penalties on a cohort of tech firms. Jack Ma’s fintech behemoth Ant Group has been put on the spot and forced to restructure into a financial holding company that would potentially curb its profitability and subject it to more regulatory oversight.
  • TikTok tops 3 billion downloads from the App Store and Google Play, according to Sensor Tower. This makes the hit video platform the only app not owned by Facebook to cross the milestone across the two app stores, said the research firm, and it’s only the fifth one after WhatsApp, Messenger, Facebook and Instagram to achieve that. TikTok is also generating big bucks for ByteDance. Globally, it has made more than $2.5 billion in consumer spending since its launch.
  • Tencent ups its stake in food delivery giant Meituan to 17.2%The deal cost Tencent, a longtime patron of Meituan, $400 million. The proceeds will allow Meituan to invest further in “cutting edge tech” such as unmanned delivery cars and drones, an area where other tech firms have also made similar promises to automate parcel and food deliveries.
  • The smart vehicle craze continues. These days, hardly a week goes by without a major announcement by an autonomous driving or smart car company in China. The news last week came from Banma, which was set up by Alibaba and state-owned carmaker SAIC Motor to make internet-connected cars. It just raised $460 million from Alibaba and SAIC Motor, among others and claimed its technology now serves three million users. It raised its first round in 2018 with 1.6 billion yuan (around $250 million) and was already valued at over $1 billion at the time.

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