TikTok eyes a shopping sales goal between $12 billion and $13 billion for the second half this year in the US, according to a 36Kr report on Tuesday. The high target was set after the short video platform fell far below expectations in the first five months.

The report quoted key data from Tabcut, a Chinese firm that tracks TikTok Shop’s performance, indicating that TikTok generated less than $2 billion in the US shopping business from January to May 2024.

Why it matters: The potential ban TikTok faces in America seems to have already hurt its growing e-commerce business in its largest user base country.

Details: TikTok, the international version of Douyin, was reportedly hoping to expand its US e-commerce business tenfold to as much as $17.5 billion this year, according to a January report from Bloomberg. TikTok has so far only accomplished 11.4% of its GMV goal in the past 5 months, the 36Kr report said.

• TikTok hosted a small closed-door meeting in Shenzhen in mid-May, 36Kr added, where it invited its key domestic sellers to convey a message that the platform “remains optimistic about its prospects in the US market despite facing a political headwind.” The company also assured attendees that TikTok has comprehensive contingency plans in place even in the “worst-case scenario.”
• As the latest effort to counter the US government’s request to divest or ban the app, TikTok parent ByteDance has appointed John Rogovin, a former lawyer of Warner Bros, as its global general counsel. The company sued the US government in May with the aim of blocking a law requiring it to sell its US operation or face a total ban. In the appointment announcement, TikTok said Rogovin will report to ByteDance CEO Liang Rubo, and indirectly to TikTok chief Shou Chew.

Context: TikTok Shop officially entered the US market in September 2023, although little official data has been given to the outside world regarding its merchants and sales. The platform has grown to 170 million users in the American market, according to figures released in January,  up from 150 million last year.

TikTok owner ByteDance has surprised the artificial intelligence industry with the ultra-low cost of its Doubao model, which the company said is capable of processing 2 million Chinese characters, equivalent to 1.25 million tokens, for RMB 1 ($0.14). OpenAI’s most advanced multimodal model, GPT-4o, also unveiled this week, comes in at $5 per million input tokens handled.

“A good model works well and is affordable to everyone,” Tan Dai, president of Volcano Engine,  ByteDance’s cloud computing services unit, said at an event on Wednesday. “Large usage polishes a good model and dramatically reduces the unit cost of model inference,” he added.

Why it matters: The radical pricing, which Tan explained is achieved through model structuring and hybrid scheduling of cloud computing power, is likely to initiate a price war in China’s AI field after a battle on parameters.

Details: ByteDance’s Doubao large model family consists of nine versions, ranging from a “lite version” to the advanced Doubao Pro, which is able to deal with up to 128,000 token inputs. The range also includes models centered on generating pictures and virtual characters.

• The company did not disclose how many parameters it used to train its most powerful Doubao Pro model.
• The Doubao LLM family shares the same name as ByteDance’s ChatGPT alternative, a free AI bot that the company says has 26 million monthly active users.
• The Doubao model is now open to external developers and other interested parties for cooperation via Volcano Engine, though this comes months after tech rivals Alibaba and Tencent gave enterprise customers access to their models last April and September, respectively.

Context: Earlier this year, ByteDance founder Zhang Yiming criticized employees for not being “sensitive enough” to the emergence of new technologies like ChatGPT in an internal meeting, saying that discussions among staff over ChatGPT only started in 2023. His remarks came after the company had already launched the Doubao chatbot in the second half of last year.

TikTok CEO Shou Zi Chew told the platform’s users that “we aren’t going anywhere” after US President Joe Biden signed the sell-or-ban bill targeting the app into law, giving TikTok’s Chinese parent company nine to 12 months to divest.

“The facts and the Constitution are on our side and we expect to prevail again,” Chew said in a video on Wednesday.

Why it matters: The passing of the bill after months of threats is a clear wake-up call for other Chinese apps that see the US as a top destination for their business expansion or have already entered the market there.

Details: The countdown to the forced sale of TikTok began when Biden signed the bill on April 24, but the short video app’s 170 million American users will continue to have access to it during this period. TikTok is expected to robustly challenge the move in the US courts.

• The law comes as US Secretary of State Antony Blinken begins his visit to China, where he expects to meet the country’s foreign minister Wang Yi.
• Former editor-in-chief of Chinese media outlet Global Times, Hu Xijin, who is known for his nationalist stance, wrote on X that TikTok should “fight to the end”, hours after the Senate ruled on the platform on Wednesday. He said he believes it will be “meaningless” if ByteDance founder Zhang Yiming “loses this career and only gets some money.”
• On Wednesday, China’s Ministry of Foreign Affairs commented it had nothing more to add to the country’s stance on the TikTok ban as the government institution said it has already made clear its position that there would be “no fairness to speak of” if the US uses national security reasons to ban foreign companies.

Context: TikTok, along with its Chinese owner ByteDance, spent over $7 million on in-house lobbyists and digital ad campaigns this year in an effort to avert the bill passing, according to lobbying disclosure reports cited by CNBC.

TikTok’s efforts to continue operating in the US under Chinese parent company ByteDance appear doomed after a majority of House lawmakers passed a bill that aims to force the Beijing headquartered tech firm to divest from the wildly popular short video platform or see it removed from app stores in the country. The bill still needs to pass the Senate, but President Joe Biden has indicated he will sign it into law if it reaches his desk. 

The Republican-controlled House of Representatives voted 352-65 on the bill. Of the 65 legislators who voted against it, 50 were Democrats, casting some uncertainty on whether the bill will pass in the Democrat-majority Senate. The potential legislation is also likely to face legal challenges from TikTok.

Why it matters: If ByteDance agrees to sell TikTok, one of China’s most successful apps worldwide, it would bring the Beijing-based company billions of dollars in immediate income, but the longer-term impact on the firm’s value is uncertain. The tug-of-war over the app also reflects the high-profile tensions between the US and China.

Details: TikTok labeled the House’s voting process “secret” in a statement released after the result. The platform insisted on characterizing the bill as a “ban”, while emphasizing that it hosts 170 million users and 7 million small businesses in the US market in a post on X, formerly Twitter.

• Chinese nationalist Hu Xijin, who previously served as editor-in-chief of the state-run Global Times newspaper, said in a recent social media post that the US’s concern over TikTok’s threat to national security is “grossly exaggerated,” and that this is a fact “everyone in the world knows.” The commentator implored the short video app not to “get weak in the knees,” adding that it will share a bright future if it wins this “war.”
• The video-sharing platform sent local users in the US a pop-up notification last week encouraging them to call their political representatives and urge them to fight against the bill. The average TikTok user in the US is an adult “well past college age,” chief executive Shou Zi Chew revealed in his testimony on Capitol Hill last March.
• While Biden has shown broad support for the bill – despite his election campaign recently joining the platform – his rival in the upcoming US presidential election, Donald Trump, has made a U-turn on the legislation, voicing concerns that banning TikTok would only empower Facebook owner Meta. “There are a lot of young kids on TikTok who will go crazy without it,” Trump said in a recent CNBC interview, despite his administration also previously attempting to force ByteDance to sell the app.

Context: According to OpenSecrets, a nonprofit organization that tracks lobbying data, ByteDance spent a record $8.74 million on federal lobbying last year, nearly double its spending in 2022.

On Jan. 13, Tencent announced that its hit game Honor of Kings would resume livestreaming on Douyin (China’s TikTok sibling) five years after it was banned following a copyright infringement case. In 2016, Tencent sued ByteDance for livestreaming the online game on its subsidiary video platform Xigua. In 2019, a court ruling in Guangzhou stated that ByteDance platforms were prohibited from livestreaming Honor of Kings without Tencent’s permission.

Why it matters: The return of Honor of Kings to Douyin signifies a further thawing of the relationship between Tencent and ByteDance. Tencent has been gradually lifting restrictions on ByteDance, as its competitor has begun scaling back its gaming interests in recent months.

Details: Tencent’s Honor of Kings is expected to start livestreaming on Douyin on Jan. 21, with game streamers invited to participate in the splashy return, as announced on the game’s page on China’s Twitter-like platform Weibo.

• Tencent Games plans to conduct testing of Honor of Kings on Douyin from Jan. 14 to Jan. 17, aimed at avoiding technical issues that may arise during the first live broadcast. From Jan. 18 to Jan. 20, Honor of Kings will host various game-themed activities on Douyin, with invited gaming influencers heading livestream sessions and handing out in-game benefits.
• A gaming industry insider said Tencent’s efforts to reconcile with Douyin stem from a noticeable slowdown in Tencent’s gaming revenue growth since 2022, according to Sina. New player growth and revenue for Honor of Kings have been weaker than in previous years, leading to immense pressure on Tencent’s gaming team, the insider said. 
• Another of Tencent’s hit games, PUBG Mobile, has also seen a decline in users, but there are currently no other new hit games to make up for the loss, the same insider added. In December 2023, Tencent released DreamStar, a new party game with the potential to challenge its domestic rival NetEase’s Eggy Party. At this stage it remains uncertain if it will emerge as the firm’s next hit game.
• Both parties may seek further collaboration in the future, as ByteDance has the potential to work with Tencent in areas including joint operations and distribution partnerships, according to the same Sina report. Douyin currently plays a crucial role in the gaming industry in China as a major channel for advertising and new player acquisition, and Tencent cannot afford to ignore it, the Sina report said.

Context: On Jan. 9, TikTok owner ByteDance said it was engaged in discussions with various potential buyers, including Tencent Games, for its gaming assets, according to Reuters. The two giants are discussing a deal involving major games published by ByteDance’s gaming unit Nuverse, as the TikTok owner looks to step back from the gaming industry.

• In November 2023, ByteDance unveiled plans to scale down its Nuverse gaming unit and sell related gaming assets in a strategic shift away from the gaming industry.
• Honor of Kings, a hit multiplayer online battle arena (MOBA) game, generated nearly $1.48 billion in 2023 for Tencent, but saw a notable decline compared to the $1.8 billion achieved in 2022, according to market intelligence AppMagic.

TikTok is seeking to significantly expand its e-commerce business in the US, with plans to achieve a tenfold increase in merchandise sales in the world’s largest economy this year, a target of $17.5 billion, Bloomberg reported on Thursday, citing unnamed sources.

Why it matters: TikTok’s ambitious goal will see it push harder to redirect users’ attention from short videos to in-app shopping in a potential threat to established US e-commerce giant Amazon. The move also signals that the ByteDance-owned short video app, which has 150 million users in the US, will compete more directly with its Chinese counterparts Temu and Shein in 2024.

Details: The global value of goods sold on TikTok was expected to reach around $20 billion last year, according to Bloomberg, with its Southeast Asian platforms contributing the bulk of these sales. Singapore-based research company Momentum Works projected in mid-2023 that TikTok Shop was poised to capture a 13.2% share of the Southeast Asian e-commerce market by the year’s end.

• The highest selling products on TikTok Shop are mainly those that more easily lend themselves to promotion by video, such as clothing and beauty items, while its competitors offer a broader range, from kitchen utensils to digital products.
• Shortly after TikTok Shop went live in the US in September, the hit social media platform experienced early success at its first Black Friday and Cyber Monday events, with the major shopping days seeing more than 5 million new customers from the US make purchases on TikTok.
• Meanwhile, TikTok announced this week that transaction fees for merchants in most product categories will increase to 6% of each sale starting in April, and by July, these will rise again to 8%. TikTok Shop currently charges a commission of 2% plus 30 cents per transaction. The change is likely to have an impact on profit margins for store operators.

Context: Since its initial trial in 2021, TikTok’s foray into e-commerce has sought to replicate the proven path taken by its Chinese counterpart Douyin in the online retail field, guiding loyal users previously attracted by viral short videos to engage in shopping on the platform. 

• Indonesia, the first country in which TikTok Shop launched, banned online shopping on social platforms in September, pointing to the protection of small businesses and user data, and forcing TikTok Shop to suspend operations. Despite this setback, TikTok quickly made a comeback in Southeast Asia’s most populous nation through a deal with local company GoTo backed by a $1.5 billion investment.

A federal judge has blocked a law in the US state of Montana that sought to bar the use of TikTok, saying it “oversteps state power”, a month before the ban was due to take effect.

Why it matters: The move suggests efforts to prohibit use of the Chinese-owned video sharing app in the US will face significant legal challenges. Montana was the first state set to implement a blanket TikTok ban.

Details: In a statement, the US District Judge Donald Molloy said the ban targets “China’s ostensible role in TikTok” rather than protects Montana consumers.

• “We are pleased the judge rejected this unconstitutional law and hundreds of thousands of Montanans can continue to express themselves, earn a living, and find community on TikTok,” an account called TikTok Policy posted on social media platform X.
• However, the office of Montana’s attorney general signaled it was not giving up on a ban, saying “the analysis could change as the case proceeds,” and noting that it looked forward to “presenting the complete legal argument to defend the law.”
• The ByteDance-owned video platform filed a federal lawsuit against Montana in May, claiming the law “unlawfully abridges one of the core freedoms guaranteed by the First Amendment,” days after the state passed a law to ban the widely popular app across the state. Senate Bill 419, the initial ruling to ban TikTok in Montana from Jan. 1  2024, outlined a concern that the app accessed data against users’ will and shared it with the People’s Republic of China. An additional consideration for the ban was that it promoted dangerous social media challenges that threatened the health and safety of Montanans.
• TikTok’s Chinese links have been a focal point of running controversy in the US, where the app says it has 150 million users. Inadequate protection of minors’ data is another legal fight the platform has been dealing with.

Context: TikTok has continued to face criticism during its rise in the US, but its popularity and ad revenue point to a continued upward trend in use of the app nationwide. Its parent company ByteDance reportedly generated $54 billion globally in the first half of 2023, a figure close to Facebook owner Meta’s $60.6 billion. The video platform also officially launched an in-app e-commerce feature in September.

Chinese video giant ByteDance will conduct a new round of layoffs from its virtual reality arm Pico as demand for headsets was not “as fast as expected,” said chief executive Henry Zhou, acknowledging at an internal meeting that projections for VR had been overly optimistic.

Why it matters: This large-scale downsizing is the latest restructuring effort by ByteDance in response to dim prospects in the VR industry. Despite significant investments in technology and marketing over the past two years, which failed to yield satisfactory sales results, the company has stated its intention to keep its hardware team intact.

Details: The biggest overhaul since Pico was acquired by the TikTok owner two years ago was announced in a ten-minute meeting on Tuesday, with staff from sales, videos, and platform operations hit the most.

• Although the exact percentage of layoffs was not disclosed by the company, a source close to Pico told local media outlet VR Tuoluo saying around half of its VR staff would be affected.
• In February, Pico slashed nearly a third of its positions, equivalent to hundreds of jobs, mere months after ByteDance launched the flagship Pico 4 VR headset, benchmarked against Meta’s Quest 2. Recent layoffs will shrink the workforce to only a few hundred employees, down from a peak headcount of over 2,000.
• Affected employees will be compensated based on their years of service plus one month’s salary, according to Tencent News.

Context: ByteDance acquired Pico for approximately RMB 5 billion in 2021, and launched an extensive marketing campaign for the Pico 4 standalone VR headset when it was launched a year later. The company enlisted musician Leah Dou and ping-pong star Sun Yingsha as spokespeople, covering major shopping malls and bus stops with advertisements. 

• The TikTok owner has high hopes for its VR business, as Pico founder and president Henry Zhou said at last year’s launch event, expecting the headset to sell more than 1 million units eventually. However, early this year, the company lowered its sales target to “slightly over 500,000 units” due to disappointing initial results.
• The Pico 4 boasts a total of 561 apps, according to figures compiled by VR Tuoluo, surpassing Quest’s 532. The report quoted a source as saying ByteDance had spent at least several billion yuan on building a content ecosystem within Pico.

Crystal of Atlan (CoA), the new action role-playing game developed by ByteDance’s video game company Nuverse, was the eighth best-selling mobile game on iOS in China in July, according to local media outlet GameLook, despite only launching on July 14. 

Why it matters: The new game has the potential to be a breakout hit for ByteDance, which has been aiming to develop its own successful mobile title in the wake of HoYoverse’s global success with Genshin Impact. In the second half of July, Crystal of Atlan’s revenue only ranked behind Tencent’s Honor of Kings, NetEase’s Justice Online, and Tencent’s PUBG Mobile, GameLook reported. Fueled by the success of the new game, Nuverse’s July revenue saw a remarkable 109% month-on-month increase.

Details: Based on data from Sensor Tower, CoA’s iOS revenue surpassed RMB 210 million ($29 million) in July. GameLook predicted that the revenue across all platforms amounted to RMB 600 million ($83 million) for the same month.

• Crystal of Atlan is an action role-playing DNF (Dungeon ’n’ Fighter) game that uses 3D graphics and open-world scenarios. Its anime style resembles Genshin Impact and Honkai: Star Rail, both of which were launched by HoYoverse.
• In May, according to CoA’s official Weibo account, the number of pre-registered players reached 8 million.
• ByteDance is actively promoting the game on its short-video platform Douyin (the Chinese version of TikTok), using internal advertising resources to enhance the game’s visibility. A large number of gaming KOLs introduced the gameplay via videos and broadcasts on Douyin to attract domestic players. 
• As of August 8, the hashtags #CoA and #CrystalofAtlant have collectively reached more than 3.5 billion views on Douyin, according to a report by 36Kr. Additionally, ByteDance also recruited KOLs on Chinese broadcast platforms Huya and Betta, to increase publicity for the game. Given the outlay on marketing, some analysts have suggested that maintaining the title’s high profile may prove a challenge in the months ahead.

Context: ByteDance established Nuverse in 2019, announcing its entry into the gaming sector. In 2021, ByteDance acquired game studio Moonton and C4games for RMB 10 billion and equity worth RMB 15 billion, according to 36Kr.

• On July 13, Moonton launched the fantasy role-playing card game Watcher of Realms in the global market. The revenue of this game reached approximately RMB 70 million ($9.6 million) in the first month, according to GameLook.
• In 2023, NetEase’s Justice Online and HoYoverse’s Honkai: Star Rail are the two most prominent new titles in China’s mobile game market.
• In July, Justice Online, the martial arts role-playing game launched by NetEase on June 30, ranked seventh with a revenue of $63.3 million.
• In May, Hoyoverse’s new hit game Honkai: Star Rail earned approximately RMB 1.2 billion ($168 million) in the first month since its global launch on April 26.

Douyin, TikTok’s Chinese counterpart, has established a new department dedicated to entertainment ventures, according to a Monday report by 36Kr citing multiple sources. The move aims to centralize the management of activities ranging from live-streaming programs and variety shows to dramas and music.

Why it matters: Douyin’s emphasis on cultural and entertainment content not only enriches its product ecosystem but, more importantly, helps the platform to further diversify its revenue streams.

Details: Chen Duye, head of the recently established division and previously in charge of Ocean Engine, ByteDance’s marketing platform for business promotions across its various apps, will directly report to Han Shangyou, who now holds a prominent position within Douyin.

• Live broadcasts, particularly sports events and concerts, will take priority within the newly-established department, according to 36Kr, due to Douyin getting a taste for broadcasting major events over the past year.
• Official data reveals that 10.6 billion cumulative viewers tuned in to watch the 2022 Qatar World Cup on Douyin. The leading short video platform reportedly spent over RMB 1 billion to secure broadcasting rights.
• Amid COVID-19 restrictions impacting offline entertainment, Chinese-operated short video platforms recognized online events as a source of growth. Douyin, along with competitors Kuaishou and WeChat Channel, organized various concerts and live events featuring renowned musical artists, which has proven effective in drawing user engagement.
• Variety shows, traditionally confined to television or long-form video platforms, have often been constrained by funding limitations during their pre-project phases in China. Nonetheless, the report highlights Douyin’s current efforts to create more original reality TV and variety shows, subsequently monetizing on an uptick in popularity. This involves various approaches, including live commerce activities on the platform and the introduction of content-charging within the platform.
• Short-form dramas have also become a growing focal point for Douyin and its rival Kuaishou, as they strategically monetize their extensive user base. According to data revealed by Kuaishou, by the end of 2022, short dramas on the app attracted up to 260 million active viewers a day, with paid users for short dramas increasing by over 480% in the first quarter compared to a year earlier. While both companies did not provide specific figures, Douyin reported a 72% year-on-year revenue growth in the same sector in 2022.

Context: As of last December, the China Internet Network Information Center reported that over 70% of the Chinese population had accessed short videos, highlighting the significant reach of these platforms as mainstream entertainment channels across the country. The report also noted that individuals spent an average of 2.5 plus hours on the platforms every day.

TikTok is set to expand its online retail business to the US in early August, according to the Wall Street Journal, in a bid to replicate rivals Shein and Temu’s success in the world’s second-largest e-commerce market. The short video app was thought to be ready to launch the service earlier this year, but delayed the move in May amid concerns from merchants over geopolitical tensions, as previously reported by the WSJ.

Why it matters: The move indicates that TikTok is aiming to earn more revenue from its largest audience market, despite continued threats by American politicians over what they see as the firm’s links to the Chinese authorities. The short video operator has reportedly set a goal for its global e-commerce operation to increase its total sales more than fourfold this year to $20 billion.

Details: On a page called TikTok Shop Shopping Center, users can browse and purchase products, though the model differs slightly from its initial plan to establish a third-party sellers’ platform.

• TikTok will store and ship products for Chinese manufacturers and merchants, from clothing and electronics to kitchen utensils, while also being responsible for marketing, transactions, logistics, and after-sales services, according to the WSJ report.
• Under the so-called “full-service model,” which is currently used by Chinese cross-border e-commerce platforms such as Temu, the popular short-form video streaming platform would only pay Chinese suppliers once US-based clients have placed orders to avoid “inventory buildup.”
• TikTok’s first expansion of its e-commerce outside of Asia came in the UK in 2021, but selling products through live streaming or short videos – a popular approach in China – has not fully appealed to consumers in that country.

Context: The short video app, owned by Beijing-based ByteDance, is used by over 150 million users in the US. However, as TikTok steps up its presence in the country’s e-commerce market, it is facing increasingly strict regulatory scrutiny. The Biden administration in March demanded TikTok be sold or potentially face a national ban in its largest market.

• Last September, Temu launched in the US and quickly found success. But it has been in an intense public dispute with Shein, the low-profile fast-fashion giant established in China, in recent months. Temu sued Shein this month in a federal court, accusing it of violating antitrust laws. This came after Shein sued Temu last December, alleging that it had hired social media influencers to defame Shein.
• TikTok’s entry may escalate this competition further, as some of the professional buyers, warehouses, and order managers recruited by TikTok have been poached from these two competitors, according to the WSJ.

Douyin is reportedly abandoning its goal of achieving RMB 100 billion ($14 billion) in total sales this year, as the business’ progress in the first half of 2023 has only reached one-tenth of the yearly target, falling extremely short of internal expectations.

Local media outlet LatePost first reported the news on June 10, citing a source close to the matter. While GMV is no longer the most important metric for the unit, the report said that exploring various ways to successfully run the food delivery business is now a more urgent priority for TikTok’s Chinese sibling.

Why it matters: Due to a lack of its own delivery logistic team, Douyin has relied on selling higher-priced set meal kits (which cut down the frequency of deliveries) and third-party delivery companies to offer its food delivery service. The approach is currently presenting challenges in scaling up the business.

Details: Starting in mid-2022, the short video platform has been testing food deliveries in Beijing, Shanghai, and Chengdu. Users in these three cities are able to order food for delivery within Douyin. But unlike market leaders Meituan and Alibaba’s Ele.me, restaurants selling goods on the Douyin platform need to use delivery riders from another service or deliver the food themselves, making the delivery cost run higher.

• Typically priced over RMB 100, meal kit takeaways are designed for several people to share and have longer delivery times compared to other platforms that prioritize individual sales and more timely delivery.
• In contrast to Meituan, which recorded a peak of 60 million in daily order volume for food deliveries last August, Douyin’s takeaway orders have experienced limited growth, with its average daily order volume from January to March reportedly remaining at around 10,000 to 20,000 units.

Context: Meituan and Ele.me now dominate the food delivery market in China, holding a more than 90% share of the market between them, highlighting the challenge for Douyin. Meituan has already begun a counteroffensive to maintain its leading position in the face of this new challenger.

• In March, Meituan introduced a marketing event called Shen Qiang Shou for merchants, which is currently being trialed in Shenzhen and Beijing. The promotional event allows users to purchase discounted coupons through Meituan’s own livestreaming or short-form videos, which can be redeemed for real goods within a specified timeframe.
• For consumers, Meituan conducts regular live commerce promotional events on the 18th of every month, with influential merchants selling discounted goods with the aim of stimulating demand. According to a Meituan statement, takeout vouchers worth RMB 86 million were sold on its first livestream shopping event, which lasted 11 hours on April 18.

TikTok has announced that it has 8.5 million monthly active users in Australia, in the short video platform’s first disclosure of its user numbers in the country. The platform, owned by Beijing-based tech firm ByteDance, also said TikTok is being utilized by 350,000 businesses as a marketing tool to reach and engage new clients in Australia.

Why it matters: The figure suggests that more than 30% of the Australian population is using TikTok. Australia banned TikTok on government-issued devices in April.

Details: Australia joined more than 10 countries (including the US, the UK, Canada, New Zealand, France, Denmark, and India) in banning the use of the ByteDance-owned short video platform on government devices in April.

• Australia’s Attorney-General’s Department said in April that TikTok poses “significant security and privacy risks to non-corporate Commonwealth entities” due to its extensive collection of user data.
• Lee Hunter, TikTok’s Australia and New Zealand general manager, said the company was “extremely disappointed” by the government-level ban, attributing the decision to “politics” instead of facts.
• TikTok set up an Australian branch office in mid-2020 when the video-sharing platform experienced massive user growth in overseas markets. 
• TikTok announced it had 150 million monthly active users in the US three days before a congressional hearing in the country attended by TikTok CEO Shou Zi Chew on March 23, in an attempt to emphasize the platform’s wide reach across the US and counter a potential nationwide ban. 

Context: TikTok has long been questioned by Western countries on whether it shares users’ data with the Chinese government.

• Over half of US states have announced bans on using TikTok on official devices. Montana authorities have announced their intention to begin blocking all residents from accessing the platform from January 2024. TikTok filed a lawsuit against the Montana government shortly after the bill passed in May.
• TikTok is also under scrutiny in Vietnam. The country’s Ministry of Information and Communications stated on Monday that it is holding probes into allegations of illegal and irregular activities by TikTok, and is expected to make a public announcement in July upon completion of the official investigation.
• The Vietnamese government frequently requests social media platforms such as YouTube, Facebook, and TikTok remove content it considers illegal, and regularly reports on the number of links or videos removed by each platform. In April, the information ministry said that TikTok may face a ban in the country if it fails to comply with instructions to remove content it deems to be in violation of its rules, according to local media outlet VnExpress.

ByteDance co-founder Zhang Yiming has set up an investment fund called Cool River Venture in Hong Kong, targeting tech-related investments.

Why it matters: Since stepping down as CEO of ByteDance in 2021, Zhang has kept a low profile, rarely making public appearances. Incorporated on May 22, the fund signals a move by Zhang to diversify his wealth.

• As Zhang launches systematic personal investment, ByteDance’s widely popular global app TikTok is facing massive challenges over privacy issues and security concerns.
• On May 17, Montana became the first state in the US to ban downloads of TikTok, with legislation taking effect on January 1, 2024. TikTok has filed a lawsuit against the state, arguing that the ban violates constitutional and other laws.

Details: Zhang Yiming remains the second richest person in China with a net worth of $45 billion according to Forbes’ 2023 list of the 10 richest Chinese billionaires. Zhang was surpassed only by Zhong Shanshan, the founder of drinks brand Nongfu Spring, whose wealth is valued at $68 billion.

• Galaxy LLC, registered in the Cayman Islands, is the sole shareholder of Cool River Venture, the Hong Kong companies registry shows.
• In May 2021, 38-year-old Zhang announced he would step down from the role of CEO at TikTok’s parent company, ByteDance. “The impact of technology on society is growing,” he said in a company-wide letter, expressing his interest in the emerging fields of virtual reality, life sciences, and scientific computing.
• A person close to Zhang, cited by 36Kr, stated that since ChatGPT took the world by storm last November, Zhang has been “staying up late” reading papers on AI.
• Zhang established a RMB 500 million education fund in his hometown Longyan in southeast China’s Fujian province after his resignation. His aim is to support vocational and arts education. He added another RMB 200 million to the fund this month.

Context: Setting up a personal investment fund or family office, or taking roles in other venture capital firms has been a popular trend among successful Chinese tech founders to manage their wealth.

• Alongside Meituan’s co-founder Wang Xing and Li Auto’s CEO Li Xiang, Zhang Yiming is a limited partner of Beijing-based venture capital firm Source Code Capital. Wang Xing led a $530 million funding round for Li Auto as an angel investor in 2019.
• Joe Tsai, Alibaba’s co-founder, has been managing his wealth and investments through his Hong Kong-based family office, Blue Pool Capital. Tsai’s family office investments range from sports and healthcare to crypto and blockchain.

With its peak daily order volume for food deliveries surpassing 60 million last year, Meituan continues to sit pretty at the top of the tree when it comes to China’s local life services sector. The app spans everything from movie tickets and restaurant bookings to medical appointments, and recorded a total of 677.9 million users making transactions in 2022.

Yet Meituan’s dominance is increasingly facing challenges. Major Chinese companies including social media platform Xiaohongshu and ByteDance-owned TikTok sibling Douyin have been making inroads into the local life services market as Covid restrictions have eased. By linking consumers with nearby service providers or merchants and encouraging them to make purchases digitally before going to have the experience offline, these newcomers are looking to such transactions as a way to monetize their huge user bases.

For the moment, Meituan claims to be unperturbed. Meituan CEO Wang Xing described Douyin’s expansion into food delivery as having “a limited impact” on the company during its Q1 earnings call. However, the delivery platform recently made takeout livestreaming a monthly event and has launched group-buy delivery services in what many see as a bid to stay competitive in the face of these new entrants.

The total size of the local life services market is expected to reach RMB 35 trillion in China by 2025, though its online penetration rate was only 12.7% in 2021, according to data from Chinese research firm iResearch and cited by Chinese media outlet 21jingji, meaning there’s still plenty to play for.

Here’s a short introduction to new players in this vibrant market.

Xiaohongshu

Experience-sharing lifestyle platform Xiaohongshu, the latest major entrant to this competitive sector, has over 260 million monthly active users. The platform has maintained a thriving user base and sense of community for years and serves as a lifestyle search engine for many of its users. Now, it is making one of the biggest moves in the local life sector.

Xiaohongshu is currently inviting caterers and service providers to test the sale of group-buying packages on its platform. Participating merchants can sign up without paying a deposit or commission to Xiaohongshu for revenue earned through the service, according to tech media outlet GeekPark. Meanwhile, the platform’s influencers are able to earn commission by posting information about retailers that offer group buy options.

If the Shanghai-based company can leverage its feed algorithms while encouraging users to complete transactions within the app, it may see Xiaohongshu emerge as a serious challenger to Meituan, while also accelerating the company’s monetization quest. In 2020, 80% of Xiaohongshu’s revenue was generated by ads, the Financial Times previously reported, citing research firm LeadLeo, but the company is increasingly looking to diversify its revenue streams.

READ MORE: Xiaohongshu bets on e-commerce livestreaming to accelerate monetization: report

Douyin

Douyin has made significant strides in expanding its presence in the local life market, with its services sector reportedly generating over RMB 77 billion ($11.1 billion) in total sales last year, while advertising revenue amounted to just RMB 8.3 billion.

Growth in the platform’s brightest business continues to be strong. Local media outlet 36Kr reported that the unit generated more than RMB 10 billion in GMV in every single month in the first quarter of this year.

The TikTok sibling app has expanded its offerings to include group-buy delivery, sightseeing tickets, hotel reservations, and manicures in recent months. In mid-2022, Douyin allowed short video viewers to order meals directly on the app through a mini-program operated by Alibaba’s food delivery service Ele.me. In March, the service was introduced to 15 new cities, expanding the service to a total of 18 locations in China.

These efforts reflect the fact that ByteDance, Douyin’s owner, is stepping up its push to monetize users on the widely popular platform.

The head of Douyin’s local life business, Zhu Shiyu, recently stated that life services was a vast market worth more than ten trillion yuan, and that only a small proportion of transactions were currently being conducted online.

Kuaishou

Kuaishou, another leading short video-sharing platform in China with 366 million daily active users, has been expanding its presence in the local life services space in an effort to also capture market share, although it currently has less of a presence than rivals Douyin and Meituan.

Kuaishou had been active in offering lifestyle services in Shanghai, Qingdao, and Harbin, with Hangzhou the next major city to see local services rolled out. Kuaishou aims to provide local life services for different cities through a replicable model developed through experimentation. The short video operator incentivizes local merchants to sign up for the service while supporting local influencers who are willing to promote shops on the app.

Xiaogu, head of Kuaishou’s local life business unit, noted that since it entered the Qingdao market on Feb. 10, it has added over 300 local businesses. Kuaishou reportedly recorded around RMB 5 million in local sales in the seaside city in its first month, and already saw some influencers generate around 200,000 yuan in a single month.

China’s largest gaming firm Tencent can finally advertise on ByteDance apps, according to online gaming analytics platform DataEye, a new milestone in the two companies’ relationship. ByteDance and Tencent have competed fiercely over the years, barring each other from cross-promotion and regularly engaging in legal wrangles. As a result, Tencent games have had limited exposure on ByteDance platforms, while ByteDance’s apps have had little publicity on Tencent platforms. 

The latest advertising data shows that Tencent’s war game Return to the Empire and multiplayer role-playing game Naruto have been advertised on Bytedance’s Douyin (China’s TikTok twin), news app Toutiao, and Xigua Video in the past seven days. 

Why it matters: The relationship between Tencent and ByteDance has long been tense due to their rivalry in content, video, and gaming. Recent developments show the two companies are moving toward a reconciliation after years of bitter competition. 

• On Feb. 7, Douyin and Tencent Video announced an unexpected cooperation, in which the two parties will jointly explore the promotion of videos and the secondary creation of short videos. Tencent has issued a long-term video copyright authorization to ByteDance and clarified secondary video creation rules. On Tuesday, Tencent was able to register the official account of Tencent Video on Douyin. The partnership deal between the two companies has even become a hot topic on microblogging platform Weibo. 
• Such reconciliation was unthinkable a few years ago. In the second half of 2021 alone, Tencent sued Douyin 168 times for video rights infringements, with compensation reaching almost RMB 3 billion (or $430 million). 

Details: Tencent’s game Return to the Empire has started to place advertisements on ByteDance’s Toutiao and Xigua Video in recent days. The game had previously been advertised mostly within Tencent’s platform, according to DataEye statistics. In addition, ByteDance’s Douyin accounted for about 15% of the gaming ads distribution for another Tencent game Naruto.

• The reconciliation will potentially benefit both sides. Traffic from ByteDance platforms may head in Tencent games’ direction. At the same time, Tencent’s ubiquitous app WeChat could open up to ByteDance and introduce new users to ByteDance apps.
• The promotion of bestselling Tencent games (like Honor of Kings) in Douyin may enrich ByteDance content.
• The move will have repercussions in livestream gaming too. In the future, ByteDance-based games may also enter the WeChat network and WeChat video channel.

Context: Sharing a focus on content and entertainment, Tencent and ByteDance were the top-grossing publishers in global mobile app stores in the first half of 2022. Tencent was the top-grossing publisher in the game and non-game categories, earning about $3.3 billion in the first half of 2022. The figure is almost 153% higher than ByteDance, which came second with $1.3 billion in revenue. Their disputes have been long-lasting: 

• In January 2023, Tencent super app WeChat temporarily blocked users from accessing links to ByteDance-owned short video app Douyin. 
• In June 2021, ByteDance criticized Tencent’s practice of blocking links to its products on WeChat and QQ in an online post, attaching a 59-page PDF file chronicling incidents of blocking in the past three years. 
• In May 2019, Tencent filed two lawsuits against ByteDance, requesting the owner of Douyin stop streaming Tencent’s hit titles CrossFire and Honour of Kings.
• In June 2019, Tencent filed six new lawsuits against ByteDance, demanding the company delete all Honour of Kings gameplay videos from the accounts of six specified users on Toutiao and Douyin. It demanded  ByteDance pay RMB 10.8 million (around $1.56 million) in damages.

Chinese tech giant Tencent has launched an AI-powered video editing tool called Zenvideo, integrating a variety of features for short-form video creators, such as text-to-video generation and digital narration.  

Why it matters: With its growing emphasis on short video, Tencent is looking to further challenge current market leaders in the sector such as Kuaishou and ByteDance’s TikTok sibling Douyin. Tencent’s new offering comes with similar capabilities to ByteDance’s CapCut, which recently surpassed 200 million monthly active users in the US.

Details: Zenvideo is available to use both through web browsers and WeChat’s mini-program, but is more powerful as a web app. The version within Tencent’s superapp has comparatively limited AI features, only supporting AI painting and digital narration. 

• The video editing tool allows users to create short-form videos, with a range of editing options such as filters, visual effects, and digital avatars.
• Unlike ByteDance’s video editing toolCapCut (Jianyin in the Chinese market), Tencent’s new tool can be operated on the web without the need to download an app. Furthermore, users can import Tencent licensed video and audio clips and use them as long as the final work is published on Tencent’s open content platforms. For example, users are able to use music from Tencent’s streaming platforms and take clips from popular Tencent Video TV shows such as The Three-Body Problem and Red Sorghum and edit them for free within Zenvideo. 
• According to a notice within the tool, Tencent plans to share revenue with video creators as an incentive to attract more content creators.

Context: This week, Tencent’s super app WeChat also announced several changes to its ecosystem, especially for its short video section WeChat Channels. 

• WeChat Channels has an average daily user time of about 40 minutes, which is less than one-third of the two leading short video platforms Douyin and Kuaishou. The latter reached a new high of 134 minutes in the fourth quarter of last year, its latest financial results showed.
• Regarded as “the hope of the whole company” by Tencent CEO Pony Ma, WeChat Channels is planning to launch a paid subscription service and share revenue with creators of short videos. This move is likely to heat up the competition among similar platforms.

ByteDance has hired Yang Hongxia, former head of the team overseeing Alibaba’s large AI multi-model M6, to lead its AI Lab and to build its generative large language model (LLM), local tech media outlet 36Kr has reported.

Prior to joining Chinese e-commerce giant Alibaba, Yang received her doctorate in statistical science from Duke University and worked as Yahoo’s principal data scientist. Her expertise in cognitive intelligence helped Alibaba launch its 10-trillion-parameter M6, improving the search and recommendation accuracy of shopping app Taobao and payment app Alipay, according to Yang’s account to the ISI World Statistics Conference.

Why it matters: ByteDance is keen to develop its own AI language model, as the success of ChatGPT pushes tech majors to re-evaluate the application of AI in their products and services to stay competitive. 

• ByteDance has tapped Yang to lead its language generation model team, a person familiar with the matter told 36Kr, and she is expected to report directly to the company’s vice president Yang Zhenyuan.

Details: ByteDance is reportedly planning to prioritize imaging and language in its AI model, with the former to be integrated into its short video platform Douyin and video-cutting tool CapCut, the company’s two most successful apps alongside Douyin sibling platform TikTok.

• Zhu Wenjia, who currently serves as the head of global search and development for TikTok, has been appointed to oversee the large language and image model teams.
• M6, an abbreviation of MultiModality-to-MultiModality Multitask Mega-transformer, was introduced by Alibaba’s Damo Academy in March 2021. The model contains 10 trillion parameters and is pre-trained to perform multiple tasks, including generating clothing designs based on prompts, offering concise descriptions of e-commerce goods, and answering common questions, the AI model’s website shows.

Context: Major tech companies and AI startups are chasing experienced AI talent as they rush to develop their own AI offerings.

• Yang resigned from Alibaba for personal reasons last September, following the departures of several scientists, such as Jin Rong, ex-Alibaba vice president and associate dean at Damo Academy, and Wang Gang, head of the group’s auto driving lab.
• Another Alibaba VP, Jia Yangqing, also confirmed he had quit the tech giant on Tuesday, with the aim of pursuing a new AI infrastructure venture.

CapCut, an all-in-one video editing app owned by TikTok parent company ByteDance, has surpassed 200 million monthly active users, according to a report from Chinese financial media outlet Baijing. 

Why it matters: CapCut’s success comes amid an increasingly hostile climate for China-developed apps in the US and European markets, with ByteDance’s TikTok facing restrictions and investigations on multiple fronts. 

• The figures make CapCut the second overseas-focused product from ByteDance to achieve more than 100 million MAUs.

Details: CapCut was originally developed by Shenzhen Lianmeng Technology, a startup which ByteDance acquired in 2018 for $300 million. Launched as Jianying in China and designed for both mobile and PC, it offers a range of video editing functions, filters, audio and visual effects, and video templates and is compatible for use with TikTok.

• ByteDance released an overseas version of Jianying in April 2020, rebranding it to CapCut in December 2020.
• According to data from Chinese app analysis platforms Diandian and Data.ai in Baijing’s report, CapCut had more than 200 million MAUs in January. That month also saw CapCut enter the top 30 non-game apps list for iOS and Android devices in China. Its global revenue in January was $800,000, with the US market accounting for more than half of this figure. Although CapCut still has a revenue gap to Meitu’s editing tool BeautyPlus, which tops the list with over $2 million in monthly revenue, it has seen impressive growth, managing to achieve significant monetization in just four months. 
• CapCut has largely gained users through in-app promotions on Douyin, the Chinese version of TikTok, and by making its services available for free for two years. Since September 2022, CapCut started charging for premium features, which users can access by monthly or annual subscription packages.
• CapCut Pro’s charges revolve around cloud storage and premium features. The monthly cost of cloud storage is $0.99 for 10GB, $1.99 for 100GB, and $5.99 for 1,000 GB. The premium features are priced at $9.99 for a single month, $7.99 for a continuous monthly subscription, and $74.99 for a full year.
• In October 2022, as part of an update, CapCut launched a PC version, which is compatible with most mainstream social media platforms overseas, making it more attractive to both private customers and enterprise businesses.
• The app also runs a creator recruitment program whereby video creators making popular templates can earn up to $1,000. 

Context: TikTok reportedly set a goal of topping 1 billion daily active users worldwide by the end of 2022, testament to the app’s continued growth even as it faces a number of investigations and restrictions around the world. 

• On Feb. 27, Canada announced that it was banning the use of TikTok on government-owned devices, following similar moves in the US. The ban came just days after the EU announced similar restrictions for its staff. 
• In September, the UK Information Commissioner’s Office (ICO) warned that the ByteDance-owned video platform could face a $29 million fine for failing to protect child privacy.
• Earlier this year, ByteDance moved Douyin vice president Zhi Ying to TikTok to head up the latter’s products and content businesses, as the Beijing-based company looked to involve more of its successful executives in TikTok’s development.

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

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

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

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

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

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

ByteDance-owned video-sharing platform Douyin, China’s equivalent of TikTok, plans to offer its “group-buying delivery” service in more cities, but has no timeline for a national rollout, TechNode has learned.

Why it matters: The gradual entry into the food delivery sector of Douyin, the most popular short-form video app in China with nearly 700 million daily active users, poses a serious challenge in an industry which has been dominated for years by Meituan and Alibaba’s Ele.me.

• “We would consider expanding the [“group-buying” packages] feature to more cities in the future depending on the testing results, and there is no detailed timeline yet,” a spokesperson from Douyin’s life services unit told TechNode on Wednesday.

Details: In contrast to the food delivery services offered by its established competitors, Douyin’s “group-buying delivery” service enables merchants to promote and sell food packages that are generally for two or three people, via short videos or livestreams. Packages are then delivered to paying customers within a selected time frame.

• The feature was tested last December in three cities – Beijing, Shanghai, and Chengdu – before the launch of a self-registration service for local merchants in January.
• Merchants can use the third-party courier platforms that Douyin cooperates with, including SF Express’s SFTC, JD-backed Dada, and Shansong, or choose to deliver themselves.
• The group-buying packages fall under the short video platform’s local life services unit, which encompasses the food and restaurant, in-store business, and hotel and tourism segments. The emerging unit expects total sales to reach RMB 150 billion ($22.2 billion) in 2023, twice its actual GMV of RMB 77 billion in 2022, tech media outlet 36Kr reported earlier this year.
• Only merchants with physical stores can take up the feature in Douyin, which is available at a cost of 2.5%, and 5% to 10% in service fees to the platform and service providers respectively, local media outlet Jiemian reported on Tuesday. If the merchant uses a delivery service in cooperation with the platform, they have to pay about RMB 8 per order.

Context: China’s takeaway market has continued to grow in size in recent years, with Meituan dominating the industry to date. According to a report conducted by Zhiyan Consulting, Meituan took a 69% share of China’s food delivery market in 2020, while Ele.me accounted for 26%.

• Douyin tested a food delivery mini-program called “Xindong Waimai” in 2021, partnering with well-known brands such as HeyTea and KFC, but the platform was never officially launched.

ByteDance has moved Douyin’s vice president Zhi Ying to lead TikTok’s products and content business as TikTok becomes an increased focus of its parent company’s attempts to diversify revenue streams, according to a Wednesday report by local media outlet 36Kr.

Why it matters: Zhi Ying’s move reflects the importance of TikTok to ByteDance’s revenue growth, with the Beijing-based company set to involve more of its successful executives in TikTok’s development. In December, ByteDance also moved Chen Xi, former head of news app Jinri Toutiao, to head up TikTok’s e-commerce product development.  

Details: Zhi Ying worked for PricewaterhouseCoopers and Uber before joining ByteDance in 2016, where she led the operation and marketing of short video platform Huoshan. Later, she moved to oversee Douyin’s marketing and ran the company’s video-sharing app Xigua video.

• Zhi is “very competent and has a strong management style, while also being good at expanding business,” sources told 36Kr.
• Several TikTok managers, including those in charge of user growth, content style, and live-streaming, now report to Zhi, while she herself reports directly to Zhu Wenjia, head of TikTok’s products and technology.
• ByteDance’s revenue growth slowed in 2022 and the daily active user growth of its products was lower than expected, CEO Liang Rubo acknowledged at an all-staff meeting held in December. TikTok’s sister app Douyin has not publicly updated its user base numbers since it announced in September 2020 that it had more than 600 million DAU. 
• TikTok currently has over 1 billion users worldwide, with the short video app having a global penetration rate of less than 20%, while Douyin has reached nearly 54% in China, LatePost reported in October last year, citing a TikTok staff member.

Context: ByteDance is sending more senior executives from China with successful track records to TikTok at a time when US officials continue to heighten scrutiny of the app. TikTok CEO Shou Zi Chew is reportedly due to appear before the US Congress next month in connection with the platform’s privacy and data security. 

• More than 25 states in the US have banned TikTok on government-owned devices and a US House panel is set to vote in February on a total ban aimed at blocking TikTok from operating in the US.
• ByteDance is also seeking to expand into overseas markets with its team management platform Lark due to profitability challenges in the domestic market, Chinese media outlet Jiemian reported in early January.

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

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

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

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

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

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

2- ByteDance acquires two new entertainment companies

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The article was first published in the tech section of Tencent News in Chinese and translated by TechNode.

“You are impacted” or “You are not impacted”

On Friday, at the end of a crazy week, Andrew Chen picked up my call. It was Nov. 11, 2022, and Meta had just concluded its biggest round of layoffs ever.

Months earlier, he had left China’s troubled online education industry and returned to the United States to join the tech giant Meta. He had set his sights on either Meta or Google, the hardest companies to join in Silicon Valley, wanting to find a role in a firm with smart colleagues and ample job stability. Little did he know that a reduction wave lay around the corner.

Staff at Meta had little warning. The weekend before “Black Wednesday,” media reports filtered down to employees, who naturally responded with anxiety. They had been checking revelations from time to time on the anonymous workplace social networking site blind.com. “Most of my colleagues panicked that entire week. They had intense discussions in WeChat groups and on the intranet right until the news was confirmed,” Andrew said.

At 6 a.m. on Wednesday, bleary-eyed staff received an email.

A sentence in bold determined whether they could stay or not: “You are impacted.” or “You are not impacted.” In the end, their fate came down to one word, “not.”

Andrew Chen received an email on Wednesday morning. It said, “You are not impacted.” He felt lucky. But he also said that even if he had been laid off, he would have been just fine.

“It felt like winning the lottery,” said Chen. Despite joining Meta a short while previously, he felt an overwhelming sense of sadness. “My colleagues were sad no matter whether they stayed or went. It was the first mass layoff in Meta’s history.” As many as 11,000 employees lost their jobs that day. In the end, 13% of the entire team was affected.

The company told people to cancel all their work meetings for Wednesday and Thursday and stay away from the office. “As you know, the whole North American tech industry is in a miserable state. Meta is not alone. Lyft, Stripe, and even Amazon may have to lay off staff. Google has put a freeze on hiring; Microsoft has made staff cuts. With all the layoffs, many people are left without work right now. Our holidays are about to start and next year’s recruitment will not start until the end of January or in February. Now is not a good time.”

Employees had two days to digest their emotions. “Everyone has friends. They need time to talk it through and comfort each other.” It was not until Friday that some important meetings started up again. Zuckerberg held two all-hands meetings.

Insiders said employees in key departments (short video, AI and recommendations, advertising, and the metaverse) were less impacted by the layoffs, especially the most experienced. No one thought layoffs were connected to nationality or skin color.

What about that compensation?

Andrew Chen called himself a “professional laborer.” He wasn’t alone in Silicon Valley tech circles. He was fairly indifferent to the prospect of losing his job. “I’m optimistic,” he said. “I’ve gone through many layoffs, and I’ve had to fire someone myself once too. As long as the payouts are in order, everything will be fine.”

So how did redundancy payouts work out for Meta’s laid-off employees?

Meta’s cash layoff plan was 4+N/2. This meant four months’ severance pay and an extra half month’s salary for every year of service. In addition, the company would issue shares to be cashed out on Nov. 15 and extend medical insurance for six months.

Anna Zhu, a Meta employee, ran through what she knew of the salary system for me. She took as her example an employee on level 5. She said it would typically take five years to get there from graduation, and annual earnings could reach $500,000.

Assuming this came half in cash and half in stock, the monthly salary would be around $20,000. Let’s suppose the employee had worked at Meta for two years before being laid off. Based on the formula, they would receive $20,000 multiplied by five (4+2/2), totaling $100,000 in compensation. Cashing in a quarter of their shares over two years would net the employee another $60,000.

To sum up, a level 5 employee could receive $160,000 (RMB 1.14 million) in redundancy pay. Next-level employees who went down the management route might earn $600,000 a year. If they took half cash, half stock, and worked at Meta for two years, they could get a payout of as much as $200,000 (RMB 1.42 million).

Specific amounts would vary, of course, based on working years and salary details, and the above examples do not take account tax deductions. Anna Zhu said a gross payout of $200,000 would become $120,000 after tax. “With compensation of $120,000, you can stay home for four months and find a new job in January. What’s not to like?”

As Chinese professionals in Silicon valley have climbed the career ladder, many have ended up at levels 5 and 6. A few, aged between 30 and 50, have reached level 7, executive rank. Directors are at level 8.

The highest level of people of Chinese descent in Meta is the company’s CFO Susan Li, but she is American-born Chinese. As for the ranks of mainland Chinese who studied in the US and joined the tech company, some have become VP, but they have yet to reach the senior executive level.

As the recession grinds on, two groups will be hardest hit by layoffs. One is fresh college graduates who will find it hard to secure a job with skeletal work experience. The other is people stuck on an H1B visa.

Meta policy was that employees who were leaving would be kept on the system until Jan. 15 and could tell the Immigration Bureau they had lost their job on that date. They would then have 60 days to find a new job or be required to leave in March. One of those impacted said, “In fact, it will be hard to find a proper new job in four months, especially just after the holidays.”

There was a sense that each generation felt the layoff differently. Those born in the 1980s had accumulated enough money to give them some financial freedom. They had green cards and could retire at will. The post-90s generation is in a tougher place — having graduated at around 22 and studied for between two and five extra years to gain a master’s or doctorate, they will have only entered the workplace between 24 and 27. It takes five years of work to gain a green card and another three to five years to buy a property. For people with green cards and money in the bank, “Being laid off is kind of nice, especially for those with strong credentials.” Some even achieve a seamless transition between jobs. In short, it’s the youngest recruits that tended to suffer the most.

In Silicon Valley and Singapore alike, people are helping each other find jobs. One Meta staff member said, “It’s not the end of the world if you’re laid off.”

An employee who was laid off from the Singapore office told me, “Everyone is quite calm, impacted or not.”

She was hit by the layoff just ten days after joining the company. People took it calmly. “Some people put together an excel sheet of all the job opportunities out there. It was passed around, with instructions for impacted staff to identify themselves next to jobs they were interested in. Recruiters will screen you and make contact if you’re a fit,” she said. “Personally, I don’t think finding a job will be a big problem. I just don’t know whether the new job will be stable enough. But we never can tell how opportunities will turn out.”

A senior headhunter in Silicon Valley told me that recruitment plans are based on revenue forecasts. Layoffs mean companies are on edge about revenue-making over the next 6-12 months. In larger Silicon Valley companies, up to 10% to 15% of staff are being made redundant. Twitter aside, the size of the cut makes sense. For start-ups, even higher proportions are losing their jobs — 20% to 40%, sometimes even more.

Tracing the lead-up to Meta’s mass layoff, industry analysts found a number of causes. In recent years, employee numbers at Meta ballooned. Just as Zuckerberg piled money into the metaverse, keeping costs elevated, growth stagnated. The company seems to have made bad profit predictions, on which hiring decisions were based. Moreover, in macro terms, the initial dividends of Web2 were depleted. Rate hikes and the war in Ukraine had not helped bolster global growth. Layoffs were doing the rounds, not just in Meta and Silicon Valley, but also in high-tech industries around the world.

The headhunter quoted above said mass layoffs in China and the US were not independent events. They were always interconnected. When budget cuts hit Chinese firms, they tended to close their US offices. And when US-based companies started laying off staff, the wave extended to China, as agencies that sold them ads and factories handling their outsourced production lost contracts and needed fewer workers. The chain reaction was trans-Pacific.

‘I’m a hard worker, so it’s easy to earn money’

After experiencing a hurricane of layoffs, were Chinese tech workers in Silicon Valley willing to stay on?

Andy Wong, born in the 1980s, told me he had a tough time getting a Silicon Valley job. It was never easy for Chinese people to seek jobs in the US in the 1990s and early 2000s. There’s an image of the perfect overseas Chinese worker — a science major with good grades and a full scholarship.

Wong wants to stay in Silicon Valley for now, citing the high salary as one reason.

Tech firms in China couldn’t pay as much as those in Silicon Valley. Wong compared his experience of job hunting with that of his peers. He figured that he was at level 6 of Meta, level 66 of Microsoft, level 6 of Google, and level 7 of Amazon. At Bytedance in Beijing, he thought he’d be at level 3.2. In Silicon Valley, a tech worker at his level would earn $550,000 (RMB 3.7 million) to $650,000 a year. In China, he’d earn no more than RMB 2.5 million. This is before factoring in the cost of living, which is higher in Silicon Valley, or health care, which is barely satisfactory. Andy said, “I’d have to wait three months to have a gastric ulcer seen by a doctor in the US.”

However, these levels also shifted as the market changes. Generally speaking, people who switched from Silicon Valley to internet companies in China were offered a promotion from the outset. A Meta employee at level 6 who moved to Alibaba might end up at level P9, and be dubbed a senior expert. Jumping continents to land a job at ByteDance would mean starting at level 3.2. “Three years ago, someone at Meta level 6 or 7 could become 4.1 and 4.2 at ByteDance if they worked for TikTok. Levels depreciated as increasing numbers of Chinese tech workers returned to mainland China.

The pay of US technology companies was transparent. Websites such as levels.fyi listed levels and salary comparisons in detail, and employees of Silicon Valley companies referred to the data when job hunting.

According to levels.fyi, when a fresh graduate entered Meta at level 3, they could receive an annual salary of $172,000 (RMB 1.22 million). After promotion to level 4, this might rise to $237,000 (RMB 1.69 million). Beyond level 5 and 6, the total package would rise to $808,000 (amounting to RMB 5.75 million). At level 8, they might earn $1.818 million (RMB 12.94 million). Information about the pay package for executives at level 9 was not disclosed. That was down to individual negotiation.

(The above data can only be used as a reference, and the specific situation will vary according to the employee’s individual situation and the negotiation between companies. The total number will vary, and the ratio of cash to stock will differ. And the above figures are pre-tax income.)

The above headhunter was familiar with salary systems at Chinese and US technology firms. He settled in Silicon Valley and said many of his WeChat contacts earned more than $500,000 a year.” He said, “Only a few could aspire to that kind of package in mainland China. A salary of one or two million yuan does happen, but few earn as much as four million.”

People are treated fairly equally in Silicon Valley, and it’s this culture that has become another pull factor. Employees call their bosses by their first name rather than “boss” as they do in mainland-based tech companies. There is no age discrimination among the over-35s. More importantly, Silicon Valley workers don’t work from 9 a.m. to 9 p.m. six days a week (as is the practice in many mainland tech offices). They start replying to messages at 10 a.m. on weekdays, have an hour off for lunch, and go home at 5-6 p.m. Meta is already the most hardworking place to work in Silicon Valley. For Andy Wong, who spent time in Chinese tech companies, getting used to the more relaxed work ethic took time.

“I am very passionate about my work and have always wanted to work hard, so for me, earning a living there was very relaxed.”

He’s more interested in being engaged in his work than the name of the company he works for. His life motto is: be optimistic and happy, healthy and strong, stay with the family forever. “On this basis, any extra dollar I earn is kind of a gift.”

But Andy Wong still thinks he will choose to return to China to continue his career. He hopes to find a job in a mainland technology company or foreign firm with offices in China so that he can be close to his parents as they age and enjoy his home life. He’d find it too lonely to retire overseas with only his partner beside him.

One Chinese millennial told me he’d like to stay in Silicon Valley. “I don’t have a strong reason to return to China.” He had graduated from a top 10 US university, liked what he was doing, and got paid handsomely for it. “I don’t want to work like a maniac. There’s an advantage to not going for promotion. People won’t have overly high expectations, and you won’t have to put all that effort into rising through the ranks. I just want to keep making my favorite products.”

House prices in Silicon Valley were not sky-high as in China. “A house in Silicon Valley will set you back $2 million, and you can buy an apartment for $1 million.” The millennial employee said he had not yet bought a property, and spent five to six thousand dollars a month on rent and food. The pace of life in Silicon Valley was slower than in China. He said weekends were spent climbing mountains, playing board games, and singing karaoke. “It’s a much more livable place and a way better place to settle down.” This was coming from a millennial recruit who wasn’t laid off in this round.

A high salary and a simple life prompted many tech workers from China to stay put in the US. But what about those who left? One person from Amazon who returned to China told me that between 2014 and 2019, Silicon Valley saw many people go back, either to start their own businesses or join Chinese tech firms at a higher executive level. For many, this was because they would gain space and freedom to develop their talents.

“It’s hard for Chinese to become decision-makers abroad. It may be easy to get into [tech] in America, but it’s hard to be admitted into the inner circle, let alone sit at the executive table.”

Even the simplicity can be boring. “Beijing is a particularly diverse place. The next person you meet could be working in private equity or venture capital. Or they’d be from a state-owned enterprise, IT, or the performing arts. In Silicon Valley, all of us are basically coders, preoccupied by options, houses, children, and entrepreneurship. We’re all the same.”

An initial drop in salary on returning to China reversed after a while, the tech professional said. “I make bigger decisions, take charge of more things, and can have more fun,” he told me. The flip side was that work is more wearing and more competitive. Office politics often interfered. “When you are a lowly-ranked foreigner (in the US), no one disturbs you.”

With Covid, the number of tech workers returning to China fell, while the country’s internet industry entered a slowdown. With diminishing opportunities on both sides of the Pacific, Silicon Valley’s high salaries and work-life balance seemed more “cost-effective” to many. What’s more, people only needed to apply some of the hardworking mentality in Chinese companies to American companies to be seen as model workers.

Silicon Valley’s wave of layoffs is still ongoing. Industry insiders think it will go on for another half year. As technology giants shrink, some of the best employees are turning their attention to start-ups. In Web3, self-driving, and AI, opportunities abound, to name just three fields.

Two investors in Silicon Valley said that while they felt sorry for people who had lost their jobs, layoffs were a normal part of any economic cycle. Cutbacks would mean large companies could focus better on their core business. More great startups will be created in the next 18 months too. Tech workers with cushy salaries would be cut loose to explore their options more broadly. Some would work for start-ups, which would sweep up lots of talent during the economic downturn.

As big companies went into recession, smaller ones would profit from the opportunities created.

(Note: To protect the sources, Andrew Chen, Anna Zhu, and Andy Wong are pseudonyms.）

ByteDance-owned short-video platform Douyin, China’s equivalent to TikTok, has set RMB 150 billion ($22.2 billion) as its annual target for local life service sales in 2023, twice its actual gross merchandise volume (GMV) of RMB 77 billion in 2022, Chinese media outlet 36Kr reported on Jan. 15. Douyin’s local life services unit head told 36Kr that the figure of 77 billion for last year was inaccurate, but declined to give specific data. 

Why it matters: Climbing sales for local life services – encompassing food delivery, travel bookings, and other retail sales – point to the business becoming increasingly important for Douyin’s revenue growth in 2023 as the platform continues to take on established delivery and life services giant Meituan. ByteDance CEO Liang Rubo previously acknowledged that the company saw slower revenue growth than expected in 2022, while growth in daily active users for its products was also lower than the targets set early in the year.

Details: Douyin is confident of hitting the full-year 2023 sales goal of RMB 150 billion for its local life services unit, as internal estimates show the unit’s GMV ceiling to be between RMB 260 billion to RMB 280 billion, a source told 36Kr.

• The food and restaurant segment comprises half of Douyin’s life services sales target, with in-store business and hotel and tourism expected to bring in RMB 45 billion and RMB 30 billion, respectively.
• The business development team at Douyin’s local life services unit has shrunk from 3,000 to around 1,000 personnel as the video platform pushes more work to help merchants improve their operational capabilities onto third-party service providers, the report cited an unnamed source as saying. Douyin subsequently denied that this downsizing had taken place.
• The local life services division underwent a new round of organizational restructuring after ByteDance put former products and commercialization strategy leader Zhu Shiyu in charge of the unit last October. Notably, the business development team was resegmented by industry, instead of geographic region.
• Douyin’s widespread popularity is largely thanks to its addictive algorithms. A person close to the platform told media outlet Huxiu that each new Douyin user enriches the labeling process, and that this method is also now being applied to local life services. The unit divides users into three categories: people who purchased a certain product, people who searched for, followed or liked a certain product, and potential customers based on their age, work, and lifestyle.

Context: Douyin’s entry into local life services, which began in 2021, is seen as a big threat to industry giant Meituan, which brought in RMB 129 billion in revenue from core local commerce, including food delivery, in-store purchases, and hotels and travel in the first three quarters of 2022.

• Douyin still performs weakly in terms of the order completion rate of its group buy offerings, which at only 60% in 2022 is unchanged from 2021. Meituan’s rate, by comparison, is nearly 90%.
• Douyin users are seemingly still hesitant about the platform’s content-driven group buying feature, in which users purchase coupons prior to consumption via in-feed videos, the 36Kr report noted. Users can apply for a refund if they decide not to use the coupons, but take-up has still been slow compared to Meituan, where users usually buy coupons after completing in-store consumption.
• Some agents in Meituan’s low-tier markets have asked merchants to pick a side as competition hots up, encouraging them to cooperate with either Douyin or Meituan, according to 36Kr.
• In December, China’s three major express courier platforms – JD backed-Dada, SF Express’ SFTC, and Shansong – announced that they would begin providing same-city logistics services for Douyin’s local life services arm in a major expansion of ByteDance’s push in the sector.

ByteDance-owned Douyin has achieved its yearly target set for local life service ahead of schedule, reaching RMB 50 billion ($6.98 billion) GMV in October, Chinese media outlet 36Kr reported, citing several unnamed sources.

Why it matters: The short video app, which has more than 600 million daily active users, introduced functions like ordering food and tickets, and booking travels directly into it. These moves put the content giant in direct competition with Meituan and Ele.me — two established local service players.

Details: Douyin’s local life unit has now provided a variety of daily services, including buying food ordering recommendations and sightseeing tickets, and booking hotels, parent-child activities, and sports and fitness events. Users can complete those purchases in the video app. 

• The 36Kr report said short videos contributed nearly 50% to the platform’s fast-growing life services sales, while live-streaming and search contributed 35% and 18% to the total GMV growth, respectively.
• A direct link to purchases can appear in the bottom left corner of a related short video. For example, a user watching a video of a plate of steamed fish might see a link to a nearby restaurant serving the same or a similar dish. Those links can nudge users to place orders without leaving the current app.
• Douyin is also reportedly piloting food delivery and group buying delivery services in the southwestern Chinese city of Chengdu soon. But merchants still need to contact couriers themselves for delivery if they currently get takeout orders in the city.

Context: The popular short video platform is being used by merchants as a new way to get a broader range of consumers, while Douyin is also expecting to accelerate the monetization process from the local lifestyle unit, which has huge development potential.

• The overall market size of China’s internet local life service industry has reached RMB 2.6 trillion, growing 15.1% from a year earlier, according to a report conducted by consulting firm Qianzhan, with the figure expected to reach RMB 4 trillion by 2025. 
• The line between content platforms and retail platforms is increasingly blurring, for example, Meituan also tested a short video function this May. 
• Moreover, established players are seeking partnerships in the hope of defending their advantages. Meituan and Kuaishou reached “strategic cooperation” last December after rival Douyin set up the life service as the company’s core business. In August this year, Douyin and Ele.me also announced cooperation, though it has not yet been implemented.

Correction: an earlier version of this article miscalculated the US dollar amount of the GMV.

Every September, Chinese tech majors kickstart a series of charity events, such as Alibaba’s Sept. 5 Charity Week and Tencent’s Sept. 9 Giving Day. Since this tradition of “charity month” in China was pioneered eight years ago by Tencent, these peer-to-peer fundraising campaigns have become the primary way that the general public in China gets involved in charitable donations to non-profit organizations.

Similar to Alibaba’s famous Singles Day shopping festival, these mega campaigns are led and hosted by internet companies and their respective platforms. Platforms will often offer generous fund-matching policies and incentives to encourage donations.

However, the past year has not been known as an easy one for most Chinese tech companies. Internet giants including Tencent and Alibaba reported slowing year-on-year revenue growth, while ByteDance reportedly cut a large number of staff across departments, including in sectors like edtech and gaming that were robustly growing before being hit by regulation changes.

Amid an economic slowdown, weak spending, and regulatory pressure, what’s the draw for Chinese tech companies spending on charity events?

Why are Chinese tech majors organizing giving events? 

Although the charity frenzy usually declines after the promotional period, it still creates substantial short-term traffic for the platforms at a time when users are increasingly hard to gain and retain. According to Tencent’s published data, more than 58.16 million donors participated in this year’s Sept. 9 Giving Day and total public donations amounted to RMB 3.3 billion (USD 476 million). “Charity festivals look good to the public at a time of distress, and are a very visible way to take on social responsibility for corporations,” said Rui Ma, China tech analyst and investor.

It’s an important period for the NGOs too. “Every September has become an unofficial carnival for non-profit workers,” said Jenny Yue, a volunteer at a Beijing-based charity organization, “marking it the most active time for Chinese non-profit professionals and an unofficial team-building experience.”

Yue stated that the pandemic had hit NGOs hard, with a lot of initiatives dying out and a significant shrinkage of funds for those that remained. Efforts during the charity month have therefore become paramount to building a strong donor base, and for some, survival. “Sept. 9 has almost become a ‘must’ instead of an option for non-profits,” Yue said. Omnipresent promotion from platforms, including Tencent’s super app WeChat, helps bring in more attention than these organizations could ever get otherwise. NGO workers thus tend to use all the resources at hand to make the most out of the festival. They recruit volunteers who care about the cause and train them specifically on how to use the platforms and navigate their charity month campaigns in order to maximize their impact during the festival.

The platform rules, however, while bolstering the donation process for charities, also create barriers for fundraisers, especially grassroots ones. Some small non-profits lacking organizational capacity or digital know-how are prone to get left behind during this period. ByteDance’s DOU Love Charity Day reportedly sparked some debate regarding its mechanism for matching fund distribution – fundraisers can only get promotional codes and bonuses based on the number of new users attracted to the platform. 

Yet as internet companies rise as definitive players in the field of philanthropy, more thoughtful engagements are expected to transform the decades-old charity practices in China.

The state of philanthropy in China

Unlike the US, where 80% of charitable donations come from individuals, 80% of charitable donations in China come from the corporate sector, according to the charity research platform Global Giving. This data reflects the challenge of fundraising in China: the country’s modern philanthropy ecosystem only began to form after the 1980s market reforms and has taken hits ranging from executive scandals and corruption to complicated bureaucracy and digital revolutions before it has really had a chance to bloom. 

Peer-to-peer social fundraising thus became a fertile ground for Chinese social media giants to establish dominance and differentiate themselves. In 2018, the Chinese Ministry of Civil Affair announced a list of 10 companies that were authorized to raise funds, effectively making mega internet companies the only players allowed to conduct online charitable fundraising alongside a few government-backed organizations. “Social media serves as a perfect pool of traffic that leads to the act of donation,” said Jonathan Yi, a Chinese internet analyst. “The WeChat-based Sept. 9 Giving Day is uniquely advantageous when it comes to raising funds through mobilizing individual volunteers and their social circle. ”

This year, Tencent upgraded its social token “little safflower” game to encourage wider participation in the annual campaign. Contributors could collect “little safflower” not just by donating money, but also through participating in charity activities, such as collecting running mileage and doing other good deeds on Tencent platforms, all adding to the final number of “little safflower” and the corresponding matching donation. “The sharing-donating-sharing chain perpetuates itself among a network of acquaintances, and formulates a virtuous circle,” said Yi.

The same goes for Douyin, another social app based on human-to-human interaction, an existing user habit that charitable donations could be built on top of. In 2020, ByteDance was finally approved by the Ministry of Civil Affairs as an authorized online donation platform. However, unlike WeChat, which retains regular social interactions, Douyin leans heavily towards a creator-consumer relationship. The platform thus tailored its matching fund policy to attract new users: donations from newly signed-up users are multiplied by 20 and matched by the platform. 

This is not the first time that ByteDance has tried to leverage the social function of its apps for charity. On the global version of TikTok, creators can pick a charity of their choice to display on their profile, designating not just a call to action but a sense of identity. 

Differentiation through giving

Tencent, which boasts the longest-running and most widely-participated charity festival, is moving beyond just donations and starting to further its all-encompassing ecosystem into business-to-business areas. Digital Toolbox, a package of a plethora of Tencent services including Tencent Cloud, Tencent Doc, and Tencent Meeting, was an initiative Tencent designed to help NGOs digitize. The Chinese tech giant has also launched an accessible version of a full range of products including WeChat, QQ Mailbox, QQ Music, and Tencent News to support individuals with disabilities. 

On the other hand, Alibaba, as an e-commerce platform, has made empowering small merchants its priority. Starting in 2019, Taobao enabled merchants to label some of their items as “charity products”, meaning a portion of the revenue will go to a charitable cause of the store owner’s choice. In 2022, 2.2 million Taobao merchants participated in this campaign, while 500 million consumers supported the initiative. 

Although its education unit is undergoing a major reorganization, ByteDance is still actively working to build an education empire off of its influence. In its 2021 ESG report, the company listed “education equity” as its “highly important” top value, ahead of “technological innovation” and “originality protection.” This year, ByteDance started multiple education-related initiatives, including one dedicated to helping Fujian primary schools in rural areas gain access to digital education. 

Conclusion

Despite economic stagnation, China’s tech majors are very unlikely to stop hosting charity festivals. In fact, they might rely more heavily on peer-to-peer donations and extend their influence further into users’ everyday life. At a time when major internet companies are trying to cut costs and increase efficiency, regular charity events could become another form of marketing for them. 

ByteDance-owned Douyin e-commerce is testing a new budget retail offering, selling selected products under RMB 9.9 ($1.38) to attract buyers, Chinese media outlet TechPlanet reported on Tuesday.

Why it matters: The new budget section signals Douyin’s ambition in getting a larger share of lower-tier markets. A heated area that is also being pursued by other major e-commerce giants like Alibaba’s Taobao and JD, while Pinduoduo, known for its extremely low pricing, is currently the leader of this segment.

Details: The new budget section is accessible via a button on the home page of the mall channel in Douyin’s lite version app (our translation) to some users. The report said that the firm’s e-commerce platform has invested heavily in the project. 

• According to a statement released by Douyin recently, this special deals channel aims to provide a consumption scenario that meets users’ high cost-effectiveness needs along with improving user retention.
• Douyin requires participating merchants to have an order volume of no less than 1,500 in the past 30 days.
• The channel is divided into various zones, all items are priced under RMB 9.9 zone, with a zone priced even under RMB 4.9. The channel covers categories from household, clothing, shoes and bags, food and beverage, to digital accessories. Some products can be purchased for merely RMB 1.9 (less than half a cent), including shipping.

Context: As the market in first- and second-tier cities gets increasingly saturated, lower-tier markets have become a growth area for e-commerce platforms to tap into potential consumer power, but making the transition is not easy.

• Alibaba’s budget shopping platform Taobao Deals is the company’s main force in this market, and it reached 300 million annual buyers in March. However, the app is facing difficulties in trying to increase its market share as Alibaba is unlikely to commit the same scale of resources to the platform’s growth as it has in the past.
• JD’s Jingxi also focused its business on lower-tier cities, but Richard Liu, the firm’s chairman and CEO, acknowledged Jingxi’s failure in July of this year, and the business group was broken up after only about two years of operation. Chinese media outlet 36Kr previously reported that two of JD’s executives advocated abandoning the lower-tier markets to focus on intra-city retail, while Liu still wanted to continue.

TikTok owner ByteDance launched its Pico 4 VR headset in China on Tuesday, following its unveiling to the overseas market on Sept. 23, offering more exercise content and incorporating a number of entertainment deals with local partners. The Pico 4 has a price range in China of RMB 2,499 – RMB 3,799 ($352.76 – $536.27), based on different storage options (128 GB – 512 GB).

Why it matters: VR and AR devices are increasingly popular in consumer markets, but affordable, high-spec options in China remain scarce.

• Meta’s Oculus dominates the market globally, but its services and content are inaccessible in China, giving Pico a huge advantage when it comes to building up local content.

Details: Pico will work with Chinese content providers to offer a range of services, including virtual concerts, exercise courses, and interactive narrative work.

• There are three major Pico partnerships in the sports and exercise fields and the brand plans to release over 50 related apps. Pico will work with a Shenzhen-based startup, Supermonkey, to bring users customized exercise classes in virtual reality. The brand has also revealed a partnership with notable fitness coach Pamela Reif for fat-burning plans, which it said will not require extra equipment.
• Pico also has a new app named Chao Ran Yi Ke, with over 500 minutes of workout classes in three intensity levels.
• Ling Cage (Ling Long, in Chinese), a popular sci-fi animation series produced by YHKT Entertainment and Bilibili, will have a VR version available on Pico’s devices. Users will be able to play as the main character from the show, exploring the story in an immersive way.
• Pico has also reached agreements with the copyright owner of The Three-Body Problem, the famous sci-fi novel written by Liu Cixin, to bring an interactive narrative work to its platform based on Liu’s work.
• Moreover, Pico has revealed two virtual concerts coming this year. One is for ByteDance-backed virtual idol group A-Soul in November. Another is a Mandarin-language singer whose virtual concert will be held by the end of this year, but the firm has yet to reveal the artist’s name. According to Pico, the concert will feature a Chinese fantasy style mixed with retro disco elements.

Context: Pico has been working with partners in the content industry to enrich the experience of its devices. The firm launched Pico Video in March with an in-depth partnership with over 30 VR video-creating firms and major Chinese streaming platforms.

• Pico has so far hosted three VR concerts this year with famous artists, including Elvis Wang, Michael Zhen, and Wang Feng.
• ByteDance acquired the firm last year at a cost of RMB 9 billion ($1.27 billion). The company has since expanded aggressively, with employee headcount growing from 300 to over 1,000 (in Chinese), and 70%-80% of the workforce engaged in development and research, according to Chinese media outlet 36Kr.

TikTok owner ByteDance bolstered its lineup of VR headsets on Thursday by unveiling the new Pico 4 and 4 Pro as strong alternatives to the Meta Oculus, with prices starting from 429 euros ($421.79).

Why it matters: The Chinese tech giant is clearly eyeing the VR market, and this is its first VR product since acquiring the Beijing-based firm Pico last year for RMB 9 billion ($1.27 billion).

• ByteDance first announced the series overseas rather than in China, a break from most Chinese consumer electronics vendors and a clue to its prioritizing of global markets.

Details: The Pico 4 will be available in Japan, South Korea, and 13 European countries, including the UK, France, Germany, and Spain, shipping from October 18. And it will come to China, Singapore, and Malaysia later this year. A US release has not been announced.

• The Pico 4 has a similar standalone design to its predecessor, with the same 7nm Qualcomm Snapdragon XR2 processor supporting connectivity with Windows devices. The new generation does have larger 8 GB RAM and larger 4,320 x 2,160 resolution.
• The firm says the new products have adopted the popular pancake optical module, which has less weight and a smaller size than traditional Fresnel lenses. It offers a 105-degree perspective with 20.6 pixels per degree (PPD) and a 90 Hz refresh rate. 
• The Pico 4 can last three hours with a 5,300 mAh battery, according to the headset’s official spec pages. The battery is located in the strip that goes on the back of your head to aid balance.
• The headset uses inside-out tracking tech that enables the user to be located without external beacons or equipment. It comes with four cameras to support a full-color passthrough feature that creates mixed reality, something its rival Meta is still working on.
• The Pico 4 also comes with two motion controllers, which support vibration feedback.
• At the release event, Pico announced content partnerships with Ubisoft, Les Mills International, and Discovery for gaming, fitness courses, and video streaming, respectively. Popular dancing game Just Dance will arrive on Pico as an exclusive and there are also plans for a dedicated social platform, Project Pico World, which will be available sometime in 2023.
• The major difference between the standard version and the Pro version (which is coming soon) is that the Pro has three infrared cameras for eye and face tracking, and features accurate measurement and stepless automatic adjustment of the pupil distance and IPD to ensure image quality, reducing discomfort.

Context: Founded in March 2015, Pico is a major VR hardware and services vendor. In addition to its products for the consumer market, it also provides services for enterprise clients in the fields of education and healthcare.

• Pico took 11% of the global XR market by shipments in the second quarter of this year, ranking third overall. Its major rival Meta dominated with a 66% market share during the same period, according to Counterpoint, a Hong Kong-based research firm.

Chinese tech majors Tencent and ByteDance were the top-grossing publishers in global mobile app stores for the first half of 2022, according to a report by business insight firm Sensor Tower.

The global mobile app market is highly centralized, with 91% of revenue coming from the top 1% of publishers. Over the years, such centralization has been shrinking; the market share of the top 1% has hit its lowest point since 2019.

Why it matters: Tencent and ByteDance have dominated the global mobile markets for years with their trending game titles and the internationally phenomenal video app TikTok. The two majors have invested heavily outside of China, launching new services and acquiring studios in recent years.

• Despite the highly centralized nature of this market, top players are losing shares and creating more space for newcomers.

Details: By analyzing 900,000 publishers on the Apple App Store and Google Play, Sensor Tower found that the top 1% of publishers accounted for 79% of all downloads and 91% of revenue on the two platforms in the first half of 2022. The remaining 99% shared 21% of the market.

• Tencent was the top-grossing publisher in game and non-game categories, earning about $3.3 billion in the first half of 2022. The figure is almost 153% larger than ByteDance, which came second on the chart with $1.3 billion in revenue.
• Tencent was also the most profitable gaming app publisher in the same period, generating over $2.6 billion, thanks to its popular titles like Honor of Kings and PUBG Mobile​​. Tencent accounted for around 10% of revenue from all top game publishers.
• In the gaming category,106,000 publishers introduced new titles in the first half of 2022. While the top 1% of gaming publishers took over 79% of the market globally with 22 billion downloads.
• In non-game apps, ByteDance’s TikTok remains the global app bestseller and most downloaded in the first half of 2022, helping to boost the company’s revenue growth. 
• In August, TikTok and Douyin, two short video apps owned by ByteDance, pulled in more than $306 million from the global Apple App Store and Google Play, contributing to the first-place ranking in the global mobile non-game revenue list, a figure 1.8 times that of the same period last year.

Context: Revenue from mobile apps saw a 2.2% decrease semi-annually (in Chinese) in the first half of 2021, a total of $65 billion less than in the second half of 2021. It is the first fall in revenue since 2019, according to Sensor Tower.

• The fall was mainly due to a revenue decrease from mobile games, which hit $41.3 billion in the first six months of 2022. The US, Japan, and China are the top three markets for mobile games, with the former two seeing over 8% less revenue compared to the second half of 2021.
• Tencent has been ambitious this year, making major moves in the overseas gaming market. The firm announced new progress with its partner Ubisoft, which just doubled its holding shares in new mobile titles. It also invested in notable publisher and developer FromSoftware, and acquired Sybo, maker of popular game title Subway Surfers.
• TikTok also has great expansion plans in the overseas market, with a particular focus on e-commerce business. Since it launched TikTok e-commerce in Indonesia in February 2021, it has expanded local and cross-border business in Thailand, Vietnam, Malaysia, the Philippines, and Singapore. TikTok also cooperated with e-commerce giant Shopify last August, allowing users from the US and Britain to buy goods directly through the app.

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

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

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

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

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

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

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

On July 17, Luo Min, CEO of Chinese online credit company Qudian, went viral with a Douyin livestream selling “ready-to-eat” packaged dishes. For 15 hours, he remained at the top of Douyin’s e-commerce livestream ranking and managed to attract 95.87 million visitors, sell 9.56 million products, and gain 3.97 million new followers, all in just one day. While that’s quite a coup, the company spent an estimated RMB 200 million ($29.6 million), about 9% of its cash reserve, on the livestream. 

Before this blockbuster livestream, Qudian was best known as an online microlender, giving out cash loans and various other loans to users. In April, the company announced it would begin to make “ready-to-eat” dishes, a new trend that has taken off since the outbreak of the pandemic, as people stuck at home are eager to cook quality meals in less time. 

While the transition from online lending to packaged food may seem jarring, Qudian has been looking for ways to boost its lackluster stock price since China’s crackdown on micro-online lending in 2017. 

At the end of May 2022, Qudian received a delisting warning from the New York Stock Exchange for the second time. Earlier the same month, Qudian had just completed the remediation of the delisting warning issued by the NYSE in February, bringing its stock price back above $1, making the company re-eligible for the NYSE’s continued listing conditions. Since Qudian went public in New York in 2017, institutional shareholders have reduced their holdings and withdrawn one after another. As the founder of the company, Luo Min is responsible for rescuing the company amidst pressure from the capital markets, which was the fundamental reason for the company to bet big on livestream. 

The strategy largely worked. Since Luo Min began to test the waters on Douyin’s livestream in mid-June, Qudian’s stock price has risen steadily, maintaining its price just above $1 in the past month. A day after its successful livestream, Qudian stock increased by 40% and closed at $1.67. As the market closed on July 21, Qudian’s market cap was $345 million, growing almost 70% since the beginning of June.

Giving out pickled fish for a penny 

The results of Luo’s July 17 livestream were astonishing; the number of viewers from 7:00 a.m. to the following day at 2:00 a.m. was a total of 95.87 million. Luo gained 3.97 million followers on that day alone, while data shows that the 19-hour livestream generated 9.56 million transactions, with cumulative sales of RMB 250 million ($36.9 million). The largest sales driver during the livestream was the company’s spicy boiled fish dish. Priced at RMB 59.9, the dish sold over 1 million units and brought in RMB 75.073 million in sales. In addition, sales of the remaining 9 dish options, such as pickled fish, spicy boiled meat slices, and beer duck, all exceeded RMB 10 million in sales each.

According to Douyin users who watched Luo Min’s livestream, he was quick and direct when offering promotional products to the audience, eliminating unnecessary rounds of pre-sales and waiting time. This reflects the key to the success of Luo Min’s livestream strategy – offering massive deals.

For example, one promotional deal saw the company sell 100,000 units of pickled fish for just RMB 0.01 during the July 17 livestream. If the cost of each unit is RMB 25, these sales accounted for a loss of nearly RMB 2.5 million. However, that wasn’t the highest cost of Qudian’s deal-packed livestream. Reports show that promotion and advertising cost upwards of several hundreds of million yuan. The company also gave away 1,500 iPhone 13s, and paid for celebrities like Jia Nailiang and Fu Shouer to endorse the livestream. In total, it is estimated that Luo Min invested about RMB 200 million in this livestream.

With such a high cash burn by the company as it continues to operate at a loss, it’s hard not to be worried about Qudian. Fortunately, financial reports show that as of the end of the first quarter of 2022, Qudian still had RMB 2.2 billion in cash.

Another major aspect of the success of Qudian’s livestream were Luo Min’s marketing skills. He captured the audience with catchy headlines like, “Join my livestream, I will invite you to eat pickled fish for a penny” and “I’ll give you 25 hours in a day”. He proved to be energetic and high-spirited, wooing the audience with his generosity and charm. The Qudian founder built up his livestream experience over the course of a month, before the company spent big on the promotional livestream on July 17. 

Luo Min streamed for the first time on Douyin on June 15, selling a selection of 10 pre-prepared meal packages with prices ranging from RMB 19.9 to RMB 49.9. The turnout was decent, with a total viewership of 20,000 and 170,000 new followers.

In the aftermath of Luo Min’s success, some are worried that Qudian’s high spending will permanently raise the bar for the entire livestream industry, leaving creators who have little to no access to capital without a chance of competing.

However, Qudian may well be a unique case. Unlike other livestreamers who earn commission by selling products from other merchants, Luo Min is drawing attention to his own company’s products, with the ultimate goal of boost the confidence of Qudian’s investors and raising its stock price, rather than competing with other livestreamers. Even if there is competition, it’s limited to the pre-prepared meals market.

For instance, while Qudian has had success livestreaming, it’s not only focused on the online market, it’s also expanding its offline operations. The company announced plans to support 100,000 users to open their own franchise stores and expects to open 10,000 new franchises this year and reach 200,000 stores by 2024.

READ MORE: Move over, celebrity livestreamers: Here come the small-scale presenters

History of Qudian and Luo Min

Luo Min is no stranger to being ridiculed for his failures in launching new businesses. His entrepreneurial journey is characterized by repeated battles and failures, both before and after Qudian’s IPO.

In 2017, Qudian, an online credit platform established for more than 3 years, went public on the New York Stock Exchange. It raised $900 million and was the largest IPO of a Chinese company that year, setting off a wave of new IPOs in the United States. Before Qudian, Luo Min had tried and failed to launch startups in various internet sectors, such as campus social networks, group buying, online education, automobile group buying, social network sites, and food delivery apps. Only Qudian realized Luo Min’s dream of going to the United States to ring the bell, making him the CEO of a public traded company. 

Nevertheless, Qudian’s history of issuing loans to college students who have no stable income has tarnished its brand. Even though Qudian exited the sector before authorities banned the practice in colleges, Qudian has continued to face doubts from investors. 

In 2017, when asked if the company was goading young people to borrow money from their families in order to pay back the loans, Luo Min responded by saying that “anything that is overdue and not paid back is bad debt and will be written off, and treated as welfare.” The response was not only greatly criticized for exposing his ignorance regarding his own business model (such as the confusion between overdue loans and bad debts, and the lack of a post-loan collection process), but also attracted criticism from the industry, leading to a class-action lawsuit from American investors. As the value of Qudian’s stock price continued to fall, the company also faced a series of accusations such as pre-IPO financing fraud, excessive reliance on third-party credit evaluation systems, and leaking user data.

At the end of February, Qudian lost its securities fraud case, paying $8.5 million in settlements to several plaintiffs under a U.S. court order. During the four years that the lawsuit went on, all four new businesses that Luo Min created for Qudian have failed. They are the car rental business Dabai Auto, the high-end housekeeping project Weipujia, the luxury e-commerce platform Wanlimu, and the K12 education project Quxue.

As a result of stricter policies within the cash loan industry in China, the profitability of Qudian’s core business continued to decline, going from achieving high net profits to making a loss. In the first quarter of 2020, Qudian posted a loss for the first time, and after a short turnaround, it continued to lose money in the third quarter of 2021. In the first quarter of this year, Qudian had revenue of RMB 220 million and losses of RMB 140 million.

In April, Qudian once again announced a change in strategy, entering the pre-prepared meals industry, and said it may terminate its credit business due to market conditions. Qudian invited Chinese TV star Jia Nailiang to serve as the brand ambassador for its products and the company’s WeChat Mini-Program now offers 14 dishes from three major cuisines: Sichuanese, Hunanese, and Cantonese. Luo Min said the company has developed over 100 products, but are not in a rush to launch them just yet.

Pre-prepared meals is an emerging field in the food industry with a low barrier to entry. The increasing popularity of this market is in line with Luo Min’s entrepreneurial style to act quickly and capitalize on new opportunities.

Although many people criticize “ready-to-eat” meals as seasoning packets and a consumption downgrade, it is undeniable that it has begun to take shape in the pandemic era, and has met the long-term needs of many consumers — it saves time and energy for migrant workers who commute more than two hours to work. These meals are seen as a healthy, affordable option when compared to ordering takeout and reduce human contact, making them fit for pandemic control measures. They also fit the bills for consumers as they navigate an economic downturn and cut back on eating out. 

This market is still in the early stages of its development, with the market share of large companies still less than 1%. Most of the market players are small and medium-sized enterprises and this demographic breakdown is exactly what Qudian needs in order to exert a greater influence and capture a larger share.

Summary

It is nothing new to see notable Chinese CEOs livestreaming. As early as 2016, Xiaomi’s Lei Jun held a press conference via livestream, attracting millions of viewers. At that time, live broadcasts mainly relied on entertainment content and entrepreneurs regarded livestreams as a marketing gimmick to increase exposure, with few expectations of making any direct income.

However, in early 2020, the pandemic hit the economy hard, especially the service industry. At the time, Ctrip, the leading domestic online travel platform that was supposed to see rising sales during the Spring Festival holiday season, issued a refund of RMB 1.2 billion to its customers. Although it was able to retain its reputation, it also faced enormous financial pressure.

Driven by a sense of crisis, Ctrip CEO Liang Jianzhang took to livestreaming. With the aim of leading the company out of crisis, Liang Jianzhang pivoted from his persona as a scholarly businessman and emerged on Douyin as he portrayed different characters from Chinese culture, including Tang Bohu, Qin Shihuang, Confucius, Guan Gong, and Cao Cao, playing  Rock and Roll music, using Kuai Ban, and doing the seaweed dance.

Through weekly livestreams at 8:00 p.m. on Wednesday nights, Liang Jianzhang created an attractive personal IP with his ever-changing style and charming personality. By focusing his marketing tactics around the theme of “Luxury Hotel Experience Pre-Sales”, Liang successfully revived Ctrip and generated RMB 1.4 billion in revenue, selling an average of 8 hotel experience packages per second on his livestream.

Analysts believe that the growing trend of livestreaming CEOs is an attempt by entrepreneurs to test traffic via online channels and a marketing tool to increase the company’s exposure revenue even when a company’s core business is in crisis. However, this is only a short-term strategy, not a long-term solution.

Brand management expert Wu Daiqi said that for livestream platforms, traffic naturally gravitates towards entrepreneurs, celebrities, or influencers who have are already famous. If these people use low prices to attract consumers, it helps to gain even greater exposure. Livestreams propped up by heavy investments will inevitably affect small and medium-sized businesses on the platform, however, in the long run, livestream platforms will ultimately have to determine the effectiveness of a livestream based on conversion rate, reputation, and sales revenue.

TikTok owner ByteDance is looking to re-enter the Indian market through a partnership with local company Hiranandani Group, nearly two years after being banned in one of the world’s fastest-growing economies, Indian media outlet Economic Times reported on Wednesday.

Why it matters: ByteDance’s effort to re-enter India, if successful, could pave the road for other Chinese companies, including major players such as Tencent and Alibaba, to access a market that’s undergoing rapid growth in mobile internet and one where they have already invested tens of billions.

• ByteDance’s effort to gain access to India through a partnership is reminiscent of some of the solutions international companies have sought when faced with blocks in China. The Chinese government requires foreign companies engaged in “restricted” areas, such as chemicals and machinery like engines and cameras, to set up a joint venture with a local Chinese partner to run in the country.
• Even if Chinese tech giants could make a successful comeback, they would still have to catch up with India’s quickly changing market, which has fostered its own alternatives in the absence of Chinese firms.

READ MORE: INSIGHTS | Does India need China tech?

Details: ByteDance is in discussion with Mumbai-based realty major Hiranandani Group in an attempt to re-enter India, the Indian media outlet Economic Times reported.

• Joining forces with a local company is expected to help ByteDance avoid government scrutiny in India, the company’s second-largest market and a country where it had more than 2,000 employees before being banned in 2020.
• Details of the partnership remain elusive since the talks are still at a very early stage. But ByteDance has informed Indian regulators about its intentions, the report said. A senior government official told Economic Times that there’s been no official approach yet, but that they will examine the requirements when the companies seek government approval.
• Hiranandani Group runs data center operations. A partnership would allow ByteDance to store user data within the country, therefore making it compliant with local regulations.
• ByteDance didn’t respond to TechNode’s inquiries on the matter when reached on Thursday morning.

Context: The Indian government banned nearly 200 Chinese apps from June to September 2020 as China and India engaged in a border conflict. Some of the most popular Chinese apps and services, including TikTok, WeChat, Shein, and Alipay, have remained on the blacklist. 

TikTok’s Chinese version Douyin announced on Tuesday that its online sales more than tripled for the year ending in April, an impressive growth rate for the e-commerce upcomer when other majors are slowing down due to an economic downturn in China.

Why it matters: Chinese short video platforms like ByteDance-backed Douyin and Kuaishou are quickly taking away the market shares of e-commerce giants like Alibaba, JD, and Pinduoduo, thanks to their widely popular social content.

• Douyin chose to announce sales numbers and growth plans on the eve of China’s 618 shopping festival to build momentum for the mid-year spending frenzy, a local media outlet in Chengdu reported.

READ MORE: 618 is not just about e-commerce platforms anymore

Details: Douyin’s gross merchandise value (GMV) surged 320% year-on-year in the year ending in April as the company sold more than 10 billion products, president of Douyin E-commerce Wei Wenwen said (in Chinese) at a Douyin e-commerce conference on Tuesday.

• At the online meeting, Douyin rebranded the concept of “interest e-commerce” as “full-field interest e-commerce” after rolling out the idea last April. The company hopes to highlight its ability to attract consumers through multiple channels such as short videos, livestreaming, its search function, and more, said Wei at the conference.
• The firm didn’t give a specific GMV figure, but people with knowledge of the matter told Caixin that Douyin achieved more than RMB 800 billion GMV in 2021 and is expected to bring in between RMB 1 trillion and RMB 1.2 trillion this year. However, the company said the figure is “inaccurate” in response to Caixin. 
• Douyin E-commerce, which became a stand-alone business unit only two years ago, achieved fast growth by tapping into Douyin’s 600 million daily active users. Douyin generates more than 200 million short videos and holds 9 million livestream sessions per month in a bid to convert user attention to sales. 
• Douyin’s Wei said she believes plenty of opportunity remains in the sector and that the platform aims to take more than 50% of the industry’s growth market in the future.

Context: Although still holding the lion’s share of the market, Alibaba, JD, and Pinduoduo are recording decelerated growth as they face macroeconomic headwinds, regulatory challenges, and pandemic control measures.

• Alibaba’s global consumer-facing businesses generated RMB 8.3 trillion in GMV for the year ending in March, remaining relatively flat compared to the RMB 8.1 trillion recorded a year ago. In 2021, Pinduoduo’s GMV increased 46% year-on-year to RMB 2.4 trillion, while JD’s GMV grew 26.2% year-on-year for the same period. Kuaishou’s GMV increased 78.4% year-on-year to RMB 680 billion in 2021.
• Douyin’s e-commerce sales dwarfed its global sibling TikTok, which reportedly achieved nearly RMB 6 billion GMV in 2021.

Qcraft, a Chinese autonomous driving startup, said at a Wednesday conference that it is partnering with ride-hailing firm T3 to bring self-driving vehicles onto the latter’s ride-share network in the eastern city of Suzhou. T3 users within the range of those vehicles’ routes will soon be able to select one for a ride.

Why it matters: The partnership is the latest example of driverless tech firms rushing to work with more consumer-facing companies as they aim to commercialize autonomous driving tech. 

Details: Starting from July, Qcraft and T3 will begin offering rides to public passengers using self-driving cars within a restricted area in Suzhou, a neighboring city of Shanghai, where the companies are already testing the vehicles.

• The initial phase of the pilot deployment is expected to allow the companies to fine-tune their robotaxi offering by collecting rider feedback and improving user experience ahead of a commercial launch, according to an announcement (in Chinese). 
• On Wednesday, Qcraft also announced plans to test its self-driving system for consumer cars beginning in the third quarter of this year, collaborating with Chinese chipmaker Horizon Robotics. Backed by leading tech companies Meituan and ByteDance, the three-year-old Qcraft is testing a fleet of more than 100 autonomous mini-buses and sedans in around 10 major Chinese cities.
• T3 has emerged as a significant rival to Didi and is backed by state auto majors FAW, Dongfeng, and Changan. The ride-hailer completes over 3 million rides every day with operations in more than 80 Chinese cities, its vice president Li Jinfeng told reporters at a press briefing on Wednesday. To compare, Didi reportedly provided 20 million trips per day in January.

Context: Other Chinese self-driving car companies are racing to launch commercial autonomous ride-share services either by themselves or with partners.

• Baidu began operating fully autonomous taxis in the suburbs of Beijing in late April, a few months after being allowed to charge customers fares for rides in the capital city. The tech giant said it had offered around 213,000 rides in eight domestic cities in the fourth quarter of 2021.
• Self-driving unicorns Pony.ai and WeRide have turned to ride-hailing service OnTime for a wider group of users, recently participating in its RMB 1 billion ($153 million) Series A, TechCrunch reported on April 27. Operating in the southern Guangdong province, OnTime was launched by state-owned automaker GAC in mid-2019 and backed by Tencent.

A Chinese virtual idol group called A-Soul, backed by ByteDance, has found itself embroiled in a social debate after it canceled the livestream of a virtual member named Carol.

Why it matters: By canceling a virtual member, A-Soul inadvertently prompted a debate on the working condition of the often invisible artists behind virtual idols. Virtual idols are often supported by teams of real human artists who provide voices and dance moves through motion captures and other technology. 

• China’s virtual idol sector has seen a boost after many high-profile stars fell from grace with scandals, such as Kris Wu arrested for rape charges in July 2021.

Details: A-Soul announced on May 10 that it will cancel the daily livestreams of Carol, a leading virtual vocalist of the five-member group. The announcement said Carol will enter a dormant period due to “schoolwork and medical issues.” 

• Fans were shocked by the sudden announcement and expressed feelings of loss on social media platforms. 
• Soon, suspicious fans dug up old social media posts of the actual artist behind Carol, finding that the person has complained about being overworked and has developed multiple illnesses, according to a May 15 report from Chinese media outlet PEdaily (in Chinese).
• On May 11, A-Soul denied in an announcement published on Bilibili (in Chinese) that the artist behind Carol had been overworked and rebuked the base salary of RMB 11,000 ($1,619), which was revealed by social media discussions. However, many fans said they weren’t convinced in the announcement’s comment section. Three days later, A-Soul followed up with another announcement (in Chinese), apologizing for causing trouble to all parties, and published contract termination files of the artist behind Carol. The announcement also denied any “bullying or oppression” in the workplace.
• A-Soul promised that they will not introduce a new member to the idol group and won’t hire another person to control Carol either. The group also said in the announcement that they pay artists with a base salary, benefits, and a 10% commission of livestream income, without revealing exact numbers.

Context: A-Soul was launched in November 2020 by ByteDance and Beijing-based firm Yuehua Entertainment, which manages notable Chinese artists like Han Geng and Wang Yibo. The group’s most popular video has 5.3 million views on Bilibili. Dismissed member Carol’s top 10 videos each have more than 1 million views each on Bilibili.

• Virtual idols have become incredibly popular on Bilibili, a Youtube-like platform for video creators and fans of animation, comics, and gaming content.

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

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

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

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

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

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

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

ByteDance, the creator of hugely popular short-video apps Douyin and TikTok, is reportedly internally testing a new news aggregation social app called Shiqu.

Why it matters: Unlike ByteDance’s other more popular offerings that rely on algorithm-based recommendations, Shiqu offers an algorithm-driven news feed that also allows customized RSS imports. The app looks to target well-educated readers, judging by screenshots of the test versions reported by the Chinese outlet iFranr. 

• The new app could put ByteDance in competition with other Chinese apps that focus on creating a thinking community, such as the social and review platform Douban and Quora-like Zhihu. 

Details: Shiqu has two main features: topic-based reading boards and discussion groups, similar to Flipboard plus Reddit. Users can subscribe to their favorite topics or accounts, which routinely offer new content. The app’s other main feature offers a Reddit-like community, where users can join or create new groups related to specific topics and start discussion threads, according to the iFanr report. 

• The app was first reported by the Chinese media outlet Tech Xingqiu in January. The outlet said the app is invite-only and selects high-quality content from ByteDance’s news aggregator Jinri Toutiao. At the time of publication, the app still hasn’t been opened for public registrations.
• ByteDance declined to comment on the app when reached by TechNode on Wednesday.

Context: ByteDance first won mainstream success with a Chinese news aggregator called Jinri Toutiao, a mobile-first app that curates news based on algorithms. Shiqu looks to be catering to a more sophisticated user base that wants a customized reading experience and communities to discuss ideas. That target puts Shiqu in competition with established players like Douban.

• First launched in 2005 as a website, Douban is known as the spiritual home of Chinese hipsters. It is a book and movie review site with robust group discussion features,  akin to a combination of Goodreads, Rotten Tomatoes, and Reddit.
• Douban has received increased attention from Chinese regulators since late last year, prompting the platform to close certain groups and implement stricter oversight of users’ posts.
• ByteDance is not the only Chinese tech company vying for a Douban-like user base. Last week, Douban sued Twitter-like Weibo for imitating its community content, including copying group names and approaching Douban community leaders to work for Weibo.

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

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

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

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

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

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

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

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

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

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

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

The golden decade of Chinese corporate venture capital

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

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

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

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

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

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

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

The trillion-dollar investment playground for giant CVCs

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

Take ByteDance as an example:

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

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

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

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

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

Tech CVCs may invest less in tech

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

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

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

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

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

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

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

Chinese tech companies are still laying off large numbers of employees in the aftermath of a year of regulatory crackdowns. While annual team adjustments are common in tech industries, investors and market watchers are alarmed by the scale of the recent job cuts and what they indicate about the underlying regulatory upheaval.  

Over the past year, 35 companies scaled back their teams according to a rough count made by one local media outlet. The cuts affect nearly every major vertical, from education and short video, to gaming and e-commerce, with thousands of people losing their jobs. In some cases, whole business departments were dissolved. Deep-pocketed tech titans such as Alibaba, ByteDance, and Baidu, which are generally less vulnerable to small market fluctuations compared to startups, were not immune to these cuts.

The current wave of layoffs, still ongoing in the lead up to the Chinese New Year, stands in stark contrast to the hefty incentives distributed by Chinese tech heavyweights in their heydays around the mid-2010s. At that time, an employee might enjoy a bonus in the form of pay equivalent to 100 months of salary or even a Tesla car. The incentives were intended both to show the tech giants’ muscle and to lure talent.

The most obvious difference in the Chinese tech industry today is a tightened regulatory environment. China offered extensive support to tech innovation and entrepreneurship from the beginning of 2010, with initiatives such as the launch of a state-backed entrepreneurship and innovation program in 2014. In the years after the launch of the program, China witnessed the rise of some of the most prominent tech names in the country such as Didi, Pinduoduo, and Xiaohongshu. Even though regulations, such as those on anti-monopolistic practices, existed back then, the government often failed to enforce them, helping boost the growth of budding companies.

Government attitudes shifted sharply in 2020 when Beijing launched the first industry-wide regulatory crackdowns as the authorities tried to exert greater control over tech companies, particularly those with large platforms. State actors still say they support tech innovation, but the support increasingly only applies to hard tech industries like semiconductors, new energy vehicles, and biotech.

The elimination of practices and services that no longer comply with the raft of new regulations has been a major source of these slashed headcounts, but leaders of tech giants are also being driven to urgently reduce loss-making units and improve operational efficiency.

Job cuts in headlines

News of mass layoffs has dominated China’s tech headlines in recent months.

• TikTok owner ByteDance reportedly laid off more than 1,000 staff from its edtech business in November following the deeper cuts made in the sector in August. The tech titan, known for its sprawling business lines, cut its talent development center and scaled back its Human Resources department in December. The company reportedly dissolved its investment unit in January by laying off 100 employees as authorities stepped up antitrust scrutiny of the country’s tech giants.
• Douyin rival Kuaishou laid off mid-level managers and low-performing employees in December and cut jobs across key units such as e-commerce, globalization, and algorithm recommendation in January. Employee benefits were slashed in December.
• Chinese search giant Baidu has started layoffs at its mobile business arm, which oversees its search and mobile businesses, several Chinese media outlets reported in December.
• IQiyi, a Baidu-backed video streaming affiliate, laid off 20% to 40% of its workforce in December as the Netflix-like firm tries to reduce costs amid increasing losses. That means the layoff could wipe out some 1,500 to 3,000 positions based on the company’s nearly 7,800 headcount in 2020.
• Perfect World, a Chinese game developer, plans to cut up to 1,000 staff, local media reported on January 25.
• Giant tech firms including ByteDance and Alibaba adjusted their organizational structures, while also making business adjustments and job cuts.

Worst-hit sectors

Online education companies targeting after-school tutoring of students up to the ninth grade were among the worst-hit verticals as China’s crackdown on the sector essentially banned companies from offering services related to core curriculum subjects.

All major players in the field, including New Oriental, TAL, and Gaotu, terminated their after-school tutoring services in the wake of the crackdown on the private education sector. In one of the largest edtech layoffs, New Oriental founder Yu Minhong confirmed in his WeChat Moments feed last month that the company dismissed 60,000 workers and saw revenue fall by 80% in 2021.

READ MORE: Edtech will survive China’s crackdown, but it won’t be the same

E-commerce, another highly-regulated area, is also experiencing downsizing. Fresh produce delivery giants that survived a 2021 market consolidation are trimming operations to save costs. Online grocer Dingdong Maicai reportedly planned to cut from 20% to 50% of the workforce at its core business units in January, while Meicai, a Chinese app that supplies farm-to-table produce for restaurants, laid off around 40% of its remaining workforce after halving headcounts in September.

Youzan, one of China’s largest e-commerce service companies, is reportedly planning to lay off 1,500 people, or nearly 30% of its employees in early 2022.

Downshifting for years

Chinese tech companies have been gradually reducing headcounts over the past few years as the country’s economy felt strain long before the pandemic hit. However, a combo of regulatory curbs on everything from technology to education and a renewed virus-induced public health crisis is creating further headwinds for local big tech firms. They are being forced to drastically cut costs to keep themselves afloat as more challenges await in 2022.

This wave of layoffs is the result of multiple events, such as Beijing’s education crackdown and the cyclical economic downturn, Chinese media outlet Leiphone wrote in a Jan. 21 article. Chief among them was Beijing’s draft amendment to its Anti-Monopoly Law, released in October and dropped a hammer on the country’s internet giants. 

With scant regulation and China’s population producing massive numbers of customers, the country’s large tech companies enjoyed supercharged growth rates over the past two decades. Tech giants therefore are used to attracting and retaining large numbers of workers with huge salaries and comprehensive benefits. The result was many redundant positions and overall inefficient use of human resources. Now, the heavyweights are beginning to realize that they must stretch their budgets in an environment where it is no longer so easy to reap huge profits, the Leiphone report said.

By slashing headcounts from loss-making business units or units now facing stringent regulation, tech companies are phasing out less profitable activities  in order to achieve efficiency and bigger profit margins, experts told local media Shenran Caijing in December.

Fearing a looming recession, executives from Chinese big tech firms have vowed to focus on core businesses and value creation. In November, Tencent Chairman Pony Ma said the company will ramp up efforts around its main sources of revenue, such as cloud services and gaming, while Alibaba and Kuaishou have set their sights on the overseas market as a major growth driver. And yet, as companies are taking more steps to reduce costs, the only thing that seems certain is that industry will face slower development, the report said.

“Do I look like a loser?”

Under the weight of repeated COVID-19 outbreaks, a further economic slowdown, and a string of regulatory crackdown across industries, it has become fairly standard for Chinese tech firms to let go of tens of thousands of employees at a time. While mass layoffs like these are usually discussed as an indicator of a company’s struggles and changing strategies, they are also life-changing decisions for a vast number of talented and dedicated individuals who have spent their youth with these companies.

Wu Jing, a former employee at iQiyi, still vividly remembers the moment she lost her job in December. In an interview with Chinese media outlet Jiemian, she said it only took five minutes for her and her supervisor to finish their conversation. When she went back to her cubicle and checked her phone, rumors that the Baidu-backed video platform planned its largest-ever layoff sweep had begun spreading on Chinese social media.

Wu joined iQiyi four years ago when the Chinese Netflix-like firm was thriving. Two of the company’s variety shows, “The Rap of China” and “Idol Producer,” were huge successes and kicked off fierce competition among idol-focused variety shows in the domestic video streaming market. IQiyi went public in March 2018 at $18 a share, but since then, the share price has fallen by more than two-thirds.

Aware of the company’s anemic pace of growth, Wu had made plans to jump ship in 2022, but the layoff was quick and came as a surprise. Haunted by the feeling of abandonment, she now asks herself, “Do I look like a loser?”

Fresh graduates are not immune to these cuts either. Chen Yi, a former engineer at ByteDance’s gaming unit Ohayoo, lost his job late last year, just months after passing a strict selection process, according to a Jan. 25 report by media outlet 21st Century Business Herald. The report said that nearly all of Chen’s peers were let go by ByteDance’s gaming studio, among waves of layoffs as the TikTok owner sought to lower costs as it faced a potential growth bottleneck.

“The layoff just happened so suddenly that I wasn’t prepared,” said Chen.

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.

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.

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

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

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

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

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

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

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

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

Chinese short video platform Kuaishou has opened its e-commerce store to local merchants managing online-to-offline services, including everything from food delivery to hospitality.

Why it matters: Continuing its recent focus on e-commerce, the Beijing-based company is expanding into the competitive local services market, which already includes fierce rivals such as Meituan, ByteDance’s Douyin, and Alibaba’s Alipay.

• Kuaishou’s move to extend its homegrown services business comes on the heels of a December partnership with Meituan. Under the deal, Kuaishou users have gained access to Meituan’s services through a Meituan mini-program within the short video app.
• The short video app has begun venturing into e-commerce, along with livestreaming and gaming, to commercialize its user base.

READ MORE: ByteDance is trying to take a bite of Meituan’s cake

Details: In addition to physical products, merchants can now sell various services through Kuaishou’s online store Kwai Shop, according to a Tuesday statement from the company.

• Merchants offering 15 categories of services, including food and drink, hospitality, healthcare, entertainment, film, and transportation ticketing, can apply to set up their own stores on the platform from Jan. 15.
• With their own Kuaishou store, merchants can manage their service listings to drive transactions and potentially convert online customer attention into offline service sales.
• To attract merchants, the platform is offering incentives to business operators. Kuaishou has pledged to encourage new store registrations with a promotion plan that offers individual stores up to RMB 1,000 ($158) and viewership from 50,000 customers.
• American chain KFC, hotpot chain Haidilao, Meituan’s hotel booking service, and healthcare clinic chain iKang are among the earliest brands to launch their stores on the platform.
• “The growth of the traditional in-store group-buying business model is slowing down, and merchants are in urgent need of new service models to attract users and to promote purchasing frequency,” Zhu Yunbo, head of Kuaishou’s local life service unit, said in a statement shared with TechNode on Tuesday. 

Context: Kuaishou, China’s second-largest short video-sharing app, reportedly laid off up to 30% of its workforce in December as Chinese tech giants weather a market downturn.

• Rival ByteDance has been increasing investments in the online services market over the past year with the most recent move being the acquisition of cinema ticketing platform Yingtuobang this week.

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

Why it matters: With the new acquisitions, the Beijing-based TikTok developer is further expanding the reach of its entertainment empire, which already consists of short video apps, short and long-form videos, news aggregation, online novels, gaming, music streaming, idol management, and virtual idols.

• Although both acquisitions are focused on early-stage startups, ByteDance’s purchases come as tech peers such as Tencent and Alibaba are distancing themselves from portfolio companies in response to mounting pressure from antitrust regulators. 

Details: ByteDance acquired Yingtuobang — a Shanghai-based ticketing startup that supports online purchases, seat reservations, and coupon redemption in more than 8,000 cinemas and theaters across China — last month, Tech Planet reported today.

• Following the deal, Yingtuobang will maintain its enterprise-focused ticket business. Douyin will help to promote the company’s consumer-facing ticketing services, the report added. Yingtuobang is now marked as a recommended ticket purchasing channel on the short video app, along with Tencent-backed Maoyan and Alibaba’s Taopiaopiao, two of the largest players in the field.
• ByteDance’s acquisition of Yingtuobang is in line with the company’s push toward local lifestyle services, the home turf of Meituan.
• Additionally, ByteDance recently acquired Yizhikan Comics through wholly-owned company Beijing Dingzhen Technology Co., Ltd, Tech Planet reported. Yizhikan is an online marketplace that allows users to buy e-comic books and web cartoon services.
• A ByteDance representative didn’t immediately respond to TechNode’s inquiries on the matter when contacted on Monday.

Context: Both online ticketing and comics are important, expanding verticals in the entertainment field in China.

• China’s e-comics industry has grown at a rate of more than 20% in the past five years, and the market was expected to reach RMB 4.6 billion ($780 million) in 2021, according to a 2020 report from iMedia Research (in Chinese).
• ByteDance’s bet on ticketing platforms comes just ahead of China’s week-long Spring Festival national holiday, which saw a record RMB 7.8 billion in box office revenue last year.  
• ByteDance was once an investor in popular online comics platform Kuaikan but exited in 2019 after Tencent stepped in as a stakeholder.

Short video app Kuaishou and food delivery giant Meituan announced a strategic partnership to connect their platforms on Monday.

Why it matters: With the deal, Kuaishou and Meituan will work closer to fend off their common rival Douyin, the TikTok’s Chinese version, which is accelerating its foray into Meituan’s home turf of local lifestyle services.

• Tencent, which owns a 21.6% stake in Kuaishou, is also a major investor in Meituan.
• Kuaishou has adopted an open attitude towards external partnerships in driving growth, especially towards companies in Tencent’s portfolio. In 2020, the short video app also signed a cooperation deal with Tencent-backed online retailer JD.com.

READ MORE: ByteDance is trying to take a bite of Meituan’s cake

Details: Kuaishou announced the partnership with Meituan at its Ecological Opening Conference held on Monday. The new deal between the two companies allows Kuaishou users to access Meituan’s lifestyle services, such as ordering food, through a newly launched Meituan mini-program without leaving the short video app.

• Meituan’s mini-program on Kuaishou currently only supports its core food delivery features, allowing users to browse restaurant listings, place orders, and access after-sales services. Users can also redeem vouchers and make reservations through the mini-program.
• In a Monday statement (in Chinese), the food delivery giant said that it plans to expand offerings in the mini-program to include more categories such as booking hotels, homestays, travel attractions, and beauty salons.
• In the tie-up, Kuaishou is giving Meituan access to its large user base (573 million monthly active users in China in Q3 this year). In return, it hopes to gain higher user retention by integrating daily services.  
• The short-video company also launched its “one-stop open platform” at the Monday event. The new platform incorporates a series of features such as mini-programs, service accounts, point of interest interfaces, and various tools that help merchants and service providers to manage their branding, marketing, and supply chains.

Context: Kuaishou is China’s second-largest short video platform by daily active users, behind only ByteDance’s Douyin.

• Listed this February in Hong Kong, the company has seen significant stock price volatility over the past few months due to weaker-than-expected earnings guidance and regulatory concerns.
• Kuaishou reportedly began a new round of layoffs in December, one month after co-founder Su Hua stepped down as CEO.

Update: The article is updated with Kuaishou’s Chinese user number. 

TikTok owner ByteDance plans to accelerate the overseas commercialization of its workplace communication app Lark in the coming year, Chinese local media outlet LatePost reported Wednesday. The company aims to achieve a global revenue of RMB 6 billion ($940 million) in the next five years.

Why it matters: Lark, known as Feishu in the Chinese market, is ByteDance’s bet on the enterprise-facing services sector, which has been boosted as remote work apps gain traction globally due to the Covid-19 pandemic.

• ByteDance, long celebrated as an “app factory”, listed Lark as one of its six business units, or strategic focuses, in a November reshuffle.
• Chinese tech peers Alibaba and Tencent currently lead the country’s workplace app market with DingTalk and WeCom.

Detail: ByteDance plans to seek new growth points for the business in the overseas market as Feishu, Lark’s Chinese sister app, faces growth bottlenecks in the domestic market, according to the report.

• The app already operates in countries such as the US, Singapore and India, and plans further expansion in African countries, starting with global companies with China operations.
• Feishu recorded 4.5 million daily active users in November, up from 3 million in March. But the figure still fell far short of its goal of reaching 10 million daily active users in the first half of this year, LatePost reported.
• In comparison, Alibaba-backed DingTalk said (in Chinese) in October that it has 500 million individual users and 19 million enterprise clients. Tencent’s WeCom had more than 130 million daily active users and 5.5 million enterprise clients by the end of 2020.
• The company didn’t respond to TechNode’s inquiries when contacted Thursday morning.

Context: ByteDance first developed Feishu as an internal tool in 2016, began marketing the platform as a business in 2019, and launched the international version Lark in April 2019.

• ByteDance has built a whole line of enterprise collaboration apps including video conferencing app Feishu Meeting and Feishu Jisuban, a lightweight version of the original app.
• Despite Lark’s new international focus, capturing a share of the overseas market is likely to be challenging, with incumbents such as Slack and G Suite currently dominating.

TikTok owner ByteDance is the world’s largest unicorn with a market valuation of $353 billion (RMB 2.25 trillion), according to a Monday unicorn ranking list from the Hurun Research Institute. Alibaba affiliates Ant Group and Cainiao take the second and ninth spots, respectively, with valuations of $150 billion and $34 billion.

Why it matters: ByteDance, one of China’s top tech IPO candidates, has maintained growth, despite China’s tech crackdown and US sanctions this year. The firm’s valuation has more than tripled from $80 billion a year earlier. 

Details: The Hurun Research Institute released on Monday its Global Unicorn Index 2021, a ranking of startups valued at more than $1 billion and not yet listed on a stock exchange. “A unique feature of China’s startup ecosystem is the ability of big tech companies to spin off unicorns, with 49 of the world’s 50 ‘spun-off’ unicorns coming from China, such as Ant Group, spun off from Alibaba in 2014,” said Hurun Report chairman and chief researcher Rupert Hoogewerf. Based in Shanghai and Oxford, England, Hoogewerf is also known by his Chinese name, Hu Run.

• Compared to China’s tech giants, Hoogewerf said that global tech giants like Microsoft, Apple, Amazon, and Alphabet are “not as active” as their China counterparts when it comes to investing in unicorns.
• Other prominent Chinese firms that made the annual annual list include JD Technology, WeBank fintech services, fashion retailer Shein, Instagram-like lifestyle community Xiaohongshu, and drone maker DJI.
• The report listed 1,058 unicorns worldwide, double the number since 2020. Hoogewerf calls 2021 the “most successful year for startups ever.” China now counts 301 unicorns, or 28% of the global total. Most focus on e-commerce, healthcare, or artificial intelligence.
• The total value of these unicorns is $3.7 trillion, or equivalent to the GDP of Germany, according to the report. 
• The report named Sequoia Capital the most successful unicorn investor with investments in 206 unicorns in its portfolio. The US venture capital firm is followed by another US investor, Tiger Fund, and Japanese investor SoftBank. Chinese investors Tencent and Hillhouse occupy the eighth and the tenth positions, respectively, on the list. 

Context: Chinese big tech companies have faced regulatory headwinds since autumn 2020 when Beijing stepped up its crackdowns on market monopolies and cybersecurity lapses.

China’s audio-visual content regulator on Wednesday banned short video creators from unauthorized editing and spreading of content taken from other platforms’ long-form TV dramas. 

Why it matters: The development gives legal backing to the claims of Chinese video streaming platforms, including Tencent Video and iQiyi. Both have accused short video platforms of copyright infringement and unfair competition by copying video clips from their hit long-form TV dramas. 

Details: China Netcasting Services Association (CNSA), a government-affiliated association with regulatory power, updated a comprehensive set of guidelines (in Chinese) for short video content on Wednesday.  

• The updated rules are intended to “remove vulgar and pandering content” and “counter the spread of illegal and pirated content,” according to the statement.

New rules: Under the new regulations, industry players are required to ban a wide range of content on their platforms, including:

• Content edited or adapted from films, TV dramas, or online TV series without authorization from the original producers.
• Films, TV dramas, online TV series, and foreign content that is banned or hasn’t been approved by state broadcasting authorities.
• Content that encourages users to participate in cryptocurrency mining and trading.
• Content that harms the growth of minors, such as drinking, violence, and drugs.

Context: The CNSA, which has more than 600 industry members, first released short video guidelines in 2019 to regulate the rapid growth of the short video industry. The association includes state-owned broadcasters such as CCTV and internet media companies from Alibaba and Tencent. 

• More than 70 TV and film institutions and 500 actors signed a joint statement in May, calling on short video and social media apps including Douyin, Kuaishou, and Weibo to respect copyright and stop re-editing and spreading pirated content.
• Short video apps, which have a heated rivalry with the longer video platforms, also screen their own homegrown content, especially short dramas. 

ByteDance is laying off more than 1,000 staff from its edtech businesses following the deep cuts it made in the sector in August. The newer round is concentrated in the K-9 education units, a person with knowledge of the matter told TechNode. The person declined to be identified.

Why it matters: 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.

• The current layoff comes only three months afters job cuts in August.

Details: The layoffs will affect more than 1,000 employees. The source said ByteDance is mainly cutting in business units that offer after-school tutoring services for primary and middle school curriculum courses. This once lucrative sector is now fast downsizing.

• ByteDance’s after-school tutoring services for K-9 students include pre-K education platform Guagua Long and online course livestream apps Qingbei and Xuelang.
• Local media LatePost (in Chinese) reported Wednesday that this round of layoffs also affects core teams in product development, operations, and research and development. In contrast, in August, ByteDance laid off edtech workers mostly in supporting teams such as sales and tutoring.
• ByteDance staff on English tutoring platform Kaiyan, education hardware teams, and school collaboration teams were also affected in this round of job cuts, LatePost reported.
• The company’s edtech business has cut roughly a third of its headcount from 15,000 at the beginning of this year to fewer than 10,000 now, according to Late Post.

Context: Over the past two months, China’s top private education companies TAL, Gaotu Techedu, and Koolearn Tech have announced plans to stop offering curriculum tutoring services to students in K-9 grades in response to China’s broad ban on private tutoring services in late July.

Chinese tech giant ByteDance is developing a music streaming platform for the Chinese market and plans to launch the app later this year, Chinese media 36Kr reported (in Chinese) Thursday, citing sources with knowledge of the matter.

Why it matters: ByteDance is upping its ante in the domestic music market after antitrust regulators ramped up supervision of the increasingly centralized industry. Regulators began by ordering bellwether Tencent Music to give up its exclusive music deals in late July. The move will give other players more opportunities to obtain licenses from major music labels.

Details: Dubbed “Feiyue,” the streaming product is managed by teams from Douyin, ByteDance’s domestic short-video unit. It has now entered into “a key developing stage,” the report said. 

• ByteDance’s music business is led by Alex Zhu, a company vice president. The algorithm and marketing teams from Douyin have also played a role in supporting the operations.  
• A ByteDance spokesperson declined to comment on the report.

Context: ByteDance made a foray into the music arena back in 2019, when it tested a music streaming app named “Yinyuebang” among company employees. However, the program’s development was stalled by a severe shortage of music copyrights. Yinyuebang was ultimately shuttered in mid-2020, according to the 36Kr report.

• China’s digital music market is dominated by tech heavyweights and is highly consolidated. In 2020, Tencent Music accounted for 73% of the market share, while NetEase’s Cloud Village accounted for 21%, according to Cloud Village’s IPO prospectus.

Chinese video giant ByteDance plans to sell its securities-related businesses at a price between RMB 500 million ($77.4 million) to RMB 1 billion, Chinese media LatePost reported Wednesday.

Why it matters: ByteDance’s ventures into the securities sector have received a lukewarm market response since the launch of the Dolphin Stock information platform in October 2017. According to the report, some analysts think ByteDance, owner of TikTok, is getting out of the sector in response to stepped-up regulatory pressure on private fintech services in China. 

Details: A ByteDance spokesperson confirmed the plan with TechNode and said it is cutting back on financial services.

• Since earlier this year, ByteDance has discussed a sale with several financial institutions, including CICC, Citic, Fosun Group, East Money, and Niuguwang. Two of the firms have submitted an investment proposal, the report said. 
• Besides Dolphin Stock, ByteDance’s main subsidiary up for sale is brokerage Squirrel Securities. ByteDance had been planning to launch a second brokerage, Stellar Securities.

Chinese video-streaming platform Tencent Video said it has filed a lawsuit against ByteDance’s short-video app Douyin for copyright infringement and unfair competition over clips from a hit TV drama, seeking RMB 100 million ($15.4 million), Chinese media reported Wednesday.

Why it matters: Tencent Video’s legal action is the latest attempt by a streaming platform to control the spread of clips on short-video platforms. Streaming platforms fear that widespread posting of clips will undermine the value of expensive content.

Details: In the complaint, Tencent Video accused Douyin of circulating clips of “Crime Crackdown,” a hit TV drama, without consent. Claiming ownership of exclusive right to the online dissemination of the drama, Tencent said Douyin had allowed users to upload clips from the show and failed to take any measures after receiving a notification letter from Tencent. 

• In a response, Douyin claimed that it had signed a cooperation deal with the co-production company of the drama, under which the company will open an official account on the platform while Douyin will be responsible for curating promotional activities. Douyin also said that it had taken down clips immediately after receiving complaints from Tencent.    

READ MORE: ByteDance rages against Tencent over link blocking. Here’s why

Context: Tencent won a similar case against Douyin over clips of “Honor of Kings,” a hit Tencent game, earlier this month. ByteDance was fined RMB 600,000.

• Mainstream video-streaming platforms have recently ramped up criticism of their short-video peers over alleged copyright infringement practices. Tencent vice president Sun Zhonghuai lashed out at short video content, comparing it to “pig’s feed” and complaining of widespread copyright violations at an industry conference held in June.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How overwork works

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

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

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

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

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

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

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

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

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

Are people turning on overtime?

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

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

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

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

Some workers agree:

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

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

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

Don’t count 996 out yet

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

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

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

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

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

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

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

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

ByteDance announced Friday that it will cancel weekend work days at the beginning of August, an employee told TechNode. The company currently requires staff to work every other Sunday in a schedule known as “big and small weeks.” The change in policy comes amid a national backlash against extreme working schedules like “996″—9 a.m. to 9 p.m., six days a week. ByteDance rival Kuaishou abolished big and small weeks on July 1.

READ MORE: Kuaishou to cut Sunday workdays amid 996 backlash

Chinese media confirmed the ByteDance news.

The change may cut employees’ take home pay by as much as 20%. Under the current system, as much as 20% of employees’ salaries are considered overtime pay for routine Sunday work.

The company did not say whether it will raise salaries to make up for lost overtime pay.

Chinese media reported in June that the company polled employees about abolishing big weeks, suggesting that shorter work weeks would mean a pay cut. About 30% of employees told the company that they would prefer to keep longer hours and overtime pay.

Douyin, ByteDance’s Chinese version of TikTok, launched a web version of the short video app on Monday. The mobile-focused content giant is seeking more growth on desktop.

Why it matters: Douyin is hitting the ceiling in user numbers. In September 2020, the short video app’s daily active users reached 600 million, which is more than 60% of China’s overall 986 million mobile users in the same period.

• The web version of Douyin extends the app’s reach to desktop users and potentially poses a threat to established video sites like Bilibili and Tencent Video.

Details: Douyin’s web version lacked a couple of crucial features that may have laid the groundwork for its success on mobile. For example, the mobile app starts playing videos automatically as soon as it is opened. While on the website, users need to click on the video for it to start playing.

• The homepage of Douyin’s web version features an endless video scroll. On Douyin’s mobile app, users see only one video at a time and have to swipe down to get to the next one, similar to the TikTok app.
• Like the mobile app, the website also allows users to post videos, make comments, and like videos. The website largely hosts the same content that appeared on the mobile app. The site features more horizontal versions of the video, while the mobile app shows more vertical versions.
• Douyin’s mobile app is powered by ByteDance’s flagship recommendation algorithm, partly contributing to its success. The algorithm provides users content based on their preferences and viewing history. It’s not clear if the algorithm is implemented on the web version.
• The web version was created to host better educational content, which usually runs at least 5 minutes, ByteDance said in a statement to TechNode, making it much longer than the 15-second short videos that Douyin helped popularize. 
• ByteDance said the website is still in testing phases, and it will continue “optimizing its features.”

Context: ByteDance said last week that the company booked RMB 236.6 billion ($36.8 billion) in revenue in 2020, up 111% from the previous year, Chinese media Yicai reported. 

• The total monthly active users of ByteDance apps reached 1.9 billion as of last year’s end, the company said.

ByteDance, the owner of the viral video platform TikTok and Douyin, briefly attacked Chinese tech giant Tencent in a long, strident online post on Friday. The tussle between two Chinese tech heavyweights comes amid increased governmental scrutiny on anti-competitive behavior in the tech sector.

ByteDance criticized Tencent’s practice of blocking links to its products on messaging platforms WeChat and QQ in an online post, attaching a 59-page PDF file chronicling the blocking activities in the past three years. The company has since deleted the post and the file.

“More than 49 million people were stopped from sharing Douyin content to WeChat and QQ every day on average,” said ByteDance’s post. The company didn’t specify how they calculated the number.

ByteDance complained that Tencent has been blocking links to its short-formed video apps Douyin, Huoshan, and Xigua, for three years, “affecting more than 1 billion users.”

ByteDance’s high-profile complaint came as Chinese regulators crack down on tech companies’ anti-competitive behavior. ByteDance could benefit if regulators take action against Tencent’s link blocking practice. The company competes with Tencent on multiple fronts, including news aggregation and online games.

In March, Reuters reported that China’s top antitrust regulator was looking into Tencent’s WeChat for monopolistic practices, and how the popular messaging app had possibly squeezed smaller competitors.

ByteDance declined to comment on the situation when reached by TechNode. Tencent also declined to comment. Chinese media saved a copy of ByteDance’s post.

Widespread practice

Tencent is not the only company that tries to stop users from clicking into rival ecosystems. Tencent has banned links of ByteDance’s Douyin and productivity tool Feishu on WeChat. It also prohibits users from opening links to e-commerce giant Alibaba’s Taobao and Tmall online marketplaces.

Alibaba also bans (in Chinese) merchants from listing their WeChat contact information on the platform.

In August, ByteDance’s Douyin said it would ban links to third-party e-commerce sites, including Taobao and Tencent-backed JD.com, on its live-streaming channels in October. However, it also relies (in Chinese) on selling ads with links to those e-commerce sites for its short video feature.

ByteDance wrestles with Tencent

ByteDance wrote that the post was a response to a comment made by Tencent executive Sun Zhonghuai last Thursday at an industrial forum. Sun compared short-form videos to food for pigs.

Sun, a Tencent vice president and chief executive officer of the company’s online video department, said short-video apps were feeding users vulgar content. “Because the personalized recommendation [algorithms] are so powerful, if you like pigswill, all you see is pigswill, nothing else,” Sun said.

Sun is responsible for Tencent’s video-streaming platform Tencent Video and short-video app Weishi, according to Chinese media reports.

ByteDance defended short videos in the post, saying Sun’s remarks were “arrogant and unfair.” “As a new form of communication, short videos help countless ordinary people record and share their lives, allowing more people to see a larger world.”

ByteDance also hinted in the post that Tencent’s criticism of short videos was insincere, pointing out that Tencent had tried various times to make short video apps while calling them “pigswill.”

In the attached PDF file (in Chinese), ByteDance listed evidence that Tencent had blocked links to ByteDance’s short-video apps Douyin, Xigua, and Huoshan on WeChat, while allowed Tencent-backed Kuaishou and Weishi to share links on the social media platform.

The file mainly consists of annals of news coverage of Tencent and ByteDance’s conflicts from 2018 to 2021 and ByteDance’s summary of those events.

“We see this pamphlet as a standing reference to the [link] blocking and monopoly. It always reminds us that time may erase memories, but time cannot erase facts,” wrote ByteDance in the now-deleted post (our translation).

Suing companies for link blocking

ByteDance sued Tencent in February for blocking Douyin’s content on WeChat and QQ, citing China’s Anti-Monopoly Law.

Bytedance accused Tencent of violating Anti-Monopoly Law and “misusing a market-dominant position,” “excluding and restricting competition.”

The lawsuit is still awaiting a first hearing date at the Beijing Intellectual Property Court. Tencent has requested (in Chinese) the case be transferred to a court in Shenzhen, where the company is headquartered.

In 2019, a Chinese lawyer sued Tencent for blocking Alibaba’s Taobao links. He dropped the case in early 2020 for “a lack of evidence.” But since then, anti-monopoly enforcement has taken off.

Zhang Zhengxin, the lawyer who sued Tencent, told TechNode in December that his odds to win the case would “increase by a lot” if the case had gone to court then.

In December, China fined a batch of tech companies over antitrust violations for the first time. A month before that, China’s top antitrust regulator proposed new guidelines targeting anti-competitive behavior to include internet companies.

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

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

In this episode, James and Elliott are joined for the second time by Bloomberg tech reporter Zheping Huang. They discuss what the future has in store for ByteDance now that their founder Zhang Yiming is no longer in the CEO role. Zheping and his colleagues recently completed a six-part podcast series chronicling the rise of ByteDance’s Tiktok in the US, and the Trump administration’s attempts to ban it. 

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

Watchlist:

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

Hosts:

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

Guest:

• Zheping Huang – @pingroma

Editor:

• Peter Isachenko

Podcast information:

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

ByteDance co-founder and CEO Zhang Yiming said he will step down as the chief executive officer of the TikTok owner at the end of this year, according to a statement published Thursday. Company co-founder and head of human resources Liang Rubo will take his place.

Why it matters: Zhang’s departure comes after the Chinese internet upstart dodged a threatened US ban on TikTok amid geopolitical tensions last year. 

Details: Zhang said in a letter addressed to the company’s to staff Thursday that he will focus on long-term strategy, corporate culture, and social responsibility.

• “After several months of thinking about this, I came to the conclusion that transitioning out of the role of CEO, with all of the related day-to-day responsibilities, would enable me to have greater impact on longer-term initiatives,” he wrote.
• Zhang said the success of ByteDance since its foundation in 2012 had been based on “our ability to innovate at just the right moment in the development of the industry,” including “applying machine learning to mobile and video products.”
• He said that hadn’t had time to make progress in digging into machine learning since 2017 because of his daily duties as CEO. 
• Zhang will take on a new role at ByteDance to drive innovation by “drawing on my strengths of highly-focused learning, systematic thought, and a willingness to attempt new things.” He will remain a board member.
• Liang, who will take Zhang’s place, previously held leading roles at the company as the head of research and development (R&D), and head of ByteDance’s productivity software team.

Context: ByteDance reportedly planning to send its global hit TikTok public as it named former Xiaomi chief financial officer Shou Zi Chew as the app’s CEO.

• However, ByteDance is facing increasing regulatory strain at home as China deepens crackdown on tech companies’ monopolistic practices.
• Many of ByteDance apps including TikTok and news aggregator Jinri Toutiao are driven by machine learning algorithms, which are considered the “secret sauce” of the company’s success.

Chinese internet giant ByteDance has decided to stop hosting TikTok and other overseas apps on Alibaba Cloud, Chinese financial media Caixin (in Chinese) reported. Global hit app TikTok has an estimated 700 million monthly active users worldwide.

Why it matters: The decision by ByteDance is a blow to the e-commerce giant’s cloud-computing branch. Alibaba saw a significantly slower quarterly revenue growth rate in the first quarter, which the company attributed to the loss of “a top-class customer in the internet industry.”

• ByteDance also appears to be responding to mounting regulatory pressure from the US and the European Union related to personal data concerns.

Details: ByteDance decided to move its servers for TikTok from Alibaba Cloud to Amazon Web Service and Oracle, Caixin reported last week, citing two anonymous sources. 

• The contract is worth approximately $800 million per year, said the sources.
• Alibaba has seen its cloud business grow at a slow pace in the first quarter apparently because of the loss of ByteDance’s contract. The company said last week its revenue from its cloud business grew 37% year on year to RMB 16.7 billion (around $2.6 billion) in the first quarter. The growth for its cloud business in the first quarter last year was 58%. The segment grew 50% in 2020 from the previous year.
• Maggie Wu, chief financial officer of Alibaba said last week in an earnings call with investors that the slower growth rate was “due to a change in our relationship with a top-class customer in the internet industry.”
• “This customer has a sizable presence outside of China that used our overseas cost services. They have decided to terminate their relationship with us with respect to their international business due to non-product-related requirements,” said Wu.
• While Wu didn’t mention the name of the company, two sources told Caixin that it was ByteDance. They said that TikTok had used Alibaba Cloud’s data centers in Singapore to back up user data in the US and serve the South East Asian market.
• Both companies refused to comment when contacted by TechNode on Tuesday.

Context: Alibaba is China’s largest cloud service provider, with more than 40% of the market, according to market research firm IDC (in Chinese). It is also the world’s third-larger cloud service provider after Amazon and Microsoft.

• Alibaba made its foray into the US market in 2014. It now runs two data centers in the country.
• ByteDance runs most of its domestic services on its in-house data centers in northern China’s Hebei province, according to local media reports.

Joining one of China’s tech majors is a bit like moving to a new country. There’s a lot to learn.

Then you’ve got to get on the local time zone—probably some variation on the infamous 996 hours.

Maybe you adopt a local religion, such as the benfen idea of duty. Or maybe you study the way of the fish touchers and stockpile snacks in the break room.

Working in big tech companies in China is certainly grueling, hard, and all-consuming. But it can also be liberating compared to the rigid hierarchies of traditional workplaces.

No boss or big brother

Nickname systems were introduced not just for discipline and management, but also for information safety and secrecy. In companies and departments that strictly implement the system, it is normal to not know the real name of a co-worker you cooperate with, especially when she works in a different department. Even when companies display the real names of employees along with their nicknames in internal communication systems—as Baidu and ByteDance do—just about every tech company omits precise ranks.

The nickname systems can be liberating, or at least were intended to be. “Everyone going by their nickname instead of calling each other based on their seniority felt more egalitarian than back in college,” explained a young employee at gaming giant NetEase. 

The ambiguity of the job position descriptions is intentional. In fact, internet companies are known to be China’s biggest advocates of a western workplace-inspired sense of equality and direct communication. ByteDance founder Zhang Yiming has stressed multiple times in public that he encourages employees to address each other by their real given names, even those of elders and supervisors.

It’s a clear rejection of the omnipresent hierarchy in traditional Chinese culture that is still commonplace in state-owned enterprises. Zhang has stressed that the use of zong (boss), ge (older brother) and jie (older sister) should all be abolished as well to create a more inclusive and equal workplace. 

Watermelon and Monkey King

Even though tech companies try hard to cultivate a flat workplace, seasoned employees still find ways to thwart the system. Since internal communication systems do not allow two employees to have the same nicknames, the shorter and easier one’s nickname, the higher ranking a co-worker tends to be. 

It is no secret that Pinduoduo founder Colin Huang, who recently announced that he is stepping down as chairman, bears the nickname A Zhuang, while the real identity of top executive A Bu remains a mystery even to the media. Below the founders’ circle of A nicknames, the next tier of executives tend to use the names of fruits.

“If you see someone nicknamed ‘Watermelon,’ ‘Monkey King,’ or ‘Doraemon,’ it’s almost certain they are senior managers,” said a Pinduoduo marketing employee. “More recent employees sometimes have to rack their brains just to think of a nickname that hasn’t been taken,” she said.

There are also some business units in which all staff members share matching nicknames from the same family in a work of fiction. “The longer an employee stays at the company, the better he or she will get at identifying a co-worker’s grip on the company just by their nicknames,” said the Pinduoduo employee.

Old-school Alibaba

Although the biggest Chinese tech companies largely share the desire for innovation, productivity, and growth that defines the industry, they tend to have different interpretations of the terms. 

Zhang’s own company, app factory and TikTok owner ByteDance, does not buy into the nickname system. The founders took a more direct approach to flattening their organizational structure. ByteDance employees are encouraged to call each other directly by their real given names, including calling Zhang himself “Yiming” to set the trend. The practice was also mirrored in Lark, the workplace messaging tool and working station developed by ByteDance. 

On the other hand, DingTalk, the internal messaging app of Alibaba, is an indicator of a more traditional hierarchical structure. It features stringent managerial functions, including punching in and out, review and approval, as well as briefings to the superiors. “DingTalk was designed to meet the managers’ administrative needs rather than those of individual team collaborators,” said a front-end engineer who has used DingTalk extensively for three years, “This reflects Alibaba’s culture. A relatively old-school internet company, Alibaba feels more authoritarian than some of the other internet companies, but is also more stable in terms of personnel and administration.”

Media outlet Jizhou Studio described some of the common perceptions among young students of the emblematic personality traits of each internet giant.  Alibaba prefers “high-achieving team players, who also lay great emphasis on execution,” it said, while graduates who get job offers from Tencent “tend to be the ones who are better at self-expression and active in student clubs and societies.” Those who go on to join ByteDance tend to be creative, while Pinduoduo prefers “hard-working, simple-minded, and benfen people.”

Staying in the benfen lane

The term benfen repeatedly cropped up in the accounts of working conditions by former Pinduoduo employees in the aftermath of the recent deaths of two young overworked employees. Pinduoduo is renowned for demanding work hours even beyond the notorious 996 so common in internet companies. Benfen roughly translates to “one’s part/role” and implies “staying in one’s own lane, realizing one’s own duty as well as what is beyond one’s grasp.” Benfen is stressed as a key value and enforced as an important guideline inside the company.

Chinese media consider benfen culture a legacy of Chinese entrepreneur Duan Yongping, the founder of electronics appliance company BBK, which was later split into smartphone makers Oppo and Vivo. Duan also served as a business mentor to Colin Huang. On the corporate level, these four companies share a conservative development strategy that places cost-effectiveness of an existing popular product or proven viable model over revolutionary innovation.

In the newest interpretation of Duan’s benfen philosophy, Pinduoduo has transformed the idea into a means to whip employees into hyper-intense competition. To a regular employee, the culture translates into nothing less than selfless dedication to the company, which only leads to one result: endless overtime work.

Hamsters touch fish

Oftentimes, unwritten expectations are what keep people in the office longer than the usual 996 working hours. For Zeng Jiajun, a former product manager who worked, consecutively, at Tencent, Baidu, Meituan, and ByteDance, getting off work at 9 p.m. was the earliest he experienced during his years at big internet companies. In fact, leaving then after a 12-hour workday was considered a “very early” punching-out time in the industry. “It feels like being a hamster on a wheel. We are more driven by the KPIs (key performance indicators) than the mandatory working hours themselves,” said a former Pinduoduo employee, who prefers to stay anonymous. “You cannot choose to leave when all other wheel gears are turning in the machine.”

The hustling culture often feels oppressive and unnecessary to many workers, especially when combined with bureaucracy and administrative errands. While many big tech companies embrace “wolf culture,” a term coined by Huawei founder Ren Zhengfei that highlights “hyper-intense teamwork,” burned-out young workers have come up with their own types of resistance: They have cultivated an underground culture of slacking off, or moyu. Literally meaning “touching fish,” the term comes from a Chinese proverb: “Muddy water makes it easier to catch fish.” In the online world, moyu has come to refer to surreptitious coping mechanisms undertaken in high-pressure workplaces. 

“What are the solutions to keep a balance between making money and staying healthy? The first way is to have a rich father, the second is moyu,” advises Xianren Jump, a popular Bilibili creator in a viral video that calls on fans to join the moyu force.

Forces of moyu

Moyu caught public attention in multiple online communities as netizens shared hacks for dossing off at work and memes for a good laugh. On Weibo, blogger “Massage Bear” garnered a big following for her passive-aggressive approach to moyu philosophy. “Set eight daily reminders on your phone to drink water. Every time you go to the pantry room or bathroom, try to hang out longer and use more company resources like free beverages and toilet paper,” reads one of Massage Bear’s posts. To the internet workers who have very little leeway to let loose at work, taking small opportunities to loaf on the job almost feels revengeful.

When clever moyu practices become too evident, companies take measures to crack down on them. Zhang, the ByteDance founder, rebuked employees for generating too many messages during work hours in an internal group chat of Genshin Impact game players. “I’m curious: Do these friends in the group have too much free time at work?” asked Zhang.

Other companies have tried to regulate the length of toilet breaks in response to employees dallying in bathrooms to recharge. Pinduoduo reportedly blocked internet access in bathrooms, which made playing with smartphones on toilet breaks practically impossible, while Kuaishou installed a timer to display how long each stall has been occupied. 

Aside from trying to do less work while maintaining the same work hours, internet company workers have also developed the art of “making their progress seem bigger.” In a recent viral WeChat post, a blogger known as “Xierqi Life Guide” ridiculed the phenomenon of increasingly unnecessary report writing. As actual working hours stretch beyond the default 996, commonly required work summary documents have ballooned from weekly reports into daily reports at many over-achieving business units. Rather than accurately communicating workloads, many commenters agreed with the original WeChat post that the arduous reporting system only added to the formality of internet corporates.

996 survival skills

Why do China’s best and brightest young people choose to join these cyber factories? The opportunities promised by internet giants, along with the financial incentives, are a key appeal. The 996 workweek is hardly a dealbreaker for many driven young people in the face of a full package of benefits in today’s extremely competitive job market, as well as opportunities to be part of “something bigger.” 

For some, the still private ByteDance is an ideal career starter for the potential it represents, despite the demands of 996. ByteDance recruited more than 40,000 employees globally in 2020 alone, almost doubling its workforce by the end of the last year. Newish internet powerhouses Pinduoduo and Meituan also ramped up their fresh graduate recruiting numbers this year in order to enrich their talent reserve for future competition.

For a lot of young graduates of top Chinese universities, their experiences of extreme competition that enabled them to survive China’s notorious gaokao university entrance exam make 996 hours appear less appalling in comparison. Even with the limitations, internet companies are, after all, places where hard work and good performance pay off. 

To more and more young people, though, opting to work in big tech feels more practical and “safe” than a wild dream coming true. “Internet companies are the new state-owned enterprises, said Eddy Gu, a recent graduate in search of a job. Turning the clock back only 20 years, state-owned enterprises were regarded as the dream career destinations in Chinese society due to the complete package of benefits, institutional stability, and prestige. With all the efforts to “be different,” internet giants are probably in the end more similar than they intended to be to those now-stagnant predecessors.

READ MORE: INSIGHTS | Why 996 just won’t go away

Just another dagongren

Some big tech employees, therefore, are just showing up to earn a paycheck.

A recent trend has young internet laborers referring to themselves as dagongren—working stiffs, the same phrase used to refer to migrant workers who go to the city to work on construction sites. “Dagongren” channels youths’ disillusionment with their outwardly glamorous city life: In a competitive job market and fast-paced society, they simply do not have much control over their own lives compared to their almighty employers.

Kyle Lin, currently an intern at ByteDance, thinks the surging living costs in major Chinese cities partially explain why many young people gravitate towards 996 hours. Lin rents a very small bedroom in an apartment shared with three other roommates in Beijing. “The wage I get as an intern barely covers the rent, but staying at the company for the entire day means free meals, free snacks, and a gym that I use,” said Lin. These Silicon Valley-inspired perks, of course, are meant to keep people on the company “campus” beyond their required working hours.

“I already accepted the reality of sacrificing health and personal life when I accepted the job after graduating,” said Kiki Zhou, a product manager who joined Alibaba about a year ago as a fresh university graduate. “The trade-off is a cruel but economic one, especially when there’s no other way to get enough savings for the down payment on an apartment,” she said.

Zhou now resides in Hangzhou with her boyfriend, who also works at Alibaba, but she plans to get a government job that allows more leisure time as soon as the couple have saved enough money. To accumulate that sum, Zhou estimates their stints as big tech dagongren will last at least four more years.

Trip.com in Hong Kong

• Chinese travel agency Trip.com improved its issue price by more than 4% on Monday, the day of its secondary public listing in Hong Kong. The company considered delisting from Nasdaq last year after booking a net loss of RMB 3.35 billion ($513 million) for the full year due to effects from the pandemic. However, Trip.com is expecting record numbers of domestic travelers for the upcoming Chinese Labor Day holiday in May, with growth figures potentially canceling out the effect of international travel restrictions. (CNBC)

E-commerce bigwigs

• In the wake of its record-breaking fine for anticompetitive practices, Alibaba continues its efforts to make amends. For the first time since 2009, Alibaba’s e-commerce platform Tmall will lower barriers to entry for merchants starting April 19. Changes include reductions in required certifications and waived fees; vendors will be evaluated on performance. (TechNode)
• Food delivery giant Meituan looks to raise $10 billion from sales of shares and convertible bonds. About 3.2% of its equity was sold off at a discount to its Monday closing price of HK$289.20. The funds will be used to help solidify its foothold in the community group-buying segment, as well as for research and development of artificial intelligence applications in grocery delivery. Company leadership stressed that Meituan will continue to invest in community group-buying despite initial losses. (South China Morning Post)
• A leaked company memo indicated that ByteDance is aiming to triple its e-commerce gross merchandise value (GMV) of RMB 600 billion earned from its Toutiao news aggregator and Douyin video apps compared with last year’s figure of RMB 170 billion. Ad revenue and user count were also slated to improve 40% and 10%, respectively. The news bodes well for investors ahead of ByteDance’s reportedly imminent public debut. (Bloomberg)
• E-commerce titan JD.com has hammered out a deal with luxury brand Louis Vuitton which will allow Chinese consumers to buy its products through JD’s app. The move will help JD shed its reputation primarily as a seller of electronics. It will also pave the way for more luxury partnerships; nabbing as many as possible will be crucial for JD’s fledgling fashion and lifestyle section as it competes for market share with Alibaba’s Tmall. (Vogue Business)

New retail

• On April 15, Luckin Coffee announced that it received a $250 million injection of cash from shareholders Dazheng Capital and Joy Capital, with the potential for $150 million more if conditions are met. (Future Consumption, in Chinese)
• Alibaba launched a WeChat mini program for Hema Market, its community group-buying initiative. The Hema Market mini app is a rare example of a direct Alibaba-Tencent ecosystem link. Chinese tech giants are usually walled gardens, and WeChat also blocks links to Alibaba’s Taobao online marketplace. (TechNode)

Supply chain

• Courier service STO Express released its 2020 performance report on Thursday. Operating income was down 6.6% year on year, and profit declined to RMB 37 million, a 97.4% drop from a year earlier. The company attributed the negative news to lower market prices due to intense competition. To compensate, STO Express has increased financing and bank borrowing. A silver lining: the company forecasts a turnaround for the first quarter of 2021. (Ebrun, in Chinese)
• Rival courier service ZJS Express closed its Series B with nearly RMB 1 billion in new funding, courtesy of backers Gaolin Capital, Sino-Ocean Capital, and Ningbo Hanrun Investment. A portion of the money will go towards developing the service’s smart supply chain. ZJS’s stated goal is 50% to 100% annualized growth for the next three to five years. (Deal Street Asia)
• On April 9, Baishi Express and upstart Jitu Express were fined for price dumping. Previously fees were as low as RMB 0.8 per package in the eastern Chinese city of Yiwu, but prices doubled after the penalty. As a result, the two courier services have lost their competitive advantage and fallen out of favor among merchants. (Economic View, in Chinese)

China’s top antitrust regulator is looking into Tencent’s WeChat for monopolistic practices and how the popular messaging app had possibly squeezed smaller competitors, Reuters reported, citing anonymous sources. 

Why it matters: The latest development in China’s antitrust campaign indicates that Tencent, the country’s largest social media and gaming company, might be the next tech behemoth to be targeted. The company had previously been sued by rivals for anti-competitive behaviors.

Details: Wu Zhenguo, the head of China’s State Administration of Market Regulation (SAMR), expressed concern about some of Tencent’s business practices, and asked the firm to comply with antitrust rules when he met with Tencent founder Pony Ma this month, Reuters reported Wednesday, citing two people with direct knowledge.

• SAMR was gathering information and looking into WeChat’s business practices, and how the super app—China’s largest instant messaging app with more than 1 billion users—may have competed unfairly against smaller rivals.
• Ma, Tencent’s low-key chief executive, was in Beijing this month for China’s annual parliamentary meeting and visited the SAMR office two weeks ago. He met with SAMR officials to discuss compliance at his company.
• Tencent did not respond to requests for comment on Wednesday.

Context: SAMR had previously targeted Tencent in its antitrust actions. It fined a Tencent affiliate in December over unreported acquisition and merger deals and punished Tencent earlier this month for the same reason.

• Tencent is also involved in a lawsuit with Douyin, ByteDance’s Chinese version of TikTok, which accused the company of violating China’s antitrust law by blocking Douyin’s content on its WeChat and QQ instant-messaging apps.
• Tencent is about to report its fourth-quarter earnings on Wednesday. The company is expected to report a 42% rise in its quarterly profit, according to Reuters, but analysts said the investor focus will be on regulatory developments.

A few years ago, ByteDance was a media company. Now it’s moving from e-commerce into restaurant coupons.

ByteDance is on its way to building a business empire encompassing nearly every aspect of Chinese consumers’ daily lives. With core competency in content aggregation, the TikTok parent company has already expanded to entertainment, e-commerce, productivity, gaming, education, competing head-on with big names like Tencent, Baidu, and Alibaba. 

The tech giant recently accelerated its foray into local lifestyle, a RMB 1.3 trillion (around $199.9 billion) market that is dominated by long-standing incumbent Meituan, which operates two of China’s largest local lifestyle apps, Meituan and Dianping. Local lifestyle is a catch-all term for in-person services such as restaurants, movies, entertainment, and beauty care. Tech companies engaged in these areas typically adopt the O2O, or online-to-offline model, which entices online consumers to make purchases of goods or services from bricks-and-mortar stores by leveraging location-based features.

ByteDance is pushing into local lifestyle services in order to diversify and boost its revenue stream to support both the company’s rapid pace of development. With an IPO rumored to be coming soon, the company will also want to show strong revenue figures.

ByteDance recorded around RMB 240 billion of revenue in 2020, according to The Information, which cited people with knowledge of the matter. Revenue from its primary advertising business accounted for RMB 175 billion, or 72.9% of the total. The company has decreased its heavy reliance on ad income, which in 2019 accounted for over 90% of revenue. It may still need to improve that balance in order to fend off risk.

By advancing into lifestyle services, ByteDance is taking on a new rival: O2O giant Meituan. It’s a potentially Freudian moment for ByteDance founder Zhang Yiming, who has close connections to Meituan founder Wang Xing. Both men hail from the same town in rural Fujian, and they have a history. When Wang founded social media platform Fanfou in 2007, Zhang was his tech partner. They haven’t worked together since 2009, but the two CEOs appear to remain fond of each other, speaking highly of each other in public.

Deeper discounts, for now

Douyin’s newly launched local lifestyle section consists of four segments: group deals for restaurants and hotels, top lists for scenic spots, hotel reservations, a gourmet guide populated by reviews from social media influencers, and location-based check-in with prizes. The features have some overlap but are all focused on restaurant and accommodation reservations. Participating businesses are currently only located in top-tier cities including Beijing and Shanghai.

For users, Douyin’s local life offerings are largely a Meituan alternative. 

In addition to easy access to user attention, an obvious edge for the service is pricing. A Sichuan noodle restaurant chain in Shanghai is currently offering up to 60% off through campaigns marketed through Douyin’s new feature, while discounts from the same restaurant are only 30% on Meituan and Dianping. 

It’s hard to say how long the company will maintain its pricing edge, but it is an efficient and time-tested way to draw its first round of customers. 

“Meituan and Dianping are my go-to apps for lifestyle services. But if we can get a better bargain on Douyin for the same service, why not?” Deng Shuang, a Shanghai-based housewife who watches e-commerce livestreams on Douyin, told TechNode.

Merchants are also open to the new option thanks to Douyin’s favorable word-of-mouth reputation as an efficient marketing platform. Sandwich shop owner Xiao Yu spent RMB 500 for one promotional video on Douyin in an attempt to draw users to his restaurant which opened just two months ago. The review video, featuring a Douyin social media influencer visiting his Nanjing-based store, tripled daily sales of the store to RMB 3,000, increasing daily orders to more than 200 from around 70 per day. The traffic boost sustained for over a week. He told TechNode that the store’s initial low traffic may have exaggerated the growth rate, but he was satisfied with the results. Given this experience, he’s keen to try out the new group-buy feature if it launches in Nanjing.

At present, merchants with a Douyin enterprise account can use the service for free, partially lowering merchant marketing expenses. The current zero commission policy may be a big attraction for merchants who generally pay steep commission fees to Meituan of around 10%.

What’s ahead

User enthusiasm alone, however, won’t guarantee success for Douyin’s local lifestyle business. There are two difficulties in using Douyin to promote such destinations, according to Michael Norris, research and strategy manager of Agency China.

“The first is a technical challenge—whether Douyin can support the purchase and redemption of coupons as efficiently as Meituan’s Dianping,” he said.

As it gets started with the business, Douyin both cooperates directly with offline stores and acts as a traffic platform that helps to promote services offered by third-party platforms. A server at a Shanghai noodle restaurant told TechNode that she has seen few customers using Douyin group-buy coupons compared with those from Meituan’s apps. In another test, a meal voucher that a TechNode reporter purchased through Douyin could not be found in the restaurant’s ordering system. Restaurant management eventually noticed that the voucher was issued by another local lifestyle platform, Xiangku, and Douyin was only promoting the service. 

“The second is a user journey and experience challenge—in the case of restaurants, users generally search and redeem a discount coupon as they pay for the meal. How Douyin plans to support this behavior is key to whether it can be a credible threat to transactions in Meituan,” Norris says.

Although the products look similar, Douyin’s product is embedded in a different ecosystem—which probably means a different strategy.  

Meituan is all about convenience. People who are looking to buy food or services use Meituan to search for bargains available near their location to purchase immediately, usually for restaurants nearby while shopping or after finishing a meal at a restaurant. In addition, Meituan’s food delivery services, more frequently-used services although lower in margin, help the platform to accumulate merchants users. Meituan’s model relies on both ads and commission to make money.

Douyin appears to be counting on getting people excited enough that they’ll make a special trip to try a new restaurant. Based on its content and “Point Of Interest” feature, Douyin is trying to create demand using content marketing tactics including livestreams, videos, and other media. When a consumer sees that a friend owns an item, or an internet influencer recommends a restaurant, it plants a mental seed.

Another challenge will be very quickly ramping up and capturing a wide offline merchant network. Unlike e-commerce for physical goods, selling local lifestyle services is rooted in recruiting as many offline merchants as possible. The number of participating merchants is a crucial baseline for luring more customers. It is a difficult market to catch up in since such offline recruitment requires big teams and plentiful resources to support heavy offline operations. As a result, it is unlikely that Meituan will lose its first-mover advantage in the near term.

Broader e-commerce push

It’s no secret that Douyin has big plans for e-commerce, a coveted revenue source for tech firms. After earning RMB 500 billion in gross merchandise volume (GMV) in 2020, Douyin set a RMB 1 trillion (in Chinese) GMV goal for its e-commerce business in 2021. The company has launched a number of initiatives to increase sales transacted through Douyin, including shoppable short videos and livestreams. 

ByteDance is broadening its livestreamed e-commerce business to include online sales of services, or the local lifestyle sector.

READ MORE: Bytedance gaming play doesn’t threaten Tencent—yet

“A subset of these shoppable videos include coupons and group-buying deals for tourist attractions and eateries. The group-buying feature gives merchants, whatever they’re selling, new ways to facilitate purchases,” Norris said.

ByteDance has been adjusting internally, shuttering smaller or less successful ventures and investing further in businesses that are mature or seen as proven business models, in preparation for a public listing, according to a number of media reports. It shut down (in Chinese) paid knowledge-sharing services Haohao Xuexi and closed its smartphone business by integrating the Smartisan team into the education hardware unit. Meanwhile, it acquired the Wikipedia-like Baike.com and built an internet of vehicles team.

ByteDance appears to be willing to try anything and everything to power growth and stay ahead. It has been keeping pace with virtually all the bandwagons with huge market potential. Its leadership doesn’t seem to mind failure, only missing out on the next big thing in China’s cutthroat technology race. 

China’s top antitrust regulator said Friday it has issued fines to companies including social media giant Tencent, ride-hailing platform Didi Chuxing, and search engine Baidu over 10 investment deals in the internet sector that were in violation of the Anti-Monopoly Law.

Why it matters: China has in recent months stepped up scrutiny of tech firms over antitrust regulations. Friday’s disciplinary action involves the largest number of companies so far and the fines issued were the maximum amount allowed by China’s existing legal framework.

• A proposed overhaul to China’s Anti-Monopoly Law will allow regulators to issue fines up to 10% of the offending company’s annual revenue.

Details: The State Administration for Market Regulation (SAMR) said in a statement (in Chinese) on Friday that the deals include Tencent’s 2018 investment in edtech firm Yuanfudao, Baidu’s 2014 acquisition of smart home equipment maker Ainemo, and a joint venture set up by Didi and Japanese conglomerate SoftBank.

• Other deals include a merger deal involving a subsidiary of Alibaba, and a joint venture set up by TikTok parent ByteDance and a Shanghai newspaper group.
• Twelve companies including Tencent and Baidu were each fined RMB 500,000 (around $77,000) for their involvement in the deals. The penalty is the maximum for unreported anti-competitive deals according to China’s current antitrust law.
• China’s Anti-Monopoly Law requires companies to report investment or acquisition and merger deals that could create a “market dominant player,” or one that will hold more than 50% share of its relevant market. 

Context: In December, SAMR issued fines to Alibaba and affiliates of Tencent and logistics giant SF Express over three separate acquisition deals, a move that legal experts said was the country’s first batch of antitrust enforcements against tech firms.

• In February, China put into effect new antitrust guidelines targeting internet platforms, which bans internet platforms from forcing merchants into exclusivity deals, offering different prices based on user data, and using algorithms to manipulate the market.

TikTok bets on social shopping

TikTok, Beijing-based ByteDance’s short video app, is reportedly planning several new features for its e-commerce expansion in the US. The move builds on the success of a similar push from its Chinese version Douyin, now a major player in China’s livestream e-commerce market.

Livestream shopping has become widely popular in China. Another features allows TikTok users to share links to products and automatically earn a commission. The viral short video app piloted a shoppable experience with Walmart in December. (Financial Times)

Luckin bankruptcy

Luckin Coffee filed for bankruptcy protection in the US on Friday to fend off US creditors during a liquidation process that is already underway in the Cayman Islands, where it is registered. The company will continue its China operations, “including paying suppliers, vendors, and employees.” The filing comes almost a year after the company admitted falsifying RMB 2.2 billion ($310 million) in 2019 sales. (TechNode)

Regulator scrutiny

Beijing has imposed a RMB 3 million fine on the operator of Vipshop.com for unfair competition, just a month after the flash sale online retailer was penalized RMB 500,000 for irregular pricing. (TechNode)

Didi boosts group-buy unit

Ride-hailing giant Didi Chuxing is planning to raise $4 billion for its community group-buying unit, doubling down on the rising sector to diversify its revenue streams amid slowing growth in its core business. Didi could chip in $3 billion while seeking about $1 billion from external investors. (Bloomberg)

READ MORE: Friendly neighbors are the key to China’s community group-buying craze

Fresh produce e-commerce

Suning Logistics, part of omni-channel retailer Suning Group, rolled out Su Xian Da, a new fully linked cold chain solution from warehousing to distribution. The service offers cold-chain delivery service to consumers within 48 hours. Suning, along with a group of online sellers and delivery services, will continue its logistics and delivery services during the weeklong Spring Festival holiday, generally a low season for China’s logistics industry. (Tencent, in Chinese)

It’s no secret Chinese students are enmeshed in one of the world’s largest-scale AI monitoring experiments. Thanks to a myriad of edtech “breakthroughs” in the past decade, monitoring devices have penetrated school walls: Ever-present cameras monitor behavior. GPS-enabled wrist watches are a popular gadget with parents. Affect recognition algorithms, said to boost attention, “read” an entire room of young faces in real-time, despite doubts about whether expressions reveal anything meaningful.

Developed in consultation (in Chinese) with thousands of families, the ByteDance device takes snapshots, livestreams, and boasts an extensive library of educational games and videos, offering 996-working parents automated childminding. You can even pay the company for a remote staffer to watch via lamp as your child studies. 

As an edtech veteran and developmental psychology enthusiast, I’m here to caution that these advertised “must-haves” intrude on household privacy and throw obstacles to self-directed, cross-disciplinary learning—essential skills for the Gen-Z generation in the workforce of tomorrow. Between the customers and the corporation, the interests of the latter are prevailing.

Interactive, helpful, creepy

Launched by ByteDance under a spin-off educational brand called Dali (“great strength” in Chinese), the T5 smart lamp has exceeded internal sales expectations, selling more than 10,000 units (in Chinese) in its first four months. You can tell ByteDance is bleeding money on their edtech hardware debut: At RMB 799 ($117) apiece, the lamp costs just one-third of a similar Czur device (in Chinese).

The Dali lamp includes two cameras. One points down at the table or desk surface to scan-capture homework imagery, giving parents a bird’s-eye view of the child’s current progress through a namesake app; the other camera, sitting atop an Android-powered control panel, faces in front of the child and records live during check-in video calls.

As well as touch-and-play homework games (video demonstration), the device comes voice-enabled to further pique the interest of its 4- to 12-year-old users. Following the wake-up phrase “Dali Dali,” the onboard digital assistant switches lights on/off, recites Li Bai poems, or pronounces English words.

One of Dali’s spookiest features comes at an extra RMB 300 on the T5 Pro model: surreptitious photographing intended to catch a kid in an unscholarly posture. When “bad form” is detected, the lamp sends a voice alert and simultaneously preserves photo evidence. Three days’ worth of exposés are up for parental review.

This slate of features struck the industry peers I’ve talked to as a mix of creepy, helpful, and weird. Yet the lamp appealed to quite a few parents. This past Christmas saw Taobao’s top livestream-selling hostess, Viya, move 5,000 units in a single night. But as reviews and research demonstrate, if the Dali brand doesn’t drastically change course with its future products, these sales numbers had better taper off for the good of our kids.

Your child deserves alone time

The primary and middle students who are the Dali lamp’s end users already spend the majority of their time on structured activities. During an average night, homework takes about 2.82 hours, about three times the global average, according to a spokesperson for the mainland’s top political advisory body. Adding 10 hours in school where surveillance cameras flash unchecked, it becomes clear that, should these child-monitoring lamps be normalized, the up-and-coming generation will live a reality where in most of their waking hours, they are a target of electronic monitoring.

Following the lead of Mattel, a toy brand that pulled an AI-driven babysitter-cum-tutor in 2017, prominent US companies are having second thoughts about childminding tech in the face of backlash from parents, pediatricians, and politicians. A bit late to the party, Chinese regulators in September 2019 did publish rules to rein in invasive data collection of children under 14, though the vagueness of its wording would strike developers more as a strategic deterrence than specific guidance.

Further, consider the security risks posed by a front-facing, desk-level camera, most likely located in a child’s bedroom. What if the child is changing clothes? What measures will kick in if the WiFi-enabled device is hacked? What is ByteDance doing with all this personal data? The press release for the lamp, however, provides no details about how users’ privacy will be protected. And it’s not just the prying lenses we should worry about. Have we already forgotten that digital home assistants gained substantial notoriety in recent years for listening when they’re not supposed to?

Dali is appealing to parents, distracting to kids

As a society, we wish for our kids to create and lead with purpose. That’s why in contrast with lengthy in-class lectures, out-of-school learning is at best motivated by self-direction.  The lamp fails a child in that mission in the following ways.

The Dali lamp’s interactive assistant is likely to be a major distraction, early reviews report: Any time the lamp is on, what awaits a kid is dozens of animated cartoons to consume and a bombardment of push notifications. In response to some of the interactive quizzes, kids can post their own videos and tag them with calls-to-action like “please remember to follow me.” These homemade videos, which may feature the makers’ faces, are accessible to the entire Dali customer base.

“What’s the pain point they’re addressing here?” one dad, a former edtech hardware developer, asks (in Chinese) in an online review. “Is it increasing DAU [for the company]?… I’d slash 90% of the features onboard.” Then there are the multiple observational studies linking early childhood exposure to fast-paced media and increased screen time with attentional deficits several years down the line. So, to parents who intuitively assumed Dali could boost attention: throw that idea out of the window now.

For that matter, it’s time to move past the obsession with getting kids to pay attention. Neuroscience researchers now recommend not freaking out when our kids use their study time to drift a little, since we now realize mind-wandering actually induces the deepest level of big-picture thinking—just what future employees need when skills in identifying overarching patterns (as opposed to rote step-memorization) become vital for at-work success.

Self-direction doesn’t happen out of the blue, it needs active support and lessened control. Kids under intense scrutiny tend to follow the prescribed route to please the present-whenever-they-feel-like-it adults, instead of engaging executive function to take risks. If we truly detest addiction to screens as much as we say we do, and wish the mobile native generation some old-fashioned childhood leisure, then let’s not shove an omniscient interface in their faces. Instead, let’s free our young problem solvers at their desks to preside over expressive undertakings however they’d like: journaling, doodling, and creating other things that take their own pace and require serious solitude.

Moreover, constantly confronting two cameras placed one foot away is a recipe for personality distortion. The lenses’ presence cues children to behave based on “risk of punishment” instead of personal values, and drives teens to be “more secretive” about their lives. While Dali’s marketing team goes out of their way to assure you no such concern exists—“Every call requires mutual consent, you only see her once she picks up”—we know better: some of us can get quite suspicious should kids hit that decline button when our helicoptering scrutiny arrives. And, you know what the worst part is? The kids know better, too.

Beyond Dali quick fixes

“The lamp is one of three digital gadgets that all students have on their study table. The other two are the alarm clock and the bed-time story broadcaster,” an edtech entrepreneur familiar with the lamp’s development explained to me. “At its core, launching the product is a business decision.” Remarks from Louis Yang, the head of the Dali product team, back her analysis: “Hardware incurs a loss, but we’ll keep at it.” Why? “It’s the infrastructure for… future [paid] services (in Chinese).”

Before and after the Dali launch, ByteDance has pushed a steady stream of said services. One of those even does away with parents entirely: For ~RMB 599 a month, the company will assign a remote minder to “supervise [your] child in real-time” via the lamp for up to two hours on weekday nights. In addition to answering the student’s questions one-on-one, the tutor will also “promptly notify [him] if he’s spotted leaving the seat for long, or staring into the void.”

Foucauldian much? From now on, let’s look past an edtech giant wannabe’s quick-fix gimmicks and be wary of the long-term implications of heartless robotic care. Because at one point in their lives, our kids will no longer be “supervised” by machines: No more Alexa teaching them to say “please” after issuing requests, no more Google patents that aim to tip us off about their “mischiefs,” no more ByteDance lamps wooing them into solving quadratic equations. Home life is about preparing them for that day, isn’t it?

READ MORE: Edtech and Covid-19: It’s complicated

Douyin, ByteDance’s Chinese version of TikTok, said on Tuesday it had sued Chinese social media giant Tencent for monopolistic behavior including blocking Douyin’s content on its WeChat and QQ instant-messaging apps.

Why it matters: The legal move comes as China tightens antitrust regulations for tech companies and refines its laws to better rein in the internet sector. While similar lawsuits had often resulted in a stalemate, it is believed that officials and judges will now be less tolerant of internet companies and anti-competitive behavior.

• The lawsuit is also seen as a tactical move as Douyin’s biggest domestic rival, Tencent-backed short video platform Kuaishou, is preparing to list in Hong Kong.

READ MORE: China’s tech giants aren’t ‘immune’ to antitrust any more

Details: ByteDance has filed a lawsuit with the Beijing Intellectual Property Court, accusing Tencent of violating China’s Anti-Monopoly Law by restricting WeChat and QQ users from sharing Douyin’s short-video content, the company said on Tuesday.

• Tencent’s practice, it said, ran afoul of the Anti-Monopoly Law’s provision of forbidding “misusing a market-dominant position, and antitrust behavior of excluding and restricting competition” (our translation).
• ByteDance asked the court to require Tencent to cease such behavior and make a public apology. The Beijing-based firm is also seeking compensation of RMB 900 million (around $13.9 million) from Tencent.
• There are no other operators that provide services that rival WeChat and QQ, ByteDance said, meaning that Tencent enjoys a “market-dominant position”—the threshold for citing the Anti-Monopoly Law in court.
• Tencent said in a statement that ByteDance’s accusations were “false” and that the company will bring a countersuit.
• Tencent said Douyin had acquired WeChat users’ personal information by “means of unfair competition” and had breached the platform’s rules.

Context: China has ramped up antitrust regulations in the tech industry in recent months. In December, the State Administration of Market Regulation (SAMR), China’s top antitrust regulator, issued fines to Alibaba and affiliates of Tencent and logistics giant SF Express over three separate acquisition deals, a move that legal experts described as the country’s first batch of antitrust enforcements against tech firms.

• SAMR had previously proposed an overhaul of the Anti-Monopoly Law in January and introduced a set of antitrust guidelines tailored for the internet industry in November.
• In March, ByteDance complained that WeChat had started blocking links to its enterprise messaging app and productivity tool Feishu.

GGV Capital, an investor behind some of China’s most successful tech startups including ByteDance and Didi Chuxing, said Thursday it had closed a $2.5 billion funding round—the largest in its 20-year history.

The US- and China-based venture capital firm’s latest capital raise comes amid an uptick in inflows to VCs from domestic and international limited partners (LPs) looking to profit from China’s tech growth. On Tuesday, Qiming Venture Partners, a Beijing-based VC firm that has invested in food delivery app Meituan and smartphone maker Xiaomi, said it had closed a new RMB 2.9 billion (around $448 million) financing round, following a $1.2 billion capital raise in September.

The two deals are part of a trend: foreign investors are increasingly injecting funds into China’s growing tech sector, as the global economy slows. Investors and analysts have said that foreign LPs are optimistic about China’s tech startups following last year’s initial public offering (IPO) boom. China, meanwhile, is gradually opening its finance market, increasing its appeal to international investors, they said.

Two big fundraising deals

GGV said it had raised in this financing round $1.46 billion for its GGV Capital VIII fund, $366 million for the GGV Capital VIII Plus fund, $610 million for its Discovery III fund, and $80 million for its Entrepreneur VIII fund. The firm said it will focus on investment in sectors such as new retail, cloud-based enterprise services, and social media.

The firm said it also expects to soon close a separate financing round of RMB 3.4 billion, increasing its total assets under management to around $9.2 billion.

The company did not disclose the names of its backers in this round. It has previously raised US dollar funds from North America-based pension funds, family asset management firms, and universities. A GGV representative declined to comment.

Qiming’s latest financing round was backed by two government-led guidance funds in Shanghai and Beijing, as well as several domestic insurance companies, TechNode has learned. The firm’s $1.2 billion financing round closed in September was mainly backed by American university endowments and pension funds.

“Top domestic and international LPs are optimistic about our investment strategy to invest in China’s innovative and developing science and technology, even during the challenging global Covid-19 epidemic as well as changing global environments,” (our translation) Duane Kuang, Qiming’s founding managing partner, said in a company statement on Tuesday.

US dollar funds become more active

In 2020, Chinese US dollar funds raised 12% more money than the previous year, even though total capital flowing into the market dropped nearly 39%, according to data from PE Data, which tracks China’s VC activities.

“US dollar funds into Chinese VC firms increased in 2020 both because the Chinese government had loosened its regulations of foreign investment and because overseas LPs are a lot more confident about the Chinese market,” (our translation) Liu Xiaoqing, research director at Itjuzi, a Chinese VC activity database, told TechNode.

American LPs are finding Chinese tech firms increasingly attractive and the market is rapidly developing after some Chinese tech firms went public in 2020 and offered investors high returns, she added. Some of the largest Chinese tech IPOs last year included electric vehicle maker Xpeng and Li Auto, as well as gaming giant Netease’s dual listing in Hong Kong.

VC-backed Chinese video-sharing app Kuaishou is preparing for what is expected to be the world’s largest public listing since the pandemic. The company is seeking to raise around $5 billion on the Hong Kong stock exchange, implying a market capitalization of as much as $60.9 billion. The firm was valued at $18 billion in a funding round in January 2018, meaning early investors are expected to net returns of nearly 233%.

A clearer picture

US investor interest in Chinese tech firms was hampered last year by two Trump-era policies, but signs from the Biden administration, which has thus far indicated an aversion to over-broad and arbitrary restrictions on Chinese tech firms, are stoking optimism.

In May, the US Labor Department advised US federal pension funds—important backers of Chinese USD VC firms—against investing in Chinese companies. In November, former US President Donald Trump signed an executive order which banned starting Jan. 28 American investment in companies that are deemed related to the Chinese military. Smartphone maker Xiaomi, China’s three biggest telecommunications operators, and Chinese chipmaker SMIC are on the blacklist.

However, in a sign that it is easing Trump’s “tough-on-China” tech policies, the newly inaugurated Biden government said on Wednesday it is delaying the investment ban on certain Chinese firms to May 27.

China’s economy expanded 2.3% in 2020 according to government data (in Chinese) released last week, as economies in the rest of the world grapple with the stranglehold on business brought by the coronavirus pandemic.

China brought in $163 billion in foreign investment in 2020, surpassing the US as the world’s hottest destination of foreign direct investment, according to a report by the United Nations Conference on Trade and Development released on Sunday. In 2019, the US took $251 billion in foreign inflows and China got $140 billion.

“LPs are planning for the longer term,” said Liu of Itjuzi. “They are not only confident about China’s economy in 2021. They are at least confident about China in the next 10 years.”

ByteDance joins Spring Festival party

• Douyin, the Chinese version of TikTok, announced plans to distribute RMB 1.2 billion in cash giveaways during the annual CCTV Spring Festival gala to be held on Feb. 11. The Bytedance-owned short video platform replaced Pinduoduo as the the sole sponsor of China’s annual blockbuster of TV advertising events. The company rolled out a digital payment feature earlier this month, recalling WeChat Pay’s 2014 move in gaining its initial user base, an incident referred to by Alibaba founder Jack Ma as the “Pearl Harbor attack.” (Xinmin.cn, in Chinese)
• Alipay will launch its Five Fu (meaning good fortune) card-collecting campaign on Feb. 1 for its fifth year to distribute cash prices in exchange for user attention during the Spring Festival holiday. Tencent’s WeChat was the first to digitalize the centuries-old Chinese tradition of giving red envelopes with the rollout of the feature in 2014. The massive popularity of its digital red envelope feature allowed the app to convert hundreds of millions of social media users to payment users for WeChat Pay, then a budding Alipay rival. Alipay rolled out the the Five Fu campaign, a similar digital red packet feature, in 2016 and more than 600 million users have taken part since. Alipay users have continued to participate in the gamified campaign despite the significantly lower value of the red envelopes—less than RMB 2 (around $0.31) in total per person compared with RMB 271.66 in 2016. (PingWest, in Chinese)

Edtech firms cash in

• Huohua Siwei, a K-12 online math and science education platform, received $150 million in a third batch of its Series E which valued the company at $1.5 billion. (TechNode) 
• Online tutoring platform Zhangmen, backed by Warburg Pincus, hired Morgan Stanley and Credit Suisse Group AG as underwriters for its US public offering that could raise more than $300 million. (Securities Daily, in Chinese)

Luckin tries to boost staff morale

Embattled Luckin Coffee announced on Monday an equity incentive plan for 2021 in order to “retain, attract and motivate” employees and directors as the company’s management navigates internal turmoil. The plan, with a 10-year term, has a maximum number of 223 million Class A ordinary shares, represented by around 28 million American Depositary Shares, to issue as part of the plan. Shares of the company, still trading on the OTC market after its July delisting, jumped 25% on Tuesday to close at $12.97 apiece, gaining more than 50% since the beginning of this year, though still well below a historic peak of $50 reached in January 2019 when it listed on the Nasdaq. (SEC)

Jack Ma’s reappreance

Alibaba’s billionaire founder Jack Ma made his first public appearance after staying out of the public eye for nearly three months since regulators began a crackdown on his tech empire. (TechNode)

TikTok’s Chinese owner has rolled out an e-wallet feature on its Douyin video-sharing app, a move that could pose a significant threat to the Alipay and WeChat duopoly in China’s mobile payment sector.

Why it matters: Douyin, the domestic version of TikTok, is one of China’s most used apps with 600 million monthly active users as of September.

• Bytedance’s ambition to tap into the payment sector have long been hampered by China’s strict finance regulations. The company in September inherited (in Chinese) a payment license from a small payment firm based in the central province of Hubei it acquired two years ago.
• E-commerce behemoth Alibaba’s Alipay and internet firm Tencent’s WeChat Pay, a feature inside the instant messaging app WeChat, are the two dominant players in the market. Together they hold nearly 95% of China’s online payment market, according to iResearch (in Chinese), a market research firm.

Details: Douyin recently added Douyin Pay onto its checkout page, Chinese media reported Tuesday. The payment method allows users to buy virtual gifts for livestreamers and pay for goods on the app’s e-commerce platform.

• Bytedance said in a statement to TechNode that Douyin Pay was rolled out by the company to “supplement the existing major payment options.” A Bytedance spokesperson said the feature had been available for a while and was previously in test mode.
• The app previously supported WeChat Pay and Alipay. Douyin Pay allows users to link cards from 10 banks including Bank of China and China Merchants Bank.
• Payments are processed by Ulpay, the Hubei-based firm it acquired in 2018.

Context: An in-house payment tool is essential to many of Bytedance’s offerings, including e-commerce and lending services.

• Bytedance is building an e-commerce platform on Douyin around its active livestreaming community. The business model, known as livestreaming e-commerce, has seen massive growth in China since 2019.
• The company in October 2019 launched a lending app, providing users with consumer credit, installment payments, and credit card services. Douyin had also recently launched Dou Fenqi (literally translated as Dou Installments), a feature that allows users to pay their bills in monthly installments, Chinese media reported.

Chinese video-sharing app Kuaishou has asked all employees to work on every other Sunday starting Jan. 10, according to media reports.

Why it matters: The changes came as Beijing-based Kuaishou prepares for a Hong Kong listing as soon as January. The company is under tremendous pressure as it struggles to compete with rivals such as Douyin, the domestic version of TikTok, and Bilibili in the online entertainment sector.

• Chinese tech firms are known for encouraging or sometimes compelling employees into overtime work schedules. One schedule known as “996”— where employees work from 9 a.m. to 9 p.m., six days a week, sparked a widespread online protest last year. 
• Kuaishou’s new work schedule, known as “big/small weeks,” also triggered backlash on Chinese social media on Wednesday. The hashtag #KuaishouStartsBigSmallWeek became a trending topic on social media site Weibo with more than 12 million views. “The labor law never fails to give way to capitalists,” wrote one user.

Details: Kuaishou human resource head Liu Feng announced the new shift will be implemented beginning Jan. 10 during a staff meeting on Tuesday, Chinese tech news outlet Tech Planet reported Wednesday.

• The South China Morning Post on Wednesday confirmed the news with two anonymous Kuaishou employees. 
• Liu told Kuaishou staff that “a week starts on Sunday in the West” and that around 70% of the company’s employees had already adopted the big/small week schedule, according to Tech Planet. “For the sake of closer cooperation between all teams, Kuaishou will fully implement the big/small week schedule,” he told employees.
• TechNode could not independently confirm Liu’s remarks. A Kuaishou representative did not respond to TechNode’s request for confirmation on Wednesday. Liu cannot be reached for comment.

Context: In November, Kuaishou was caught in the crossfire of public criticism after Chinese media reported that it had installed timers on top of toilets in its headquarters.

• In November, Kuaishou filed to go public in Hong Kong. The company said it had amassed a total of 302 million daily active users as of June 30 with users spending over 85 minutes on average on its platforms.
• Kuaishou recorded annual adjusted net profits from 2017 to 2019. However, it booked an adjusted net loss of RMB 6.3 billion (around $964 million) in the first half of this year.

The Trump administration faces further legal obstacles in its ongoing effort to ban Chinese video-sharing app Tiktok. In his final days in the White House, the US president is seeking a tough-on-China technology legacy, including blacklisting China’s largest chipmaker. Meanwhile, a bill passed by the US House of Representatives earlier this month could potentially accelerate the pace at which Chinese tech firms return home to list.

Tiktok untouched

On Monday, US District Judge Carl Nichols in Washington fully blocked the Trump administration’s move to ban Tiktok in the US, NPR reported.

• Nichols found that Trump “overstepped his authority” in using his emergency economic powers to try to block transactions between Tiktok and US companies. 
• Tiktok’s lawyers had demonstrated that Trump government officials’ “failure to adequately consider an obvious and reasonable alternative before banning TikTok” showed that the decision to ban the app was “arbitrary and capricious,” Nichols wrote in the ruling.
• The ruling blocks a Trump executive order issued on August 14 which would outlaw US transactions with Tiktok. The ban is set to take effect on Dec. 12. 
• On Oct. 30, a federal judge in Pennsylvania blocked the decision after Tiktok users challenged it in court.
• Trump administration had set a Dec. 4 deadline for Tiktok parent Bytedance to either sell or spin off the app’s business in the US. The government said that day that it would not extend or enforce the deadline. Trump said previously that he had approved “in concept” a deal in which American companies Oracle and Walmart would create a US-based company, Tiktok Global, to take over the app’s US operations. But the deal is subject to Beijing’s approval, which hasn’t yet said a word about it.

Tough-on-China tech legacy

The Trump administration on Thursday added Shanghai-based Semiconductor Manufacturing International Corp. (SMIC), China’s largest chipmaker, to a blacklist that could cut it off from American investment, Reuters reported. Foreign policy and political analysts said that Trump wants to leave a “tough-on-China” legacy that cannot be reversed by his successor, Joe Biden.

• The US Department of Defense on Thursday added SMIC and state-owned oil giant China National Offshore Oil Corp. (CNOOC) to a list of entities designated as owned or controlled by the Chinese military. 
• While the list, mandated by a 1999 law requiring the defense department to compile a list of Chinese military-controlled companies, did not trigger any penalties, a recent executive order issued by Trump will bar US investors from buying shares of the blacklisted firms starting late next year.

US bill to drive Chinese tech firms home

A bill passed by the US House of Representatives last week is likely to accelerate US-listed Chinese tech firms’ pace going home. The bill will bar Chinese companies from US exchanges if they don’t fully comply with American auditing rules, Reuters reported.

• The potential that US auditors will be able to inspect Chinese companies’ audit documents has already led some Chinese tech firms to delist from US stock exchanges or dual-list their shares in Hong Kong. 
• So far, companies like online media firm Sina and online travel agency Ctrip have decided to delist from US markets, while e-commerce firm JD.com and gaming giant Netease have debuted secondary listings in Hong Kong.
• “The Holding Foreign Companies Accountable Act” bars securities of foreign firms from being listed on any US stock exchanges if they have failed to comply with the US Public Accounting Oversight Board’s audits for three years in a row, according to Reuters.
• The act would also require US-listed companies to disclose whether they are owned or controlled by a foreign government.
• Chinese companies are likely to shrug off the bill because they have alternative capital-raising venues at home, the SCMP cited analysts as saying on Dec. 3. 
• The Hong Kong exchange, another popular destination for Chinese tech firms seeking to list overseas, is keen to attract tech firms with corporate shareholding structures allowing shares with extra voting rights, according to the SCMP.
• In mainland China, regulators are permitting companies that are not yet profitable to list, overhauling previous strict listing thresholds and potentially luring more tech firms to list at home.
• The audit bill was unanimously passed by the US Senate in May. The White House said last Wednesday that President Trump is expected to sign the bill into law.

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

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

Elliott and James welcome back Matthew Brennan to the show to discuss his new book: Attention Factory: The Story of Tiktok and China’s Bytedance. Matthew shares insights into the company’s beginnings as well as its meteoric rise, the people and personalities that define its culture, and how Tiktok came close to failing in the US.

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

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Luckin Coffee

Hosts:

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

Guest:             

• Matthew Brennan– @mbrennanchina

Editor:

• Peter Isachenko

Podcast information:

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

In 2018, Chinese internet giant Bytedance decided to go where no Chinese company had gone before—the heart of the US social media market. Chinese companies have always struggled to understand Western consumers, and, when it launched short video app Tiktok in the US, Bytedance didn’t even try. Instead, it let an algorithm spend billions on bizarre ads that looked straight out of Tumblr. What was Bytedance thinking?

In an excerpt from his new book “Attention Factory: The Story of Tiktok and China’s Bytedance,” TechNode contributor and Managing Director of China Channel Matthew Brennan looks back at Tiktok’s cringeworthy US debut, explaining how furries played their role in jumpstarting the mainstream content juggernaut.

Tiktok hadn’t paid anything to Pewdiepie. The A-list global internet mega-celebrity was creating video after video about Tiktok because his audience loved it. This should have been the kind of authentic influencer promotion that online marketers dreamed of. Every video was essentially a free ten-minute advert for Tiktok distributed out to a loyal 80 million follower base. Yet, at the same time, Pewdiepie wasn’t exactly endorsing the app.

Tiktok was bizarre. An endless stream of people posting weird con­tent with almost a total lack of self-awareness. Mindless comedy skits, lip-syncing, and just outright wacky oddball creations. The kids making these videos could be forgiven; they were just kids. But the adults posting on the app came off simply as creepy and weird. Countless numbers of Tiktok cringe compilations started appearing on Youtube, many with mil­lions of views. Criticism of the app became widespread, with the sham­ing of Tiktok users becoming a regular occurrence on Twitter and Reddit.

In China, Douyin, the domestic version of Tiktok also operated by Bytedance, had first garnered attention as a popular app for ur­ban youths, associating itself with art students and fashionable hip-hop lovers. Yet in America, it was the absolute opposite. Tiktok had entered the public consciousness as a cringe app for losers and misfits. What was going on?

The answer was Bytedance’s truly massive advertising campaign across major Western social media platforms such as Youtube, Instagram, and Snapchat. The advertising campaign’s budget was reported by the Wall Street Journal to be over $1 billion in 2018. Bytedance became Facebook’s biggest Chinese customer as it grew Tiktok’s footprint with app-install ads. Many Americans suddenly found Tiktok ads were eve­rywhere they looked online.

The company also spent heavily on traditional billboard ads and out­door advertising. They ran an expensive TV advert right after the New Year’s Eve ball dropped in New York City’s Time Square. Adverts for Tiktok popped up at famous landmarks around the world from the Burj Khalifa in Dubai to the London underground through to the Las Vegas strip.

The initial warm reception towards Tiktok across various Asian mar­kets was highly encouraging —it seemed Douyin’s success really could be replicated globally. Yet the more successful Tiktok became in Asia, the more attention it attracted from competitors; all major internet compa­nies had advanced systems in place to keep track of new trends and changes in mobile usage habits. Bytedance had to move fast to grab the window of opportunity to leverage its advantage. In general, Western in­ternet companies look down upon directly cloning competitors. Even so, if an established giant like Google or Facebook chose to promote a simi­lar product to Tiktok vigorously, it could significantly hamper their pro­gress.

This meant speed was of the essence, and the most effective way to scale up fast with a combination of massive spending on online app install ads matched with build­ing brand awareness through offline ads.

These Tiktok ads are disturbing!

Usually, when a company wants to spend big on online advertising and introduce a brand to a new market, they will work with a creative agency. Expensive consultants will be hired, and veteran advertising professionals with years of industry experience will create smart concepts. The process will involve carefully crafted brand messaging, extensive Gen Z focus groups, professional actors in expensive recording studios, crews of video editors, and graphic designers to ensure everything is perfect.

When it came to advertising Tiktok and newly acquired Musical.ly, Bytedance found a shortcut, but the strategy was somewhat unor­thodox—it would simply use videos from the app itself. The platform’s terms of service gave it the right to do so.

After manually identifying and removing potentially inappropriate con­tent, the company implemented a systematic process to experiment with various videos. The adverts didn’t actually say anything about what Tiktok was or why anyone would want to use it; they simply needed to pique people’s interest. The goal was simple: find the clips that got the most people to click on a big blue “install” button.

This ad buying process was run from Beijing by the company’s experi­enced growth teams. There was just one issue—the teams had a laser-like focus on conversion metrics but little understanding of the ac­tual video content. Whatever converted best would be used more, regard­less of what the actual video showed. It turned out that wacky, outlandish, downright weird videos worked really well at getting people to click the button.

Many of these weird ads were attracting social misfits. When these peo­ple started using Tiktok, they, in turn, made strange videos that would attract more social misfits and so on.

Tiktok’s video classification systems were highly sophisticated and able to accurately identify and classify all kinds of subculture content—automatically. The system was also able to tag users more effectively based on their actions and precisely match them with content in a way that Musical.ly had never been able to do.

A prominent example were “Furries,” a stigmatized and misunder­stood community of people who derive enjoyment from dressing up as animal characters in large fursuits. Furries were big early adopters of Tiktok in the US. Many built significant followings as the colorful car­toon-like animal costumes proved attractive to the app’s large pre-teen user base, bringing the subculture to a new audience.

Other notable early Tiktok adopter communities included cosplayers and gamers. The animosity between these groups led to the “Furries Vs. Gamers War” meme (This video gives a feel for what early Tiktok content was like in the US.), a lighthearted imaginary conflict which saw gamers pretending to have been kidnapped by furries and roleplaying acts of es­pionage, feigning to have infiltrated the ranks of the furries.

Tiktok contained a “duet” feature, which allows two videos to appear side by side, splitting the screen. Duet had previously been restricted in Musical.ly, but now users could respond to any video by recording one of their own. With many weird niche subcultures like furries on the plat­form, “duet” became popular, quickly transforming into a bullying and harassment tool. As a countermeasure, settings were later added, allowing users to disable duets.

Since merging Musical.ly with Tiktok in August 2018, the platform was moving in a vastly different direction—and not everyone was happy. “Tiktok’s early (unintentional) positioning in the States basically was cringe,” explained an early Tiktok employee who wished to remain anonymous. The app had an awful image problem. It was widely per­ceived as being only for misfits and kids making lip-syncing videos.

“I haven’t seen one piece of content on there made by an adult that’s normal and good. To be a grown adult doing a cute karaoke video on an app and trying to make it go viral is odd behavior.” was the brutal assess­ment of Instagram influencer Jack Wagner, interviewed in one of the ear­liest American media articles covering Tiktok.

The colossal spend on adverts was effective at getting downloads, but they were also ruining the reputation of the platform, leading the then small US based Tiktok team to express concerns to the China head offices. In China, Douyin had never had such a problem. The seed group of early adopters had been carefully selected, and the app had built an outstanding brand image with carefully crafted glitzy cinema adverts, savvy viral marketing campaigns, and sponsorships of hit talent shows.

“If you look at history, a lot of inventions first started with a toy, with things that seem to be irrelevant, but have the potential to become some­thing much bigger.” postured Musical.ly co-founder Alex Zhu in an inter­view, echoing an observation previously made by many industry practi­tioners. Tiktok’s early reputation for wacky cringe videos had made it seem like a toy and hard to take seriously. The situation had echoes of the initial characterizations of Snapchat being written off as an app solely for college students “sexting” each other with disappearing pic­tures. Widely criticized and with retention rates in the US rumored to be as low as 10%, Tiktok was not seen as a threat to anyone but itself.

2020 has been a tough year for China tech companies selling to overseas markets. In India, local authorities banned 177 Chinese apps in June and September following border clashes between the two countries. In the US, the Trump administration launched an effort to ban short video app Tiktok and instant-messaging app Wechat, which are among the most successful Chinese apps in international markets. 

Even in Europe, Chinese telecommunications equipment maker Huawei is facing increasing restrictions on supplying gear for next-generation 5G networks.

It forces us to wonder if the world is still open to China tech. It’s a question that’s fundamental to what we do here at TechNode—so we made it the headline question at our Emerge 2020 conference last Thursday.

Bottom line: Going overseas has always been tough, and in this political climate, it’s even tougher. But politics isn’t everything. Speakers said it’s still possible for some Chinese tech firms to succeed in the right overseas markets. Others face long-standing market barriers that predate current tensions.

Compliance and building trust: Many firms trying to enter developed markets have a more basic problem than bans, speakers said: consumers there just don’t trust them.

“The challenge for entrepreneurs going across the border is actually trying to understand what you can do and what you cannot do,” said William Bao Bean, general partner at investment firm SOSV.

Bean said a lack of regard for privacy has earned many Chinese tech companies a bad reputation in markets like Europe and the US. “You have to adapt to the local market. You have to follow the local law. And half the time, people don’t even know that they’re breaking the law when they go across the border.”

Chinese companies have been successful in exporting hardware to overseas markets, said Kiran Patel, senior director at China-Britain Business Council, during the discussion. Patel said he is “more positive” about the future of Chinese hardware than software in the British market because hardware companies usually don’t need to deal with a huge amount of personal data.

Trust is more important when exporting software that holds personal data, Patel said.

“That is the challenge that companies like Tiktok and Wechat have to meet when moving into a new market,” Patel said. “The first challenge that must be overcome is building trust.”

China, security champion? Privacy and security have always been weaknesses for China tech. But at a workshop at the conference, we heard that this truism could be changing as China moves to enforce new laws on privacy and cybersecurity. Carly Ramsey, director at risk consultancy Control Risks, told the audience that China has written one of the world’s most extensive set of requirements to protect data, and is now moving to enforce it. These don’t resolve international concerns about surveillance—but they could help clean up China’s “idiots with a database” problems.

Disrupting barriers: Embracing disruptive technology can be a path for getting around traditional tech barriers, speakers said. The most optimistic attendees about internationalism, by far, were the blockchain-watchers. 

Asked about political barriers, Matthew Graham, founder of Sino Global Capital, a venture capital firm focusing on blockchain companies, said that the US cannot stop China in the world of blockchain the way it has hobbled Huawei on semiconductors. 

“Most of blockchain is open source. It’s not really possible to throw a bottleneck in that way,” said Graham.

As the nascent technology matures, said Michael Sung, co-director of the Fanhai Fintech Research Center at Fudan University, China is emerging as a leader in standards-setting. State-affiliated projects like the Blockchain Services Network (BSN) are creating ecosystems that attract international players.

But Sung, and Harriet Cao of Bianjie, a blockchain startup, rejected a US vs. China framing for blockchain. Instead, they said, it’s a trans-boundary technology that can mitigate mistrust.

“Blockchain is a little bit of a different beast. It’s not about choosing to use Huawei equipment or not,” said Sung. “Blockchain is about multi-party coordination, having stakeholders being able to coordinate in a trusted and secure way, where trust doesn’t exist between the parties beforehand.”

They’re just not that into your EVs: China is home to some of the world’s most exciting electric vehicle (EV) makers, such as Nio, BYD, and Xpeng. But they’ve yet to get traction with Europe’s millions of prosperous, environmentally-conscious consumers. Marketing is a major reason, said Tu Le, founder and managing director of business intelligence firm Sino Auto Insights.

“Some Chinese companies have started to sell EVs into the EU. That could be a question because they haven’t really solidified positioning in their home market,” said Le. “Europe, like Southeast Asia, is very diverse, and therefore a marketing strategy in Germany might not work in France and Italy. That level of complexity for entering an international market is a lot to chew on for Chinese EV makers.”

“The complexity ramps up significantly for them. And that could be a drain on their capital,” he said, adding that Chinese EV makers should focus on individual markets as opposed to looking at Europe as one big market.

Go southeast: The right answer for many companies with global ambitions is to look for markets that are more like China than Germany or the US. We’ve long seen that most Chinese companies do best in markets that have more in common with China a few years ago—large rural populations, first-generation mobile users, or leapfrog growth.

Chinese tech companies should focus on Southeast Asia in expansion plans, said Bean of SOSV. In addition to friendlier regulations than Europe or India, he said, it’s a good market fit.

“Southeast Asia has a lot of the same challenges, problems, or opportunities that China had 10 years ago. It’s a mobile-first market. So people’s first or only experience with the internet is on a smartphone, which is very similar to China,” he said.

All we are saying is give tech a chance: Chinese companies have their share of problems. But at times they also make good-faith efforts to mitigate concerns. Huawei offered to sign “no-spy deals” with countries and set up a cybersecurity transparency center in Brussels and now is facing spreading bans from Western countries’ core 5G networks. Tiktok vowed to localize user data in the US and appointed a blue-ribbon panel of privacy experts—and was rewarded with an app ban. 

Of course, the election in the United States is going to have a big impact on China tech. If US-China relations keep getting worse, tech will be affected. Maybe we’re biased, but at TechNode we don’t think this is a great thing for anyone. 

With contributions from David Cohen.

The world is still open to Chinese tech despite a global backlash in recent years, experts at the TechNode Emerge 2020 conference said Thursday, but firms must adapt to the changing geopolitical environment when expanding overseas.

2020 has been a tough year for Chinese tech companies selling to overseas markets. In India, local authorities banned a total of 177 Chinese apps in June and September following border clashes between the two countries. In the US, the Trump administration announced impending bans on short video app Tiktok and instant-messaging app Wechat, which are among the most successful Chinese apps in international markets. Chinese telecommunications equipment maker Huawei is facing increasing restrictions on supplying gear for Western countries’ next-generation 5G networks.

Beyond geopolitical tensions, Chinese tech companies expanding overseas also face obstacles in the form of privacy regulations, marketing, and localization, William Bao Bean, general partner at investment firm SOSV, said during the opening panel at the Shanghai event.

“The challenge for entrepreneurs going across the border is actually trying to understand what you can do and what you cannot do,” Bean said. 

The lack of regard for privacy has led to some of the problems Chinese tech companies face in markets like Europe and the US because of stricter local regulations on data security, Bean explained.

“You have to adapt to the local market. You have to follow the local law. And half the time, people [startups] don’t even know that they’re breaking the law when they go across the border,” he said.

Chinese companies have been successful in exporting hardware to overseas markets, but there are trust considerations when they are exporting software that holds personal data, Kiran Patel, senior director at China-Britain Business Council, said during the discussion.

“That is the challenge that companies like Tiktok and Wechat have to meet when moving into a new market,” Patel said. “The first challenge that must be overcome is building trust.”

Chinese venture capital (VC) funds may find it difficult to raise money from US pension funds, said Bean. But he believes that the hurdles faced by VCs are not affecting Chinese startups. “That’s a money problem, not a startup problem,” he said.

“China has got the number-two largest VC industry in the world in terms of the amount of funds put in startups and it’s actually easier for Chinese companies to raise money from China,” he said.

Bean said that Chinese tech companies should see Southeast Asia as their next destination in their global expansion plans to avoid regulatory uncertainties in Europe and India.

“Southeast Asia has a lot of the same challenges, problems, or opportunities that China had 10 years ago. It’s a mobile-first market. So people’s first or only experience with the internet is on a smartphone, which is very similar to China,” he said.

Bean said he couldn’t be sure whether or not there will be more Chinese tech companies facing global regulatory backlash like Huawei and Tiktok, but he is optimistic that this would not stop Chinese startups from going overseas.

“Innovation usually finds its away,” he said. “It’s like water. It’s always just going to find a crack.”

Search giant Baidu is reportedly nearing a deal to acquire US-listed Chinese video-streaming social platform Joyy’s China operations in an attempt to boost its livestream business.

Why it matters: Baidu’s expansion to the red-hot livestream sector is a move to diversify its revenue streams as its core advertising business loses ground to rivals like Bytedance.

• Baidu, along with Alibaba and Tencent, was known as “BAT,” the three biggest tech companies in China. But the company has seen the gap between its market valuation and those of its two peers widen as tech upstarts like Bytedance and Meituan catch up.
• Baidu’s current $46 billion market capitalization has fallen far short of Alibaba’s $860 billion and Tencent’s $734 billion valuations.

Details: Baidu is nearing a deal to acquire Joyy’s Chinese operations for a deal worth $3 billion to $4 billion, local media Jiemian reported citing people with knowledge of the matter.

• Baidu will take over Yy, the entertainment show livestream app targeting Chinese audiences, the app’s content operations, technology, and team after the deal, according to the report.
• China operations play a much lesser role for Joyy, which is increasingly focused on the global market. Overseas users represent 91% of the company’s 457.1 million monthly active users, according to the company’s second quarter earnings report.
• The deal could be a win-win cooperation for both companies. Joyy’s livestream business provides Baidu the necessary technologies and user base to start with and Joyy can narrow its focus on global expansion.

Context:  Baidu began testing out the livestream space this year. In April, it began recruiting livestream hosts and merchants in preparation for the launch of an live-stream e-commerce platform. At the same time, it added live-stream features to its main search app, its video-streaming app Haokan, and communication platform Baidu Tieba.

• Baidu’s ad revenue shrank 8% in the second quarter of this year compared with the same quarter a year earlier.
• Joyy sold its controlling interest in game-streaming platform Huya to Tencent in August. Tencent merged Huya with its rival Douyu to form a single dominating player in the e-sports market.

There’s just one thing wrong with this story—Douyin and Kuaishou aren’t really short video apps anymore.

Douyin supports videos anywhere between 15-seconds and 15 minutes, livestream content that may stretch over an hour, as well as mini-games. Kuaishou’s in the same boat, with a vibrant video game streaming scene to boot. The label “short video platform” has outlived its usefulness. 

Let’s take a quick look at why the term “short video platform” is less helpful than before and why it matters.  

What’s wrong with calling them ‘short video platforms’?

When short video apps first rose to prominence in 2013, they really were about short video. The Chinese term duanshipin (“short video”) was used to highlight the difference between an emergent content format (snackable video) and an established content format (tv-style streamed programming).

“Short video” wasn’t meant to stick around. It’s the type of term that should have gone away once everyone got the memo that online video doesn’t have to be a mobile-friendly version of 21- or 42-minute made-for-television programming.

However, the term persisted.

The term was easier to understand than alternatives, such as the alphabet soup of UGC, PGC, and PUGC (User Generated Content, Professionally-Generated Content, and Professional User Generated Content—don’t ask). Further, “short video” was easier to build a working, commonly-accepted definition around, becoming the default nomenclature for video content anywhere under five minutes.  

Without question, Douyin and Kuaishou are the most successful platforms built on short video content. Both boast eye-popping numbers of daily active users and increasing impressive shares of users’ internet time.

Note: The Douyin figure in the table above is a total for all mainland apps belonging to parent company Bytedance. Douyin is Bytedance’s most popular app. 

However, in 2019, these platforms started supporting different content types. Today, short video remains a platform staple, but it’s far from the only type of video available on Douyin and Kuaishou. A report released by Kuaishou earlier this year illustrates this nicely. 

Kuaishou has 300 million daily active users, of which 170 million watch livestream and 100 users engage in livestream e-commerce each day. (That, by the way, makes Kuaishou China’s fourth-largest e-commerce platform.) As Kuaishou further broadens its capabilities in e-commerce and cloud gaming (in Chinese), the range of on-platform activity will become even more diverse.

Given this range of activity, it’s no longer accurate to call Douyin and Kuaishou “short-video platforms.” 

Why does it even matter?

It might seem a little academic to object to the term as a catch-all for Douyin and Kuaishou. 

However, as these companies prepare to go public, names matter. 

Kuaishou is reported to be considering a $5 billion IPO next year. Bytedance, as part of its judo-wrestling match with the Trump Administration, may IPO TikTok, Douyin’s overseas cousin. Getting frames of reference right is an important part of each company’s dance with public markets. 

That’s because company valuation is an interplay between stories and numbers: Every number that makes up a valuation has a story behind it, just as every story about a company has a number attached to it. Terms like “short video” straitjacket stories these companies can weave and narrow potential investors’ appreciation of what Douyin and Kuaishou really are. The onus is on Douyin and Kuaishou to develop and field-test nomenclature that conveys their platforms’ depth, content diversity, and what they might offer in the future. 

Bilibili sets an instructive example. In its investor overview, it states “[W]e have evolved from a content community inspired by anime, comics and games (ACG) into a full-spectrum online entertainment world, covering a wide array of genres and media formats, including videos, live broadcasting, and mobile games.” That’s the sort of framing required to fight mischaracterizations like “the closest thing China has to Youtube.”

What would be a better name? “Online entertainment world” is a little too Rick and Morty for my taste. I’d stay away from hackneyed riffs on “super-app” and go with “entertainment hub,” encompassing video, gaming, and, increasingly e-commerce. 

Whichever way Douyin and Kuaishou decide to frame themselves, you can be sure they’ll steer clear from the term “short video platform.” Kuaishou, probably first in line to IPO, already calls itself a “platform.” That’s apt. The only reference to short video in the company’s online introduction is in the company timeline (Chinese). That highlights the degree the term “short video” is a relic. It’s outlived its usefulness, and sells these rich, diverse entertainment platforms short.     

Golden Week shines

• Chinese tourists took 637 million domestic trips during the eight-day Golden Week, generating revenue of RMB 466.6 billion ($69.7 billion), according to data from the Ministry of Culture and Tourism. However, China’s battered travel market still has a long road to recovery. This year’s number of domestic trips was around 80% of last year’s figure, even with the additional day, while revenue was 70% of last year’s RMB 650 billion. Trip.com, China’s largest online travel platform, trumpeted lackluster wins to offset the downturn in its lucrative international travel business. (TechNode)
• China recorded RMB 3.7 billion of box office revenue from October 1 to 7, second only to last year’s RMB 4.5 billion during the same period, according to data from the National Film Special Fund Office. This year, the state mandated a 75% operating capacity for public places including theaters. China’s online ticketing services like Maoyan Entertainment and Alibaba-backed Taopiaopiao benefited the most from the surge. (Tencent News, in Chinese)
• China Union Pay recorded online transaction volume of RMB 2.52 trillion during the holiday, up 8.3% year on year. China’s centralized online payment clearinghouse Nets Union Clearing Corporation reported that daily transaction value during the holiday increased 47% from the previous year, a sharp deceleration from the 163% annual growth seen during last year’s holiday. The number of daily transactions increased by nearly 42% year on year during the holiday, down from 80% annual growth last year. (Mpaypass, in Chinese)

Bytedance enters cross-border e-commerce

• Bytedance, the owner of short video apps Douyin and Tiktok, is testing a cross-border e-commerce project named Fuxiang Haigou, which offers special sales for branded products from a dozen countries. The service is accessible through mini-programs on the company’s news aggregation app, Toutiao, as well as Douyin. (Ebrun, in Chinese)
• Shein, Chinese fast fashion app primarily targeting overseas markets, entered a partnership with Canada’s installment payment service Paybright as the Nanjing-based company continues to expand its global footprint. With annual gross merchandise volume of RMB 20 billion in 2019, the Chinese fashion retailer’s popularity among teen consumers in the US, Europe, and the Middle Eastern markets is on the rise. The company is reportedly aiming for a US IPO this year. (Newswire)

Tencent gears up for livestream e-commerce

• Tencent’s mega messaging app Wechat is reportedly testing on a select group of users a livestream function on Channels, the Douyin-like short video feature it launched in January. The feature does not support virtual gifting now but allows viewers to like and comment on the livestreams. The livestreamer can share the sessions in Wechat chat groups as well as their Moments newsfeeds. Integrating a livestream feature to Channels highlights Tencent’s ambition to tap into short video and livestream e-commerce business, creating a new facet for competition with Douyin and Kuaishou. (Sina Finance, in Chinese)

Alibaba vs. Miniso

• Taobao Deals, Alibaba’s take on Pinduoduo targeting China’s bargain-seekers, opened its first offline experience store on Friday, selling products from manufacturing partners for as low as RMB 1. The move helped promote an online shopping campaign on the low-priced shopping app from Oct. 10 – 31. The company reportedly plans to open 1,000 such stores within three years. Taobao Deals, also known as Taobao Tejia, said it had around 40 million monthly active users as of June 2020, growing rapidly after a major update in March. Meanwhile, Alibaba’s expansion to offline retail for low-price products competes with Tencent-backed household product brand Miniso. Miniso filed its prospectus with the US Securities and Exchange Commission in late September for a New York listing. (Ebrun, in Chinese)

I recently got back home to China, after years working overseas in venture capital. I’ve spent much of this time focusing on software-as-a-service (SaaS). So I’ve been asking myself a question: Where are China’s giant SaaS companies?

While the US has Amazon, Facebook and Google, China has Alibaba, Tencent and Baidu. While the US has Salesforce, Adobe and ServiceNow, China… well, China has no equivalent. 

In China, mass SaaS adoption has the potential to address many of the country’s workplace challenges. From a macro perspective, the end of the demographic dividend—in which the working-age population is greater than the population that does not work—will result in rising labor costs. SaaS can help bridge the labor gap by automating workflows and increasing the productivity of workers. As Covid-19 has triggered short-term demand for remote work, digitized workflows will prevent the virus, in the event of a resurgence, from wreaking weeks of lost productivity and income. 

Chinese SaaS today

As a baseline, here is a chart of the 20 biggest US tech companies by market cap on August 29th this year: enterprise companies account for 55% by numbers and 40% by value. 

Most of the enterprise companies are SaaS or something very close to it.

In contrast, here is a chart of the 20 biggest Chinese tech companies by market cap. Enterprise companies account for 30% by numbers and 3% by value. There are no SaaS companies among them.

The SaaS companies are not hiding in the private market either. Here are the top 20 companies on the latest Chinese unicorn list from CB Insights (Ant Group was spun-off Alibaba, so it is not shown here):

While one might argue that there are big SaaS companies, these are all housed inside mega-corporations like Alibaba and Tencent. Aliyun, alongside the other cloud players such as Tencent and JD, are Platform-as-a-Service providers similar to Amazon Web Services: you need to build other SaaS applications on top of them for these platforms to achieve their full potential. For example, I can’t use Aliyun to do my taxes off the shelf per say, but if my data was stored in the cloud I can definitely utilize a SaaS offering to perform the task more quickly. 

The strategy of software like Dingtalk, Lark, Wechat Work, and others is to attract users and lock them into the parent vendor, rather than behave as platform-neutral offerings which prioritize user needs. From this perspective, I think it’s good that Alibaba and others are educating the market on how software can be useful, but this may create long-term problems for the SaaS market if it reinforces the impression that software should be free.

Estimates for the Chinese SaaS market range from $3.7 billion to $6 billion for 2019, less than 6% of the total world SaaS market. In the chart below, compiled by Bain & Company, we can see that China lags behind the developed world on investments in IT relative to its size.

What’s stopping SaaS adoption?

For Chinese SMEs, which account for roughly 60% of China’s production GDP, adopting SaaS is not an intuitive decision. Historically, cheap labor in China has meant that manual execution is still feasible for most tasks, and automating or documenting through software is rare. Coupled with this, Chinese SMEs generally do not have sufficient cash reserves to invest in systematic upgrades. When they do have the investment capacity, the ubiquity of software piracy in the 2000s has left a general lack of desire to pay for software. Many companies often do not see the value in utilizing software.

This mindset makes SaaS adoption in China particularly hard. Well-capitalized mid-sized firms are traditionally the takeoff point for SaaS companies in both the US and Europe. Without this firm client base to build upon in China, many SaaS companies must try marketing to more challenging enterprise customers straight away.

For Chinese enterprise companies, paying for software is not an issue, but the sector faces serious problems with cloud adoption. In a report on cloud adoption in China, McKinsey notes that as Chinese companies typically have less advanced technology stacks. Cloud migration is complicated and costly as they must typically create the hardware and software needed for the shift. As a result, public cloud vendors in China can’t claim that their services will reduce IT costs, at least over the first few years of migration, as they do in other countries. Even when companies manage to migrate to the cloud, they still face many concerns around the stability and security of a public cloud. Most opt for a private cloud or hybrid cloud deployment.

Another obstacle is demands for high-level customization. Most Chinese SaaS companies have difficulty with their customers’ convoluted internal company structure, processes, and workflows. This not only makes customisation highly time-consuming, but also doesn’t allow for much re-use of the work for other clients. For SaaS startups, the typical dilemma is between customizing to earn actual revenue, or focusing on features that everyone can use. 

This is a challenge faced by SaaS providers in all markets, but  China is an extreme case of no overlap between customisation product features and standardised product features list for most companies.

For example, three factories in the same industry will have different workflows internally to monitor the quality of their production line. In buying a production monitoring software, they would expect the product to reflect their respective workflows rather than change their processes to a more standardised one. On top of that, one will have in-house legacy systems built on old code that they want to port over to the new system, another might want to have a visualisation tool customised with their brand aesthetics and specific metrics (even if the software vendor doesn’t provide visualisation tools and had no plan to), the list of requests goes on and on. Many investors have complained that most Chinese enterprise SaaS companies are IT consulting services in disguise.

Other hindrances to SaaS adoption—including the inclination to build in-house, distrust of public cloud services, and even the lack of talent in scaling Chinese SaaS companies—reflect a SaaS market in its early stages, rather than a mark against the Chinese market in particular.

Looking ahead

Based on the observation that enterprise startups tend to follow consumer startups, I would order the China, Europe, and US tech ecosystems as follows:

While adoption hurdles can be complicated, the advances made by western startups have shown that the issues can be solved with time. VCs who have traditionally focused on consumer startups and were chasing the hyper-growth model that allows for quicker returns to investment (or death) have started to look for new opportunities. I frequently see Chinese commentators complain that since 2015, consumer startups have been yielding diminishing returns to capital. VCs have also started to focus more on the enterprise software segment and will hopefully have more patience for the longer timeline that business-to-business startups take to reach scale.

Many Chinese SaaS offerings like Bytedance’s Lark are incredibly comprehensive in functions, but they lack a killer feature (like Roam Research’s bi-directional links) that sparks joy. In trying to be all things to all people, these SaaS offerings often appear as pastiches of successful western startups, and they don’t account for the Chinese market’s nuances. China’s SaaS startups and consumer corporates are still trying to figure out issues like how to meet crucial needs and how to manage customer success in the Chinese market context. The lack of a quick feedback loop from a client base doesn’t help either.

The state of play of Chinese SaaS may seem dire, but there’s reason for hope. A lot of the influences mentioned are waning (such the end of demographic dividend will mean increasing labor costs in the future). At the same time, new trigger points have emerged as COVID has accelerated the adoption of cloud and remote working, and opportunities have arisen as the government has made a push for cloud adoption. 

One Chinese SaaS company—Agora, which enables developers to add HD interactive broadcast, voice, and video—recently saw a successful recent IPO; it boasts a current market cap of $4 billion—a sign of things yet to come.

From Washington to Berlin, New Delhi to Shanghai, Chinese tech companies remain entangled in geopolitical conflicts this week. In the US, the Chinese-owned video-sharing app Tiktok just won an initial success in its legal challenge against the Trump administration. White House officials renewed pressure on Europe to ban Huawei from their next-generation 5G networks after German Chancellor Angela Merkel refused a full ban on the Chinese telecommunications equipment maker. A new round of export bans were imposed on China’s largest chipmaker SMIC by the US. In India, banned Chinese apps are trying to re-enter the market with revised names and logos.

Tiktok’s initial win

On Sunday, a US judge halted a looming Tiktok ban at the last minute. The ban, announced by US President Donald Trump last Friday, would have removed Tiktok from American app stores starting from midnight Sunday.

• The injunction granted by US District Judge Carl Nichols gave Tiktok a temporary reprieve amid ongoing deal negotiations to meet with Trump’s demand to sell Tiktok’s US operations. 
• However, the judge didn’t consider Tiktok’s appeal to block an executive order from Trump demanding the company to divest from its American assets, according to court documents. The order, requiring Tiktok parent Bytedance to either spin off or sell the app’s US operations within 90 days, will go effect on Nov. 12.
• Bytedance has applied to the Chinese government for a deal that would give American software maker Oracle and retail giant Walmart a combined 20% stake of Tiktok’s proposed US business. Beijing hasn’t yet made a final decision, but smoke signals from state media indicate opposition.
• In the past week, the party mouthpiece People’s Daily published three editorials commenting on the Tiktok deal. One of which (in Chinese) reads: “The ‘Tiktok deal’ is based on unfairness… If the forced deal finally goes that way, American stakeholders would earn tens of billions of dollars…then why do they need venture capital and entrepreneurship in the country when they can just mug Chinese companies?” (our translation).
• “China won’t swallow its tears when its core interests are endangered, and Chinese companies are not lambs to the US slaughter,” said another editorial (in Chinese).

US renews campaign to ban Huawei in Europe

On Tuesday, Keith Krach, the US undersecretary of state for economic affairs, said Finland’s Nokia and Sweden’s Ericsson were the only companies that European governments should choose for the 5G network rollouts. Huawei is “an arm of the CCP surveillance state and a tool for human rights abuse,” Reuters quoted him as saying.

• Krach’s remarks came as Germany and Italy are deciding whether to allow Huawei to participate in building their 5G networks. Last week, Merkel refused to compromise on her position that Germany shouldn’t single out Huawei with a targeted ban, Bloomberg  reported. Her government finalized draft regulations for the security of Germany’s 5G network, which would tighten the government’s scrutiny over equipment vendors.
• Before Germany made its 5G decisions, the UK and France had adopted a de-facto ban on Huawei, vowing to phase the company’s products out from their 5G and 4G networks in the next few years.

SMIC on Huawei’s heels

Shares of Semiconductor Manufacturing International Corp (SMIC) tumbled more than 6% this week after reports that the US had imposed restrictions on exports to the Shanghai-based chipmaker. The decision was made by the US Commerce Department on Friday upon the conclusion that SMIC’s products could be used for military purposes and therefore pose “unacceptable risk,” Reuters reported Saturday.

• The Commerce Department said in a letter to some suppliers of SMIC that they will now have to apply for individual export licenses to ship to the Chinese company.
• On Monday, the Shanghai-listed company said in a statement (in Chinese) filed with the Shanghai bourse that it had not received any official notifications about the restrictions from the US government. The company also said it had no relationship with the Chinese military and had never produced products for military end-users.
• Chinese Foreign Ministry Spokesman Wang Wenbing told reporters Monday that China opposes (in Chinese) US restrictions on SMIC and that the country would take necessary measures to safeguard the interests of Chinese enterprises.

Chinese apps launch second offensive into India

In India, several Chinese apps previously banned by New Delhi are trying to reenter the market with rebranded versions, local newspaper The Economic Times reported.

• Chinese video app Kuaishou has launched video-sharing app Snack Video, a Tiktok lookalike. Kwai, an international version of Kuaishou, as well as Tiktok were both banned in India in June.
• Hago, another Chinese social media app banned in June, has been replaced by an app called Ola Party, which allows users to log in using their Hago credentials, according to The Economic Times.
• The Indian government has banned a total of 177 Chinese apps from the country in two rounds of app bans imposed in June and September. The most high-profile apps banned including Bytedance’s Tiktok, Kuaishou’s Kwai, Tencent’s instant messaging app Wechat and the popular mobile game Player Unknown’s Battlegrounds, or PUBG.

A federal judge on Sunday temporarily blocked US President Donald Trump’s ban that would have removed Tiktok from American app stores starting from midnight Sunday, court files showed.

Why it matters: The court order grants the popular video-sharing app a reprieve amid ongoing deal negotiations to settle a US regulatory dispute. However, it doesn’t cover a broader ban to spin off Tiktok’s business in the US which will take effect in November, meaning the Chinese-owned company’s struggle in the US has not yet concluded.

Details: US District Judge Carl Nichols granted in part Tiktok and its Chinese parent Bytedance’s motion for an injunction of the Sunday ban, but he denied Tiktok’s appeal to block an executive order from Trump demanding the company to divest from its American assets, according to court documents. The order will go effect on Nov. 12.

• Tiktok said in a statement Sunday that the company is “pleased” that the court agreed with its legal arguments. “We will continue defending our rights for the benefit of our community and employees,” the company said.
• “At the same time, we will also maintain our ongoing dialogue with the government to turn our proposal, which the president gave his preliminary approval to last weekend, into an agreement,” it said in the statement.
• The US Commerce Department, one of the defendants of the case, said in a statement that it would “comply with the injunction and has taken immediate steps to do so, but intends to vigorously defend the executive order and the secretary’s implementation efforts from legal challenges,” according to The New York Times.

Context: Tiktok and Bytedance on Wednesday afternoon filed for a preliminary injunction to halt the Sunday ban. On Thursday, Judge Nichols ordered the Trump administration to postpone the ban or file court papers to defend the move by Friday afternoon.

• The executive order mentioned in the filing was first issued by Trump on Aug. 14, which gave Bytedance 90 days to either spin off or sell Tiktok’s US operations.
• The company is close to a deal with US software maker Oracle and retail giant Walmart to set up a new company called Tiktok Global in which the two American companies own a combined 20% stake to settle Trump’s demands. Trump has said he had approved the deal “in concept.”
• The deal is still subject to opposition from Beijing after the Chinese government revised a set of restrictions on technology export.

READ MORE: Bytedance to obey China tech export rule as Tiktok sale nears

A US federal judge ordered the Trump administration to postpone a ban on US downloads of Tiktok set for Sunday or file court papers to defend the move by Friday afternoon, according to court files released Thursday.

Tiktok’s Chinese parent Bytedance filed for a preliminary injunction to prevent the ban on Wednesday afternoon. The ban is set to take effect at midnight Sunday and will remove the popular video-sharing app from US app stores.

US District Judge Carl Nichols said in an order Thursday that the defendants, including US President Donald Trump, US Secretary of Commerce Wilbur Ross, and the US Department of Commerce, must respond to Tiktok’s motion for a preliminary injunction or file a notice describing the delay of the effective date of the ban.

A similar move: The Trump administration said last Friday that it would ban from US app stores Tiktok and Wechat, a Chinese instant messaging app, starting the evening of Sept. 20. The Commerce Department delayed the ban against Tiktok for one week because Bytedance is close to a deal with Oracle and Walmart to set up a new US company.

• On Saturday, a US federal court halted the ban against Wechat. The court said in an order that the plaintiffs, a group of Wechat users, had shown there are “serious questions” related to their First Amendment claim.

The mysterious deal: Oracle and Walmart said Saturday that they will set up a new company called Tiktok Global with Bytedance as part of the deal that will meet the Trump administration’s demands to divest Tiktok from its Chinese owner.

• The US software maker would hold 12.5% of the new company, and retail giant would own 7.5%. Bytedance will own the remaining 80%.
• Trump said Saturday he had approved the deal “in concept.”
• However, the deal still needs to gain approval from the Chinese government after it revised in late August a list of technologies that are restricted for export.

Analysis: At the moment, all signs are showing that Beijing will block the deal. Even though there is no direct objection from Chinese officials, state media has started delivering the message that the deal harms China’s interests and dignity.

• The policy changes on technology export gave Bytedance more bargaining chips when negotiating with potential buyers and the results turned out to be better for the company than an outright sale of Tiktok.
• But now the problem is that Beijing doesn’t seem to be satisfied. Chinese authorities said Thursday that it had received applications from Bytedance to export certain technology. If Chinese officials really see the deal as detrimental to China, they won’t approve Bytedance’s applications.
• If Beijing finally decides to block the deal, Tiktok will be removed from US app stores as planned.
• In this case, turning to the court is Bytedance’s last resort. The court order from Thursday is an initial win. But if the end result is that the ban is allowed, Tiktok will be cut off from new US users, which will cause “irreparable damage.”

China’s Ministry of Commerce spokesman Gao Feng said that the Beijing Municipal Commerce Bureau has received an application from Tiktok parent company Bytedance to export certain technology, local newspaper National Business Daily reported (in Chinese).

The company is close to a deal with Oracle and Walmart to set up a new company to operate Tiktok in the US after US President Donald Trump ordered Bytedance divest the video-sharing app. It needs Beijing’s permission to confirm the deal.

In August, China’s Ministry of Commerce and Ministry of Technology added 23 items to a list of “prohibited or restricted export technologies.” They include two types of technology that are used in Tiktok.

Bytedance said Monday that neither the algorithm nor the company’s technology will be transferred in the deal but Oracle would have the permission to review its code.

There was twist after twist in the Tiktok drama over the weekend. US President Donald Trump said Saturday he had approved a deal that involves software maker Oracle and retail giant Walmart, but it falls short of an outright Tiktok divestment. Chinese parent company Bytedance denied some of Trump’s claims that the new Tiktok company would have nothing to do with China. Meanwhile, Chinese officials criticized the US for lacking “internet freedom.”

The deal: Bytedance, Oracle, and Walmart will form a new company called Tiktok Global as part of the deal, CNBC reported Saturday.

• Oracle was chosen as Tiktok’s secure cloud provider and will hold a 12.5% stake of Tiktok Global.
• Walmart said it would purchase a 7.5% stake in the new company and its CEO Doug McMillon would serve as one of the directors of the five-member board.
• Bytedance will own the remaining 80% of Tiktok Global.
• Walmart and Oracle said in a joint statement that Tiktok Global will pay more than $5 billion in new taxes to the US Treasury Department.

Trump’s blessing: Trump said Saturday that he had approved the deal “in concept.” But the deal still needs formal approval from his administration. “I give the deal my blessing,” Trump told reporters.

• Trump also said the deal would involve “about a $5 billion contribution toward education.”
• “It will be a brand-new company,” said Trump, who also said that Tiktok Global would “have nothing to do with China.”
• Trump’s remarks seem to contradict the facts, but as CNBC pointed out: “Because 40% of Bytedance is owned by US venture capital firms, the Trump administration can technically claim Tiktok Global is now majority owned by US money.”

What Bytedance says: In a slightly different narrative, Bytedance said in a statement (in Chinese) Monday on its Jinri Toutiao news aggregator that it currently owns 100% of Tiktok Global, and that the company plans to launch pre-IPO fundraising which will give investors—Oracle and Walmart—a combined 20% stake.

• Neither the algorithm nor the company’s technology will be transferred in the deal, said Bytedance. Oracle would instead have the permission to review its code.
• Bytedance also said the reported “$5 billion new taxes to the US Treasury Department” is an “estimate of taxes Tiktok will pay over the next few years” and that it has nothing to do with the deal.
• Bytedance denied Trump’s statement that the deal involves a $5 billion contribution toward education. “We heard from the news as well that there would be a $5 billion education fund,” Bytedance said in the statement.
• Zhang Yiming, the CEO and founder of Bytedance, will be one of the directors on Tiktok Global’s board, the company said.

Are apps still getting banned? On Friday, Reuters first reported that the Trump administration would ban Tiktok and Wechat from US app stores starting Sunday night. However, with Trump saying he approved the Tiktok deal, the Commerce Department said it would delay the plan of barring the video-sharing app from US app stores for one week.

• A US federal court halted a ban against Chinese instant-messaging app Wechat late Saturday, the Washington Post reported. 
• The US District Court in San Francisco said in an order that the plaintiffs, a group of Wechat users, had shown there are “serious questions” related to their First Amendment claim.
• In August, TechNode reported that the group, called the US Wechat Users Alliance, filed a lawsuit against Trump’s executive order to ban transactions between US citizens and Wechat.
• “Where [Judge Laurel Beeler] came down was essentially on the side of the Chinese-speaking communities in the US, and said that the ban was too broad,” Greg Pilarowski, founder of tech advisory firm Pillar Legal, told TechNode on Tuesday.
• “I think Wechat is safe, unless Trump wins” the US presidential election in November, Pilarowski added.

Chinese media takes: On Monday, most major Chinese media outlets reprinted an article titled “Does Tiktok really harm US national security? Why did Oracle fail in the Chinese market? Chinese enterprises storms overseas” (our translation), authored by the National Supervisory Commission of China and Central Commission for Discipline Inspection of the ruling Communist Party. It was first published on a website that the two government agencies share.

• The article is a rare direct comment from Chinese government agencies on the recent Tiktok drama. 
• “As a matter of fact, the United States, which promotes ‘internet freedom,’ never neglects its regulation of the internet,” the article said. “We can say that the US has the world’s strictest regulation on the internet.”
• Chinese newspaper Securities Times reported that a number of companies listed on China’s A-share markets which investors believe stand to benefit from Bytedance’s business activities, called “Bytedance concept stock,” had risen around 3.4% on Monday morning with one of the best performers jumping nearly 12%.
• International Financial News, an arm of party mouthpiece People’s Daily, wrote Monday that the upshot of the Tiktok drama “has yet to come.”
• The newspaper pointed out that while Trump had approved the deal, it still needs to gain approval from the Chinese government, because, it said, the algorithms Tiktok use are now subject to China’s new export restrictions.
• Hu Xijin, editor-in-chief of state-run tabloid Global Times, wrote on Twitter Monday that he knows that the Chinese government won’t approve the deal. “…because the agreement would endanger China’s national security, interests, and dignity.”
• Chinese financial magazine Caixin named the three other Tiktok Global board members. They are Arthur Dantchik, founder of Susquehanna Growth Equity (SIG); William Ford, CEO of General Atlantic; and “an executive from the American operations of Sequoia Capital.” SIG, General Atlantic, and Sequoia Capital are all Bytedance investors.

I love lurking on Linkedin. A couple of weeks ago, something struck me. While Tiktok was facing the prospect of a US ban under an Aug. 7 executive order, many people in my European networks were delighted to announce that they were joining the short video company. Countless emojis were harmed in the making of these Linkedin posts. 

As its future in the US is under threat, Tiktok appears to be trying to fortify its operations in Europe. On Tiktok’s careers site, 272 jobs are posted in Europe (excluding Russia) at the time of writing. Dublin takes the lead with 117 jobs, London comes second with 78, and Germany third with a total of 34. Germany is hiring for offices in  Berlin, Munich, and Hamburg. Positions in Madrid, Paris, Stockholm, Warsaw, and Milan are also seeking candidates.

In Europe, Tiktok’s hiring patterns reflect its growing ambitions on the continent and a push to localize and clear the bloc’s data security hurdles. 

A data sweep on Twitter conducted by TechNode indicates that Tiktok has ramped up its hiring in Europe. Bytedance employees and job advertising services including the UK’s Job Centre Plus, a state-run employment platform, have mentioned jobs at Tiktok more frequently in recent months.

In August, 42 links to the Tiktok global careers website were posted on Twitter, compared to 12 in February. 

“It’s quite incredible how many people they’re bringing on board. Every week there’s new people,” a new hire who joined Tiktok’s European operations in August told TechNode.

Open positions on the company’s website include a wide variety of roles, from advertising and brand strategists to privacy specialists. Tiktok appears intent on localization, seeking fluent speakers in most European languages, such as Swedish, Hungarian, and Greek.

“Of course everybody is looking at what’s happening in the US,” the recent hire said, “but there’s no anxiety. On the contrary, everyone is very optimistic.”

Despite the ongoing row with Washington, Tiktok hasn’t taken down its job listings in the US. Currently, 465 positions are listed as available in the US on the app’s website. 

READ MORE: China tech faces double compliance challenge in Europe

Bet on Europe

Bytedance’s continued hiring for the popular video app shows it is optimistic about the European market, despite criticism over its privacy policy. Regulators have expressed concern over personal data flowing from the EU to China, the app’s handling of minors’ data and consent. But as long as Tiktok complies with local data regulations, the company should be safe in Europe, experts told TechNode.

Tiktok currently has over 1,600 employees based in Europe, roughly 1,300 of whom are based in the UK and Ireland, the company said in a statement Monday.

A Europe-wide ban is “unlikely,” said Jan Stryjak, Associate Research Director at Counterpoint Research. “Tiktok has not faced the same levels of scrutiny and political grandstanding in Europe as in the US,” he said, so it makes sense that it “looks to establish itself to build on its rapid growth in the region.” 

In Europe, regulators have tried to appear neutral. “I am not in the business of banning any company, I am in the business of explaining very clearly what are our rules,” EU Commission Internal Market Commissioner Thierry Bretton told Politico earlier this month.

“In the short-term, I wouldn’t expect any comparable moves on Tiktok in Europe to match US actions,” Andrew Small, associate senior policy fellow at think tank European Council on Foreign Relations, told TechNode.

By contrast, the situation around Huawei includes “fundamental questions” about the company’s role in Europe’s digital infrastructure and “longstanding issues about Chinese subsidies undermining European telecoms firms,” he said.

Tiktok does not provoke the same sensitivities. “The issues at stake with Tiktok relate to censorship and data use, neither of which is likely to lead to an outright ban, and there will be no inherent objection to Tiktok hiring and investing in Europe either,” said Small.

Beefing up data security

New data privacy and security rules in the European bloc are compelling Tiktok to reconfigure its global operations.

Bretton stressed that the “key subject” when it comes to Tiktok operating within the bloc is data, highlighting the rigor of Europe’s data security and privacy rules in comparison to China.

“The EU has not had to deal with this issue on a really major scale given that Chinese apps have not made many inroads with European consumers,” Small said. 

In August, the European Court of Justice ruled that personal data collected on EU citizens can only be transferred to third countries that have similar privacy regimes. The decision, known as Schrems II, could mean that personal data collected by Tiktok on European citizens can never be legally transferred to China. 

A few weeks after the ruling, Tiktok said its Irish and UK entities will be taking over data management for European users from its US operations. Shortly after, the company announced plans for a new data center in Dublin. According to company statements, the data center will form part of a “Privacy and Safety Hub” for Europe, the Middle East, and Africa.

Bytedance said it plans to spend €420 million ($500 million) on the Dublin data center. The investment will “create hundreds of jobs” in the city, said Roland Cloutier, Tiktok’s Global Chief Information Security Officer in a blog post.

Cloutier previously worked at Automatic Data Processing, a Nasdaq-listed HR systems provider, as well as US computer manufacturer Dell. 

The job listings on Tiktok’s website appear to line up with this announcement. Dublin is the city with the most job openings. 

But the Dublin data center doesn’t mean that Tiktok can put the data security issue to bed. 

The EU is known for having some of the world’s most stringent personal data protection rules, known as the General Data Protection Regulation (GDPR).

In June, the European Data Protection Board, an EU body in charge of the application of the GDPR, set up a task force to probe Tiktok’s data processing activities and privacy practices across the EU, China’s Caixin reported.

Privacy watchdogs in France and the Netherlands have also launched inquiries into Tiktok’s privacy policies, especially as they pertain to Tiktok’s underage users. 

Tiktok has not replied to a Sept. 15 email seeking comment. 

London calling, Berlin texting

Tiktok’s job listings show that politics have not dented its ambitions to be a true multinational. The company is charging ahead with establishing regional hubs and localization teams in key European cities, all answering to a CEO currently based in California.  

London ranks second among European cities in active jobs listings on Tiktok’s careers website. The short video app operator is reportedly considering moving its headquarters from Beijing to London, British media reported in August. 

“A new global headquarters in London could be a huge boon for the UK’s job market, which has suffered in recent months due to the Covid-19 pandemic,” Stryjak said. 

UK Prime Minister Boris Johnson will welcome the Tiktok headquarters with open arms, risking the wrath of US President Donald Trump, UK media has reported. 

The British government is reportedly split over the potential Tiktok move. Trade and tech officials and ministers are at odds over how to handle the Chinese tech company, the Telegraph reported citing UK government sources familiar with the matter.

Germany, which ranks third in the number of listed job openings, represents a big market with a big pool of tech talent, experts told TechNode. 

It’s also a strategic location that Tiktok can use to “buy some goodwill, given its outsized influence over the European debate,” Small said. 

Joining the whirlwind

Yet those who decide to join the company in these times are taking on a lot of uncertainty. The app’s US and EU operations were nearly sold to Microsoft after pressure from the US government. After weeks of speculation about a deal with Microsoft, the company has reportedly settled on a partnership with Oracle instead. 

TechNode found two people who have been approached by recruiters. Both said they ignored the recruiters’ messages as they were not interested in working for the short video app. “Tiktok is stupid,” one of them said.

But Linkedin job updates indicate that Tiktok’s attempts to poach top tech talent have been successful at times. 

Many of the new hires came from some of the West’s biggest companies, including big tech. The person who onboarded recently said the salary offer was “very competitive” but didn’t give any further details. But “it wasn’t like I couldn’t trust my eyes,” they said.  

Another new hire said that they were under a non-disclosure agreement that is valid for 100 days after onboarding. 

In a Linkedin search, TechNode identified one person who worked at Amazon for seven years in Germany and recently said they joined the Bytedance app in September. A UK-based professional with four years of experience at Google and three years of experience at Netflix said they took a position at Tiktok in July. Another person who was at Google for two years also said they joined the app in September. 

The European who is considering a position said that working for the Chinese company in the midst of an international storm seemed “insane” at first, but that they have come to appreciate the challenge.

The recent hire said that Tiktok is “an exciting place to work in at the moment, regardless of how safe this job is in the long term. 

“We all know that this industry is moving very fast. But it’s really interesting to be part of this and get this experience at this time,” they said.

Bytedance is planning to list Tiktok Global, a joint venture set up to operate the short-video app in the US, pending approval of the proposed deal by the US government, Reuters reported.

Details: The joint venture, dubbed Tiktok Global, will have a majority of American directors, a US chief executive, and a security expert on the board, according to Reuters, citing people familiar with the matter.

READ MORE: 8 things to know about the Chinese tech giant behind Tiktok

• Oracle has agreed to ultimately take a 20% stake in Tiktok Global.
• According to a proposed deal to settle the Trump administration’s order to divest Tiktok, Oracle and possibly Walmart would hold at least 60% of Tiktok’s US operations.
• The White House and Bytedance have agreed to a term sheet on some aspects of a deal but US President Donald Trump hasn’t yet approved it.

Go deeper: ByteDance plans TikTok IPO to win U.S. deal as deadline looms: sources – Reuters

China’s tech world consists of multiple and loosely connected empires or ecosystems, led by three tech kings collectively known as BAT (Baidu, Alibaba, and Tencent). While the old kings expand the scope of their kingdoms to capture more and more of our daily lives, a fourth fiefdom is quickly expanding its boundaries: Bytedance. 

In the last two years, the rise of a new kind of online retail has created an opportunity for Bytedance to jump into the biggest arena in all of China tech: e-commerce. While livestreaming e-commerce is still small relative to overall e-commerce, the QVC-like format has seen massive growth since last year. With an edge in video, Douyin, the Chinese version of Tiktok, is riding the e-commerce livestream wave into the rich home waters of Alibaba, JD, and Pinduoduo.

The short video giant first got involved in e-commerce by referring traffic to e-commerce giants like Alibaba and JD. It was being paid for sharing the traffic, and kept its hands off the more lucrative e-commerce business.

But as shoppers began buying directly from livestreamers, the app integrated shopping features and got some traction in 2019, reaching RMB 10 billion in gross merchandise volume (GMV) for the year. With livestream e-commerce booming in the wake of Covid-19 lockdowns, the company has set a far more ambitious GMV goal for 2020: RMB 200 billion. 

Now, Douyin is moving to pocket all the revenue from selling goods during livestreams. To achieve this goal, Douyin has announced a series of e-commerce updates starting at the beginning of this year. With the most recent announcement on Aug. 26, the company is breaking alliances with e-commerce giants.

Starting Sept. 9, all the orders placed during Douyin’s livestream sessions to third-party e-commerce platforms have to go through Douyin’s service Star, according to the Aug. 26 statement. Then, on Oct. 9, the platform will block all third-party e-commerce referral links on livestream sessions.

“Douyin’s recent move shows its ambition in the lucrative e-commerce market, which saw greater growth driven by Covid-19,” Eliam Huang, analyst at retail research company Coresight Research told TechNode.

Douyin’s e-commerce push

Douyin started its push into e-commerce in late 2018, mainly through partnerships with e-commerce platforms to provide refer traffic. But as the app launched its own retail features, it began to favor stores running on its own platform. Its new moves, especially those rolled out in the past few months, are throttling referral traffic to existing retailers such as Alibaba’s Taobao and Tmall, and JD.

• Mar. 2018: Douyin announces e-commerce deal with Taobao, and added a shopping cart icon to the app, linking users to Taobao stores.
• May 2018: Douyin introduces Douyin shops, online stores only accessible via the app.
• May 2019: Douyin rolls out product search feature within the app.
• June 2020: Owner Bytedance consolidates control of retail-related functions across Douyin and other apps under new e-commerce department.
• Aug. 2020: Douyin says it will charge a 20% commission fee for orders transacted on third-party platforms. The rate for Douyin stores is only 5%.

Douyin is still playing catch-up in the livestream e-commerce sector. Taobao Live, the clear champion, sold GMV of around RMB 200 billion in 2019. Runner-up Kuaishou reportedly (in Chinese) reached GMV of RMB 35 billion in 2019. The Douyin rival originally set its 2020 GMV goal at RMB 100 billion, but upgraded the target to RMB 250 billion after Douyin released its goal.

Where the money is

E-commerce, gaming, advertising, and the emerging membership model are the most lucrative and popular monetization channels for Chinese internet companies.

Until now, Douyin had mostly been focused on ad revenue, holding audience attention with entertainment content. Bytedance has seen phenomenal growth in this area. Its share of ad spend nearly doubled to 22% (estimated) in 2019—trailing only Alibaba, which holds 33% of the ad revenue pie.

But the company needs more to support its $100 billion market valuation, under fire as it grapples with the potential sale of a large share of its most valuable overseas asset: Tiktok. Adding a robust e-commerce business could do the trick.

Tiktok alone is reportedly valued at $50 billion. Bytedance, meanwhile is facing headwinds overseas amid rising China-US trade tensions and political tensions with India. Under adverse global business conditions, the company might be forced to shift its attention to the domestic market, where it needs new revenue sources other than the ad businesses of flagship apps Douyin and Toutiao.

Ads are the minor leagues in China’s internet economy: Digital ad spend in China is forecast to reach $74.33 billion in 2020, while China’s e-commerce market was worth $1.94 trillion in 2019, according to Emarketer.

The company expects to generate income beyond ad revenues by leveraging the 400 billion plus daily active users on its platform. Expansion to China’s e-commerce sector, a coveted revenue source for tech firms, is a logical next step, both because of the market’s massive size in China as well as the close ties between livestreaming and its core short video business.

More importantly, e-commerce is a crucial link in creating a closed loop online ecosystem in China. Its absence would ultimately hurt the company’s ad revenue, said Zhuang Shuai, founder of Beijing-based consulting firm Bailian.

Zhuang “E-commerce and advertising are inseparable,” Zhuang told TechNode. If Douyin lets platforms like Alibaba and JD have its traffic, it runs the risk that they will capture all the revenue, he says—and the same goes for other ad platforms like Weibo and Sina.

The content platforms get paid for sharing their traffic with e-commerce sites, but once users have switched to browsing deals their attention often stays in the e-commerce app. This shift of attention ultimately costs the advertisers the resource they’re selling.

My colleague Sheng Wei, who covers content and entertainment topics including Bytedance for TechNode, says that e-commerce is an important business for Douyin as it searches for revenue sources in addition to advertisement. 

“Douyin is competing with e-commerce platforms for ad revenues and a homegrown e-commerce business could bring more value for the company,” he told me.

To complete its business loop, Bytedance has obtained a payments license (in Chinese), which is an important link in e-commerce transactions.

Douyin is not the only Chinese tech firm that has looked to e-commerce to boost growth. Companies like Baidu and Weibo all have tried to expand into e-commerce over the past decade, though neither achieved much success. 

Is Douyin ready?

Bytedance has conquered new fields before. But success in the hyper-competitive world of e-commerce is far from assured.

E-commerce is a complicated system, requiring companies manage a range of links from supply chain, operating system, membership, performance evaluation, and after-sales services. Douyin, a latecomer to the field, has a basic infrastructure in place, but it still has a lot to work on.

Before blocking links, Douyin’s own retail channel was already taking a larger share of sales. From May to August 2020, Douyin shops’ sales rose from RMB 50 million to RMB 100 million per month, while third party sales through Douyin fell from 63 million to 43 million per month, according to data from Chanmama.

In addition, it formed a partnership with Suning.com in July, under which the omnichannel retailer opened its products, logistics, and after sales services to Douyin store operators. The deal allows Douyin to capitalize on Suning’s offline retail and supply chain resources while keeping users in the Douyin app. 

The partnership was tested during Suning’s 818 shopping festival held on Aug. 18. A Douyin livestream session hosted by celebrities Jia Nailiang and Guan Xiaotong drew 51 million viewers (in Chinese). GMV for the 10-hour session hit RMB 230 million.

In a similar deal, short video rival Kuaishou partnered up with JD, allowing its users to purchase JD-held inventories without leaving the short video app.

However, there is more to do. “Douyin will need to invest and make sure its infrastructure will enable its users to enjoy a smooth shopping experience, such as managing supply chain and logistics which are e-commerce giants’ strength,” said Huang.

Next step: building a loyal user base

The new policy will not only change the dynamic between Douyin and its e-commerce rivals, but pose new questions to merchants, social media influencers known as KOLs (key opinion leaders), and users who are accustomed to using Taobao or JD.com for deal transactions.

Merchants on e-commerce sites will have to either give up Douyin as a traffic source, or build a Douyin store from scratch in addition to running their existing stores, increasing operation costs. 

It will also take time for KOLs (key opinion leaders) and MCNs (multi-channel networks), or content creator agencies, to adapt to the change, used as they are to focusing on Taobao and JD. In addition, some KOLs are contractually obligated to send traffic to third-party e-commerce platforms. This is risky for Douyin, as KOLs may switch to rival platforms rather than adapt.

For users, purchasing from in-app stores is a more streamlined shopping experience. Removing the additional step in the customer journey may result in better user retention rates for third-party links. But customers have lots of things to consider when choosing a platform, from pricing, product quality control, to logistics, to after-sales services. Douyin will have to compete on all these fronts to retain users.

Frenemies for the near future

Chinese shopping and video platforms are increasingly becoming frenemies as e-commerce and content blend together. For Bytedance and Alibaba, the push-and-pull dynamic will continue. Even though Douyin is competing with Taobao in livestream e-commerce, it still has a deep interdependence with the e-commerce platform for its classic short video business. 

Douyin is both an advertising distribution platform that sells its traffic to Taobao, and a content platform that sells products directly. Alibaba is a major client of Douyin, representing around a quarter of Douyin’s annual ad revenue. which was estimated to be RMB 80 billion in 2019, a source close to Alibaba told local media. 

Douyin’s blocking of referral links does not apply to short video posts, only livestreams. In 2019, Douyin and Taobao signed a RMB 7 billion cooperation agreement that covers RMB 6 billion ad revenue and RMB 1 billion e-commerce commission revenue. On Aug. 21, just a week before the livestream link block, the two companies renewed their advertising and commission agreement, reportedly almost tripling the deal’s value (in Chinese) to RMB 20 billion in 2020.

Zhuang thinks it’s too early to say whether Douyin will take a step further to block referral to short videos. “It still depends on how well the market responds to its e-commerce business and growth of revenues.”

“Douyin’s move, in the long run, will facilitate the development of the e-commerce sector, especially in the area of creating curated content to engage consumers. In the context of [the] rising cost of customer acquisition, platforms who are able to deliver content that drives conversion will win,” Coresight’s Huang said.

Chinese company Bytedance has chosen Oracle over Microsoft for a deal involving Tiktok, Bloomberg reported Monday, which will resemble a partnership involving Oracle purchasing a stake in the company rather than an outright sale of the app’s US operations.

Why it matters: Bytedance had no intension of selling Tiktok’s key asset—the algorithm behind the popular video-sharing app. A deal with Oracle, whose executives have a close relationship with the US President Donald Trump, was viewed as a way to increase the company’s odds of winning approval from the White House.

Details: While the talks are ongoing, a deal with Oracle could, for example, take the form of a corporate restructuring rather than an outright sale. In this case, the American software company would take a stake of a newly formed US business while housing Tiktok’s data on its cloud servers, according to Bloomberg.

• The two parties valued Tiktok’s US business at around $25 billion before Beijing announced new rules on limiting technology exports, said sources cited in the report.
• Bytedance reportedly decided not to sell or transfer the algorithm powering Tiktok’s content recommendation function in any sale or divestment deal, the South China Morning Post reported Sunday.
• Microsoft, the other suitor along with Walmart, confirmed in a statement Sunday that Bytedance had turned its offer down. “Bytedance let us know today they would not be selling Tiktok’s US operations to Microsoft… We are confident our proposal would have been good for Tiktok’s users, while protecting national security interests,” the company said.

Context: In late August, officials in Beijing updated a Chinese technology export regulation to ban the export of limited technologies, potentially including those used by Tiktok. Bytedance soon pledged to comply.

• Companies must seek approval from the two ministries before exporting limited technologies, and the decision-making process can take up to 30 days, according to a set of technology export regulations the State Council issued (in Chinese) in 2001.
• Trump ordered a ban barring US companies from doing business with Bytedance after Sept. 15, and is requiring that Bytedance sell or spin off Tiktok’s US operations by Nov. 12.

Tiktok parent Bytedance is planning to invest several billion dollars in Singapore over the next three years and make the city-state its beachhead for the rest of Asia, Bloomberg reported Friday.

Details: The investment plans are part of Bytedance’s global expansion. They include the establishment of a data center and are expected to add hundreds of jobs in the country, according to the report.

• Bytedance currently has 400 employees working on technology, sales, and marketing. It has more than 200 job openings in the country.
• The company has applied for a license to operate a digital bank in Singapore. Digital wholesale banks will be allowed to take deposits from and provide banking services to small- and medium-sized companies and other non-retail customers.

Go deeper: TikTok Owner to Spend Billions in Singapore After US Ban – Bloomberg

Tiktok owner Bytedance said Sunday it will “strictly comply with” a Chinese technology export regulation, which was updated last week to ban the export of limited technologies, potentially including those used by the popular video-sharing app.

Why it matters: The development adds a new twist to Bytedance’s negotiations with the American companies that want to buy Tiktok’s US operations, including Microsoft, Oracle, and Walmart.

• The deal will have to be reviewed by China’s commerce and technology ministries if any technology used by Tiktok is deemed to be limited.

Details: Bytedance said Sunday on its social media account that it will strictly adhere to (in Chinese) the revised Catalog of Prohibited or Restricted Export Technologies when handling technology export-related businesses.

• On Friday, China’s Ministry of Commerce and Ministry of Technology added (in Chinese) 23 items to the Catalog of Prohibited or Restricted Export Technologies. 
• Two significant additions include items which directly translate into “personalized information push service based on data analysis” and “artificial intelligence interactive user interface,” both of which bear resemblance to proprietary technologies used on the Tiktok platform.
• Tiktok, which was ordered by the US President Donald Trump to sell its US operations by mid-September, is known for its artificial intelligence and deep-learning algorithms (in Chinese) that deliver personalized content to its users.

Between the lines: At present, it is unclear if the Tiktok sale in the US is subject to review by the two ministries. However, the catalog has not been revised for 12 years, signaling that the Chinese government could be looking to interfere with Tiktok’s forced sale.

• Companies must seek approval from the two ministries before exporting limited technologies and the decision-making process can take up to 30 days, according to a set of technology export regulations the State Council issued (in Chinese) in 2001.
• Cui Fan, a professor specializing in international trade compliance at the University of International Business and Economics in Beijing, told state-owned news agency Xinhua on Saturday that the changes could apply to Tiktok.
• “Bytedance should apply for licenses if it wants to export related technologies,” Cui said, adding that whomever the new owner of Tiktok will be, it will have to import the technologies used in Tiktok.
• “We are studying the new regulations that were released Friday. As with any cross-border transaction, we will follow the applicable laws, which in this case include those of the US and China,” Erich Andersen, Bytedance’s general counsel, said in a statement sent to TechNode on Monday.

READ MORE: 8 things to know about the Chinese tech giant behind Tiktok

Context: Trump signed an executive order on Aug. 6 banning “any transaction” between any person or company under US jurisdiction and Bytedance starting Sept. 15. On Aug. 14, he updated the order to require Bytedance to either sell or spin off Tiktok’s US operations within 90 days.

• Current suitors of Tiktok’s US operations include Microsoft, which teamed up with retail giant Walmart, as well as software maker Oracle. CNBC reported that the deal could range from $20 billion to $30 billion.
• The Wall Street Journal reported Sunday that talks between Bytedance and suitors for Tiktok’s US operations slowed over the weekend because of the new changes in Chinese regulation.

Chief executive officer of Bytedance’s video-sharing app Tiktok, Kevin Mayer, said Wednesday that he was resigning, following an executive order from US President Donald Trump requiring the company to sell its US operations.

Details: Mayer said in a note to employees that he had decided to leave the company and that Vanessa Pappas, the general manager of Tikok US, will take over as interim global head of the company, The New York Times reported Thursday.

• “In recent weeks, as the political environment has sharply changed, I have done significant reflection on what the corporate structural changes will require, and what it means for the global role I signed up for,” Mayer wrote in the note.
• “Against this backdrop, and as we expect to reach a resolution very soon, it is with a heavy heart that I wanted to let you all know that I have decided to leave the company,” he said.
• Tiktok said in a statement sent to TechNode that “the political dynamics of the last few months have significantly changed what the scope of Kevin’s role would be going forward” and that the company fully respects Mayer’s decision.

READ MORE: Kevin Mayer might be exactly what Bytedance needs right now

Context: In May, Bytedance appointed Mayer, formerly the top executive for The Walt Disney Company’s streaming business, as its chief operating officer and Tiktok’s chief executive officer.

• Mayer was assigned to lead Bytedance’s global expansion as well as corporate development, sales, marketing, public affairs, security, and content moderation.
• “As one of the world’s most accomplished entertainment executives, Kevin is incredibly well placed to take Bytedance’s portfolio of products to the next level,” Zhang Yiming, Bytedance founder and CEO said at the time.
• Trump signed an executive order on Aug. 6 banning “any transaction” between any person or company under US jurisdiction and Bytedance starting Sept. 15.
• On Aug. 14, he issued another executive order requiring Bytedance to either sell or spin off Tiktok’s US operations within 90 days.
• On Monday, Bytedance filed a lawsuit challenging the Aug. 6 executive order, arguing that it was issued without evidence or due process, and that the company’s previously provided documentation was “sufficient to address any conceivable US government privacy or national security concerns.”

UPDATE (Aug. 25): Bytedance filed a lawsuit early Monday challenging an Aug. 6 executive order forbidden transactions with popular social media app Tiktok. We’re updating the story with new details of the legal argument from the complaint. Bytedance argues that the executive order was issued without evidence or due process, and that the company’s previously provided documentation was “sufficient to address any conceivable US government privacy or national security concerns.”

• Tiktok maintains that they have taken extraordinary measures to protect US user data and have fully complied with a 2019 investigation by the Committee on Foreign Investment in the United States.
• The complaint further argues the executive order violates the fifth amendment, misuses the International Emergency Economic Powers Act, and jeopardizes up to 10,000 planned US jobs. 
• “We do not take suing the government lightly, however we feel we have no choice but to take action to protect our rights, and the rights of our community and employees,” Tiktok said in their Monday press release. 

Chinese Foreign Ministry spokesperson Zhao Lijian criticized the Wechat and Tiktok restrictions at a Monday press conference (Chinese), saying China supports companies “taking up legal weapons to safeguard their legitimate rights and interests” and that the American politicians pursuing the bans were “full of lies and slander.”

Tiktok parent Bytedance said Sunday said it would file a lawsuit as early as Monday against the US government over an executive order banning transactions with the popular Chinese-owned video-sharing app.

Why it matters: The lawsuit does not address forcing the sale of Tiktok to an American buyer because it doesn’t target the executive order signed by the US President Donald Trump on Aug. 14 ordering the divestiture. However, it may become a bargaining chip for the company in talks with potential buyers such as Microsoft and Oracle.

• The executive order gives Bytedance 90 days to either sell or spin off its US operation of Tiktok. The order is not subject to legal judicial review, according to Reuters.

Details: Bytedance said in a statement (in Chinese) issued on Sunday that it would sue the US government on Monday to “make sure the company and its users are fairly treated.”

• The company said in the statement that the Trump administration had “dismissed reality” (our translation) and failed to adhere to the due process of law, but it didn’t elaborate.
• “Even though we strongly disagree with the administration’s concerns, for nearly a year we have sought to engage in good faith to provide a constructive solution,” the company said.
• Reuters first reported on Bytedance’s plan to file the lawsuit on Saturday, citing anonymous sources as saying that the legal challenge pertains to an executive order which Trump issued on Aug. 6.

Context: Trump signed two executive orders on Aug. 6 banning “any transaction” between any person or company under US jurisdiction and Bytedance as well as Chinese instant messaging app Wechat starting Sept. 15.

• The orders faced its first legal challenge when a group of Chinese American lawyers announced on Aug. 8 that it would file lawsuits against Trump’s executive order involving Wechat. Some of the lawyers formed a non-profit organization, US Wechat Users Alliance, to assist fundraising efforts to file suits in multiple locations. 
• The group said Friday it will file a federal action against Trump and Wilbur Ross, the US Secretary of Commerce, in the US District Court for the Northern District of California, seeking to prevent the Aug. 6 executive order from banning the use of Wechat in the country by individual users and businesses.

This piece was updated Aug. 25 with details of Bytedance’s complaint.

Last week, US President Donald Trump took aim at two of the most internationally successful apps ever made by Chinese companies. After preaching about the national security risks posed by Chinese-made apps for months, he signed two executive orders on Aug. 7 that ban transactions with the owner of Tiktok and Wechat starting from Sept. 20. It looks like the US is now in the app bans game.

No one knows how the ban will be interpreted. It’s not clear if users who have already downloaded the apps would be prevented from using them, or if the bans will have effects beyond the borders of the US. But as the US continues to pursue its “clean network” policy, more bans may be coming soon.

The executive orders: The orders ban “any transaction”with Bytedance by a person or company under US jurisdiction, and any transactions with Tencent that relate to Wechat. The Secretary of Commerce will be tasked with identifying these transactions when the bans come into effect on Sept. 20.

What’s banned? Critics say the orders are “incredibly broad and vague” with little clarity on the  “transactions” that are banned until Sept. 20. But lawyers told TechNode that it’s possible to guess based on the law behind the order. 

• The key policy precedents are the 1977 International Emergency Economic Powers Act (IEEPA) and a May 15, 2019 executive order declaring a “national emergency” (the precondition for trading bans under IEEPA). 
• Clay Zhu, an attorney at Deheng Law Offices in California, told TechNode in an interview that the May 15 order, viewed broadly as targeting Chinese telecommunications equipment maker Huawei, defined transactions as “acquisition, importation, transfer, installation, dealing in, or use of any information and communications technology or service.” If this definition is applied to Wechat, Zhu said, it would effectively be a total ban of the app. 
• A White House document, reported by Reuters, lists as banned “transactions” actions that include putting Tiktok on an app store, buying an ad on Tiktok, or accepting the app’s terms of service as a user.
• “We should assume companies have 45 days, and any further dealing with Wechat or Tiktok will require a license, which presumably will be denied,” Alex Capri, visiting senior fellow at the National University of Singapore Business School, told TechNode.

Best case: Greg Pilarowski, founder of tech-focused boutique law firm Pillar Legal, told TechNode that IEEPA may limit the president to blocking financial transactions—so it could be that Wechat Pay and perhaps Tiktok ads are blocked, while the apps survive.

More likely: The White House is aiming for a total ban on the apps in the US, Pilarowski said. Even if the law is disputable, the Commerce Department will likely order the apps removed from app stores, which would put pressure on Apple and Google to comply.

Jump the wall? In the event that apps stores are forced to de-list the apps, would users be blocked from using them? The US probably can’t block the apps the way China blocks many foreign apps—but the apps could block themselves.

• Tiktok already blocks users in Hong Kong, China, and India based on SIM card nationality as well as IP address, meaning a VPN alone doesn’t allow users to access the app. 
• Wechat has also begun blocking users in India in response to that country’s app ban.

Worst case: The US tries to enforce these app bans beyond its borders, as it is doing with the ban on exports to Huawei. In such a scenario, the ban could prevent Starbucks from accepting Wechat Pay in China—or force the Apple App Store and Google Play to de-list globally.

• Experts think these scenarios are unlikely, as they would hurt US businesses more than they hurt China.
• Pilarowski wrote in an Aug. 12 paper that a ban on US retailers accepting Wechat is very unlikely. The Wall Street Journal reports that major US retailers are lobbying the president against such a ban.
• If forced to de-list the apps globally, Apple would have no future in the Chinese market. Apple is a beloved brand in China—but Wechat is as essential as oxygen for digital life. Analysts argue this makes de-listing in China very unlikely.
• Since Google Play is already blocked in the country in favor of domestic app stores, this scenario would have much less effect on Google phones.

What options do Tiktok and Tencent have?

1. Sell: Bytedance is in talks with American companies to sell Tiktok. This would save the company from more losses, though it might not be a good deal for the company. There is no sign that Tencent is going to sell any part of Wechat. The company may just give up the US market, where it has roughly 19 million daily active users.
   
   Bytedance has until Sep. 15  to make a deal with an American company. Microsoft already confirmed that it had held talks with Bytedance to buy the American, Canadian, Australian and New Zealand operations of Tiktok. CNBC reported that the deal could costspend Microsoft between $10 billion and $30 billion.
    
2. Sue: Bytedance is also seeking to challenge the executive order in court. The company said it would argue that the executive order is unconstitutional because it did not give the company a chance to respond. Tencent hasn’t yet taken legal action, but a group of American Chinese Wechat users said they would file lawsuits against Trump’s executive order involving Wechat, arguing that the executive order goes against provisions of the US Constitution and the Administrative Procedure Act.

But the courts move slowly, and the chance of rulings before the Nov. 3 election are close to nil. Even if the companies eventually win, Pilarowski said, the bans will accomplish their political goals for the president. “It doesn’t matter if he has the authority to do this, or he doesn’t have the authority to do it, he’s got what he wanted. It’s one more data point in this administration being tougher on China than any previous administration in the United States.”

For Bytedance, the executive order means more than just losing Tiktok.

• Hiving off part of Tiktok’s regional operations means there will be two independent versions of the same social media app. In that case, if Microsoft wants American teenagers to be able to view videos uploaded by Japanese or British ones, it would have to seek approval from Bytedance, which may run into conflict with Trump’s executive order, as The Economist noted.
• For Bytedance, if it has to sell the Anglo-Saxon part of Tiktok, it still owns the European, Japanese, and Southeast Asian markets. India just banned Tiktok, and Bytedance is in talks with Indian conglomerate Reliance for a potential investment to save the app’s operation in the country, TechCrunch reported Wednesday. 
• Bytedance also operates Douyin, which is often seen as the domestic version of Tiktok, in China. The app has more than 400 million daily active users.
• Tiktok’s break-up will also put a dent in Bytedance’s valuation, which reached $140 billion earlier this year. Several investors said the company’s price tag is under “tremendous pressure” as it set to lose part of Tiktok.

Tencent, however, seems sanguine. The company publicly downplayed the importance of the US market to its global businesses in an earnings call Wednesday, as it reported robust second-quarter results.

• “The US represents less than 2% of our global revenue. Within that, advertising in the US should be less than 1% of our total advertising revenue,” James Mitchell, Tencent’s Chief Strategy Officer, said during the earnings call. 
• The executive order only covers US jurisdiction, meaning US companies selling to Chinese markets will still be able to advertise on Tencent’s platforms in China, making it even less likely that the ban will weigh on ad revenue, according to Mitchell.
• The company said its operating profit in the second quarter increased 38% year on year to RMB 37.63 billion ($5.32 billion).
• Industrial observers seem to agree with Tencent’s argument. Shenzhen-based broker Guosen Securities on Monday maintained a buy rating on the Tencent stock. A full exit of Wechat from the US market will have little impact on the company’s revenue and social media ecosystem, said Wang Xueheng, analyst at Guosen Securities.
• But nevertheless, shares of the company have dropped by 8.2% since the announcement of the order last Thursday.

A silicon curtain? The executive orders came a day after the US Secretary of State Mike Pompeo escalated the tech war with a new initiative. He promised to purge US networks from Chinese technology under the “Clean Network” program.

• The US will work to stop Chinese cloud providers like China Mobile, China Telecom, Alibaba, Tencent, and Baidu from storing and processing vast amounts of data from US citizens and companies, according to Pompeo. The State Department aims to keep sensitive personal information and key intellectual property, such as Covid-19 vaccine research, away from Chinese companies, he said.
• Capri also warned that the administration’s “Clean Network” program could target cloud computing next. “The big question is, how far is the administration going to go, and is Alibaba next?” he said. 

The setbacks faced by Bytedance and Tencent also came as Chinese President Xi Jinping is promoting a new strategy to speed up China’s shift toward more reliance on its domestic economy. The initiative, translated as “domestic circulation,” encourages companies to prioritize domestic consumption and markets. Chinese officials said the strategy is gaining urgency as Chinese companies such as Huawei and Bytedance face increasing resistance in overseas markets, according to the Wall Street Journal.

• TechNode reporter Chris Udemans wrote that Chinese corporate investors including Alibaba, Baidu, and Tencent already started to retreat from the US even before the August orders.

But experts say this will not be the end of Chinese tech companies’ global expansion, nor does it mean Chinese companies will have to focus only on the domestic market.

• “The recent developments are forcing Chinese tech companies to change directions when expanding into overseas markets. They may go to Southeast Asia, Africa, and Europe,” said TechNode founder and CEO Lu Gang. 
• Lu suggests that companies with apps that can influence users’ thinking, or collect personal or business data, may face more difficulties in the overseas markets. He says that’s why the US targeted companies like social media app Tiktok and telecoms company Huawei and artificial intelligence firm Iflytek.  He added that people in overseas markets may have more concern for Chinese AI firms because of non-technical factors.

The hostility Chinese tech companies are facing in the US may also have an immediate impact on how startups and venture capital firms raise money, said some VC investors.

• “In the short term, Chinese VC might be more skeptical about startups that tend to expand to US or European markets because of tense international situations,” Xu Miaocheng, investment vice president at Beijing-based VC firm Unity Venture, told TechNode.
• US dollar funds have more pressure, and it’s a difficult time for them to raise money from their backers at the moment, said Xu.

A future of ‘splinternets’? The executive orders against Tiktok and Wechat don’t mean the end of Chinese tech companies’ global expansion, but further restrictions are expected to come. With China’s long-standing Great Firewall, and the addition of the US’ new “Clean Network” program, we are now closer than ever to a world with two different internets.

Read more:

• Understand the law: “POTUS bans Wechat” (Pillar Legal)
• The view from the boardroom: “Corporate America worries Wechat ban could be bad for business” (Wall Street Journal)
• Where is this ‘Clean Networks’ stuff going? “The strategic vision behind the Tiktok, Wechat bans” (Lawfare)

Additional contributions by David Cohen

Across China’s social media platforms, commentators agree on one thing: Bytedance better buckle up, because the US isn’t backing down anytime soon.

That might be their only point of agreement. Some suggest that Bytedance and others should take the high road and still champion globalization, but some others think it’s time to knuckle down. Some don’t rule out a Tiktok sale, and some are adamantly against it.

And they reach for different points of comparison too, some less familiar to Western audiences. What comes to mind when you think about Bytedance’s current predicament? Is it 1980s Japan? How about the Battle of Shangganling during the Korean War?

To give you an insight into what Chinese netizens are sharing, TechNode’s selected and translated some of the most popular Weixin and Weibo posts that have emerged over the past week.

A little déjà vu

For some commentators, what’s happening to Bytedance isn’t new. On microblogging platform Weibo, Ryo Takeuchi, a Japanese film director who lives in Nanjing, received over 100,000 likes for his comment (in Chinese) about 1980s Japan:

In my memory, Sony, Panasonic, and other companies were often chastised, and what we Japanese took for “self-improvement,” Americans took for ‘piracy.’ Afterwards, the US government started to use all kinds of methods to control and critique Japanese companies and the Japanese government. When I saw the news that Microsoft was suspending negotiations on purchasing Tiktok’s US business, I suddenly thought of that Japan, more than 30 years ago.

Meanwhile, Taiwanese comic artist “Lao Pei” saw some parallels with the fates of Alstom and Toshiba, in a comic (in Chinese) shared on Weibo by several users (3,500 likes):

Bytedance’s Zhang Yiming: ‘Too quick to kneel’?

Despite his predicament, Bytedance CEO Zhang Yiming has received startlingly little sympathy, with commentators accusing him of being naïve in adopting an apolitical “Martian perspective,” or of “kneeling too fast” in agreeing to sell Tiktok to Microsoft.

In a Weixin article (in Chinese) on “The frightening Zhang Yiming and his views on friendship!” Li Tongwei also notes a lack of support from Zhang Yiming’s colleagues compared to a 2018 episode with Lenovo (57,000 reads):

In recent days, there has been an unceasing stream of news about Tiktok meeting with unjust treatment overseas, but China’s domestic entrepreneurs have maintained a rarely seen collective silence. 

This is a vast difference from 2018, when Lenovo was accused of being “unpatriotic,” Liu Chuanzhi expressed his fury, and then half of the corporate community voiced their support.

As far as the eye can see, Bytedance seems to have no friends.

One other commentator, Wen Boling, has a bit more compassion for Zhang Yiming. Wang sees Zhang as soft, but typical of his generation’s entrepreneurs. In a Weixin article (in Chinese) “The Tiktok Affair: Scholar Zhang Yiming and Gangster [shehuiren] Trump,” Wen contrasts Zhang’s generation unfavorably with Huawei CEO Ren Zhengfei, and his reaction to his daughter’s detention in Canada (38,000 reads, 1,300 reactions):

Precisely because they knew what they were up against, Huawei and Ren Zhengfei steeled themselves to shoulder the burden till now, becoming heroes in Chinese people’s hearts. Huawei’s phones became patriotic products, and their sales volume steadily rose.

In the Tiktok incident, Zhang Yiming also had his chance to be a hero.

But his repeated concessions willfully cast away this opportunity, so not only does he lose money on his US business, he’s also gained a bad name in China.

‘Abandon your fantasies, and prepare to fight!’

Meanwhile, author “Xiaoxiang Sanren” sees a different generational divide on the other side of the Pacific: one between older doves and younger hawks in the US, which makes growing conflict inevitable. Xiaoxiang Sanren’s Weixin article (in Chinese) is, fittingly, titled “Bytedance: understand the terrain, abandon your fantasies, and prepare to fight!” (13,000 reads)

With the passage of time, there are fewer and fewer “old friends of the Chinese people.” Kissinger is 97 years old, and Bill Gates is 65—aged and marginal.

Long-time anti-China US Senator Marco Rubio is just 50 years old. And Zuckerberg? 36 this year, even younger than Zhang Yiming. You can imagine that Rubio and Zuckerberg will remain active in US government and business circles for quite some time, and their antagonistic attitude toward China will be hard to change.

Better to just get it over with, rather than prolong the agony. With the circumstances too strong to fight, abandoning the US market is perhaps a choice that Bytedance has no option but to confront.

But then, should Bytedance sell Tiktok to Microsoft? Absolutely not, writes “Xiaoxiang Sanren,” because this will threaten Bytedance’s business in China and elsewhere. “Death is coming anyway, so you might as well go down fighting.”

That hardline stance isn’t unique among Chinese commentators, and “The Talented Shui Mujun” goes for an even more military comparison in the most popular Weixin article we found (in Chinese), “The US is robbing Douyin in broad daylight, and the darkest hour is here: you can’t even imagine how much trouble China is in!” (over 100,000 reads, 36,000 reactions).

The article compares Bytedance and Huawei’s predicaments to the Korean War’s Battle of Shangganling, a bloody battle in which Chinese troops successfully repulsed UN forces at the cost of thousands of lives, later mythologized in a Chinese war movie.

Someone once said, “Huawei is the ‘Battle of Shangganling’ of the current US-China relationship. Only if we win a victory in this Battle of Shangganling will the US sign a peace agreement with China.”

Shangganling is just a little hill in North Korea, barely 3.7 square kilometers in size, truly insignificant.

But if you can’t hold onto Shangganling, then what about other mountains?

Should you lose a single inch of elevation, then all that’s left is to retreat again and again in defeat.

‘Stay cool, and don’t be biased’

But there are more moderate voices too. In a more philosophical piece (in Chinese), “Bytedance and Tencent’s Question of Destiny: What is America?” (57,000 reads, 1,700 reactions) blogger Lu Shihan ponders the contradiction between a US that is a “universal beacon” of freedom and democracy, and a US that is a “capitalist country full of discrimination.”

Both are real, Lu Shihan concludes—but lamentably, the first one disappeared thirty years ago. Now, China must ride out the convulsions of a declining US, but stay true to the spirit of globalization that the US once epitomized.

Globalization still brings us benefits, so we must guard against being biased by narrow-minded populism into confrontation and a new Cold War.

In actuality, everyone basically understands that time is on our side, and as long as we keep steady, what comes next will naturally be a new era. But the next few months are the danger zone, and Trump will probably continue to flail rabidly at US-China relations. We must stay cool and not be biased.

From this perspective, I believe that, be it Bytedance, Tencent, or yet another Chinese enterprise, when shut out and sanctioned at the administrative level, it is still inadvisable to play the nationalist card and intensify confrontation.

Put another way: we’ve shouldered this burden for decades. Don’t lose it at the last moment.

For Zhang Yiming and Bytedance, who’ve set their sights so firmly on globalization, the reality of being caught between two countries must be painful.

Surely, though, the most crushing part is the possibility that they’ll disappoint both.

Troubles for Tiktok in the US could be bigger than anticipated: a White House document Reuters saw indicated that the August 6 executive order could prohibit US-based app stores including Apple and Google from listing the app altogether, while a French data regulator confirmed on Tuesday an open investigation into the video app’s data practices.

Why it matters: Tiktok, owned by Beijing-based Bytedance, is widely viewed as the first Chinese-made app to obtain global popularity. Yet growing suspicion of Chinese tech and data privacy practices have led to one hit after another for the company, and not the viral video kind. India banned the app in June and it faces restrictions in Japan and the US.

READ MORE: 8 things to know about the Chinese tech giant behind Tiktok

Details: Tiktok’s potential ban in the US and investigation in France are rooted in concerns about data security.

• According to the Reuters report, a White House document which outlined plans to disrupt Tiktok’s operations and funding in the US, offered a glimpse of how US President Donald Trump’s executive order to ban transactions with Tiktok may work.
• “Prohibited transactions may include, for example, agreements to make the Tiktok app available on app stores… purchasing advertising on Tiktok, and accepting terms of service to download the Tiktok app onto a user device,” Reuters reported the document as saying.
• Specifics on the ban remain unclear. Some media outlets have reported that banning Tiktok from US app stores could restrict the app worldwide—including in China.
• French data regulatory body CNIL meanwhile confirmed to Tech Crunch that it began investigating Tiktok in May 2020 in response to a complaint about deleting a video from the app.
• Originally an investigation into how Tiktok handles user data, the investigation has since widened to include transparency issues, data access and protection, and data transfer out of the EU. 
• “Tiktok’s top priority is protecting our users’ privacy and safety. We are aware of CNIL’s investigation and are fully cooperating with them,” a company spokesperson told Tech Crunch. 

Context: Tiktok was the world’s most downloaded app in January 2020 with 104.7 million downloads across app stores. But the app has long been scrutinized for censoring content and poor data security practices.

• Tiktok began negotiating a buyout deal with Microsoft for all US operations in early August. The White House’s executive order, and questions about its interpretation and application, complicate any potential buyout deals.
• Data privacy rights in Europe are guided by the EU’s General Data Protection Regulation, which gives individuals certain rights over their data such as downloading or deleting it. The GDPR also requires transparency between data collectors and users. 
• Despite the investigation, Tiktok is still pursuing expansion in Europe. The company announced the creation of its first European data center in Ireland on August 6, to be completed in 2022. It is expected to store all European data.

Everyone’s talking about Tiktok, the hot short video app that has been thrust into the global spotlight on the back of an emerging US-China cold war. But outside China, few people know about Bytedance, the elusive tech unicorn behind one of the world’s biggest social media smash hits.

The company has always been reclusive. When employees run into journalists, they joke about being seen with dangerous contacts. Zhang Yiming, the company founder and CEO, rarely speaks to media directly. The mystery surrounding the world’s most valuable tech startup spurred TechNode to take a deep dive into the company last year, the results of which we published monthly in the form of our first In Focus newsletter series. Many of these articles were written by Bailey Hu, who left TechNode in May 2019. We are offering up our research in this story, with some updates.

While most international users know Bytedance as the company behind Tiktok, it isn’t just the maker of a single successful platform. In fact, the company has a lineup of virally popular apps in China, its home market. These include news aggregator Jinri Toutiao; Douyin, the domestic version of Tiktok; and Xigua Video, another video-sharing platform. In overseas markets, it operated Vigo and Topbuzz, the international versions of Xigua Video and Jinri Toutiao, respectively, both of which Bytedance shut down because of poor performance.

These stumbles have done little to slow the Beijing-based company. It is considered the world’s most valuable tech startup, according to CB Insights. The company was valued at as much as $140 billion earlier this year when state-owned carrier China Mobile, one of its shareholders, sold a small stake in a private deal, according to Reuters.

Here are eight things to know about Bytedance:

1. It’s huge

In March, Bytedance founder Zhang Yiming revealed in an internal letter to employees that the company’s global headcount had exceeded 60,000, and the number is expected to reach 100,000 this year.

Ad sales and content monitoring staff each make up a quarter of Bytedance’s workforce, according to a report by The Information in April 2019.

Bytedance now employs more people than Facebook, analyst Liu Jiehao of research group Iimedia pointed out, but average productivity still lags well behind the US titan. Facebook booked $71 billion in earnings in 2019, while Bytedance reportedly made $17 billion in revenue in the same period.

Tencent, which employed 54,000 people as of December 2018, fell between the two in terms of 2019 revenue. The company reported a total annual revenue of RMB 377 billion (around $48.5 billion) in 2019.

2. It’s all about an algorithm

Providing online news and content for millions of users in China, Bytedance’s flagship app Jinri Toutiao (which translates into “Today’s Headlines”) doesn’t require an editor-in-chief to lead its content strategy like other news platforms do, according to company founder and CEO Zhang Yiming.

The app’s editorial staff is a set of artificial intelligence and deep-learning algorithms that deliver personalized content to its users.

Like other flagship Bytedance apps, Jinri Toutiao shows users an endless feed of posts and videos recommended by its algorithms, all based on the user’s age, sex, location, and personal preferences.

As you read posts recommended by the platform, it learns what you like and don’t like by tracking your behavior: what you click to read, what you choose to dismiss, how long you spend on an article, which stories you comment on, and which stories you choose to share. The behavior recorded by the system then spits out recommendations to populate your feed. The more time you spend in the app, the more it learns about you—and the more it learns about you, the more time it can get you to spend in the app.

The company has replicated the recommendation system with other products such as Douyin and Tiktok. Its success speaks for itself.

According to a person who is familiar with Bytedance’s recommendation system, it was initially based on Google’s Wide & Deep Learning, open-source models that combine the strengths of the wide linear model and the deep neural network, two types of artificial neural networks that can perform tasks usually carried out by a human brain.

The Wide & Deep Learning system is used for recommendations on Google Play, the search engine’s popular Android mobile app store with more than 1 billion active users, and has led to “significant improvement” in app downloads, according to a paper by a group of Google researchers.

“The recommendation system is now Bytedance’s core technology that underpins everything from its news app to its short-video apps,” said the source.

In January 2018, Bytedance held a meeting to disclose how the algorithms work. The move was in response to pressure from internet watchdogs and state media, which had criticized the Jinri Toutiao app for spreading pornography and allowing machines to make content decisions (in Chinese).

At the meeting, Bytedance’s algorithm architect Cao Huanhuan explained the principles of the recommendation system used by Jinri Toutiao and many of the company’s other apps. The full text of his speech can be found here (in Chinese).

The company has moved to open up access to its recommendation algorithm to external companies in recent years after the success of Douyin and Jinri Toutiao. In September, Bytedance started to package its recommendation algorithm as a solution, known as Byteair, to its different lines of products and external partners.

3. It runs a lot of apps besides Tiktok

On its English-language website, Bytedance lists a modest ecosystem seven apps worldwide. The reality is more like a jungle, populated with hybrids, close cousins, and the occasional evolutionary dead end.

Tiktok and Douyin are the international and Chinese versions, respectively, of Bytedance’s hottest app. They don’t share any content, their features vary, and each app has different privacy policies in accordance with local regulations. Huoshan and the now-shuttered Vigo, similarly, had been the global and domestic versions of another short-video offering.

Many of Bytedance’s apps are free, and most have options for in-app purchases on Apple’s China App Store. In addition to those listed, relatively new launches like Tomato Novel are not only entirely free to use, but also offer cash incentives in return for user activity, as TechNode previously reported.

4. Tiktok vs. Douyin—the same, but different

Douyin and Tiktok are unquestionably Bytedance’s biggest successes. The two apps are often referred to as versions of one another—Douyin is the domestic Chinese version; Tiktok is the global version.

Bytedance once presented Tiktok and Douyin as two versions of the same product, at least until Tiktok began attracting scrutiny overseas because of its Chinese ties. The two apps share the same logo, layout, and even some stickers and filters, but they are strictly segregated in accounts and content. This means it’s impossible for a Tiktok user to log in to the Douyin app using their Tiktok credentials, and vice versa.

Now, Bytedance is trying hard to shake off Tiktok’s ties to China. It named an American CEO in May and reportedly cut off Chinese employee access to Tiktok in June. But the efforts didn’t pay off. India banned the app in June after a border clash with China in the same month and Japan is seeking to restrict Chinese-made apps including Tiktok. This month, the Trump administration signed an executive order that would effectively ban the app in the US on Sept. 15.

Content recommendations are not always entirely dependent on algorithms, at least in regards to the Douyin app. Douyin has promoted a fair amount of content produced by state-run media and government agencies for propaganda purposes. This content features recent news or stories with “positive energy,” a phrase that describes topics that align with government policies.

Conversely, on the Tiktok platform, recommended content featuring news or politics is minimal. Everything in the app is designed to be fun. A commentary published in The New York Times said that Tiktok might be “the only truly pleasant social network in existence.”

Bytedance’s account segregation of Tiktok and Douyin differs from the way that tech titan Tencent has constructed the domestic and international versions of its mega messaging app Weixin (known as Wechat abroad). 

By comparison, Tiktok and Douyin users exist in different worlds, meaning that content cannot be accessed across platforms. For example, one of Tiktok’s most popular accounts is Jacob Sartorius, an American singer who has 20.9 million followers on the platform. However, the “Jacob Sartorius” found on Douyin is an “unofficial” account with 36 followers.

Under pressure from authorities, Bytedance has completely segregated the Tiktok and Douyin platforms, freeing the company from any potential breach of China’s internet controls while providing its international users with a relatively censorship-free platform.

5. It’s also an experienced VC investor

Bytedance was founded in 2013, but it started to make investments as early as 2014. It kicked off its VC activity by investing in a series of blogs and media companies such as artificial intelligence-focused blog Xinzhiyuan, and Caixin Globus, an international news site founded by Chinese finance news outlet Caixin.

Bytedance started to expand its investment portfolio outside of China in 2017 as overseas markets became more and more important to the company, but it tended to make acquisitions rather than simply investing.

By far the most successful example of Bytedance’s global expansion was its acquisition of lip-syncing app Musical.ly in 2017, which was later rebranded to Tiktok and became a global hit.

In recent years, Bytedance pivoted to invest in enterprise services and online education companies such as edtech company Fclassroom in 2019 and online word processor Shimo in 2018. In April, Bytedance co-led a Series B of nearly $14 million into Chinese cleaning robot maker Narwal Robotics.

Based on disclosed figures, Bytedance tends to favor certain tech sectors over others.

Here are some of Bytedance’s biggest investment deals from 2015 to 2019.

6. Bytedance has got big plans for gaming

In June 2018, we reported that longstanding Bytedance app Jinri Toutiao had launched “Jinri Games,” its own version of Wechat mini games, or lightweight apps which run on a large platform without requiring users to leave the app.

Within Toutiao’s selection of in-app mini programs—another adaptation of a Wechat innovation—Android users could for the first time choose from a variety of casual games.

Since then, mini games have become available in Bytedance’s humor app Pipixia and most recently, Douyin. The additions allow independent gamemakers to adapt or develop 10-megabyte programs for each platform.

In March, the Bytedance obtained its first mobile games license from Chinese regulators, allowing it to publish a game legally to China’s multi-billion-dollar gaming market. Bloomberg reported in January that the company is also building a gaming division that will hire more than 1,000 employees, and there were already two games in the pipeline. The company’s casual mobile game “Combat of Hero” became the most-downloaded free iOS title in Japan for four consecutive days beginning March 7, the South China Morning Post reported.

7. Edtech is a sector it just can’t quit

Bytedance may have made its name with short-video and news aggregator apps, but it seems unusually determined to break into the online education sector.

Over the past two years, the company has made several attempts to gain a foothold in online education through the launch of new apps, acquisitions, and investments. Underperforming apps are abandoned as new ones keep appearing, fresh off the production line.

• In March 2018, Bytedance acquired Open Language, an online English course provider.
• In May 2018, it launched Gogokid, a one-to-one tutoring platform for Chinese children to learn English online with foreign teachers.
• In July 2018, it launched Haohao Xuexi, a knowledge-sharing app that features content covering career advice, parenting, culture, and wealth management.
• In August 2018, Bytedance led a $49.5 million Series C funding round in San Francisco-based education technology company, Minerva Project.
• In December 2018, it launched AiKID, a foreign teacher live-streaming platform.
• Bytedance licensed some patents in January 2019 from now-defunct smartphone maker Smartisan, which the company indicated was to expand and develop its online education business.
• In May 2019, it launched a K-12 online education platform Dali Ketang, which offers courses from primary school to high school. Chinese tech news outlet 36Kr reported that Bytedance acquired another online teaching platform named Qingbei Wangxiao to help with the development of Dali Ketang.
• In July 2019, it was reported that Bytedance was testing a short-video-based English-learning app named “Tangyuan English.”

Bytedance’s education apps:

8. If it loses Tiktok, it’ll still scare Tencent

In a lot of ways, Bytedance is something totally new. It’s the first Chinese tech company that’s really based on a new algorithm, and the first Chinese company ever to get a big hit in the global app space. It often terrifies its Chinese competitors as much as it seems to terrify American policy-makers.

If it’s forced to sell Tiktok, it could lose one of those strengths: the global hit. But it’ll remain a huge, disruptive force in Chinese tech.

Amid escalations in the tech war, Bytedance has applied for five financial licenses in Hong Kong through its local subsidiary.

Why it matters: If approved, the licenses would allow Bytedance to sell securities and futures, trade foreign currency, as well as offer advisory and asset management services in Hong Kong.

• Bytedance will be competing with Alibaba and Tencent, which have already established a presence in Hong Kong’s online brokerage and financial advisory markets through local subsidiaries.
• However, US President Donald Trump’s executive order banning “transactions” between US firms and the company may hinder Bytedance’s ambitions to enter the financial services market.

READ MORE: Techwar: Trump to end transactions with Tencent and Bytedance in 45 days

Details: The Tiktok owner registered its subsidiary, Squirrel Securities, with Hong Kong authorities in December 2019, looking to move into the city’s lucrative financial services market.

• Squirrel has applied for type 1, 4, 5, 6, and 9 licenses, according to Chinese media.
• The company has applied for trademark registration and has obtained a license for stock brokerage, Reuters reported on Monday.
• Squirrel currently has just one full-time employee at the moment, according to the Reuters report citing a person familiar with the situation.

Context: After the resounding success of Tiktok and its domestic version known as Douyin, Bytedance has pursued growth by entering different verticals of the tech industry including edtech, gaming, and workplace collaboration.

• The company has also applied for a virtual banking license in Singapore. The city-state has said it will issue five digital bank licenses by the end of the year, and Alibaba’s Ant Group is one of the other contenders.
• Tiktok left Hong Kong in July after the sweeping National Security Law was implemented.
• After the US government threatened to ban Tiktok in the US, Bytedance is in talks to sell its US business to Microsoft.
• Trump signed an executive order on Friday that bans all transactions between persons and companies under US jurisdiction and the Tiktok owner on Friday. US Secretary of Commerce Wilbur Ross will announce the specifics of the ban on September 15, when the order goes into effect.

US President Donald Trump’s executive orders banning transactions between US citizens and Chinese entities Wechat and Bytedance are about to be challenged in court, with short video platform Tiktok planning to file a federal lawsuit as early as Tuesday while a group of Chinese American lawyers announced it would file multiple lawsuits to challenge the Wechat ban.

Why it matters: Trump’s executive orders, announced late Thursday, aren’t just pitting the White House against Chinese companies: it puts the administration on a collision course with US consumers. It may also be illegal, according to the US Wechat Users Alliance.

Read more: US Wechat ban will mean more than lost connections

Details: Tiktok will argue that the executive order is unconstitutional because it did not give the company a chance to respond, and that concerns about Tiktok as a national security risk are “baseless,” according to an NPR report.

• In a statement released August 7, Tiktok said it was “shocked” by Trump’s order. “This Executive Order risks undermining global businesses’ trust in the United States’ commitment to the rule of law,” the company said. 
• A group of Chinese American lawyers announced (in Chinese) on August 8 that it would file lawsuits after “multiple rounds of discussions” in the close-knit community about the Trump’s executive order involving Wechat. Some of the lawyers formed a non-profit organization, US Wechat Users Alliance, to assist fundraising efforts to file suits in multiple locations. 
• They will argue that the executive order goes against provisions of the US Constitution and the Administrative Procedure Act, according to the announcement.
• Clay Zhu, an attorney at Deheng Law Offices in California who is involved with the litigation efforts, told TechNode that the term “transaction” used in the Wechat order refers to a previous executive order from May 15, 2019. That order, focused on securing the US technology supply chain, defined transaction as “acquisition, importation, transfer, installation, dealing in, or use of any information and communications technology or service.” 
• If the May 2019 definition of “transaction” is applied to Wechat, Zhu added, it would effectively be a total ban of the app. 
• The group hasn’t yet filed any suits, but California or Washington state are top choices due to their more liberal courts and judges favorable to the issues they will raise, Zhu said.
• “We understand that Wechat is a flawed app. We can choose not to use it, but Mr. President has no right to make this choice on our behalf,” the announcement said. 

“Trump’s reasons for doing this are not well articulated and there’s been no testing of his reasons. He says Wechat violates our national security—how? Where’s the evidence? This needs to be investigated by the courts.”

—Angus Ni, attorney at AFN Law involved in the litigation against Trump’s executive order, to TechNode on Monday

Context: Anti-China rhetoric from the US government is solidifying into plans to keep Chinese tech out of the US. 

• Wechat has 19 million daily active users in the US, and Tiktok has over 100 million monthly users in the country.
• A US State Department-initiated program announced on August 5 dubbed the Clean Network would purge made-in-China tech from US networks. 
• Huawei, a long-time target of the Trump administration, was placed in May 2019 on a list of foreign firms deemed a risk to national security.

Analysts are optimistic about Chinese tech and gaming giant Tencent despite a Huawei-like sanction from the US government imposed last week, with one saying that it may instead end up hurting Apple’s Iphone sales in China.

Why it matters: The lack of detail in the Trump administration’s sudden ban on Thursday of transactions involving Tencent’s mega messaging app Wechat has sowed widespread confusion. But analysts are optimistic about the company’s future performance even considering a worst-case scenario.

• Tencent said it was still “reviewing the potential consequences” of the executive order on Friday. A company representative declined to provide further comment on Monday.

Details: Shenzhen-based broker Guosen Securities on Monday maintained a buy rating on the Tencent stock because it said that the Trump administration’s ban on Wechat will have little impact on revenues from Tencent’s social media business.

• Tencent’s non-gaming revenue in the US only accounted for 0.4% of the company’s total revenue in 2019 and Wechat’s full exit from the US market will have little impact on the company’s revenue and social media ecosystem, said Wang Xueheng, analyst at Guosen Securities.
• The executive order means American companies will be banned from advertising on Wechat and individuals in the country will not be allowed to make payments via Wechat, the analyst wrote in a note (in Chinese) on Monday.
• There is little possibility that Apple will be ordered to remove Wechat from the China App Store, he added.
• Iphone analyst Ming-Chi Kuo of Hong Kong-based TFI Securities said Sunday that the popular Apple Iphone will be hit the hardest as a result of the US ban on Wechat.
• Wechat’s popularity in China is so established that Kuo expects that Apple will see its Iphone shipments decline by 25% to 30% year on year if it is required to remove Wechat from the global App Store. The decline, he added, will primarily be driven by a potential dropoff Iphone sales in China.

Context: The Trump administration said Thursday it would bar individuals and companies within US jurisdictions from making transactions with Tencent and Bytedance, the owner of Tiktok, in 45 days.

• The executive orders come a day after the US Secretary of State Mike Pompeo escalated the tech war with a new initiative. He promised to purge US networks from Chinese technology under the “Clean Network” program.

US President Donald Trump signed two executive orders late on Thursday vaguely banning transactions with the owners of Wechat and Tiktok starting in 45 days.

Why it matters: It is unclear whether the orders will effectively ban the Wechat and Tiktok apps themselves in the US.

• On the face of it, the order on Bytedance seems to complicate Tiktok’s sale to Microsoft. But US outlets report the White House is in favor of this particular transaction and is in fact trying to speed it up by setting a tight deadline.
• It also threatens to disrupt Tencent’s gaming operations in the US. Tencent owns significant stakes in some of the US’s biggest gaming studios, such as Epic Games, developer of Fortnite; and Riot Games, the studio behind League of Legends.
• The executive orders come a day after the US Secretary of State Mike Pompeo escalated the tech war with a new initiative. He promised to purge US networks from Chinese technology under the “Clean Network” program.

READ MORE: The sun never sets on Tencent’s gaming empire

Details: The orders ban “any transaction” by any person or company under US jurisdiction with Bytedance, and any transactions with Tencent that relate to Wechat. The Secretary of Commerce is tasked with identifying these transactions until September 15.

• The ban could mean that the apps are banned from the app stores of US companies like Apple and Google, or that Wechat Pay will not work with US credit cards.
• The executive order on Wechat claimed the app “automatically captures vast swaths of information from its users,” which “threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information.”
• Tiktok, on the other hand, could be used by the Communist Party for disinformation campaigns, Trump said in the other order.

Context: The techwar between the US and China has seen major escalations in the last week, with Tencent and Bytedance the latest of China’s tech champions joining Huawei on the White House’s bad side.

• Yesterday, Pompeo said the US would take action to dispel Chinese telecoms carriers, cloud providers, and apps from American networks, as well as investigate undersea cables for Chinese espionage.

READ MORE: Techwar: US wants to rid its internet of Chinese technology

The US State Department is ramping up efforts to rid American digital networks of made-in-China technology, including apps, cloud services, and telecoms operators, the US State Department said late on Wednesday.

Why it’s important: The program, outlined by the US State Department, signifies a monumental shift in US internet policy, moving away from a free web towards a China-like walled garden.

• It is unclear when and how the plan will be implemented, and whether the State Department has the authority to pressure private companies to enforce the measures.

Escalating techwar: US Secretary of State Mike Pompeo said in a statement that the program, dubbed Clean Network, is the Trump Administration’s “comprehensive approach” to protecting US citizens’ privacy and American companies’ data from “aggressive intrusions by malign actors, such as the Chinese Communist Party.”

• Apps like Tiktok and Wechat are “significant threats” to US interests, Pompeo said during a press conference announcing the initiative on Wednesday.

• In response, China’s Foreign Minister Wang Yin said the US is trying to draw an “iron curtain,” between the two countries and accused the US of “bullying.”

The five fronts: “Untrusted” Chinese technology will be removed from five key areas, Pompeo said.

• The US wants to make sure that Chinese telecom carriers are not connected to US telecommunications networks, or providing services between the US and other countries.
• Pompeo urged US regulator the Federal Communications Commission to “revoke the authorization of China Telecom and three other companies” to provide telecom services to and from the US.
• The plan also seeks to remove untrusted Chinese apps from US app stores. The move is aimed at keeping US data out of the hands of Chinese companies, as well as preventing Chinese censors from influencing content available to US users, according to the statement.
• The State Department said it will prevent Huawei and other Chinese smartphone manufacturers from pre-installing “popular” US apps on their devices. It will also prevent Huawei, “an arm of the PRC surveillance state,” from making such apps available in its app store.
• The US will work to stop Chinese cloud providers like China Mobile, China Telecom, Alibaba, Tencent, and Baidu from storing and processing vast amounts of data from US citizens and companies. The State Department aims to keep sensitive personal information and key intellectual property, such as Covid-19 vaccine research, away from Chinese companies, Pompeo said.
• Undersea cables, the infrastructure that transfers data to and from the US and other countries, will be scrutinized to ensure it is free of Chinese espionage. The US will work with other nations to “secure” underwater cables around the world, according to Pompeo.

Context: Over the past few months, the Trump administration has signaled increasing protectionism against China.

• Following the US’ moves against telecommunications giant Huawei, Tiktok owner Bytedance is now bearing the brunt of the US offensive against Chinese tech companies.
• Amid growing threats of a potential US ban on Tiktok, Bytedance is reportedly attempting to sell the US operations of its short video app to Microsoft. US President Donald Trump said the government is entitled to a “cut” from the deal.
• Meanwhile, risks for Huawei in US-allied countries is growing. The UK announced in early July it would ban the Chinese telecom giant from its 5G networks. France is reportedly making similar moves.
• The Clean Network is an expansion of the Clean Path initiative launched in April, an effort to keep Huawei out of US and allied countries’ 5G networks.

Chinese search engine Baidu Search and social media platform Weibo were blocked by internet service providers and removed from Google and Apple app stores in India on Tuesday, the latest of the total 106 total Chinese apps shut down in the country in recent weeks.

Why it matters: High-profile tech bans are escalating political tensions between India and China. Though Baidu Search and Weibo aren’t very popular in India, they are a symbol of the country’s rejection of Chinese tech. The US and Japan are also considering bans against various Chinese apps, most prominently Bytedance-owned Tiktok. 

Read more: Does India need China tech?

Details: The latest app bans followed a similar playbook to an earlier round: With little warning, Indian users are cut off from the platforms. 

• The Indian government publicly released a list of 59 banned Chinese apps on June 29, and announced a second list of 47 Chinese apps on July 27. Wechat and Weibo were on the first list, along with Baidu Map and Baidu Translate. 
• Though the July list has not been made public, the Times of India reported that it contains “clones and different versions of some of the original apps,” including Baidu Search. 
• The ban has yet to be evenly applied. TechNode contributor Hamsini Hariharan was still able to see the Baidu app in the Indian Android app store and use the search engine, but the Weibo app was no longer listed. 
• Baidu once had high hopes for its Indian market. CEO Robin Li visited the Indian Institute of Technology in January 2020 to discuss his desire to “partner with local institutions for innovation.”
• Launched in 2009 by Sina Corporation, Weibo has 500 million global registered users. Indian Prime Minister Narenda Modi joined the social media site in 2015. His account, with over 244,000 followers, was deleted on July 1. 
• Baidu, founded in Beijing in 2000, launched its India office in New Delhi in 2015. Baidu said it had 45 million monthly active users in India across all its products in September that year. 
• Baidu Search hasn’t made the same headway in India as in China where it claimed 68.7% share of the Chinese search engine market as of February 2020. In India, Google is dominant with nearly 100% of the search engine market.

Context: India’s nearly 700 million internet users were once seen as the next frontier for Chinese tech but sentiment from the government towards China’s biggest tech companies has cooled as political tensions heat up.

• Tencent’s Wechat was blocked in India on July 27, stranding both Chinese expat and Indian users. TechNode previously reported that even virtual private networks (VPNs) could not guarantee access to the app. 
• Tiktok was removed from Android and Apple app stores in India, its second-largest market, on June 30. Despite Tiktok’s popularity in India, the ban of Chinese apps followed rising nationalist sentiment in India. 

Bytedance, the company behind popular short video platform Tiktok, will put the company’s users, employees, and vision at the forefront as it attempts to counter the possibility of further bans abroad, CEO Zhang Yiming said in a letter to employees on Monday.

Why it matters: The low-profile billionaire commented on his concerns in deciding Tiktok’s future as the short video app faces a possible ban in the US and swirling rumors that American tech giant Microsoft could acquire its US operations.

• US President Donald Trump, who is expected to further crack down on Chinese software companies, has given Bytedance a deadline of September 15 to negotiate Tiktok’s sale.

Details: Zhang said in the memo that Tiktok is currently engaged in preliminary discussions with an unnamed tech company to ensure the service will still be available to US users. The letter was obtained by Chinese media.

• Zhang said the firm will protect Tiktok’s “uniqueness” and hopes the platform’s user experience won’t be affected by changes that could come with the sale.
• The CEO said that he would take into consideration the interests and career paths of Tiktok’s team when thinking about the future of the short video app.
• Zhang hopes Tiktok’s final settlement will align with the company’s broader vision, which aims to “inspire creativity and enrich life,” he said.
• In the letter, Zhang confirmed that the US Committee on Foreign Investment in the United States (CFIUS), which reviews deals by foreign acquirers for potential national security risks, required Tiktok to sell its US operations.
• The company didn’t seek clearance from CFIUS when it acquired Musical.ly, which was later integrated into Tiktok, for $1 billion in 2017.
• “We still haven’t come up with the final plan, so the public attention and rumors surrounding Tiktok may last for a while,” he said in the letter (our translation).

Context: Along with the rising tensions between China and US, trouble for Tiktok in the US has been brewing for months. Bytedance has been seeking a solution to increased scrutiny of Tiktok’s US operations by pursuing a deal with a possible buyer for the platform.

• Bytedance and Microsoft have resumed negotiations for a buyout of all Tiktok operations in the US after US President Donald Trump said on July 31 he would ban the video-sharing app and oppose the potential deal. 
• Tiktok is also among 59 apps that were removed from app stores in India at the end of June, with the Indian government citing national security concerns. Meanwhile, Japanese lawmakers are also eying a possible ban as security concerns over the Chinese government’s access to user data rises globally.

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

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

Elliott and James welcome Digital Asia Hub fellow Dev Lewis back to the podcast to discuss what a worsening diplomatic relationship between China and India means for Chinese tech companies in India, and what the future of India’s tech landscape will look like. James and Ell also chat about the prospects of IPOs from Ant Financial and Didi Chuxing. 

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Luckin Coffee

Hosts:

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

Guest:

• Dev Lewis – @devlewis18

Editor

• Peter Isachenko

Podcast information:

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

Chinese company Bytedance and Microsoft have resumed negotiations of a buyout deal for all TikTok US operations after US President Donald Trump said on Friday he would ban the popular video-sharing app and opposed the potential deal. 

Why it matters: Trump’s statement follows weeks of high-profile pressure on Tiktok and parent company Bytedance after India banned the app a month ago and Japanese lawmakers spoke on Tuesday of impending restrictions.

• Under current US law, it’s unclear how a ban of the free app would work on a legal and technical level.
• Bytedance’s offer to sell is an attempt at a deal so Tiktok can stay online in the US. 

Details: Microsoft said on Sunday that it would resume negotiations with Bytedance that were first reported on Friday then suspended following Trump’s statement, adding that it would complete discussions by September 15.

• Trump hinted at deploying an executive order to ban the app. Some speculated that he could punish Apple and Google for carrying Tiktok in their app stores, or add Tiktok to a list of foreign entities that present a risk to US national security, like Huawei.
• Microsoft said that it would resume discussions with Bytedance about the acquisition following CEO Satya Nadella’s conversations with Trump.
• Valued at upwards of $100 billion, Bytedance was considering a New York listing, among others, but walked back plans to list in the US on Friday, according to a Reuters report. They are likely to list closer to home in Hong Kong or Shanghai, it said.
• Loyal Tiktok users rushed online to criticize Trump’s decision. The American Civil Liberties Union called the potential ban “a danger to free expression and technologically impractical” in a viral tweet. 
• Tiktok’s US operation has repeated sought to assure users and the government that their operations fall well within US laws, including announcing the launch of a Transparency and Accountability Center on July 29, 2020, where experts can examine Tiktok’s moderation policies and algorithm in real time. 

Context: Tiktok is incredibly popular in the US: the app has an estimated 70 million monthly active users in the US and could earn nearly $500 million in the US market alone in 2020.

• US authorities are concerned about Chinese government access to US user data. The Committee on Foreign Investment in the United States launched an investigation into Bytedance’s 2017 acquisition of Musical.ly, Reuters reported in November.
• Trouble for Tiktok in the US has been brewing for months: In June, the app was accused of censoring the Black Lives Matter hashtag; in July, US federal agencies began investigating Tiktok’s compliance with an agreement it struck with regulators in February 2019 involving data collection from users under the age 13.
• Bytedance’s global standing is growing precarious. India’s Tiktok ban is expected to cost the company $6 billion.
• The Trump administration began voicing the possibility of banning Tiktok earlier this summer over concerns that the Chinese Communist Party could access US user data.
• Tiktok denied Trump’s claims in a 2019 statement, saying that “none of our data is subject to Chinese law” and “We have never been asked by the Chinese government to remove any content and we would not do so if asked. Period.”  

How tech giants build ecosystems

On July 21, scooter maker Ninebot, a company backed by Chinese smartphone maker Xiaomi, won final approval from the Shanghai Stock Exchange to register on its Nasdaq-style STAR Market tech board. If the registration is approved by the China Securities Regulatory Commission, the country’s top securities watchdog, Ninebot will become the fourth company within the so-called “Xiaomi ecosystem” to go public.

The Xiaomi ecosystem is a group of startups the smartphone maker has invested in, who are allowed to leverage its sales channels to distribute their products. Joining the group also means startups, which are often makers of smartphone accessories such as headphones, power banks, and cameras, can utilize Xiaomi resources like brands, supply chain management, and design.

The clique has incubated three publicly traded companies, including smart home appliance maker Yunmi, cleaning robot maker Roborock, and smart wearable devices maker Huami. Meanwhile, three more companies are in the pipeline to go public on the high-tech STAR board. 

The Xiaomi ecosystem is one example of how big Chinese tech companies expand their empires through investments. During the past decade, corporate venture capital has thrived under the wings of big tech firms like Xiaomi, Tencent, Alibaba, as well as rising stars like Bytedance and Didi Chuxing. 

While, like all VCs, corporate VCs hope to invest in promising startups that generate returns for their parent companies, they’re also pursuing strategic objectives for their companies that shape their priorities.

In the first six months of this year, corporate VCs participated in 15% of venture capital investments in China, according to Chinese venture market research firm Jingdata.

Big deals

• In July, grocery delivery startup Missfresh raised $485 million from investors including Tencent and China Capital Investment Group.
• In May, Tencent participated in Chinese social fitness app Keep’s $80 million Series E led by Jeneration Capital Management. 
• In April, Tencent injected $17 million into a unit of Chinese navigation software provider Navinfo that specializes in high-precision positioning technology development and services.
• In June, BYD Semiconductors, the semiconductor unit of electric car giant BYD, raised $114 million from investors including South Korean conglomerate SK Group and Xiaomi.
• In March, Chinese podcast platform Qingting FM raised several hundred million RMB from Xiaomi.
• In April, Bytedance co-led a Series B of nearly $14 million into Chinese cleaning robot maker Narwal Robotics.
• In March, Chinese big data company Mingninglamp raised $300 million in a funding round backed by Singapore’s state investor Temasek Holdings and Tencent.

Big tech investment strategies

Like Xiaomi, all Chinese tech giants use their investments as a way to build their ecosystems, and they are usually incompatible with those of their rivals’. For example, users of Tencent-backed JD.com cannot pay with Alibaba’s Alipay on the e-commerce platform.

Tencent

Social media and online gaming giant Tencent is one of the most active corporate VCs in China. The company has invested in 741 companies around the world as of July 24, according to venture capital data provider Itjuzi (in Chinese).

• Tencent’s investment arm favors companies in the gaming, entertainment, e-commerce, and fintech sectors. The company has invested in some 165 companies that fall into the culture and media category, accounting for 22% of its total portfolio companies. It has also started investing into enterprise service and artificial intelligence (AI) companies in recent years.
• Some of the company’s biggest investment successes are social e-commerce platform Pinduoduo, electric vehicle maker Nio, ride-hailing app Didi Chuxing, and online literature platform China Literature.

Alibaba

Apart from online market place Taobao and Tmall, the e-commerce titan also operates cloud computing platform Aliyun Cloud and Cainiao, a logistics platform. Alibaba’s investments also focus on these areas: e-commerce, enterprise services, and logistics.

• Alibaba has invested in 528 companies as of July 24 with 87 companies belonging to the enterprise service category, according to Itjuzi. 
• The company has stakes in food delivery platform Eleme, video-streaming platform Youku, Didi Chuxing, and Southeast Asian e-commerce company Lazada.

Bytedance

Bytedance was founded in 2013, but it started to make investments in 2014. The owner of short video app Tiktok and news aggregator Jinri Toutiao started its VC activity by investing in a series of blogs and media companies such as AI-focused blog Xinzhiyuan, and Caixin Globus, an international news site founded by Chinese finance news outlet Caixin.

Bytedance started to expand its investment portfolio outside of China in 2017 as overseas markets became more and more important to the company, but it tended to make acquisitions rather than simply investing. 

One of the most successful examples of Bytedance’s global expansion was the acquisition of lip-syncing app Musical.ly in 2017, which was later rebranded to Tiktok and became a global hit.

In recent years, Bytedance pivoted to invest in enterprise services and online education companies such as edtech company Fclassroom in 2019 and online word processor Shimo in 2018.

Few intersections

Chinese tech giants’ investment strategies show a strong tendency toward exclusiveness, as they deploy capital to build out ecosystems. This means that when a startup gets money from Tencent, Alibaba’s door slams shut.

• Most startups have to choose a side when they raise money from tech giants. Deciding on one tech giant’s ecosystem means that, besides cash, a startup will likely gain access to its backer’s existing user base, data, and tools, while being blocked from rival companies’ networks.
• Zhu Xiaohu, managing director of venture capital firm GSR Ventures, which focuses on early-stage technology companies, said in May 2019 that it was “extremely difficult” (in Chinese) for startups to avoid choosing a camp among tech giants when raising funds because the combined market value of BAT (Baidu, Alibaba, and Tencent), and companies they invested in “account for more than 90% of the market cap of all Chinese internet companies.”
• One of the exceptions is ride-hailing platform Didi Chuxing, which is a result of a merger between Tencent-backed Didi Dache and Alibaba-backed Kuaidi Dache in 2015. Didi appears to have avoided taking a side, accepting both Alipay and Wechat.

Pick a side

Even though Chinese unicorns only accounted for 15% of deals in the first half of the year, nearly all startups have to align with a tech giant as they scale.

There are a few unicorns, such as drone maker DJI and Tiktok owner Bytedance, that have managed to succeed without joining any of the BAT camps. But 80% of Chinese tech startups have taken a form of investment from BAT by the time they reach $5 billion in valuation, according to a report by The Economist.

And sometimes, trying to please more than one giant can be dangerous. One example is failed bike-sharing platform Ofo, another intersection of Tencent and Alibaba’s investments.

The company received money both from Tencent, via Didi Chuxing, and Alibaba. A 2019 article by Chinese magazine GQ Report argued that the resulting clashes between the two giants in the startup’s boardroom ultimately led to Ofo’s failure.

“Experienced entrepreneurs know: Under normal circumstances, do not accept investments from two (or more) of Tencent, Alibaba, or Baidu at the same time,” GQ Reports wrote. “It is dangerous to violate common sense.”

Japanese lawmakers announced Tuesday they are seeking to restrict Chinese-made apps such as Tiktok in a bid to prevent the Chinese government from accessing user data, just a month after India banned the popular short video app. 

Why it matters: Security concerns are rising globally about the Chinese government’s access to user data through Chinese companies. Tiktok and 58 other Chinese apps were banned from Indian app stores on June 30. The US is also considering blocking the short video app due to concerns over data security.

Read More: Ban on Tiktok will cost Bytedance $6 billion: report

Details: Despite Tiktok’s popularity, Japanese lawmakers from the ruling Liberal Democratic Party are rushing to put data security first. They plan to submit proposals for the restrictions to the government as early as September. 

“When looking at IT devices and software in this day and age, we have to be even more aware of how information is being collected and used.”

—Akira Amari, head of the ruling Liberal Democratic Party, to reporters

• On Tuesday, a Japanese newspaper reported that the US expects its ally Japan to join it in banning or restricting Chinese apps like Tiktok. Experts believe that Japanese Prime Minister’s hardening stance towards China makes Japan’s compliance with the US view very likely, though an undersecretary at the US State Department stated they will respect Japanese sovereignty in the matter.
• Tiktok’s expansion to Japan took off in early 2018 as the company recruited Japan’s most popular influencers for the platform. Today it’s the country’s fifth most-downloaded app, with an estimated 10 million users.
• Tiktok in 2019 publicly focused its growth strategies on US, Indian, and Japanese markets, citing their strategic importance and rapid growth, TechNode previously reported. Now, the platform faces heightened scrutiny in exactly these three markets.

The head of AI research at Bytedance is leaving the company as the tech giant faces intensifying international scrutiny of its popular short video app Tiktok, Reuters reported.

Why it matters: Bytedance has seen a slew of setbacks in its international operations as countries including the US and India look to limit its presence within their borders.

• The company recently hired former Disney executive Kevin Mayer as Tiktok’s chief executive officer in a bid to assuage concerns over the company’s Chinese ownership.
• China has ambitions to become the world’s forerunner in AI technologies, but it battles to retain its AI talent, according to report by US think tank Macro Polo.

Details: Ma Wei-Ying will leave Bytedance this week, Reuters cited a source as saying. A replacement has not yet been made public.

• The AI researcher joined Bytedance in 2017 after leaving Microsoft Research Asia, becoming its vice president and head of the company’s AI lab.
• Ma was trained in Taiwan and the US, and received a doctorate in electrical and computer engineering from the University of California, Santa Barbara in 1997, according to his Linkedin profile.

Context: Bytedance is facing heightened pressure after the app was banned in India—the company’s largest international market—in late June and faces the possibility of similar measures in the US.

• Tiktok was one of 59 Chinese apps banned in India over national security concerns. Previously, the app was pulled from app stores in the country after a state court found that it was used to spread pornography and encouraged predatory behavior.
• In the US, two federal agencies are investigating whether the app breached a deal it made in 2019 to protect children’s rights.

Mini programs are an increasingly important growth driver for apps, functioning as an entry point for Chinese mobile users to access online services, according to a recent report on Chinese internet trends in the first half of the year.

Why it matters: These lightweight applications are becoming must-have features for mainstream apps. They offer a diverse range of functions without requiring users to download separate programs or leave the main app.

Read more: Wechat mini programs: the future is e-commerce

Details: Monthly active users (MAU) for Wechat mini programs reached 829 million in June, up 11.6% year on year compared with 743 million a year ago, according to a Quest Mobile report published on Tuesday.

• Mini programs are an important channel for main apps, especially those offering high-frequency services like food delivery, according to the report.
• Eleme’s main app had 45 million MAUs as of June, while its mini program on the Alipay app had 33 million MAUs, with just 1.65 million overlapping users. Meituan’s Wechat mini program meanwhile had 97 million MAUs in June, almost double the main app’s 54 million.
• Mini programs offer a lightweight, convenient way to try out a limited version of a service, and are a crucial channel for apps to acquire new users who want to use the full range of services, the report said.
• Lifestyle services was the most popular category among Wechat mini program users in June, followed by video, shopping, tools, and transportation. Lifestyle services and video also topped the charts for Alipay and Baidu mini programs.
• Users of healthcare services surged more than nine-fold (up 841%) year on year due to the wide application of health codes. Online education, car-hailing, and rental services also saw users on Wechat mini programs more than doubled year on year in June.
• China’s retail sales in June weakened 1.8% year on year, an improvement from the 20.5% year on year decline in February during the country-wide lockdown, though growth slowed on an annual basis from a 9.8% increase in June last year.
• Online retail sales accounted for 25.2% of China’s total retail sales in June, up from 20% in June last year.

Context: First introduced by Wechat in 2017, mini programs have become ubiquitous on many of China’s biggest apps, including Tencent’s QQ, Baidu, Meituan, Alibaba’s Alipay, and Taobao, as well as Bytedance’s Jinri Toutiao and Douyin.

All eyes in the tech world are focused on the two neighbors and what this means for the future of global tech. After years of deep engagement, where does it go from here? 

Bottom line: This is not the first time a Chinese app has been banned in India, but this time is different. The app ban ushers a new phase in China-India relations. Geopolitics will drive tech engagement between the two countries going forward. This will entail some economic pain for both countries, as India tries to reduce its reliance on China’s tech stack. Unless the two sides find a way to get past the border, this is the end of China and India’s tech romance. 

Three motives: New Delhi has cited data sovereignty and security as legal justifications, but the true driving motives are more likely:

Retaliation: Since 1988, the bilateral relationship has revolved around a consensus: manage the border peacefully and the rest of the relationship can grow and develop. Until now.

• This was gradually solidified in the form of multiple border agreements from 1993 to 2014. Over the years “‘incursions” took place but they were ultimately resolved peacefully. 

• New Delhi reads Beijing’s behavior on the border as a sign of intent to unilaterally change the status quo—and it feels it must re-consider the thirty-year consensus. Although whether economic retribution will create the desired military deterrence or change in behavior is far from clear. 
• Union Minister Ravi Shankar Prasad himself called the ban a “digital strike.” 
• Influential Indian military experts have argued that military options would be more effective.

Economic “self-reliance”: In a May speech made as tensions were rising on the border, Prime Minister Modi called for a movement for a “Self-Reliant India” that extends beyond China.

• But India’s acute economic reliance on China (17% of Indian imports come from China), coupled with border-related security concerns, means China is seen as a key part of the problem. 
• The border clash and the resultant public opinion swing against China creates an opportunity to make big moves: An “end to business as usual” with China. 

Fighting fire with fire: Blocking access to apps and claiming “data sovereignty” is a page out of Beijing’s own internet sovereignty playbook.

• India may not yet have a technical infrastructure for internet blocking like the Great Firewall but it is asserting its national boundaries on the internet in a similarly blunt fashion. 
• After years of a more laissez-faire attitude towards internet governance, India is now more proactively thinking about Indian citizens’ data and consumer data trails. 
• Much like Beijing, it doesn’t just want to protect economic and national security interests, but also the cultural values that underpin technology platforms in India. 
• India is where China was a decade ago. Sweeping regulations around the internet are forthcoming in the coming years that may borrow more from Beijing.
• Chinese tech companies are the center of attention—for now. In the future, US firms may also face pushback as the Indian government exerts control over how platforms are governed and how data is processed. 

The US & Jio factor: Silicon Valley companies are poised to benefit as a China-shaped vacuum appears. The unprecedented pouring of investment into one Indian company in particular firmly connects the valley to India.

• Earlier in the year, Facebook invested $5.7 billion in Reliance Jio Platforms, a telecoms giant with ambitions to become a tech conglomerate.
• Amid the China app ban furore, Google followed suit with a $4.5 billion investment as part of its $10 billion “Digital India” fund. 
• Following the two investments, Jio is effectively a US-backed Indian national champion, free of Chinese tech. 
• Google and Jio plan to jointly build affordable smartphones, directly challenging a market dominated by Chinese smartphone players. 
• Jio is ambitiously aiming for all layers of the tech stack; telecoms (currently occupies), devices, OS, and apps. 
• With the right moves, Jio could not only fill China-shaped holes in India, but become a global tech giant. 

More pain for India? Apps are only a small part of why India relies on China. If Delhi is really going to pursue “self-reliance,” it will mean a lot more pain.

• Dozens of major Indian tech startups received investments from Chinese technology companies and VCs over the past five years. 
• Chinese smartphone manufacturers Xiaomi, Oppo, Vivo, Realme, and OnePlus hold 80% of the Indian market. 
• India’s digitization growth means it is also reliant on hardware imports from China of key components such as value parts such as sensors and transponders, among others.

Pain for Chinese tech firms: Tiktok is the biggest hit among the 59 banned apps. Although India represents a relatively small percentage of Tiktok’s revenue today, it is the cornerstone of Tiktok’s growth projections, with potential losses touted as being up to $6 billion. 

• Chinese companies built apps for India and invested in local startups because India was the only other market that could be as big as China. 
• Now they may lose access to the Indian market just as domestic demand is projected to take off. This is a major blow to the global aspirations of Chinese tech giants. 

Looking forward: A ban alone does not put an end to Chinese tech in India. It’s even possible, if perhaps unlikely, that Tiktok may make a comeback. But this episode marks an end to the first phase of China-India tech romance. 

• It is unlikely the two countries will find a workable reset along the border anytime soon. Tensions are unlikely to lead to military escalation, which would be catastrophic for their tech engagement.
• The most likely scenario is a turbulent and frosty relationship: no more big tech investments from China, very low-key engagement between large Chinese tech companies already invested, and some exits by smaller players.
• Indian consumers and businesses will continue to buy Chinese smartphones and hardware imports due to the lack of immediate alternatives, but Jio’s shadow looms large.
• Don’t expect barriers to Chinese tech and public opinion to blow over.

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

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

After taking some time to welcome his newborn son, James returns to his co-hosting duties, as he and Elliott welcome Bloomberg Chief Economist Tom Orlik to the pod to discuss Tom’s new book China: The Bubble that Never Pops. Ell, James, and Tom discuss reasons to be optimistic about the future of the Chinese economy, and why it has avoided a major crisis in the decades following Reform and Opening Up.

James and Elliott also cover a few other hot topics in the news recently, such as the prospect of a Tiktok ban in the US.

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

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Luckin Coffee

Hosts:

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

Guest:

• Tom Orlik – @TomOrlik

Editor

• Peter Isachenko

Podcast information:

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

Reader, we’re going a little meta this week. Way back in 2017, in TechNode’s bloggier days, the site published a listicle called “Top 15 apps you need for living in China.” This piece became one of our best-performing posts of all time. Three years on, people are still reading it.

So we decided to update the list for 2020, to reflect on how phone home screens have changed — and what it says about the market.

Bottom line: The majority of the list remains the same. 18 out of 22 apps mentioned in 2017 kept their position in 2020. But we’ve added 21 new apps that gained popularity over the three years. The market is still pretty dynamic.

Remember Apple’s iPhone 3G commercial “there’s an app for that”? That slogan never really applied to China. Here, all your needs are packed into a few super-apps—basically, Wechat and Alipay. Wechat accounts for 34% of total mobile data traffic in China in 2018, while Ali­pay leads the Chi­nese mo­bile pay­ments market with a 53.8% share as of Q4 2019.

However, other sectors, like entertainment or transportation, still see vital competitions, innovation, and growth today. One new category — short video — has gone big.

The list: Without further ado, here’s our updated list of the top apps you need for living in China — with the new additions in bold. We’ll post an updated version of the old article to the site this week, with more details about the apps.

1. App of the year: Health code
2. Communication: Wechat
3. Paying for stuff: Alipay / Wechat Pay (via Wechat)
4. Buying anything you could possibly want: Taobao / JD / Pinduoduo
5. Get around: Health code (via Wechat / Alipay)
6. Get food (meals, or groceries): Ele.me / Baidu Waimai / Meituan / Hema / JD Daojia
7. Watching TV videos: Douyin / Bilibili / Tencent Video / Iqiyi / Youku
8. Calling a car: DiDi / Amap
9. Renting a bike: Mobike / Ofo / Didi / Hellobike (via Alipay, Amap) / Meituan
10. Finding your way: Amap / Baidu Maps / Apple Maps
11. Finding new restaurants: Dazhong Dianping / Koubei
12. Finding a home: Ziroom / 58.com
13. Listening to music: Xiami / QQ Music / Netease Music
14. Dating: Tantan / Soul
15. Being understood: Pleco / Baidu Translate / Xunfei Translate / Deepl
16. Travelling: Ctrip / Qunar / Fliggy
17. Finding events: Huodongxing / Gewara / ShowStart / Maoyan / Taopiaopiao

App of the year: Health code

The app of the year is obvious, even though it’s not technically an app: China’s “health code” digital quarantine systems are the most essential software on your phone in China in 2020. For most users, they’re mini-apps embedded in Wechat and Alipay, and there are hundreds of versions created by different local governments.

There would have been no grand reopening without the health code system. Launched first in Hangzhou on Feb. 11, it’s become an essential part of daily life: if you want to travel, go to work, go to a market, or even enter your own housing compound, you’ve probably needed to show a code in the last few months.

At the top of the list, nothing’s changed. Wechat and Alipay are China’s mobile age infrastructure. If anything, they’re more essential than they were in 2017. Almost every QR code you see on a random Chinese street, from cashless payment badges, to health code passes, works only on the two mega apps.

• Wechat’s still the one app that rules them all, with its monthly active users growing from 900 million (2017) to 1.2 billion (2020 Q1).
• Despite Wechat’s overall success, there’s been no revolutionary updates in the last three years. Even mini programs, apps that run inside super apps instead of being downloaded from the app store have been around since January 2017.
• The entry barrier for a new messaging app is sky-high — Wechat challengers like Liantianbao (formerly Bullet Messenger), Bytedance’s Duoshan, and Matong MT didn’t last, either because of weak customer stickiness or failure to meet regulatory requirements.

The two biggest apps have mostly carved out their territory, and stuck to it. Alipay once tried competing with Wechat as a social network, but it dropped this plan in 2017 and focused on inclusive finance.

• Alipay claims 1.3 billion annual active users globally as of March 2020, including users from China, and nine international e-wallet partners from India, Thailand, South Korea, the Philippines, Bangladesh, Hong Kong, Malaysia, Indonesia, and Pakistan.
• In 2018, Alipay recorded 197.5 billion annual transactions, according to Alipay’s official statement (in Chinese).

No more “bucket meal”: When Wechat launched mini programs in 2017, it was seen as a game changer in the Chinese app scene. But predictions that they would replace download apps haven’t quite panned out. I have never uninstalled an app because there was a mini program substitute.

Nevertheless, the idea of the mini program did change the game in other ways.

In the 2010s, Baidu was notorious for a download-one-get-all app promotion strategy. Netizens complained that once you get one Baidu app on an Android phone, it would then secretly download and install all other Baidu apps without the user’s consent. Irate users named the bundle of related apps the “Baidu family bucket meal,” after a particularly large KFC combination meal.

From Baidu to the smallest companies, the “bucket meal” strategy was everywhere, and users were cautious when downloading apps onto their smartphones. 

As of 2020, the combo meal seems to be gone, because there’s no need to inject a series of apps secretly on the phone. They’re all there already, inside one another.

• The latest version of Alibaba’s Amap provides directions and integrates features like lifestyle services discovery (from Koubei and Dianping) and travel services (from Fliggy).
• Didi Chuxing provides car rental, car maintenance, gas station services, and a map service in addition to its core function of ride-hailing.
• Meituan users can call a cab, unlock a shared bike, order takeouts, buy a travel ticket, and even borrow money inside an app originally inspired by Groupon.

Short-video and live streaming are on the rise: These genres didn’t make the list in 2017. Besides Douyin, Kuaishou, and many other players, we see such feature pretty much in every popular social and e-commerce apps, from Wechat, Taobao, and Meituan, to vertical social network Baidu Tieba (a Reddit equivalent), Zhihu (the Chinese Quora), and Hupu (an online sports community). It’s getting prominent positions in these apps, too.

Iresearch, a China focused online marketing agency, predicts that by the end of 2020, China will have 524 million online live streaming users. The total scale of China’s live streaming e-commerce industry reached RMB 433.8 billion (about $62 billion) in 2019, and the figure is expected to double by the end of 2020.

The sold, and the collapsed: We removed four apps from the list.

Baidu Waimai disappears into Eleme: Launched in 2015, Baidu Waimai was one of the three takeout delivery giants in China. Unlike Ele.me and Meituan, which focused heavily on college students, Baidu Waimai started for white collar who prefer quality dining. But when the company doubled down on computing, artificial intelligence, and core technologies, it lost its taste for the highly competitive food delivery market. Sold to Ele.me in August 2017, it was rebranded as the smaller premium service Star.Ele in October 2018.

Ofo’s pride, and fall: Once a poster child of Chinese innovation in the mobile age, Ofo is now remembered as a joke, or maybe a scam. The best thing you can say about them in 2020 is that some of their bikes did not end up in the bicycle graveyard, but now benefit poor communities all over the world as free bicycles.

Anyone remember Mobike? Two other apps from the 2017 list, Mobike and Gewara, were once the biggest names in shared bikes and the movie ticket booking field. Both were acquired by Meituan group in 2018. Gewara, its name inspired by communist icon Che Guevara, saw its movie ticket business merged with Maoyan, a Meituan subsidiary, after its acquisition.

Failing to monetize itself, Mobike chose to go under Meituan’s umbrella. It remained an independent brand until one year and a half after the acquisition, when the yellow Meituan Bikes began to replace the orange Mobike on the streets.This shift marked the second wave of shared bikes in China, in which the new three kingdoms, Meituan (yellow), Alibaba (blue) and Didi (turquoise) share the market in harmony. People still need bikes, but the bike companies don’t want a price war any more. With subsidies cut, fares hiked, free rides are a thing of the past.

What’s going to change by 2023? Compared to the wild old days, things look stable in 2020. The top Chinese apps seem to have grown to the too-big-to-fail stage. But looking at Douyin’s rise, we know there’s always another new killer app. And let’s not forget that apps that didn’t exist when we wrote our last top apps piece, which became a huge phenomenon in 2019, and are now all but gone — like Luckin Coffee. If you look again in 2023, I’m sure you’ll be surprised by what’s new — and maybe by what no longer exists.

Earlier this week, Deepak Ghubade, a 33-year-old sugarcane farmer and Tiktok performer from western India, set up a Whatsapp group comprising 15 “star Tiktokers.”

Two weeks had passed since the Indian government banned 59 Chinese-made apps, and Ghubade’s group made up of “some singers, some dancers” got together to brainstorm over how to proceed. 

“The chatter is about which app to join,” he said over the phone from Maharashtra’s Beed district. “We have decided to wait another 15 days while each of us check out homegrown Indian apps that have come up. We decided that if we join another app, we should do so together” out of solidarity. 

When a government ban froze Tiktok on his phone, he had 75,000 followers. For Ghubade, Tiktok had simply been an avenue to show off his love for acting and dance, which he performed in his videos set to Indian film songs. The fame he acquired was a welcome consequence. 

In June 2019, Ghubade began posting videos of himself dancing and very quickly garnered 20,000 followers. But he was mocked by friends for his videos and deleted the app. “I really enjoyed it so I downloaded the app once more in September,” he said. 

In early 2020, with 45,000 followers,  he made a viral video on Tiktok which said: “I am dg_rocks and I invite you all to my field.” It became a mega Tiktok live event where thousands of Tiktokers from across his state of Maharashtra and elsewhere flocked to his farm. They showed up at 9 a.m., stayed till 5 p.m., and spent the day mingling, shooting videos, and posing for photographs. He had even organized food and refreshments. 

“In that video, I said: ‘There are no stars or fans, everyone please show up’ and people came from everywhere. Even housewives who never leave their homes showed up,” he said. “Tiktok offered a lot to people—some became famous, some found work through it, but after the ban all this has disappeared.” Ghubade said he even had an offer to act in a short film and documentaries but those plans are now on the back burner. 

Since the ban, Ghubade has downloaded seven or eight apps on his phone which offer a similar short video app experience. But even as a full-time farmer, Ghubade said, “Nowadays, I am very bored and spend hours on conference calls asking if there is any new app which we can try out. Even if a new ad pops up on Facebook, we are ready to try it out.” In an interview soon after the ban, Ghubade was confident there will be a homegrown Indian app that will give him the same experience as Tiktok. “So far, I haven’t found it!”

Tiktok has upwards of 200 million users in the country, and it had steadily become a part of daily Indian life. It provided its users a source of instant gratification, allowing viewers or performers a different virtual life. This isn’t to say that Tiktok India has been free of controversy. However, for influencers, making a video for Tiktok had become second nature, a void that multiple homegrown Indian apps are attempting to fill since the ban. 

Soon after news of the ban broke, content creators began sharing their Youtube and Instagram handles to divert followers’ attention to other platforms. But for many content creators, life without the app they used every single day is described as simply “empty” and “lonely.” 

In the weeks since the June 29 ban, homegrown Indian alternatives have seen a surge in their numbers. Roposo, a video-sharing social media platform which had 55 million users before the ban said that it raked in 75 million downloads in a week. With 500,000 new users an hour, the app expects to hit 100 million by the end of July. On July 4, it shot to the top spot on the Google Play Store across all categories, up from its ranking of 330 around two weeks earlier, according to Naveen Tewari, chief executive of InMobi which owns Roposo. He tweeted, “It’s been an amazing ride. Thank you India for all the love! We are working really hard to repay your trust in us.”

Servers hosting several other Indian apps were pushed to the brink as new sign-ups surged immediately after the ban. Another short-video platform, Chingari, has reaped more than 80 million downloads in the past few weeks and said it recorded 148 million video views on its platform in a single day. Box Engage, another short video app that markets itself as “discovering engaging videos Tiktok style” saw a surge in active users within a day of the ban. Instagram rolled out its short video platform Reels for Indian users on July 11, while several other players announced plans to launch their own equivalents.

Content creators continue to experiment across platforms as they figure out which platforms work best for their content and which mimic existing apps. A report in India-focused news platform Bloomberg Quint pointed out that Chingari’s interface is similar to social and content app Helo owned by Tiktok owner Bytedance in terms of icon arrangements and features. “When a Tiktoker comes to Chingari, we don’t want to make him learn a new user experience, learn the product again, we just want to give him the same experience he is used to,” Sumit Ghosh, co-founder of Chingari told Bloomberg Quint. “So user experience-wise, user onboarding-wise, creation-wise, they are going to do exactly what they are used to so it becomes very simple for them to migrate to our platform.”

Yet, it isn’t just users actively seeking out new apps. Platforms are also actively campaigning to woo users, said Gaurav Jain, a digital marketing executive in North India. His digital property “Indian Men’s Guide” hit 1 million followers on the day Tiktok was banned. 

“Immediately after the ban, several platforms and some through middlemen, started getting in touch with creators asking ‘Do you want to get onboard since you were popular on Tiktok?’” he said. “I got a formal email asking if I wanted to get on board one of these platforms. In fact the sudden influx on these apps meant servers crashed and you couldn’t access features, connect, or even sign up.”

Jain said his life “felt empty” after the ban on Tiktok but he has been closely studying which way the crowd has moved since. “After Tiktok, people got really confused and some went to Chingari, others to Roposo. My own followers possibly split up between these apps so I won’t be able to get the kind of traction on any one platform,” he said. “This will happen for every creator, the kind of popularity and the kind of engagement they used to get on Tiktok is now split up across seven to eight apps.” 

This market fragmentation may affect yet another dimension aside from the app-to-user relationship—the consideration of how to make platforms a space that brands will collaborate on.

“End of last year, someone from Tiktok India came down to our office and spoke to us about how brands can collaborate with Tiktok,” an advertising executive in Mumbai told TechNode. “The platform was recently reaching out to agencies and brands to look at ways to collaborate to make money on that front. This is definitely something that will be affected.” 

Jain too spoke of a “creator marketplace” that was slowly taking shape on Tiktok. “Before the lockdown, I was in negotiation with a startup in the hospitality sector. They wanted me to make relatable content to use it for advertising material on Tiktok,” he said. “This was a great way to put creators in touch with brands in a transparent way.” 

Sandeep Mertia, a doctoral candidate at NYU’s Media, Culture and Communication told TechNode that in his opinion there has not been a comparable precedent for this kind of app ban and large-scale user migration. “Apparently Roposo seems to be doing well for now, but it’s too early to say who will be the “winner.” If tomorrow [Indian telecommunications company] Jio launches a Tiktok-like app, nobody will be able to compete with their monopolistic power. The market is being actively re-made here instead of getting plugged into another app or platform,” he said. 

While Ghubade seemed very taken by Tiktok’s “superior” filters, several content creators also spoke of how Indian apps lacked user-friendly interfaces, something they said they loved about Tiktok. 

Scholars who study social media trends in India have been fascinated with the rise of Tiktok, a seemingly straightforward app that has appealed to millions of people without the need for text or prior experience to navigate the interface. 

“In hindsight what we have learnt from Tiktok is that language has been one of the key barriers in terms of expansion of the internet, for the longest time. Tiktok is one of the few apps able to break away from that,” Mertia said. “In India, language is a core concern. Just as much as simplicity of use. On Tiktok it comes down to clicking one button, shooting from your phone, and circulating it. Unlike Twitter, here there are waves that are more expansive than celebrity or influencer-centered circulation.” 

Mertia believes that if the ban on Tiktok was to be reversed, users would return. “There is something to be said about habitual use of social media and how digital habits are formed especially in nascent communities of usage where you cannot think of switching off allegiance and loyalty on how something looks and feels,” he said. Yet, in the absence of such a platform, homegrown apps will do well in the short-term, he said.

“There is… a highly publicized vacuum that is driven by national security under a ethno-nationalist regime which has specific stakes in how this should play out. Certain apps are positioning themselves as nationalist solutions,” he said. There is an organized campaign, he added, across social media platforms to garner support for these new apps. “Beyond the rip-offs to capture the 200 million Tiktok users, it would be interesting to see how others can envision something different or original for the ‘next billion users.’”

Correction: story was updated to reflect that it was Gaurav Jain’s digital marketing property “Indian Men’s Guide” which attracted 1 million users the day Tiktok was banned. An earlier version of the story incorrectly stated that it was a digital marketing agency.

Two US federal government agencies are investigating whether Tiktok, a Chinese short video app popular with American teens, breached a 2019 deal designed to protect children’s privacy.

Why it matters: The probe is Tiktok’s latest setback in overseas markets following a ban on the app in India last month and its retreat from Hong Kong this week.

Details: The US Federal Trade Commission (FTC) and Department of Justice are investigating whether Tiktok complied with an agreement it reached with the FTC in January 2019, Reuters reported Wednesday, citing David Monahan, a campaign manager with the Campaign for a Commercial-Free Childhood.

• Campaign for a Commercial-Free Childhood, the Center for Digital Democracy, and other advocacy groups in May complained to the FTC that Tiktok failed to live up to the agreement that it would remove videos and personal information about users under the age of 13, said the report.
• “I got the sense from our conversation that they are looking into the assertions that we raised in our complaint,” the report cited Monahan as saying.
• Tiktok told Reuters that the app takes “safety seriously for all our users” and that it in the US, they “accommodate users under 13 in a limited app experience that introduces additional safety and privacy protections designed specifically for a younger audience.”

Context: Pressure on Tiktok is mounting in the US after it was shut out of India, which used to be its biggest overseas market.

• In an interview on Fox News on Monday, the US Secretary of State Mike Pompeo seemed to agree with anchor Laura Ingraham’s suggestion that the US should ban Chinese social media apps, especially Tiktok.
• In October, two US senators requested American intelligence officials investigate Tiktok for potential national security threats.
• In May, a Dutch privacy regulator said it would investigate how short video app Tiktok handles data collected from minors on the platform.

Hong Kong users will not be able to access Tiktok after the short video app withdraws from the autonomous city in the coming days, a spokesperson of Tiktok parent company Bytedance told TechNode Tuesday.

Details: Reuters reported Tuesday that the app “will exit the Hong Kong market within days,” as a controversial national security law comes into effect in the autonomous city.

• “In light of recent events, we’ve decided to stop operations of the Tiktok app in Hong Kong,” a Tiktok spokesman told Reuters.
• Tiktok is also not accessible from within mainland China. Users in the country can only use Douyin, the version of Tiktok tailored for Chinese users.
• Bytedance is working on making Tiktok unavailable in Hong Kong, the company told TechNode. The company declined to reveal how that would be achieved or how it defined “Hong Kong users.”
• The company added that it does not plan to bring Douyin to Hong Kong. Douyin is currently available only in mainland China app stores, but a source cited by Reuters said Douyin has more users in Hong Kong than Tiktok.
• “Douyin has lots of users in Hong Kong and will continue to serve the users there,” Bytedance China CEO Zhang Nan told Reuters.

Context: Tiktok’s move came after China imposed a national security law on Hong Kong, which includes a provision mandating local authorities to take measures to regulate the city’s internet.

• Tiktok has previously said it would not hand over user data to the Chinese government or censor content at Beijing’s request. 
• US tech companies, including Google, Facebook, and Twitter, have suspended processing Hong Kong government requests for user data in the wake of the new law.

UPDATE: This story has been updated to include comment from Bytedance.

According to the Paper (in Chinese), a source close to Bytedance says that the Chinese media giant behind Tiktok expects to suffer $6 billion in losses over India’s ban on Chinese apps. Bytedance products Tiktok, Helo, and Vigo Video are all listed.

Why it matters: India is Bytedance’s most important oversea market, with more than 200 million Tiktok users, and a user base of nearly 60 million on other apps. Bytedance has invested heavily in the market.

• In April 2019, Bytedance announced a $1 billion, three-year investment plan in India.
• In July 2019, it announced plans for its first Indian data center in an effort to assuage Indian concerns over data protection.
• The company has 2,000 staff in India as of today.

READ MORE: India ban on Chinese apps explained: Who, how, what now?

Context: The ban is believed to be a response to a border clash with China that left 20 Indian soldiers dead.

• Bytedance has already decided to shut down short video app Vigo Video, announcing plans in June to close Vigo and move its users to Tiktok by the end of October.
• Unlike other Chinese tech companies, Bytedance has already been banned in India once, for a week in April 2019 after the Madras High Court heard accusations that Tiktok exposes children to pornography.
• One day after the Court’s order, Prime Minister Narendra Modi’s Bharatiya Janata Party also asked for a ban on Helo, alleging China’s interference in Indian elections. It was not granted.

After years of growing its presence in the Indian market, the Chinese tech industry ran into a brick wall in India Monday. Amid political tensions with Beijing, New Delhi banned 59 Chinese-made apps.

Who’s behind the ban, what are they saying, and what’s next? TechNode asked Chennai-based journalist Sowmiya Ashok to explain.

What Delhi says

India’s technology minister on Thursday termed the government’s surprise move a “digital strike.” The sudden ban on multiple apps including Bytedance’s Tiktok and Tencent’s Wechat comes two weeks after a violent border clash between India and China in eastern Ladakh that resulted in the deaths of 20 Indian soldiers.

The Indian government has declined to link the ban to border tensions. The press note that announced the ban late Monday did not mention China or make any reference to current events. 

However, on Thursday, IT Minister Ravi Shankar Prasad said at a virtual political rally for West Bengal: “We have banned 59 apps for the safety of the country and to safeguard people’s digital data… We won’t compromise on the issue of data security… We won’t compromise on the issue of national safety and security. India knows how to protect its borders and also knows how to carry out a digital strike.”

Earlier in the week, Indian officials scrubbed clean Prime Minister Narendra Modi’s official Weibo page, wiping out upwards of 100 posts from the past five years.

Who made the decision?

India’s Ministry of Electronics & Information Technology ordered the ban based on a recommendation made by the Ministry of Home Affairs, India’s ministry of the interior. The IT Ministry’s press release noted that the Home Ministry’s Indian Cyber Crime Coordination Centre sent an “exhaustive recommendation for blocking these malicious apps.” 

The Computer Emergency Response Team (CERT-IN), which deals with cybersecurity threats like hacking and phishing, had also received many representations from citizens regarding “security of data and breach of privacy impacting upon public order issues”.

What are the grounds for blocking?

The apps have been banned by the government for engaging in activities “prejudicial to sovereignty and integrity of India, defence of India, security of state and public order.” The IT ministry’s release cited a number of different reasons for the ban including concerns about misuse of data and transmitting information to servers outside of India.

“The Ministry of Information Technology has received many complaints from various sources including several reports about misuse of some mobile apps available on Android and iOS platforms for stealing and surreptitiously transmitting users’ data in an unauthorised manner to servers which have locations outside India,” the release said.

The government said the move will safeguard crores of Indian mobile and internet users. “This decision is a targeted move to ensure safety and sovereignty of Indian cyberspace,” the release said.

How does a ban happen?

The IT Ministry invoked Section 69A of the Information Technology Act read along with a set of detailed blocking rules which gives the government powers to block access to a website or a mobile app. The government invoked emergency powers under the blocking rules, making the decision effective immediately. 

Within a 48-hour period, the order has to be placed before a committee comprising senior bureaucrats from the Ministry of Law and Justice, Ministry of Home Affairs, and others. Based on the committee’s recommendations, the order is either sustained or revoked. If sustained, which is the case here, companies are sent orders to comply with the blocking orders.

A senior official at the IT Ministry said that orders had been sent to various tech companies to comply with the ban. The law requires the government to send each app a formal blocking order. “This blocking order must be reasoned, and specific to each app–that is to say, a general press release cannot substitute such a specific order,” said Nehaa Chaudhari, Policy Director at New Delhi-based Ikigai Law. “The apps have the option to challenge this order in court. For it to withstand judicial scrutiny, each app’s order will need to specifically demonstrate how the operation of the app in question undermines the sovereignty and security of India or any other ground for which the app has been blocked.”

What have the companies been told?

After Monday’s press release, a legal order has not been made publicly available and individual orders to the respective platforms will likely remain confidential. It is unclear whether all of the companies have directly received blocking orders from the government. A New-Delhi based tech lawyer said most companies had received some form of intimation—a takedown order—asking them to make their apps non-functional. The companies were also told that the government will provide an opportunity for them to be heard.

A senior official from the IT Ministry said following the orders, Google and Apple have been asked to delist these 59 apps from their online stores. While the Telecom Ministry has written to internet service providers to sever connections to these apps, the official said companies have also been directly asked to make these apps non-functional.

How has Tiktok India reacted?

Amongst the first to comply was Tiktok, with more than 200 million monthly active users in India. The app blanked out on phones as early as Tuesday afternoon. “Tiktok continues to comply with all data privacy and security requirements under Indian law and have not shared any information of our users in India with any foreign government, including the Chinese Government. Further, if we are requested to in the future, we could not do so. We place the highest importance on user privacy and integrity,” Tiktok India head Nikhil Gandhi said in a note on Twitter.

What is still unclear?

Tech companies remain confused over the criteria for selecting  the 59 apps. While downloaded versions of some apps are still available and working, others have already been blocked. From a technical perspective it is still not clear how the Indian government is going to enforce these bans.

Tech lawyers point out that in principle the ban should be temporary until replaced by a set of  regulations that spell out what steps the app can take to reach compliance. Santosh Pai, a partner at Indian law firm Link Legal that advises several Chinese companies, said the duration of ban is unknown. “From a legal perspective when you ban something on national security grounds, you will expect some kind of detailed regulation to take its place going forward,” he said. “The question is, what are the safeguards and technical standards that the Indian government will like to see being implemented so that the apps can continue functioning?”

What options do affected companies have to challenge the ban?

While media reports have indicated that data security and privacy of Indians is a concern, Chaudhari pointed out that “these are not grounds on which apps/websites can be blocked in India. The nexus of privacy with sovereignty and security of India will need to be established.” Further, apps could also consider challenging the proportionality of the government’s action. “Simply put, the argument will be that this was not the least restrictive way in which the government could have acted.”

“Users of these apps, like influencers, could also explore constitutional challenges, arguing that this ban has hurt their freedom of speech, and livelihood. The difficulty here is that the individual orders to the respective platforms will likely remain confidential, so users might have to first move courts to see these orders,” Chaudhari said. 

While privacy and security of Chinese technology have been sources of concern for the Indian government, it was the recent border tensions that triggered Monday’s app ban. After reports of the deaths of 20 soldiers, right-wing activists called for the boycott of Chinese goods. Videos of people breaking Chinese televisions and even burning effigies went viral. All of this happened on the heels of Prime Minister Narendra Modi promise for an “Atmanirbhar Bharat,” or “self-reliant India” as the economic response to the Covid-19 pandemic. 

The last two motivations have little to do with cybersecurity concerns, which is perhaps why the ban comes with unintended consequences: It punishes Indian consumers and deprives Indian entrepreneurs of much-needed capital. 

READ MORE: India moves to block access to banned Chinese apps

On the question of cybersecurity, India, like countries around the world, has raised concerns over backdoors, stealthy data collection, and surveillance by Chinese companies, that in their eyes are linked to the Chinese government. The Indian government could have consulted with various companies about possible security breaches, instead of an outright ban.

What was banned?

Weak alternatives 

While the message to Chinese companies is clear, it is Indian consumers who will have to bear the consequences. Chinese apps command over 60% of total downloads of the top ten non-gaming apps, up from approximately 24% in 2015.

The ban robs Indians of consumer choice, in the short term. The banned apps include many of the most popular in India today. Apps like Tik-Tok, Likee Shareit, UC Browser and Helo have penetrated rural India. They boasted of millions of users posting in multitudes of languages and dialects. The government banned the most popular Chinese apps.

Meanwhile, Silicon Valley’s Facebook, Twitter and Instagram remain the stronghold only of the urban elite. 

Knockoff alternatives like Chingari, Roposo, and Mitron in the video content space hit millions of downloads in the last week alone. Despite their popularity, all of these home-grown apps currently remain glitchy and riddled with bugs. They rely on a long-term ban of Chinese apps to be successful, and don’t have a future if the ban is lifted.

Biting the hand that feeds

India runs a consistent trade deficit with China: its neighbor accounted for 14% of Indian imports and barely 5% of Indian exports in the financial year 2019-2020. 

At the same time, China is a critical source of support for India’s fledgling tech firms. Chinese companies have shown their interest in becoming significant players in the long-term.

In the last five years, they have invested $4 billion into Indian startups, out of $46.5 billion of total investments, data from Mumbai-based think tank Gateway House and India’s National Association of Software and Service Companies suggests. This means that Chinese companies accounted for about 11.6% of the total funding to Indian technology startups in the last five years. Gateway House also noted that 18 of India’s 30 unicorns had a Chinese investors. 

These local tech startups that look to China for funding could bear much of the cost of the government’s desire to signal a strong stance, if Chinese investors choose to pull out of India. 

Misguided protectionsim

The apps’ ban sends a strong signal about how open India’s markets are: not very. India’s comparative advantage—its demographics and services sector – is often undermined by unreasonable state intervention. To set up a company in India, you need 21 clearances from the central government, at least eight from the state government, industry-specific licenses, and monthly bureaucratic checks—which often involve greasing palms. 

The government has also enacted well-intentioned but economically disruptive laws to protect employees. At the beginning of June 2020, the government ruled that private companies must pay all employees in full even if their business were closed, and they could not deduct days off from the employees’s paychecks either. Economists have argued this would lead to massive lay-offs at the end of the pandemic since employers will need to balance the costs during Covid-19.

Modi’s government has shown little restraint when it comes to market intervention. This begs the question: if the Indian government can ban 59 apps overnight, then what stops it from banning others under the guise of national security?

India’s ease of doing business has crawled towards reform since 2014. This ban is yet another deterrent to investors—one that India cannot afford considering the precarious state of its economy. 

Cutting off contact

Another cause of worry is the ban of Wechat. Tencent’s super-app has minimal presence among Indians. To them, it is yet another messaging app. Its primary user base remains Indian students, academics, professionals, and traders, who are in touch with China. 

But to some overseas Indians, it is an everyday staple. In December 2019, approximately 56,000 Indians were residing in mainland China. Wechat’s domination of the Chinese market makes it near-impossible for them to live in the country without it.

By banning Wechat, the Indian government is reducing the window of contact that Indians and Chinese have to communicate with each other. Those who have returned to India, or others that have made connections in China through their diaspora friends, will lose access to their networks in China. This will sever one of the most important touch points between China and India.

This is particularly significant for academia. Unlike other countries which have burgeoning departments of Chinese Studies, such programs are restricted to a handful of Indian universities. By further limiting scholarship, India is preventing its own knowledge production of China, and the lack of informed opinions on China will only hurt policymakers and citizens.

The price of ‘war’ 

Even if the objective is to send a political signal to the Chinese government, negative externalities accruing to Indian citizens are glaring. The Indian government is rightfully worried about the border tensions with China and searching for areas where it can assert itself. But beating China at a game of “digital sovereignty” only harms Indians’ digital freedoms and economy during a global depression. 

The top telecommunications regulator in India has asked telecom operators and internet service providers to block local user access to the 59 Chinese apps banned on Monday, local newspaper Telangana Today reported Wednesday.

Why it matters: The move means users who have downloaded the banned apps before may be barred from using them. Affected apps include Bytedance’s popular short video app Tiktok and Tencent’s instant messaging app Wechat, as well as mobile games Mobile Legends Bang Bang and Clash of Kings.

Details: India’s Department of Telecommunications has asked all internet service providers (ISPs) and telecommunication companies to comply with the order immediately and submit compliance reports, according to Telangana Today, citing anonymous sources.

• Some major Indian ISPs, including Airtel, Reliance Jio, ACT Fibernet, and Hathway, have seemingly stopped providing Tiktok access to their users since Tuesday, according to India Today.
• Some users of Reliance Jio and Airtel, two of India’s biggest telecom operators, said on social media that they were unable to access to Tiktok on their networks, said the India Today report.
• All 59 Chinese apps were deemed threats to national security and were pulled from the country’s Google’s Play Store and Apple’s App Store on Tuesday, according to DNA India, a local news site.
• Tiktok seems to have blocked Indian user access to its service before it is banned by ISPs. Users in India trying to access Tiktok’s website are redirected to a webpage that states that the app is “ in the process of complying with the Government of India’s directive,” according to TechNode’s sources in India.
• The app said it is “also working with the government to better understand the issue and explore a course of action.”
• “Ensuring the privacy and security of all our users in India remains our utmost priority,” said the notice signed by the “Tiktok India Team.”
• Sources in India also said they could use Wechat but they couldn’t load the Club Factory app without virtual private networks (VPNs) as of Wednesday.

Data security probe: Representatives from the 59 banned Chinese apps can appear before a government panel within 48 hours of the announcement to prove that they do not transfer Indian user data to servers in China, according to the Indian newspaper Economic Times, citing government officials.

• The panel, which is likely to meet on Wednesday, consists of officials from India’s home affairs, electronics, information, and law ministries, along with internet security experts, according to the report.
• The committee will conduct a detailed inquiry into the data-sharing practices of these apps. Executives of Tiktok, livestreaming platform Bigo Live, and video-sharing app Likee told the Economic Times that they will cooperate with the government in the probe and they had begun the process.

Read more: Tiktok pulled from India stores in ban on 59 Chinese apps

Context: The Monday ban on 59 Chinese apps came two weeks after a border clash with China left 20 Indian soldiers dead.

• Companies affected by the ban, including Tiktok parent Bytedance and e-commerce site Club Factory, have said they were willing to comply with the Indian government’s privacy standards.
• Tiktok said in a statement Tuesday that it “continues to comply with all data privacy and security requirements under Indian law” and that it had never shared any information of its Indian users with any foreign government, including the Chinese government.

Bytedance’s mega app Tiktok has been removed from Android and Apple app stores in India, its second-largest market, following a Monday ban on 59 Chinese apps on national security concerns. The ban comes two weeks after a border clash with China left 20 Indian soldiers dead. 

Among those blacklisted are popular Chinese apps like Tiktok, Wechat, Baidu Maps, Baidu Translate, Sina Corp’s microblogging platform Weibo, as well as mobile games Mobile Legends Bang Bang and Clash of Kings. Other banned apps popular in India include Chinese-owned e-commerce platforms Shein and Club Factory, Bytedance’s social media app Helo, and Alibaba’s UC Browser. 

A door slammed shut: Losing access to India’s market is a blow for Chinese companies like Bytedance, which aim to ride India’s rapid growth in mobile internet penetration.

• India’s mobile app market is still developing, and rapidly. Smartphone users in India are projected to double to 1.25 billion by 2024 from 610 million in 2018, according to India-based think tank Gateway House. Between 2016 and 2018, the number of app downloads increased by 165%.
• Some companies have made big bets on the Indian market: Alibaba’s fintech arm Ant Financial has invested close to $2.7 billion in seven companies, while Tencent has spread $2 billion across 15 firms.
• A big loser from this decision will be Bytedance, the owner of Tiktok. According to Sensor Tower, 30% of Tiktok’s more than 2 billion global downloads come from India.

The companies react: Bytedance told TechNode that its team of 2,000 employees in India “is committed to working with the government to demonstrate our dedication to user security and our commitment to the country overall.”

• Club Factory, which has more than 100 million monthly active users in the country, told TechNode that it was compliant with privacy practices and had “provided direct employment to hundreds of people in India.”
• “We have always been willing and continue to remain committed to working with the Government to resolve any concerns,” the company added.
• Spokespersons from Tencent, Xiaomi, and Baidu declined to comment. Alibaba had not responded to requests for comment as of publication.

Collateral damage: Many analysts see this decision as a direct reaction to the border clash, bolstered by other factors like protectionism.

• “I would say that it’s more of a nationalist response,” said Hamsini Hariharan, host of the States of Anarchy podcast, which focuses on global affairs and Indian foreign policy.
• She continued, “I think the government wanted to just send a message that they weren’t taking the border lying down, and they figured the Chinese apps were a good way to do it.”
• Deep K. Datta-Ray, visiting senior fellow at the Singapore-based S. Rajaratnam School of International Studies, concurred that the ban was “in the first instance a tit-for-tat response to Chinese actions along the border.”

Protecting our own: However, Datta-Ray added that “these actions are in keeping with a generally isolationist and nativist approach” on India’s part, as seen in moves such as its withdrawal from the mega free trade agreement known as the Regional Comprehensive Economic Partnership in late 2019.

Nationalist tide: The app ban follows a China-India border clash in the Himalayas that left 20 Indian soldiers dead, the first time in nearly 50 years that Indian soldiers had been killed on the border.

• That clash stoked anti-China sentiment in India, with a former Indian ambassador to China calling it a “turning point,” although not a “breaking point,” in Sino-Indian relations.
• In May, an app called “Remove China Apps” rose to the top of India’s Android store amid growing China-India tensions. That app was itself removed from the Google Play store on June 3.
• On June 17, national intelligence agencies in India asked the government to block 52 mobile apps by Chinese developers, informing the current ban.
• People in India “have already been talking about boycotting goods from China,” Hariharan told TechNode, and so “this current ban of the apps is just part of that nationalist wave.”

Swing state, swung: In the context of US-China tech tensions, some analysts have interpreted this ban as a loss for China.

• For China, India “was almost a tech ‘swing state,’” Rush Doshi, director of the China Strategy Initiative at the Brookings Institution, said on Twitter. “But with bans on these apps and new restrictions on Huawei, that strategy is seriously imperiled.”
• In April 2020, Chicago-based think tank Macro Polo compared the top 10 apps from different countries in 2015 and 2019, and concluded that “Chinese apps have taken the lead in by far the largest emerging market: India.”
• In 2015, three of the top 10 apps in India were from China. By 2019, that had risen to six: Tiktok, video-based social media platform Likee, Bytedance’s Helo, file sharing app Shareit, and Alibaba’s UC Browser and video sharing app Vmate.
• Though some of those names may not be familiar, they totaled 982 million downloads combined during the year.
• However, India has swung back and forth on China, and this may not be the closing act. In April 2019, Tiktok was banned in India for two weeks for allegedly spreading pornography, but made a swift comeback upon its return to the app store.

Firewall goes up: It isn’t entirely clear how the ban will be implemented. Some apps have already been taken down from app stores, but actively restricting their use would require additional steps.

• Tiktok appears to have been removed from the Apple and Google stores in India, TechNode sources in India have confirmed.
• However, that won’t stop people who have already downloaded the apps from continuing to use them. Some reports say to expect restrictions from internet service providers that will require virtual private networks (VPNs) to get around. 
• The Indian Express states that this notice “is expected to be followed by instructions to Internet service providers to block these apps,” but it’s unclear when that will be implemented. 
• As of now, TechNode sources in India are able to use apps like Wechat and Cam Scanner without a VPN, and can still access e-commerce websites like Shein from desktop browsers.
• According to Datta-Ray, “India has chosen a low-denomination item, apps, and a masked response… because China is by far, in a stronger position.” At the end of the day, that means despite an intensification “in name,” “business might very well continue as usual.”

Chinese short video app Zynn on Monday halted its practice of paying users to watch videos and invite friends to use the app, just days after it was removed from both Google’s Play store and the Apple App Store.

Why it matters: Zynn, developed by Chinese tech company Kuaishou, is part of the company’s efforts to challenge Bytedance’s Tiktok in overseas markets. However, Zynn has experienced a series of setbacks after launching in May.

• The pay-to-watch approach quickly sent Zynn to the top of download charts in the US earlier this month. New users earned $1 for signing up and more for watching videos. They also could earn up to $20 for every five friends who downloaded the app and watched, according to the Financial Times.
• Kuaishou, with 300 million daily active users (DAU), is China’s second-largest short video app behind Douyin, the domestic version of Tiktok, which has 400 million DAU.

Details: Zynn has replaced the payment feature with a new rewards system called Zynncheers, which gives users points, instead of cash, for signing up and watching videos, according to The Verge.

• Zynn says users will get “benefits and rewards” for collecting those points, but it didn’t offer details. 
• The changes came days after the app was taken down by both the Google Play Store and Apple’s App Store.

Context: Launched in May, Zynn became the most downloaded app on the US App Store in the first week of June, according to app data provider Sensor Tower. The app notched more than 2 million installs worldwide in May.

• Google removed the app from its Play Store last week after finding one video was “plagiarized,” the company told the Financial Times.
• Before that, a number of social media influencers complained to Wired that they found videos they had originally uploaded to Instagram, Youtube, and Tiktok were reposted to Zynn without their consent.

Bytedance is taking down its video-sharing app Vigo in India, the Tiktok owner said Monday, the second overseas app the company has closed in a month.

Why it matters: With Vigo’s closure just a few days after the company announced that it is phasing out news aggregator Topbuzz, Bytedance is actively narrowing its product line overseas to focus on hugely successful short video app Tiktok.

• Vigo is a video-sharing app that allows users to create lip-syncing clips and interact with other video makers. The app had around 5.5 million monthly active users in India, their biggest market, as of May, according to Techcrunch.
• Meanwhile, Tiktok, the company’s flagship video app, has around 200 million monthly active users in India.

Details: Vigo has already ceased operations in Brazil and the Middle East and will shut down in India by October 31, according to a company statement on Monday.

• A Bytedance spokesperson said the app will eventually stop operations in all countries.
• Current users of Vigo can export their content to Tiktok, which the company said will provide “a seamless experience.” Users can also choose to download their personal data or delete their accounts permanently, said the statement.
• The company said it is shutting down Vigo in order to “focus energy and resources on other businesses.”
• The app was still available on Google’s Play Store and Apple’s App Store as of Monday.

Context: Vigo was rebranded from Flipagram, a US video-sharing app Bytedance acquired in early 2017.

• Bytedance rolled out a China version of Vigo, called Huoshan, shortly after acquiring Flipagram. It remains one of the most popular video apps in China.
• Bytedance is known for a shotgun approach to product development. It’s comfortable with experiments, and unsentimental about trimming underperforming apps.
• On June 5, Bytedance said it is halting updates to news aggregator app Topbuzz and will gradually stop operations of the app.

READ MORE: INSIGHTS | Bytedance gaming play doesn’t threaten Tencent—yet

Tiktok owner Bytedance has halted updates for Topbuzz, its news aggregator app for overseas markets, the company confirmed on Friday.

Why it matters: Topbuzz is part of Bytedance’s attempt to replicate the success of Jinri Toutiao, the company’s popular news aggregator for Chinese users. However, the app, which amasses news stories from publications such as British newspaper the Daily Mail and American news website The Daily Beast, has seen a lukewarm reception from overseas users.

• The app was downloaded around 20,000 times globally in April, according to app intelligence firm Sensor Tower. By comparison, Jinri Toutiao notched 800,000 downloads worldwide in May.
• Bytedance is known as an “app factory,” meaning that it maintains a wide range of product lines, from video-sharing apps to mobile games and productivity tools. While products that prove to be popular get more resources from the company, underperforming apps are quickly deserted.
• The move follows a reshuffle in March of Bytedance’s leadership team with company founder and CEO Zhang Yiming shifting to take charge of the company’s overseas business.

Details: Topbuzz has been taken down from Apple’s App Store and Google’s Play store as of Thursday afternoon. A company spokesperson said the company is no longer providing new versions of the app and will gradually reduce article updates to existing users.

• “We are proud of the work that we accomplished with Topbuzz, but have determined that other areas of the business should be our priority going forward,” the company said in a statement sent to TechNode.

Context: In September, The Information reported that Bytedance was in talks with potential buyers for the news aggregator including US-based media companies.

• Launched in 2015, Topbuzz has 36 million monthly active users (MAU) worldwide, according to its website. The app says its content comes from more than 200,000 publishers and creators around the world.
• Media partners listed on its website include the Associated Press, Vice, and Huffpost. Users can also submit articles to the platform.

Tiktok apologized Thursday to users after many accused the popular short video app of censoring certain hashtags related to the current protests that were upload by black creators.

Why it matters: Tiktok, owned by Beijing-based startup Bytedance, faces increasing scrutiny in the US over alleged content censorship. It was previously reported that the app censors specific topics that were deemed politically sensitive to the Chinese government.

• Tiktok has recently stepped up efforts in an attempt to address concerns over its content moderation policies and its tie with Beijing. The company hired a former Disney executive as its CEO last month and planned to set up a content moderation transparency center in its US office.

Details: Tiktok users accused the platform last week of censoring hashtags #BlackLivesMatter and #GeorgeFloyd amid nationwide protests in the US against the death of George Floyd, a 46-year-old black man who was killed during a police arrest on May 25.

• Before the platform made adjustments, Tiktok users found the search results of the two hashtags showed they had “zero views.” 
• In a company statement signed by its US General Manager Vanessa Pappas and Director of Creator Community Kudzi Chikumbu, Tiktok attributed the alleged censorship of #BlackLivesMatter and #GeorgeFloyd to “a technical glitch.”
• The company said users can still see videos with the two hashtags and that videos with the #BlackLivesMatter hashtag had generated more than 2 billion views on the platform.
• “We understand that many assumed this bug to be an intentional act to suppress the experiences and invalidate the emotions felt by the Black community. And we know we have work to do to regain and repair that trust,” said the statement.
• Tiktok said it would increase investment in its technology and moderation strategy and establish a creator diversity council to amplify diverse voices. The company would donate $3 million to non-profits that help the black community, said the statement, though it didn’t name any specific organizations.

Cotext: Before this, many Tiktok users launched a campaign by changing their profile pictures to a black power symbol after accusations that the app censored content uploaded by black creators, according to CNN.

• In December, the app was accused of censoring content by creators it deemed to be “vulnerable to cyberbullying.” Users that were considered vulnerable included those with facial disfigurements, autism, and Down syndrome, as well as LGBT and overweight individuals.

Liu Zhen, senior vice president of Bytedance, has resigned, the Tiktok owner confirmed to TechNode on Friday. Liu’s departure comes amid reports that the Chinese internet giant is shifting its center of power away from its home country to focus on global expansion.

Why it matters: A series of organizational changes are taking place in Bytedance as the company moves the decision-making and engineering capabilities of its international businesses out of China, according to a Reuters report published Friday. 

• The changes sparked concerns from some Bytedance staff that they may become irrelevant in the company’s next phase of expansion and some have started to look for other jobs, Reuters cited three anonymous sources as saying.
• Bytedance’s organizational changes come as some of its overseas products, especially the popular video-sharing app Tiktok, are facing increasing scrutiny in the west over their Chinese ownership.

READ MORE: Kevin Mayer might be exactly what Bytedance needs right now

Details: Liu resigned from the company because of “personal reasons,” Bytedance said Friday.

• Liu was in charge of Bytedance’s overseas investment, public relations, and legal affairs, according to Chinese media reports.
  • Liu, who used to handle Uber’s China strategy, joined Bytedance in October 2016.
  • She later moved to focus on Bytedance’s overseas businesses.
• Bytedance has hired Michelle Huang, a former investor at Softbank’s Vision Fund, as its New York-based investor relations director to communicate with major backers such as General Atlantic and KKR.
  • The relationships were previously managed through Beijing, two sources told Reuters.
• The company has expanded Tiktok’s research and development team in Mountain View, California to more than 150 engineers, a source confirmed to TechNode.
• Bytedance declined to comment on the reported organizational changes and overseas engineering team expansions.

Context: TikTok has been under increasing scrutiny in the United States over its Chinese ownership. The company has recently stepped up efforts to comfort US regulators by improving its operation transparency and hiring executives locally, including naming former Disney streaming head Kevin Mayer as TikTok’s CEO last week.

• However, Bytedance is aiming at moving its entire operations of overseas businesses away from China.
• LA-based Mayer was simultaneously appointed as Bytedance’s chief operating officer.

Tiktok has got a new chief—and he’s American. On Tuesday, Disney and Bytedance announced, in synchronized press releases, that Kevin Mayer, the man behind Disney+ and baby Yoda, was leaving Disney and joining Bytedance as CEO of Tiktok and global COO of Bytedance (which is much more than Tiktok). He is set to start on June 1 as Tiktok CEO and Bytedance’s global COO and will be based in LA.

Many are skeptical about the new hire. Tiktok is under a lot of pressure to prove it doesn’t answer to Beijing, thus making the move perhaps more about optics than operations. And Chinese companies don’t have a great track record with Western transplants. From Alibaba to Maotai, from Xiaomi to Baidu, there seems to be a serious mismatch between expectation and reality that forces high-profile hires to reconsider their decision. 

But Bytedance is not like other Chinese tech majors: Tiktok is China tech’s first true global hit in consumer-facing software. Neither Alibaba, Tencent, nor Baidu has anything like it. The only Chinese brands that have done well in the West are hardware-focused companies like Huawei and Xiaomi. An America CEO could be the right kind of localization that China’s most international tech major needs.

Bottom line: The jury’s out on how long Kevin Mayer will last and how much impact he will have, but given his track record and ambition, the move is significant. Mayer may be exactly what the company needs to fuel its next stage of growth. 
 
I used to be quite bearish on Bytedance, but after learning more about them, my opinion has changed significantly. They are one of the only true tech companies in China. Alibaba and Tencent translated an offline business model into the online space. Bytedance, on the other hand, has built its entire company on the back of a robust and extensible recommendation AI system. The company is almost indistinguishable, in its culture, products, and technology, from its Silicon Valley counterparts. Like those counterparts, it has proven that scalable technology can bring great success in new markets even if you don’t understand those markets very well.

A gaping hole: If politics weren’t an issue, it wouldn’t matter at all that it’s based in China and not the Valley.  Butpolitics do matter. When it comes to China, they matter even more. What Bytedance has in product development, they have lacked in global compliance, communication, and transparency and could derail its explosive growth.
 
After Bytedance lost a lot of momentum (and users!) in India last year, I wrote:

Unlike other Chinese companies that have enjoyed success abroad, such as smartphone makers, Bytedance creates products that have the potential—if not managed well—to create considerable social harm. . . Given the mounting pressure on Chinese companies as they seek new markets abroad, Bytedance cannot afford to trip over their own feet as they continue their meteoric growth.

Since then, they’ve come under increasing scrutiny for their content moderation policies, including discrimination against the disabled and the ugly, as well as what they do with the data of international users.
 
Michael Norris, a regular contributor to TechNode, wrote in an open letter to Tiktok in December:

Jingoistic politicians  aren’t your fault, but you’ll have to go all-out to add substance to your claims that TikTok’s management, operations, apps, markets, users, content, teams, and policies are separated from Chinese government interference. 

That’ll be made difficult by your connections to the Chinese Communist Party. These connections spur Bytedance to censor  sensitive videos, collaborate with party-related organizations, promote videos praising China’s armed forces, and de-tag videos which contain particular political figures.

Short detour: It’s not a Chinese company? According to a New York Times report, Tiktok claims it isn’t Chinese:

A TikTok spokesman on Monday stressed that TikTok was not owned by a Beijing-based company. Instead, its parent company, ByteDance Ltd., is incorporated in the Cayman Islands, though he could not say how many people are based there. That entity owns TikTok and all of the businesses in China, he said.

If you buy that Tiktok is from the Caribbean, perhaps I can interest you in some tickets to the next Fyre Festival?

Filling the gaps: Kevin Mayer isn’t Tiktok’s first international senior hire. Since 2018, they’ve regularly brought in non-Chinese executives to beef up compliance, communication, and product:

• Nov 2018: Mike Rodriguez, former Community Specialist at Youtube, joins Tiktok as head Content Strategy and Programming.
• Feb 2019: Tiktok hires Vanessa Pappas, former Youtube Global Head of Creative Insights
• April 2019: Digiday reports that Tiktok had poached up to 14 people from Snap.
• Oct 2019: Nikhil Gandhi joins Tiktok as its India head.
• Dec 2019: Richard Waterworth, former head of EMEA marketing at Youtube,  becomes GM for Tiktok in UK and EU.
• Jan 2020: Tiktok announces it has hired Microsoft IP chief, Erich Andersen, as general counsel.
• Mar 12 2020: The company announces the opening of a content moderation transparency center in the US.
• Mar 19 2020: Tiktok says it has formed an external content moderation advisory board made up of mostly American experts.
• As of May 22, most/all of these hires are still at Tiktok. 

An American in Bytedance: Chinese companies aren’t known for their ability to assimilate Western executives. But given Bytedance’s global hiring history, and how well it has retained American hires, I would not be surprised if Mayer, and Bytedance, prove to be a very visible exception to the historical pattern.

With his background in acquisitions, [Mayer] could build this into a colossus internationally, if internal company politics and resentment toward a foreign boss doesn’t get in the way.

Jim McGregor, Chairman, Greater China, APCO Worldwide

Who is Kevin Mayer? Mayer is most known for his efforts to build Disney’s streaming service. Judging by his CV, he is capable and ambitious:

• 1993: He joins Disney’s Interactive/Internet and television businesses, working on strategy and business development.
• Feb 2000: Kevin Mayer takes over as CEO of Playboy.com Inc.
• Sep 2000: He takes over as chairman and chief executive officer of the Clear Channel Internet Group.
• Feb 2002: Mayer joins L.E.K. Consulting LLC as a partner and head of the global media and entertainment practice.
• 2005: He is appointed as executive vice president of Disney’s new Corporate Strategy, Business Development and Technology Group. In this role, he was involved in the purchases of Pixar, Marvel, Lucasfilm, and 21st Century Fox.
• 2019: He is rumored in Bloomberg as possible next CEO of Disney
• Feb 25 2020: Mayer loses the fight to become CEO of Disney to Bob Chapek.
• May 19 2020: Bytedance announces that Mayer will join on June 1.

What he brings to the table:

• He’s not Asian: When talking with regulators or testifying to Congress, Tiktok will no longer have a face, literally, that reminds everyone of its origins.
• And handsome: He might be pushing 60, but he’s still got that all-American, just-stepped-off-the-football-field-look. Just sayin’.

Both points above seem superficial, but in the time of the “China virus,” it would be foolish for Bytedance to not take this into consideration.

• His experience with content: Given his experience with buying and selling content powerhouses, many are expecting him to go on an acquisition spree.
• His experience managing a global operation: Right now, everyone at Bytedance still reports to Beijing. Now, as head of Tiktok and COO of Bytedance’s global operations, all country GM’s will report to LA instead.

Short video decoupling? Douyin, under Zhang Nan, and Tiktok, under Alex Zhu, were already following different development trajectories. While Douyin carries its share of political content, Tiktok has done its best to be the exact opposite of Twitter and Reddit: a place where people can forget about the political debates of the day and relax with cute pet videos or maybe even pick up a new skill.
 
However, that’s just the frontend. The backend, the most valuable IP the company owns, is all created and maintained in China. Almost all of Tiktok’s engineers and product managers are still in Beijing and that doesn’t seem likely to change in the near future. But, having a clear delineation between Beijing and the rest of the world, or at least the appearance of one, could help Bytedance get out of the mire it’s found itself in.

Go further:

• TikTok took India by storm. Now it’s using the same playbook in the U.S.
• Inside The Hunt For TikTok’s New CEO—And What’s Next For The World’s Hottest App
• ‘A heavy hitter’: How Kevin Mayer gives TikTok an aggressive leader to break into the big leagues

Tiktok owner Bytedance is quietly developing an auto infotainment system that will allow users to navigate content on Douyin and news aggregator Jinri Toutiao, becoming the latest tech giant vying to enter the car connectivity market.

Why it matters: Bytedance’s move is expected to further enhance Douyin’s leadership as China’s most popular short video app in the competition for user time spent, but its potential to increase distracted driving risks could compel closer scrutiny.

Details: Bytedance is looking for employees in engineering design and business development to grow its car connectivity system team, Chinese media reported Monday citing people close to the matter.

• A Bytedance spokeswoman told TechNode on Wednesday that it currently has a small team “exploring technical solutions” for its content services available to users in vehicles.
• The number of job offerings for product design and business development will be fewer than 10, the report said citing a person close to the company.
• The Beijing-based company transferred around 20 employees to research and development from the team working on Smartisan, a smartphone project acquired by Bytedance early last year.
• The Chinese internet giant has reportedly been in talks with large local automakers including BMW manufacturing partner Great Wall Motors, Volvo owner Geely, and Dongfeng-backed infotainment solution provider Pateo.
• A latecomer in China’s auto technology boom, Bytedance began investing last year in electric vehicle maker Li Auto, widely known as Lixiang.

Context: Chinese tech companies are pushing aggressively into car connectivity amid a rising demand from users for in-vehicle entertainment and real-time communication, as demands from driving ease with improved driver-assistance capabilities.

• Banma, Alibaba’s car startup in partnership with China’s top automaker SAIC, last week announced that it completed restructuring with the appointment of a new joint chief executive Zhang Chunhui, formerly the head of Cainiao ET lab at Alibaba.
• State-owned BAIC and China’s biggest electric vehicle maker BYD forged an alliance with Huawei. Both automakers said separately earlier this month that they have been in the final debugging stage for launching the telecommunication giant’s car connectivity system HiCar in their latest models.
• Japanese automaker Honda on Monday said it has partnered with Tencent to enable a package of Tencent’s communication and content services, featuring a voice-operated version of WeChat available to drivers and passengers.

Tiktok announced Tuesday it has hired Kevin Mayer, formerly The Walt Disney Company’s top streaming executive, as the chief executive officer of the popular short video app.

Why it matters: The company is intensifying its efforts to address concerns around its Chinese ownership. Tiktok’s Chinese parent, Beijing-based Bytedance, has stepped up efforts to separate the app from its Chinese operations by hiring executives in the US, including cybersecurity veteran Roland Cloutier, the chief information security officer who began in April, and former Youtube executive Vanessa Pappas, who began running its US operations last year.

• Mayer was also given a high-level position at Bytedance, indicating that the Chinese headquarters retains tight control over the app.

Details: Bytedance appointed Mayer as its chief operating officer and Tiktok’s chief executive officer, the company said in a statement Monday.

• Mayer will report to Bytedance founder and CEO Zhang Yiming and will lead the company’s global expansion. He will also be responsible for Bytedance’s corporate development, sales, marketing, public affairs, security, content moderation, and legal, the company said.
• Mayer resigned from Disney on Monday and his new roles at Bytedance will begin June 1.
• Alex Zhu, the founder of Tiktok’s predecessor Musical.ly and current president of the app, will become Bytedance’s vice president of product and strategy, according to the statement.

“Kevin’s wealth of experience building successful global businesses makes him an outstanding fit for our mission of inspiring creativity for users globally. As one of the world’s most accomplished entertainment executives, Kevin is incredibly well placed to take Bytedance’s portfolio of products to the next level.”

— Zhang Yiming, Bytedance founder and CEO

Context: Mayer served as the chairman of Disney’s Direct-to-Consumer & International subsidiary that includes several streaming businesses. He led the global launch in November of its Disney+ streaming service, which amassed more than 50 million subscribers in five months.

• Bytedance, one of the world’s most valuable startups with a market cap estimated at around $100 billion, is vigorously expanding its presence in markets outside of China. Zhang, the company founder, took over overseas operations in March.
• Tiktok has faced increasing scrutiny in the US over its Chinese ties. Several US lawmakers have questioned whether the app, which has reached 172 million downloads in the country according to research firm Sensor Tower, poses potential national security risks.
• Tiktok said March it would set up a content moderation transparency center in its US office to address concerns over its security and privacy.

Tencent reported Wednesday better-than-expected revenue for the first quarter thanks to a surge in gaming incomes.

Why it matters: The Covid-19 outbreak gave a boost to the company’s gaming revenue as people turned to online entertainment while stuck at home.

By the numbers: The company booked RMB 108 billion (around $15.2 billion) in total revenue in the quarter ended March 31, an increase of 26% compared with the same period of time last year, the company said Wednesday.

• Revenue from Tencent’s gaming business rose 31% to RMB 37.3 billion in the quarter, which the company attributed to a surge of daily active users (DAUs) of its flagship games PlayerUnknown’s Battlegrounds Mobile (branded as Peace Elite in China) and Honor of Kings during China’s stay-at-home period in February and March.
• The company’s ad revenue grew 32% year on year in the March quarter to reach RMB 17.7 billion despite a broader slowdown in China’s ad market.
• The company said its revenue from media ads fell 10% from a year ago due to “weak macro-economic conditions and suspension of sports events.”
• Tencent’s fintech and business services segment, which includes products such as Wechat Pay, consumer loan services, and cloud computing, grew to RMB 26.5 billion in the quarter, up 22% from the same quarter a year ago, but decreased 12% from the previous quarter.
• Monthly active users of Wechat, Tencent’s popular instant messaging app, reach 1.2 billion as of the end of March, up 8.2% from a year ago.

Headwinds: However, Tencent has also warned the upsurge could be temporary.

“We expect in-game consumption activities to largely normalize as people return to work, and we see some headwinds for the online advertising industry.”

Context: Shares of Hong Kong-listed Tencent have climbed by 14.4% since the beginning of this year, compared to a 15% decline in the Hong Kong exchange’s Hang Seng index.

• The company is also facing fierce competition from rising star Bytedance. The TikTok-owner is continuing to take ad revenue share from Tencent and has recently made a foray into Tencent’s home turf, the mobile gaming market.

A Dutch privacy regulator said Friday it would investigate how short video app Tiktok handles the data of teenagers and children on the platform, Reuters is reporting.

Why it matters:The popular social media app, owned by Beijing-based Bytedance, is under increasing scrutiny in overseas markets, including the United States and the European Union, over its data protection practices.

• The EU has the world’s toughest rules on protecting people’s online privacy known as the General Data Protection Regulation (GDPR).

Details:The Dutch Data Protection Authority (DPA) announced Friday that it would examine whether Tiktok clearly states how it uses data and whether “parental consent is required for Tiktok to collect, store and use children’s personal data.”

• GDPR requires companies to obtain consent from users’ parents if they are under 16 years of age. The regulation also bans any collection of data from children under the age of 13.
• “For many users this is an important way of staying in touch with friends and spending time together, particularly during the current coronavirus crisis,” the DPA said in a statement. “The rise of Tiktok has led to growing concerns about privacy.”
• Tiktok said it was cooperating with Dutch authorities.
• “TikTok’s top priority is protecting our users’ privacy and safety, especially our younger users,” the company told Reuters.
• The DPA said the initial results of the probe are expected later this year.

Context: In March, Tiktok announced a “transparency center” in its US office to address concerns over the security and privacy of its product.

• The company also hired cybersecurity veteran Roland Cloutier as its chief information security officer. Cloutier was the chief security officer at payroll-services firm ADP, according to his Linkedin profile.
• Tiktok has seen massive growth and has become particularly popular among teens. The app, together with its Chinese version Douyin, was downloaded more than 738 million times in 2019, making it the second most-downloaded app in the world.

Chinese tech firms such as Huawei and Bytedance have developed their global presence through aggressive R&D and physical presence in the European Union (EU). Huawei, for instance, filed the highest number of patents in 2017 out of any company in the EU and booked billions in contributions to the EU economy the same year. 

Read more: Europe’s 5G challenge and why there is no easy way out

Europe’s approach to digital governance in privacy and data policy is setting a precedent for regulatory regimes around the world. Data and content regulations, most famously the General Data Privacy Regulation (GDPR), target any companies with customers in Europe. These have wide-ranging implications for foreign companies that do business in the EU. The overarching goal of the GDPR is to protect users’ privacy and return the control of personal data to users. The laws also promulgate the principle of privacy by design, in which transparency and a standard of privacy are non-negotiable pillars of service design and delivery.

For instance, companies need to obtain consent from customers on how their data will be used. Customers also need to be informed of any algorithm that makes use of their data (i.e. ad targeting), as well as business decisions resulting from the analysis of their data. Accordingly, the GDPR places a significant burden on IT and regulatory organizations in artificial intelligence to financial services sectors in the EU.

Compared to similar Chinese cybersecurity laws (in Chinese), the GDPR presents a new governance approach to data sovereignty for Chinese tech companies. GDPR seeks to regulate and safeguard personal privacy, which is a fundamental right under the EU Charter of Fundamental Rights. While China’s cybersecurity laws also cover data protection and network security of personal data, Chinese laws allow the state to access private data for national security purposes. As a result, Chinese companies have to adhere to both sets of regulations as the two different, though not completely competing, governance regimes continue to evolve. 

In addition to GDPR, EU governments have also raised concerns over cybersecurity risk of Chinese tech operations. A high profile example of this is Huawei, a leading ICT producer of 5G networks. Huawei has opened offices across the EU, hired more than 13,000 direct staff, and aggressively recruited research talents. In 2018 alone, the company has invested 2.8 billion euros (about $3 billion) in European operations, and has publicly affirmed its commitment to data sovereignty and local regulations. However, Huawei’s expansionary efforts in Europe have not translated into the adoption of its 5G network. For instance, pressure from the US and security concerns from the country’s intelligence community have resulted in stalled 5G agreement in Germany, which has originally leaned toward a comprehensive trade and commercial agreement (including 5G) with China.

Underscoring the bloc’s security concerns, the European Union has also issued a strict guideline governing “high-risk” suppliers in the opening of its 5G networks. The guideline indicates a protectionist regulatory approach with recommendations such as blocking high risk suppliers from critical parts of the network. It is clear that companies from different digital governance regimes needed to adopt a highly localized regulatory approach to participate in the EU market. 

Because of current geopolitical headwinds, Chinese firms have responded to recent regulatory roadblocks by investing in EU specific compliance and operations. TikTok, for instance, has vowed publicly that the company abides by EU regulations in Europe, and has not shared or removed contents from their platform due to oversight from regulators. The company also plans to grow its EU team up to 1,000 people to develop content policies specific to the EU market. Video content for the EU will also be managed by the local content team, thus creating a separate operation structure to counter any privacy concerns.

As Chinese tech firms continue to develop in a politically charged environment, they will continue to invest in local regulatory infrastructure to satisfy the unique EU digital governance regime. In effect, compliance know-how and infrastructure have emerged as key competitive advantages for firms operating on the continent. More established firms with the ability to invest in long term regulatory relationships in the EU and outlast medium term policy uncertainty will have an outsized advantage over rivals.

TikTok owner Bytedance has quietly launched in overseas markets the video-editing app hugely popular in its home territory under the moniker, Viamaker.

Why it matters: The Chinese version of Viamaker, or Jianying, has been among the top 10 most-downloaded free apps on Apple’s App Store in China for more than 90 days, according to data from app store intelligence firm Sensor Tower.

• The app notched 5 million downloads in March, according to Sensor Tower.
• The app’s popularity may give a boost to Bytedance’s other video-streaming offerings, short video apps including the Chinese version of TikTok, known as Douyin, and Xigua, another popular offering. 

Details: Bytedance initially launched Viamaker on April 24, according to the app’s page on Google’s Play store, which showed that its downloads exceeded 100,000 as of Wednesday afternoon.

• The overseas version of the app is now available for four languages, including English, Japanese, Korean, and Portuguese, according to its website.
• The Chinese version was launched around a year ago. Users can log in to the app using their Douyin account and post their video clips to Douyin from the app. Users can also share their videos on the app with other users.
• Viamaker’s video-editing interface is the same as Jianying’s, but it lacks a user account system and the video-sharing function.

Context: The app was developed by Shenzhen Lianmeng Technology, a startup Bytedance acquired in 2018 for $300 million.

• Shenzhen Lianmeng Technology was first famous for its beauty selfie camera app Faceu, which topped the China App Store’s free app chart at the beginning of 2016 and 2017, according to app store tracker Qimai (in Chinese).
• Bytedance has recently announced a major leadership reshuffle with company founder and CEO Zhang Yiming shifting to take charge of the company’s overseas business.

Does Tencent have a monopoly on China’s instant messaging market? You might think so. It has nearly 1.2 billion monthly active users, the same company owns QQ, with more than 800 million users. It’s hardly possible to live in Chinese cities without using WeChat to make contact, pay bills, and recently, pass health checkpoints.

But a recent attempt to prove that Tencent is a monopoly in a Chinese court collapsed in January, according to court files made public on April 17.

The failed attempt indicates how limited China’s current antitrust law has been applied to internet firms. The lack of antitrust enforcement in the digital world has also given internet giants the implicit nod to abuse their market power to crack down against competitors, said experts.

A Tencent suit

Zhang Zhengxin, a lawyer at Beijing-based Yingke Law Firm, sued Tencent a year ago for banning WeChat users from accessing links to Taobao, an online marketplace owned by e-commerce giant Alibaba.

Attempts to access Taobao links on WeChat will yield a warning page that asks users to copy “relative links”—links that users tend to visit—to their browsers, even though WeChat provides an in-app browser that allows users to access the web.

The Beijing Intellectual Property Court held a hearing on the suit in December, in which the two sides fell into a standoff around whether WeChat is a market monopoly.

Zhang accused Tencent of “effectively turning down his transaction request” because of WeChat’s Taobao ban and cited China’s Anti-monopoly Law, which bans such behavior. However, the clause only applies to a company when it “enjoys a dominant market position.”

The 2008 law has outlined how to define a company as having such a dominant market position. However, the law came into effect before the internet became a big thing in China and, so far, there were no internet companies in the country that have been identified as a market monopoly.

A recently proposed revision to the antitrust law could give law enforcement agencies and market regulators a better legal basis to take action. The experts we talked to, however, doubt whether regulators really want to rein in the country’s booming internet industry. 

Is Tencent a monopoly?

Zhang, representing himself, filed the lawsuit against Tencent last April over WeChat’s blockage of links to Taobao and Bytedance’s short video app Douyin, known as TikTok in overseas markets, citing the country’s Anti-monopoly Law. He claimed in an indictment to the court that by blocking those links, Tencent is “effectively turning down his transaction request” and that such behavior is banned by the Anti-monopoly Law.

One of the focuses of the hearing in court is whether Tencent is a monopoly in the so-called “instant messaging (IM) service market,” according to court files recently made public.

Zhang claimed that Tencent’s WeChat holds a dominant position in China’s IM market since its market share by user base and usage is far more than 50%. As a matter of fact, the share could be much bigger. According to a report (in Chinese) by Qianzhan Industry Research Institute, nearly 93% of Chinese mobile IM users have installed WeChat in 2018.

Tencent, however, argued that it doesn’t hold a dominant position in the IM market because there is no such market due to the dynamic characteristics of the internet.

The company claimed that the relative market in which a company is deemed to be a monopoly should be inferred from users’ specific demands. Zhang’s demand was to share links of Taobao to other users, so any products that could fulfill such a function should be included in the “relative market,” the company said during the December hearing.

A Tencent representative declined to comment on the case when contacted by TechNode.

A relative definition

China’s current Anti-monopoly Law said companies with more than 50% share of the “relative market” can be presumed to be dominant players. It also requires law enforcement agencies to consider factors of their abilities to control the supply chain and the market access threshold of competitors. 

While in cyberspace, the definition of a “relative market” can be vague—Tencent’s argument is proof of how nebulous they can get. Legal experts have long criticized (in Chinese) the law because it was designed to regulate companies in traditional industries: it hardly took the internet, a more and more important sector to the country’s economy, into consideration.

In January, China’s State Administration for Market Regulation (SAMR), the country’s top antitrust regulator, announced a draft revision of the Anti-monopoly Law, which expanded the definition of what forms a dominant position.

When delimiting whether internet companies enjoy dominant market positions, law enforcement agencies should also take factors such as network effect as well as their scale and ability to deal with data into consideration, said the proposed amendment.

Nevertheless, some have questioned whether the proposed overhaul would really change China’s antitrust enforcement.

Still might not be enough

China’s current legal framework is enough for antitrust authorities to take action against internet companies, but the authorities are just being very cautious because they may be afraid of getting it wrong in what are mostly very dynamic and fast-moving markets, said Adrian Emch, a partner at law firm Hogan Lovells in Beijing.

If China’s market regulators were to decide to carry out more aggressive enforcement against internet companies, then it could be undertaken within the existing legal framework, Emch wrote in a paper published in December.

As a matter of fact, before it proposed revisions to the antitrust law, the SAMR already tried to curb internet companies over potential antitrust violations.

The agency launched in January 2019 what is known as China’s first “internet antitrust investigation” into Tencent Music Entertainment’s dealings with the world’s three largest record labels after rivals complained that Tencent paid excessive fees for the initial rights and then passed those costs along to competitors.

Observers were cheered (in Chinese) that the investigation would open a new era where internet companies also fall into the rule of China’s antitrust law.

However, the SAMR decided to suspend the probe in January, according to Bloomberg. The regulator didn’t disclose how far the investigation went and why it was terminated, but it came after Tencent Music reached a music licensing deal with Bytedance in late 2019.

“If you look at the market, there are many large and competitive internet players in China, so the antitrust authorities may ask themselves how much intervention, if any, is really necessary,” Emch told TechNode in an interview.

“Antitrust enforcement doesn’t take place in a vacuum, but is done against a specific legal and factual background. In China the background is different from, say, Europe where most of the main players in the internet industry are US companies.  In China, the largest internet players are domestic players and the local regulatory and policy framework is different from Europe.”

Zhang said the overhaul of the Anti-monopoly Law is a “cheering step” made by regulators.

“I believe [the revision] will give market regulators a greater legal basis to launch antitrust probes into internet companies and curb their ‘unfair competition’ including blocking links of competitors,” he said.

His challenge to Tencent, however, didn’t see the proposed revision becomes effective.

Case not closed

He applied to the Beijing Intellectual Property Court in January to withdraw the case, according to a court file released on April 17 on a website (in Chinese) maintained by the country’s Supreme People’s Court. 

He told TechNode after the court file was released that he dropped the case because he “felt there was a lack of evidence.”

While Zhang refused to give more details on the lawsuit, he told TechNode in an interview on April 9 that China’s current antitrust legal framework has done little to reach its power to the internet sector.

It looks like internet firms are immune to China’s antitrust law, he said.

Bytedance introduced on Tuesday a light version of its enterprise messaging app Feishu, just two months after releasing its video conferencing app Feishu Meeting.

Why it matters: The TikTok owner is doubling down on enterprise-facing services as remote work apps gain traction globally due to the Covid-19 pandemic.

• The company began building a whole line of enterprise collaboration apps beginning with Feishu, known as Lark in overseas markets, as it ramps up its offerings for the workplace from instant messages and cloud storage to video conferencing.
• The Beijing-based company reportedly plans to launch a Google G Suite clone soon, to focus on cloud-based file management and document editing.
• Chinese tech peers Alibaba and Tencent are leading the country’s workplace app market now with Dingtalk and WeChat Work.

Details: Feishu Jisuban, or Feishu Lite (our translation), is a lightweight version of the original app, offering a simplified user experience by focusing on key features.

• The new app comes with features from the original Feishu app, including messaging, calendar, file sharing, and video conferencing.
• Administrative features, like applications for recruitment, procurement, and reimbursement, are absent in the light version.
• Users are unable log in to Feishu and Feishu Lite at the same time.

Context: Feishu was developed as an internal tool before Bytedance began marketing the platform as a business in 2019. The international version was launched in April 2019 as Lark.

• Market leaders Alibaba and Tencent are also building a more comprehensive lineup of workplace apps over the past few months.
• Alibaba introduced Zoom clone Alibaba Cloud Conference last week, shortly after the launch of its Dingtalk Lite in early April. Tencent rolled out an international version of Tencent Meeting, a Zoom rival the company introduced in December 2019.
• Tencent’s WeChat began blocking links to Feishu inside the app. Users have to manually copy and paste Feishu links into browsers to access them.

Bytedance has revamped a 15-year-old online encyclopedia site under its own brand, expanding the functionalities of its new search engine as it pushes further into the search market.

Why it matters: Bytedance’s launch of its own answer to Baidu’s online encyclopedia, Baidu Baike, escalates the rivalry between the rising star and the established search engine giant.

• Baidu Baike and Hudong Baike, or Baike.com, are the two most popular online encyclopedia services in China. Baidu’s offering attracts around 130 million page views per day, and the smaller Baike.com notches around 8.6 million daily page views, according to domain analytics website Alexa.cn.

Details: Bytedance has rebranded Baike.com into a site named Toutiao Baike, the online encyclopedia arm of Toutiao Search, the search engine it rolled out in August.

• Toutiao Baike shows on Baike.com’s mobile version, but the desktop version remains the Hudong Baike interface.
• Toutiao Search is a mobile search engine that used to serve as the in-app search function of Bytedance’s news aggregator Jinri Toutiao.

Context: Founded in 2005, Hudong Baike is a for-profit online encyclopedia that focuses on Chinese content.

• The company was listed on China’s National Equities Exchange and Quotations OTC market in February 2016 but soon had to pause transactions in March 2017 due to low quality and even fake entries. The company eventually decided to delist in August 2018.
• The company submitted a complaint to China’s State Administration for Industry and Commerce against Baidu in 2011, accusing it of manipulating search results and hiding entries on Baike.com.
• Bytedance owns 22.2% of Baike.com after an RMB 8.1 million (around $1.1 million) investment into the company in August. The company launched Toutiao Search in the same month.
• All non-Chinese versions of Wikipedia have been blocked in China since April 2019, and the Chinese language edition has been blocked since 2016.

TikTok owner Bytedance has started a new round of hiring, looking to add around 10,000 employees to its global ranks, according to a Bloomberg report on Wednesday.

Why it matters: The Beijing-based internet giant is moving towards a target of creating 40,000 new jobs this year to reach a goal of 100,000 employees globally. Once it achieves that goal, the startup’s headcount will be on par with e-commerce behemoth Alibaba’s, and exceed WeChat owner Tencent’s by around 58%.

• The job openings also provide a picture of the secretive app factory’s plans for growth. For example, it is hiring more than 400 people to fill positions related to games after building a gaming division numbering more than 1,000 employees as of late January.

Details: Bytedance has launched a recruiting campaign and asked employees to provide candidate referrals for 10,000 open positions, according to Bloomberg, citing information from an internal website.

• Around one-third of the open positions are high-level research or software coding jobs, according to the report.
• Some 7,662 open positions are listed on Bytedance’s publicly accessible career website as of Wednesday, according to TechNode’s observations. While most of the openings are located in Chinese cities such as Beijing and Shanghai, the rest are scattered between Bytedance’s major offices overseas including Singapore, London, and New York.
• Of the 10,000 vacancies, 9,900 are located in China, according to Bloomberg.

Context: Bytedance’s global headcount has exceeded 60,000 and the number is expected to reach 100,000 by the end of the year, Zhang Yiming, company founder and CEO, said in an internal letter in March.

• The company said in July that its apps, including short video app TikTok and domestic version Douyin, as well as news aggregator Jinri Toutiao, had 1.5 billion monthly active users globally as of end-June.
• Bytedance’s new massive hiring program comes as global tech companies, including hotel chain Oyo and co-working space WeWork, are cutting staff or freezing hiring as a result of the global Covid-19 outbreak. 
• Meanwhile, Tencent has some 5,531 job openings on its career website and Alibaba has around 7,700 as of Wednesday.

TikTok announced on Thursday that they are committed to playing its role in the mutual support and giving efforts and provide concrete relief to those most affected by this crisis.

Among the efforts TikTok will be supporting with cash contributions are:

• TikTok Health Heroes Relief Fund: Health care workers are the heroes of this global battle and deserving heroes within the TikTok community. TikTok is providing $150M in funds toward medical staffing, supplies, and hardship relief for health care workers.

• TikTok Community Relief Fund:  To provide critical relief to these communities, TikTok will allot $40M in cash to local organizations that serve groups representative of TikTok’s diverse user communities, including musicians, artists, nurses, educators, and families that have come together on our platform. TikTok will be further matching $10M in donations from their community to support the community. Through this fund, they are supporting programs like After-School All-Stars, where they have already donated $3M to provide food for families who rely upon school lunch programs affected by school closures across the US, and $2M to MusiCares to support artists, songwriters, and music professionals whose livelihoods have been severely impacted as a result of canceled performance and gig work.

• TikTok Creative Learning Fund:  TikTok will be providing $50M in grants to educators, professional experts, and non-profits whose real-world skills and expertise can help spread educational information and useful course material in an accessible, distance-learning format.

Besides the funds above, TikTok is also supporting communities through initiatives that include: 

• Helping SMBs restart and rebuild:  TikTok is committed to helping SMBs weather this crisis, and they will be providing $100M in ad credits to help companies get back on their feet once economies are able to restart normal activity. The program will begin rolling out to markets in the coming months, depending upon the decisions of public health authorities around the world regarding when and how to restart business operations.  

• Contributing to public education efforts:  To facilitate education, TikTok is providing $25M in prominent in-feed ad space for NGOs, trusted health sources, and local authorities, enabling them to share important messages with millions of people and meaningfully engage the TikTok community. They’ve also hosted educational live streams from representatives of the WHO, IFRC, and popular voices for public health and science, like Bill Nye the Science Guy. In addition, they’ve created a range of in-app resources, educational live streams, educational hashtags challenges, and more which can be found on the COVID-19 Resources Page on our Safety Center.

Editor’s note: This is part of our ongoing Tech for Good series, highlighting how Chinese tech companies are helping fight the impact of the coronavirus. To learn more, please visit TikTok’s website.

Douyin, the Chinese version of TikTok, is suspending users who speak Cantonese on its livestreaming platform, according to a Guangzhou-based livestreamer. The company attributes the suspensions to issues with their content safety mechanisms.

Why it matters: This shows the measures Bytedance has to take to comply with China’s strict online content regulations.

• China’s internet watchdogs accused Bytedance in 2018 of hosting “vulgar” content on its popular news aggregator Jinri Toutiao and the company has since stepped up efforts to moderate content on its platforms.

Details: Bing Cong, a liverstreamer based in Guangzhou, told TechNode on Thursday that his livestreams on Douyin have received three 10-minute suspensions over the past three weeks. Along with references to livestreaming rules, the app also prompted him to speak Mandarin “as much as possible,” Bing added.

• Douyin cited the app’s “livestreamers’ conduct code” as a reason for the punishments on March 18 and March 25, according to screenshots provided by Bing.
• The code bans bare skin, smoking, and violent content. It doesn’t include rules on the use of dialects or languages other than Mandarin, according to TechNode’s review.
• Bing’s livestream was suspended for 10 minutes again on Wednesday. The app’s reason for that suspension was “using language that cannot be recognized.”

• In a statement to TechNode on Thursday, Bytedance said Douyin is “building out content safety capabilities” and that Cantonese is currently not “fully supported.” 
• A Bytedance spokesperson did not explain what the company’s “content safety capabilities” are and why they don’t yet support Cantonese.
• The Cantonese ban on Douyin’s livestreaming platform was first reported by Guangzhou-based news site Yangcheng Net on Monday. A Twitter thread about the Cantonese ban on Douyin posted on Wednesday has been retweeted more than 1,000 times on the social media site as of Thursday.

• Bing operates a Douyin account with more than 120,000 followers that promotes Cantonese culture. “Dialects are part of the Chinese culture and there is no law banning the use of dialects,” he told TechNode.
• “Content moderation is the platform’s job, they can’t just deal with [dialect streaming] in a one-size-fits-all way,” Bing said.
• He said many other Cantonese speaking bloggers he knows are also having the same problem when livestreaming on Douyin.

Context: Cantonese is a Chinese dialect spoken by more than 60 million people around the world, including in financial hub Hong Kong. However, the Chinese government is pushing the nation to speak the country’s only official language, Mandarin. Bytedance is facing increasing attention for its content moderation policies as well.

• The authorities’ attempts to restrain the use of Cantonese have sparked wide resistance in Guangdong province, where it originates. In 2010 there was a 1,000-person protest against a proposal to force a local television network to abandon Cantonese.
• Bytedance has engaged in a protracted battle for its image overseas for Douyin’s overseas version TikTok, facing scrutiny outside China for its content moderation practices. US lawmakers are accusing the popular short video app of censoring content to please the Chinese government and say that it poses a threat to national security.
• It was reported in December TikTok has curbed the number of times short videos featuring disabled, overweight, or LGBT individuals—those deemed “highly vulnerable to cyberbullying”—could be viewed.
• The Intercept reported last month TikTok has instructed moderators to suppress content created by users deemed “too ugly, poor, or disabled” for the platform, citing internal documents. The company also told content moderators to censor content that harmed “national honor” or about “state organs such as police.”
• The Guardian reported in September that TikTok instructed its moderators to censor videos that are deemed politically sensitive by Beijing, citing leaked documents detailing the platform’s guidelines. The company said in November that the guidelines were retired in May.

TikTok owner Bytedance could now be worth up to $100 billion based on recent prices for the Chinese company’s shares on secondary markets, according to the Financial Times.

Why it matters: The new price tag for the Beijing-based tech startup is around one-third higher than its latest known valuation of $75 billion from 2018.

Details: Investors have given Bytedance an implied valuation of between $90 billion to $100 billion after the company’s shares were sold recently on secondary markets, the Financial Times reported Monday, citing several people familiar with the transactions.

• The investors include New York-based investment firm Tiger Global which has purchased shares of Bytedance over the past 21 months “at a low multiple of future free cash flow,” said the report, citing a letter to investors.
• Bytedance was valued at $75 billion in 2018 when investors including Softbank and General Atlantic injected around $3 billion into the company, according to Bloomberg.
• The Financial Times report said Tiger Global started to buy Bytedance shares when the company was at about half that value and has added to the position through purchases in secondary markets.
• Bytedance declined to comment on the transactions. The company has not confirmed this nor previous valuations.
• Tiger Global said in the letter that it estimated Bytedance would grab 19% of China’s online advertising market this year and that the company captured about 4% of the market in 2017. Total digital ad spending in China is expected to reach $81 billion this year, according to market research firm eMarketer.

Context: The Financial Times reported in October that Bytedance was eyeing an initial public offering in Hong Kong in the first quarter of this year. The company denied the report at the time and said it had no immediate plans to go public.

• Tiger Global’s investment portfolio in China includes online service platform Meituan-Dianping, e-commerce behemoth Alibaba, and ride-hailing platform Didi Chuxing.

A few years ago, Chinese app developer Cheetah Mobile was a solid, medium-sized software company with a global user base. Backed by investments from Tencent and Bytedance, its utility apps for Android—including Clean Master, a browser, and a popular keyboard—were some of the most downloaded apps ever on Google’s Play Store.

Today, it’s a wounded gazelle, battling for survival. The company has been cut off from major mobile ad platforms, including Facebook. The company’s apps were removed from Google’s store in February as part of a purge of apps identified as malicious by Google, Android’s parent company, company executives said on a Tuesday earnings call. 

Cheetah reported on Tuesday that its fourth-quarter revenue fell 55.7% year on year to RMB 612 million (about $86 million), and warned that the worst was yet to come. 

The company booked a net loss of RMB 821.2 million in the fourth quarter, compared with net income of RMB 733.3 million in the same period a year ago.

The NYSE-listed company has seen its share price drop 43% since the start of the year, and its market cap has shrunk by nearly 94% from a historical high of $4.8 billion in May 2015.

What went wrong? The truth is that Cheetah has faced serious questions about data collection and ad practices for years, but until recently privacy and security questions haven’t been a serious threat to companies like Cheetah. Changing political contexts have sharply reduced the tolerance of US partners like Facebook and Google for small companies with mixed reputations.

Asian apps purged

In February, all of Cheetah Mobile’s apps and mobile games were removed from the Google Play store. Though Q4 results do not include the impact from the removals, company CFO Thomas Ren warned that the removals were “a bigger threat to the company than the coronavirus outbreak” during the earnings call.

Google said its reason for removing Cheetah Mobile apps, along with hundreds of apps from other developers, was that they displayed “disruptive ads” some of which were full-screen ads that covered the interface of their host apps.

Per Bjorke, Google’s senior product manager for ad traffic quality, told BuzzFeed News in a February interview that the apps removed were “mainly from developers based in China, Hong Kong, Singapore, and India.”

Cheetah said it generated around 22.6% of its total revenue from Google in the first nine months of 2019 and that the removal would “adversely affect” its ability to attract new users and generate revenue from Google platforms. 

Habitual fraud

The end of its relationships with US tech companies comes as they’re under increasing pressure to reassure their users about security. Cheetah, whose at least sloppy and allegedly fraudulent advertising and data collection practices have been criticized at length by Buzzfeed, faces a context in which such allegations are hard to ignore.  

Data security is increasingly critical to Chinese tech companies that target users in the US. Beijing-based Bytedance’s popular short video app TikTok is struggling to assuage US lawmakers’ growing scrutiny over its content moderation policies and data security practices. Huawei, meanwhile, has been banned from importing components from American companies as a result of the Trump administration’s concerns that the company may hand over US telecom user data to the Chinese government.

Company founder and CEO Fu Sheng said during the call on Tuesday evening that its sinking revenue was due to a dropoff in online advertising income from its utility apps, which accounted for 80.4% of its total revenue in the quarter. Utility app ad revenue, Fu said, fell on an annual basis as a result of a suspension of its collaboration with Facebook on mobile ads in December 2018, but he didn’t provide further details.

The suspension of Cheetah Mobile’s “collaboration” with Facebook followed a November 2018 Buzzfeed News report, which said that seven apps developed by Cheetah Mobile available on the Google Play store have been “exploiting user permissions as part of an ad fraud scheme that could have stolen millions of dollars,” citing research from app analytics company Kochava.

The company said in a statement to TechNode Thursday that “the issue was caused by third-party advertising software development kits (SDKs),” and that it was not the company’s apps that performed fraudulent activities.

Cheetah’s offerings include a wide range of utility tools from file management applications to antivirus software for mobile devices. Its flagship utility tools are Clean Master and Security Master, which together have been downloaded more than 4.1 billion times globally, according to the company’s website. Unable to distribute them on Google’s Play store, the company has started to provide the .apk install files of some products for Android users on its website. 

Gabi Cirlig, a researcher at cybersecurity company White Ops, told Forbes earlier this month that four apps made by Cheetah Mobile, including Clean Master and Security Master, had been “collecting all manner of private user data, including users’ browsing history, search engine queries, and Wi-Fi access point names” and sending them to a web server based in China.

White Ops said it informed Google about the suspicious data transmissions in December, according to the report. It’s unclear whether the accusation by White Ops was the reason Cheetah’s apps were removed. Google did not respond to TechNode’s request for comment on Tuesday.

Cheetah Mobile said in a statement to TechNode that the company “need to obtain some level of data permissions” in order to “provide corresponding app services and continually improve user experience.”

“For example, the Wi-Fi hotspot which is mentioned in the article is used to detect security risks associated with Wi-Fi networks. Data in relation to ‘web browsing’ is used to protect our users from security risks or to provide a better user experience,” said the company.

Shifting blame

But however bad Cheetah’s practices were, it took years for US tech majors to object to them. The company has been a major Android player since 10 years ago. Google’s ban more than a year after accusations against the company were first published by Buzzfeed.

LatePost cited an anonymous industrial insider as saying that the reason was that Google is cracking down on developers with a bad reputation, not targeting specific apps.

Fu, however, doesn’t think so. He said in the interview that Google removed all of Cheetah’s apps because “Chinese companies are becoming less important to American companies.”

Some of Cheetah Mobile’s apps that run no ads, such as livestreaming platform LiveMe, were also taken down from the Play store, company CEO Fu told Chinese business news outlet Late Post in an interview.

Cheetah has been singled out by US politicians as a security threat. US Senator Mark Warner told BuzzFeed News in an interview in December 2018 that he was particularly concerned about the huge amount of user data that is collected from Americans by companies such as Cheetah Mobile and Kika Tech, another Chinese app developer that runs a popular keyboard app.

In February, Cheetah said it had contacted Google to appeal the ban. But the  effort didn’t pay off. The company said in a statement on Tuesday that Google had rejected its appeal.

“We are still in talks with Google [about restoring apps to the Play store], but it really depends on [Google’s] attitude. We can’t make any predictions,” Fu said during the call with analysts on Tuesday.

In addition to the app removal, Google also suspended Cheetah Mobile’s Google AdMob and Google Ad Manager accounts, meaning that the company is no longer able to earn income from Google’s mobile advertising platforms, including apps already downloaded to users’ phones.

Back to home market 

If Cheetah is going to survive, it’ll probably be as a Chinese company.

The removal from Google’s app store is likely to have the biggest effect on Cheetah Mobile’s overseas revenue from mobile games and utility apps because most of Google’s services are not accessible from China, including the Play store. The company relies on domestic app stores such as Xiaomi’s Mi App Store and Huawei’s AppGallery to distribute apps in China.

The company’s revenue from utility tools was RMB 298.6 million in Q4, accounting for 48.7% of its total revenue, while it earned RMB 285.1 million from mobile games, comprising 46.6% of revenue.

Overall, the company earned more than half of its total revenue from overseas markets during the quarter, or RMB 330 million.

The Google ban has forced the Chinese company to retreat to its home market. Fu told analysts during the earnings call that the company will pivot its utility tool business to focus on China. “China’s mobile internet market is big enough,” he said.

The company will find other partners in overseas markets to distribute its mobile games, said Fu, without providing detail.

UPDATE: The article has been updated to add a statement from the company responding to White Ops’s report provided after publication, and to, at the company’s request, change a metaphor used to describe Cheetah Mobile to “wounded gazelle.”

Short video app TikTok has formed a group of outside experts to advise on its content-moderation policies, it said on Wednesday, the latest in a series of steps it has taken to address data security and content censorship concerns in the US.

Why it matters: Content moderation has become an increasingly pressing problem for social media platforms including Twitter, Facebook, and Google’s YouTube. Coronavirus-related misinformation is rampant on the internet, meanwhile a US presidential election—perhaps ground zero for the phenomenon—approaches.

• TikTok, owned by Beijing-based startup Bytedance, is drawing particular scrutiny from US lawmakers concerned that the company may transfer personal data belonging to its US users to the Chinese government and censor content on the platform to please Beijing.

Details: The group, which the company calls a content advisory council, will provide “unvarnished views” and advice around its content-moderation policies and practices, TikTok said in a statement on Wednesday.

• The council chair is Dawn Nunziato, a professor at George Washington University Law School who specializes in the areas of internet law, free speech, and digital copyright.
• Other members include renowned “deep fake” expert, Hany Farid; Dan Schnur, a political strategist; a social worker who specializes in social media and mental health in youth; and a head of a technology think tank.
• “I am working with TikTok because they’ve shown that they take content moderation seriously, are open to feedback, and understand the importance of this area both for their community and for the future of healthy public discourse,” Nunziato said in the statement.
• The seven-member committee will meet at the end of March to discuss topics around platform integrity, including policies against misinformation and election interference, the company said.

“It’s clear that the social media sector has attracted a great deal of interest and potential regulatory oversight in recent years from a number of US government entities. I have been impressed by TikTok’s efforts to voluntarily address these types of concerns, not for the purpose of avoiding such scrutiny but in order to establish itself as a cooperative partner in an effort to achieve these goals for the benefit of consumers and society.”

—Dan Schnur in an email to TechNode

Context: TikTok announced last week it plans to open a content moderation transparency center in its US office to show outside experts how the app moderates content on the platform.

• The Guardian reported in September that TikTok instructs its moderators to censor videos that are deemed politically sensitive by the Chinese government, citing leaked documents detailing the platform’s guidelines. The company said in November that the guidelines were retired in May.
• A US national security panel launched in November a review of Bytedance’s $1 billion acquisition Musical.ly, the predecessor of TikTok, in 2017. Experts say the review may force Bytedance to sell TikTok back to a US company.

Updated to include comments from Dan Schnur.

Chinese gaming and entertainment giant Tencent reported fourth quarter revenues which exceeded expectations though profits fell short, and it categorized the hit that Covid-19 has dealt to its businesses as “short-term.”

Why it matters: Tencent renewed its commitment to broadening revenue streams beyond gaming and content to cloud services, digital lifestyle, remote work, and online healthcare in the report.

• It promised “a multi-year investment into short form video,” a territory dominated by Kuaishou and Bytedance’s Douyin.
• A strong performance in mini programs shows it will continue to compete with Alibaba and Meituan on digital lifestyle services.

Details: Tencent reported on Wednesday net income during the fourth quarter of RMB 21.6 billion ($3.1 billion) on revenue of RMB 105.8 billion, which rose 25% year on year. Profits, however, fell below consensus estimates. Cost of revenues increased by 23% compared with the same period a year earlier, a jump which Tencent attributes to higher content, fintech, and channel costs.

• Online game business grew 25% year on year to RMB 30.29 billion, driven by revenue growth in mobile games including “Peacekeeper Elite” and its overseas version, “PUBG Mobile.”
• International gaming revenue more than doubled on an annual basis, accounting for 23% of total gaming revenue. 
• Tencent is gaining traction in enterprise services. Fintech and Business Services revenues jumped 39% year on year to RMB 29.92 billion in Q4.
• Tencent Meeting, a video conferencing tool, exceeded 10 million DAUs within two months of its launch in December. James Mitchell, Tencent’s chief strategic officer said in an earnings call, “we’re very focused on market coverage and we’re not worried about the monetization yet.”
• Mini programs generated more than RMB 800 billion in transaction volume during 2019. Fresh fruit and vegetable providers saw a steep uptake in users. 
• Covid-19 has given Tencent an opportunity to burnish its corporate social responsibility credentials. It touted its health codes as the most used during the period, with 8 billion visits.
• During the outbreak, WeChat Pay’s revenue has taken a hit with Chinese consumers remaining at home and the shuttering of brick-and-mortar business. 

Context: Tencent took part in 108 deals last year, and its president Martin Lau said to a gathering of more than 500 Tencent-backed companies that the company would step up investment overseas and into smart retail and payment platforms.

• The company acknowledged that it faces a tougher macro environment amid uncertainties caused by the trade war between Beijing and Washington.
• During Q4, Bytedance and the NBA spat cut into its advertising revenue.
• Covid-19 has brought many businesses to a halt, but Tencent’s online offerings help it weather the fallout.

TikTok owner Bytedance announced Thursday a major leadership reshuffle with company founder and CEO Zhang Yiming shifting to take charge of the company’s overseas business.

Why it matters: Zhang’s direct takeover of Bytedance’s overseas operations indicates that the Beijing-based company is still vigorously expanding its presence in markets outside of China at an accelerating pace despite the increasing scrutiny its flagship TikTok app faces in the US.

Details: Zhang assumed the role of Bytedance’s global CEO and will focus on overseas markets, particularly in Europe and the US, he said in an internal letter sent to employees on Thursday as the company celebrates its eight-year anniversary.

• The company has appointed senior vice president Zhang Lidong as chairman for China. Kelly Zhang, former chief executive of Douyin, the Chinese version of TikTok, will take over as CEO for China. The two will be in charge of the company’s Chinese business, according to the letter.
• Zhang Yiming, the company founder, also revealed in the letter that the company’s global headcount now exceeds 60,000 and the number is expected to reach 100,000.
• Changes to some of the company’s product lines accompanied the reshuffle, Chinese business news outlet Latepost reported Friday.
• Zhang Nan, formerly the product manager of video-sharing app Xigua, will take over Feishu, the domestic version of Bytedance’s enterprise messaging app Lark, and report to Xie Xin, head of the company’s enterprise services division.
• Ren Lifeng, Douyin’s former operations manager, will take over Xigua, said the report, which added that the company is hiring a new operations manager for Douyin.

Context: Bytedance was founded in 2012 and was initially known as Jinri Toutiao, a popular news aggregator app. The company now has a lineup of popular products including TikTok, Douyin, and Lark, and has become the world’s most valuable startup with a valuation of $78 billion.

• In July, the company said its apps had 1.5 billion monthly active users globally as of end-June.
• Earlier this month, the company launched Resso, a music-streaming app, in India and Indonesia, making its maiden foray into the online music sector.

TikTok said Wednesday it plans to open a content moderation transparency center in its US office to address concerns over the security and privacy of its short video platform.

Why it matters: The Chinese-owned app faces increasing scrutiny from US lawmakers concerned about content censorship and the potential that personal information from its American users may be shared with the Chinese government.

• TikTok has seen massive growth and has become particularly popular among teens. The app, together with its Chinese version Douyin, was downloaded more than 738 million times in 2019, making it the second most-downloaded app in the world.
• The scrutiny it faces in the US bears similarities to what social app Grindr faced prior to its sale to US investors. Splitting TikTok off would deal a significant blow to parent company Bytedance’s valuation, the world’s most valuable startup, last valued at $78 billion in late 2018 according to marketing intelligence firm CB Insights.

Details: TikTok plans to set up a content moderation center in its Los Angeles office to show outside experts how the app moderates content on the platform, the company said in a statement Wednesday.

• Experts will be able to observe how the company’s content moderators review videos uploaded to the platforms and identify potential violations, as well as see how user complaints are handled, according to the statement.
• The center will open in early May. It will focus on TikTok’s content moderation in the initial phase and will be expanded to include insight into its source code, as well as efforts around data privacy and security, the company said.
• The company also announced that it has hired cybersecurity veteran Roland Cloutier as its chief information security officer who will join the company in April. Cloutier was the chief security officer at payroll-services firm ADP, according to his Linkedin profile.
• “Our landscape and industry is rapidly evolving, and we are aware that our systems, policies and practices are not flawless, which is why we are committed to constant improvement,” TikTok US General Manager Vanessa Pappas said in the statement.

Context: TikTok has stepped up efforts in recent months to address concerns over its alleged content censorship in the US and its ties to the Chinese government.

• The company released in December its first-ever transparency report, saying that it did not receive any requests in the first half of 2019 for user information from the Chinese government including law enforcement agencies.
• The Guardian reported in September that TikTok instructs its moderators to censor videos that are deemed politically sensitive by the Chinese government, citing leaked documents detailing the platform’s guidelines. The company said in November that the guidelines were retired in May.

Chinese online shoppers watching livestream e-commerce sessions purchased more expensive items compared with conventional e-commerce buyers, according to a recent report which assessed data during the Covid-19 outbreak. 

Why it matters: Livestream online buying is becoming an obsession for the quarantined millions in China, where sellers are finding real-time engagement an efficient, effective tool to push products.

• China’s online live-streaming industry boasted a user base of 504 million in 2019, a 10.6% year-on-year increase from a year earlier. It is estimated that the figure will reach 526 million in 2020, data (in Chinese) from Iimedia Research showed.
• For big-ticket purchases like real estate and cars, the offline experience is still essential. However, livestreams may prove useful as a channel to maintain ties with potential buyers.

Details: Buyers who purchase via livestreams on online marketplaces like Taobao and video platforms like Douyin are more likely to purchase higher-ticket items, particularly those priced higher than RMB 1,000, according to a Quest Mobile report published on Tuesday.

• A substantial 60% to 80% of the purchases made through livestreams on video platforms Douyin, Kuaishou, and Bilibili exceeded RMB 200 ($28) during the week of Feb. 17 to 23. More than 40% of these orders fell between RMB 200 to RMB 1,000 and an average between platforms of more than 20% exceeded RMB 1,000 in the same period, the report showed.
• Nearly 50% of orders through Alibaba’s livestreaming unit Taobao Live during the same time period fell between RMB 200 to RMB 1,000, while 37% of the orders exceeded RMB 1,000.
• The conversion rate for Taobao Live users was around 56% during the same week, higher than the 50% seen with regular buyers.
• Livestream business accounted for 28% of Douyin’s total traffic during the same week, up from 24% during the week of Jan. 6 to 12. Meanwhile, the proportion of livestream traffic on Kuaishou has remained stable at around 50% since the beginning of this year.
• Livestream user time spent on major platforms Douyin, Kuaishou, and Bilibili ranged from 120 to 190 minutes per day during the week of Feb. 17 to 23, far longer than 52 to 109 minutes for viewers of other video content.
• Unsurprisingly, Chinese netizens spent far more time in cyberspace while sequestered indoors. The average time spend online per day surged to 446 minutes during the week of Feb 17 to 23 from 367 minutes during Jan. 6 to 12, a 21.5% jump.

Context: Driven by the outbreak, livestreaming is rapidly expanding from standard categories such as cosmetics to new areas like cars, real estate, and more.

• Alibaba doubled down on livestream e-commerce in 2019 when it launched support plans for merchants and livestreamers.